smith & williamson annual report and accounts 2018 · annual report and accounts 2018 smith...

Annual Report and Accounts 2018Sm

ith & W

illiamson

Annual Reportand Accounts2018

Strategic report1 Introduction2 Chairman’s statement4 Past, present and future6 Client relationships8 Services we provide10 Business model12 Co-chief executives’ review16 Market review17 Enabling our strategy24 Key performance indicators26 Risk management30 Financial review36 Corporate responsibility

Governance41 Chairman's introduction 42 Board of directors46 Corporate governance report52 Audit and risk oversight committee report56 Nominations committee report58 Remuneration committee report62 Directors’ report

Financial statements65 Independent auditors’ report67 Consolidated financial statements72 Notes to the consolidated financial statements124 Company financial statements128 Notes to the company financial statements

Corporate information136 Company information136 Our offices

Highlights

Operating income

£266.7m +9.0%Adjusted operating profit1

£46.2m +13.8%Adjusted basic earnings per share1

68.7p +14.1%Returns to shareholders per share

36.0p +12.5%Funds under management and advice

£20.1bn +6.9%1. Adjusted operating profit and adjusted basic earnings

per share exclude amortisation of intangible assets – client relationships (note 11)

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overnanceFinancial statem

ents

As we build for growth, our future success is being driven by our people. They are being supported by investments in technology to deliver a broad and deep range of services to help clients navigate current and future needs.

TodayTomorrow

smithandwilliamson.com 1

CHAIRMAN’S STATEMENT

Strong performancefor future growth

OverviewSmith & Williamson’s performance over the last year was robust, with operating income increasing by 9.0% to £266.7 million (2017: £244.6 million) and adjusted operating profit1 by 13.8% to £46.2 million (2017: £40.6 million).

Funds under management and advice have increased 6.9% to £20.1 billion (2017: £18.8 billion), comparing favourably to the 2.9% increase in the MSCI WMA Balanced Index and the 4.2% increase in the FTSE 100 Index in the year. Funds under administration have grown by 27.2% to £11.7 billion (2017: £9.2 billion).

These results are particularly pleasing given some of the challenges we faced during the year, including the burden of preparing for significant regulatory change.

The breadth and depth of the services we provide for private clients and their business interests mark Smith & Williamson out from the rest of the market. While wealth managers offer some of the services we provide and accountants deliver others, we stand out by providing

Dividend The board is recommending a final dividend of 26.0 pence per ordinary share (2017: 22.0 pence) giving a total return to shareholders of 36.0 pence per ordinary share (2017: 32.0 pence).

The board intends to maintain a progressive dividend policy, distributing not less than 50% of post-tax profits over the economic cycle, subject to consideration of exceptional items, regulatory requirements and the need for reinvestment in the business.

Market environment Regulators are increasingly focusing on the need for greater transparency and lower costs for consumers in the financial services industry. We anticipate that this trend will be reinforced by technological change, facilitating greater competition from new entrants to the sector. These trends will offer opportunities to deliver improved client service, but may also reduce margins. At the same time, we will continue to see increased costs in preparation for and compliance with new regulations, as we have for MiFID II and the General Data Protection Regulation (GDPR).

World markets and economies also face a period of continuing political change and uncertainty, and the turn of the interest rate cycle after a prolonged period of very substantial monetary stimulus. These trends present potential risks and opportunities for our clients and their businesses.

Strategy Against the background of the market environment, our strategy will continue to focus on our core strengths – the breadth and depth of our services in our target market, and an absolute commitment to putting

“The breadth and depth of the services we provide for private clients and their business interests mark Smith & Williamson out from the rest of the market.”

Andrew SykesChairman

them all – in a personalised manner and via a single, senior point of contact. This is supported by our absolute commitment to serving clients and putting them first.

Our business results, industry awards and the results of our regular client surveys help to demonstrate that clients value our approach and recognise the quality of our services. This reinforces our ability to attract and retain partners and staff of the highest calibre.

We are always alert to acquisition opportunities, where we can strengthen our capabilities and our market position. During the year we held discussions with Rathbone Brothers Plc, who approached us to propose a possible merger of our two companies, with a view to creating a major independent force in the financial services market. As we reported in our most recent interim statement, we were unable to reach an agreement that was in the best interests of both parties and therefore agreed to terminate negotiations. We remain committed to our growth path as a strong independent firm. 1. Calculated on basis set out under key

performance indicators on page 24

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absolute certainty as to the time it will take to complete this investment programme.

We are also making changes to our business structure and governance, and enhancing the way in which we communicate with all stakeholders. Shareholders will note that this annual report contains more detail about our business model and strategy, and we have enhanced the level of disclosure accordingly. This reflects the start of a process to prepare for our transition to becoming a listed company.

Governance, board and cultureGood governance has always been a focus for the board, and we have adopted many of the elements of the Corporate Governance Code in the past. As we prepare for a possible listing, we will progressively incorporate more elements of the Code, taking into account the revisions on which the FRC has been consulting over recent months.

The management and governance structure of the group is also changing. In order to foster greater integration across our businesses, as part of our strategy, we have now created a single group executive committee, reporting to the main board. We have also engaged BP&E Global to assist us with an evaluation of the effectiveness of the group board, and this process will both reinforce and inform our thinking around our new internal governance structure. I will report on the results of this evaluation in our interim statement.

Following the retirement of Bob Bogart last year, AGF Management nominated Andrew Fisher to succeed him. Andrew’s career as a very experienced senior executive and non-executive in the financial services industry reinforces the breadth of knowledge on our board, and we were pleased to welcome

him. I would also like to reiterate my thanks to Bob Bogart for his contribution during his five years as a non-executive director.

One important focus for the board has always been the culture of the group. Regardless of internal changes and the vagaries of the market environment, it remains essential that our focus on putting clients first is unwavering, and we applaud the focus from regulators on this very important area. Through internal meetings and discussions with colleagues, staff and client surveys and other initiatives, we monitor the health of our culture continuously and will continue to foster it for the benefit of all our stakeholders.

Our peopleI would like to thank our colleagues for their exceptional contribution and very hard work in a particularly challenging year. As we plan for the future, we remain committed to remuneration structures which encourage and enable our colleagues to build an equity stake in our business, in order to align the interests of all our stakeholders.

OutlookNotwithstanding uncertainties in markets, and the potential challenges of increased regulation and competition, I believe that the group’s business model and commitment to client care position us well in today’s environment. I would like to take this opportunity to express my thanks and appreciation to all our clients for choosing Smith & Williamson and trusting us with their investment and critical business needs.


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clients first. We also recognise the need for scale, in order to continue to provide the best quality of service at a competitive cost and meet our objective of remaining at the forefront of the private client market.

We have focused therefore on three key areas: developing our people, ensuring that we deliver our services in a more integrated way across the whole group and investing in technology. We have set appropriately demanding targets for organic growth, while also seeking to take advantage of opportunities for acquisitions which will arise in an industry going through a phase of consolidation. Our recruitment of new partners and staff and our potential acquisitions will, as always, be critically dependent on identifying candidates and organisations who share our client-centric approach and culture.

Our strategy and business targets are described in greater detail in the co-chief executives’ review from page 12 and strategy report from page 17.

Potential listing of sharesWhile we have a strong balance sheet, we have limited access to outside capital to finance potential acquisitions of more than a modest size, and we are also subject to annual regulatory approval for any purchases of shares from selling shareholders in our semi-annual share sale windows.

In order to place the group in the best position to execute our longer-term growth strategy, and to provide a more robust and liquid market in our shares, we have already announced our intention to prepare for a potential stock market listing. This will not take place until we have completed our major investment in new technology platforms, and these are unlikely to be complete before the second half of 2019. Inevitably, there can be no


PAST, PRESENT AND FUTURE

Continued growth recognition

We are a business run for our clients and owned by our people. Client interests remain at the heart of what we do and how we do it. That’s why we provide personalised solutions to help solve the most complex problems and maximise financial potential.

Our business has evolved successfully. As markets have shifted and adapted we have kept pace. Today, we are in a position of strength and see great potential to grow further and faster.

2005S&W in the

‘top ten’ of the UK accountancy

profession

1982Smith & Williamson

unit trusts established

1993Centenary of London

office opening. 76 partners and

directors with over 400 staff

2002Acquisition of NCL Investments,

a private client stockbroker, with £3bn funds under

management and advice

1881David Johnstone Smith

takes Andrew Williamson into Partnership

in Glasgow


returns to Glasgow, after 30 years, with investment

management services

2007Investment

management services added to

Bristol office

2005Merger with Bristol

based accounting and financial advisory firm

Solomon Hare


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2010 2011 2012 2013 2014 2015 2016 2017 2018

167.7 170.4 179.1 185.8 199.1 215.1 222.5 244.6 266.7

10.5 12.0 12.1 14.2 15.0 16.3 16.0 18.8 20.1

1,449 1,391 1,379 1,432 1,406 1,452 1,553 1,642 1,722

2018Funds under

management and advice exceeds £20bn

A foundation for future growth

Group operating income (£m)

Funds under management and advice (£bn)

Group staff numbers – average full-time equivalent

Industry recognition 2017-18

We’re proud winners of many awards. Our values and the way we work at Smith & Williamson strike a chord with

our clients and industry peers, demonstrated by the multiple accolades we have collected.

2017Funds under

administration reaches £10bn during year

2018London office grown

to 192 partners and directors, and 700 staff


International established, based from Jersey office

2008Investment management offering achieves national

reach with opening of Birmingham office

2011BTG Tax LLP acquisition

adds personal and business tax teams to

Birmingham office


CLIENT RELATIONSHIPS

Supporting ourclients to develop grow

We have proudly served our clients for over a century, offering a wide range of integrated services. We solve complex problems by understanding individual circumstances throughout personal and business lifecycles.

We are driven by our clients’ success, developing long-term relationships and achieving high levels of client satisfaction.

We specialise in growing and preserving wealth through our tailored and client-centric approach to ensure our clients make the most of their investments.

Solutions include:• Bespoke investment

management

• Personal financial planning

• Tax advice

Whether starting out for the first time or an established entrepreneur, our experts help clients set the foundations and strategy for growth.

Solutions include:

• Strategic and structural advice

• Outsourced finance function

• Tax support and planning

• Employee incentives

Growing wealth

Supporting entrepreneurship


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It is never too early to start looking to the future so we help clients to navigate today’s regulation and financial markets to build wealth for tomorrow.

Solutions include:• Tax efficient investing

• Retirement planning

• Strategic advice

As life takes its different courses, we help our clients with a range of services to navigate unpredictable and changing circumstances and, ultimately, support them when they need it most.

Solutions include:• Exiting a business

• Managing divorce settlements

• Education fees planning

• Later life care planning

• Power of attorney support

Whether it is passing wealth on to loved ones or supporting others that are close to our clients’ hearts, we help to ensure the sustainability of the next generation’s finances.

Solutions include:• Tax planning

• Charitable giving

• Trusts and estate planning

As businesses mature, we offer a range of services to continue growth, raise new capital and open up new opportunities.

Solutions include:• Succession planning

• International expansion

• MBO/MBI support

• Trade sale advice

• IPO support

• Financial planning following exit

‘Scale-up’ businesses are widely seen as a key growth engine of the UK economy.

We help clients manage challenges to build and grow faster.

Supporting clients throughout life’s changes to maximise their

financial potential.

Planning for the future

Changing circumstances

Leaving a legacy

Enhancing established businesses

Driving through scale-up

grow

Solutions include:• Assurance and accounting

• Tax support and planning

• Valuations

• Acquisition and funding support

• Management and incentive schemes


SERVICES WE PROVIDE

Unparalleledbreadth depth

We offer a greater range of personal and business services to support private clients and their business interests than any other UK firm in our market. In so doing, we bring to bear the knowledge and expertise of more than 1,400 people dedicated to their delivery. It is our ability, however, to combine solutions through an integrated proposition and single, senior point of contact which sets our business apart.

Working with:

Individuals and families

Businesses and their owners

Professional advisers and trustees

1

2

3

Business and private client tax

Forensic services

Restructuring and recovery services

Assurance and business services

Pensions and employee benefits

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Corporate finance

Managed portfolio service

Equity and fixed income funds

Investment management

Personal financial planning

Fund administration

Private banking

Sizing indicative of headcount dedicated to business area.


Client focusedcreating value

BUSINESS MODEL

Resources used to create value

PeopleWe are committed to ensuring our people have the resources they need to deliver a personalised, integrated service within a client focused environment. Their continued development and our ability to attract and retain the best people is at the forefront of the people programmes we have in place and are enhancing.

FinanceOur business model is underpinned by a strong balance sheet to support the realisation of our strategy. A potential stock market listing could enhance our ability to undertake inorganic growth.

TechnologyWe are continuing our multi-year investment programme to upgrade our technology to deliver ‘future fit’ digital capability and ability to scale. This is a key enabler to improving client service and providing our people with more time to focus on client relationships.

How we deliver our services

Trusted deliveryWe have high-quality people, with in-depth knowledge and broad technical expertise who are focused on what clients need most, when they need it.

Personal engagementWe always give our clients a single, senior point of contact, providing a relationship-led service. We encourage our people to develop close and long-lasting relationships.

Integrated breadth and depth

of personal and business services

Client focused


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Our impact for stakeholders

Shareholder returnsWe engage with shareholders on a regular basis to ensure they understand our business model and strategic direction. Our model has continued to deliver strong returns for them.

16primary charities supported in 2017/18

25%reduction in C02 since 2015/16

12.5%total dividend growth year-on-year

14.1%adjusted basic earnings per share growth year-on-year

ClientsOur approach to working with our clients means our people spend more time developing strong relationships, built on trust and understanding. Client solutions are created to solve complex issues whether personal or business.

77%overall March 2018 staff engagement score

12.9% our annual staff turnover rate 2017/18

PeopleWe invest in attracting, developing and retaining the best talent to give our clients access to a broad range of expertise. Our people are engaged in their roles and put clients at the forefront of everything we do.

99%would recommend, or have recommended, us to a friend or relative1

92%thought our people were excellent or above average at meeting their objectives1

1. Investment management client satisfaction surveys between November 2015 and September 2017

Communities and environmentWe proactively manage the impact of our business on all internal and external stakeholders, particularly the communities and environment in which we operate. We do this by continuously exploring ways in which we can make a positive difference and involve our people as much as possible to do so.

Deep understandingWe put our clients first and take the time to understand their individual circumstances.

Personalised solutionsOur people provide solutions to meet our clients’ individual requirements.


CO-CHIEF EXECUTIVES’ REVIEW

Kevin StoppsCo-chief executive

David CobbCo-chief executive

Togetherstrategydelivering our


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Group performance We report on another year of solid progress, with operating income growing substantially through the £250 million mark to £266.7 million (2017: £244.6 million), an increase of 9.0% and assets under management exceeding £20 billion for the first time.

Our operating profit increased 15.3% to £45.2 million (2017: £39.2 million). Operating income grew across a healthy mix of different income streams, due to increasing client numbers and greater engagement with existing clients. Adjusted operating profit, one of the group’s key performance indicators (see page 24), increased by 13.8% to £46.2 million (2017: £40.6 million).

This increase in profitability was achieved in a year during which we also continued to make material investments in our people and technology (see page 30 for full details of our financial performance). These investments will strengthen systems and processes to deliver further on our client service proposition and ensure that we stay in line with developing regulation across our different business lines. As the group continues to grow, we continue to invest in a change management function alongside compliance and risk management capabilities, further embedding our risk management framework.

We are therefore confident that appropriate controls are in place to safeguard the business and its operations for the foreseeable future.

We have also seen a marked growth in our balance sheet. Towards the end of the financial year we moved the vast majority of uninvested client cash that was previously held as client monies with clearing banks, onto our own balance sheet. Moving client monies will improve the client experience, in response to client feedback, and simplify the delivery of our core private client investment management services. This will also aid migration to new IT systems in due course. Our balance sheet is managed in line with the prudent approach we take with respect to capital and liquidity.

In the face of continuing economic and political uncertainties, our performance once again demonstrated the value of our business model and the strength of our client relationships. In particular, it underlined the importance of our client-centric approach, through which dedicated and committed individuals deliver high-quality advice to private clients and their business interests. In so doing, we are able to remain at the forefront of the market.

Our business The integrated breadth and depth of services we deliver means we can work alongside our clients as their personal lives and business lifecycles progress. As their needs change, so does our relationship with them. As younger adults they might have a particular interest in pension provision, start-up and scale-up advice. As their careers progress and their businesses build, this can broaden out to a wider range of tax, investment and assurance advice. Looking ahead the focus might shift to tax advisory issues and how to leave their assets to the next generation.

We need to provide the highest levels of client satisfaction at all times to maintain client retention rates. To achieve this, we place the client at the absolute centre of our attention, delivering one or any combination of interwoven service lines. Services are delivered and relationships managed by a single, senior point of contact. We know from regular client surveys that our clients value this approach.

While technological developments are reducing barriers to entry in the market, it is our ability to look after the financial affairs of private clients and their business interests in a personalised manner which will continue to ensure we have a market leading proposition.

“We are well positioned to continue growing through a client-centric approach, made possible by the commitment of our people and the loyalty of our clients.”

strategy


Strategic update A key strength of the business has always been forging and embedding relationships. We believe our strategy, focused on developing our people, delivering integrated services and enhancing technology, will help us grow and improve from an existing position of strength. It allows us to increase our profitability by serving our existing clients even better and more efficiently than ever before, but also enables us to attract new clients.

We are confident that our strategy gives us a much more detailed and articulated blueprint than we have ever had. It will enable us to execute our plans in a more considered and focused way, based on achieving a tighter set of more robust and measurable objectives.

To make it easier for clients to access the mix of services they need, we are in the process of restructuring the business by bringing our divisions together under a unified management structure. Our new governance arrangements are designed to ensure that all our operations work seamlessly together and are available as and when clients wish to utilise them.

As noted above, there are three pillars to our updated strategy. The first is to develop our people. When formulating the strategy, it was vital we engaged with and involved middle and senior managers across the group. Without this, we do not believe we would have been able to create the level of ownership and accountability we have, for the strategy, within the business.

This is particularly important as we move towards a remuneration strategy based on a balanced scorecard approach and the overall contribution individuals make across the group. We believe that this

will help ensure our clients are better able to access the full breadth of our offering at the appropriate time. It will also enable our colleagues to build a material stake in the business.

In terms of recruitment, we have just enjoyed a successful year during which we saw a net increase in 80 individuals joining us. We are determined to continue recruiting like-minded, talented people to whom our culture will appeal.

Leadership development and succession planning are other vital aspects of our people approach, giving us the resilience needed to carry Smith & Williamson through future generations and economic cycles.

The second pillar is working in unison. This is all about ensuring the seamless delivery of services across the spectrum of our offering according to client needs. To do so, we have made and will continue

to make changes such as the new governance structure and enhanced technology.

Clear and regular communication is also a fundamental aspect of this approach, ensuring that clients understand at all times how our service offering, the depth of our relationships, and our client-centric culture differentiate us from our competitors. For a detailed explanation of our strategy, see pages 17 to 23.

Finally, we are investing significantly in technology, leveraging systems to ensure the experience we provide our clients is even better. As we previously reported, a major programme to replace our core systems is underway, which will enable us to deliver existing and new services through a broad range of channels to make it easier and more convenient for clients to communicate with us. We will continue to invest in this area over the course of our plan.

CO-CHIEF EXECUTIVES’ REVIEW CONTINUED

Developing our people

Enhancing our technology

See pages 17 to 23 for a detailed explanation of our strategy.

Working in unison


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Organic and inorganic growth We observe ongoing consolidation in our markets, and are interested in making the right type of bolt-on acquisitions in order to accelerate our growth plans. We also see opportunities to broaden out our offering in regional offices. However, we will continue to be discerning when growing through recruitment and acquisition, as we refuse to dilute the quality of our business or our people.

Group challenges and markets for our servicesThe key markets that we serve remain very competitive. We see more new work won through tender processes across the business which inevitably places pressure on the margins that we can earn. While demand for the services offered by the group continues to grow, the relatively subdued level of growth in the wider economy has limited the level of corporate activity. This does drive demand for many of the services on the transactional side of our business.

We believe we are well protected against two of the most significant challenges that face many companies in our sector. As a largely UK-focused firm, for example, we are cushioned from most of the uncertainties and possible direct impacts arising from Brexit during this financial year and the one ahead.

So far as our assurance services are concerned, as our core focus is not on FTSE 350 companies, the impact of any regulatory changes in this part of the market should not affect us as much as it will our competitors.

That said, preparations for MiFID II implementation at the beginning of 2018 and the introduction of GDPR legislation in May 2018 have been costly and time consuming, and the financial burden of regulation is likely to continue to grow. These developments are not unique to us, and given our reach and scale we continue to make the required investment, while continuing to grow our profits.

We are also moving into riskier times, and are aiming to strengthen our ability to manage and mitigate risk by continuing to embed the risk management framework into our business as a fundamental part of our strategy.

Outlook Clients and other observers will continue to recognise us as an employer with long serving, client-centric people meeting the needs of private clients and their business interests. This reflects our view that if you have the right people, your business will do well.

“A key strength of the business has always been forging and embedding relationships, and we believe that our strategy will help us grow and improve from an existing position of strength.”

Our stakeholders will see us continue to build our infrastructure to support an enhanced, personalised, digital delivery. They will see a wider range and more visibility of services and gain a better understanding of our proposition. They will also see a higher profile for the firm as a whole as we invest more heavily in marketing across the group.

We are therefore well positioned to continue growing through a client-centric approach, made possible by the commitment of our people and the loyalty of our clients.



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MARKET REVIEW

Regulatory environment

The regulatory environment in which the group operates continues to evolve. The key themes the industry is responding to are:

• MiFID II

• General Data Protection Regulation (GDPR)

• Senior Managers Regime (SMR)

• Brexit

What has changed

MiFID II and PRIIPs arrived in January 2018, closing the EU cycle of regulatory reform initiated after the 2007/8 crisis. Although the rules now apply, the industry is still grappling with interpretation.

The introduction of GDPR on 25 May 2018 will impact the way in which data is held and processed in order to give individuals greater control over their personal data.

The second phase of the FCA’s regime for senior manager accountability, the SMR, is due for implementation in 2019-20.

The UK Government’s plans for Brexit continue to evolve. We are still some way from a clear picture of how the UK will interact with our European colleagues and EU institutions once we have left the EU.

How we are responding

We welcome a robust regulatory environment which echoes our long held values of integrity and client care. Our MiFID II change programme was delivered in January 2018 and has resulted in additional headcount to

provide the appropriate level of monitoring. Further work seeking to deploy technology to reduce costs will continue.

Our GDPR programme has resulted in systems and control changes to enhance compliance.

The group implemented the SMR in 2016 for its banking subsidiary, Smith & Williamson Investment Services Limited. The project to extend the SMR to all regulated firms within the group has already started and is able to build upon this work.

Summary advice of potential consequences of Brexit has been developed within the group and we will continue to monitor and respond as the UK Government’s negotiations progress. A significant transition period would appear both likely and desirable. Our Irish businesses, both north and south of the border, are likely to see the most impact.

Delivering ‘future fit’ technology and systems is a theme underpinning many of the business ambitions set out in our updated strategy.

What has changed

Financial and professional firms that fail to modernise and invest in their technology systems risk losing business and will struggle to compete and prosper in an ever more competitive marketplace.


We have completed most of the migration to a modern, cloud-based infrastructure. This enhances our capability to improve the client experience. The next phase of our investment programme will focus on the move to new operating systems for our major businesses.

In addition to the traditional areas of IT, our updated strategy addresses data governance, digital enhancement and business process improvement to help with the delivery of our key goals.

The increasing costs and constraints of the regulatory environment, combined with pressure on margins from competition and technology change, is driving further consolidation.

What has changed

The market remains highly fragmented. This presents great potential for us to leverage our market position and scale by pursuing opportunities to augment the existing business via inorganic growth.


We believe we are better placed than ever to pursue selective opportunities for bolt-on acquisitions and to grow the business inorganically. Our strategy supports a more proactive and focused inorganic growth agenda than ever before. A potential stock market listing could provide us with greater flexibility in pursuing further inorganic growth opportunities.

Technology

Consolidation and scale

dynamicmarketplace

A

Our view of the market we operate in


ENABLING OUR STRATEGY

profitable growthA strategy to drive

Working in unison

Developing our people

Enhancing our technology

Building for tomorrowWe are well placed to help clients fulfil their financial potential –

both personal and business. Our growth strategy will enable our people to utilise modern technology and deliver a more comprehensive breadth and depth

of joined-up services, when and where it is most appropriate for our clients.

We have proudly served our clients for more than a century. Our five-year, client-focused strategy will help us continue to meet the opportunities and challenges of our market for many years to come. By ensuring high levels of client satisfaction, it will enable us to deliver significant growth in revenue,

assets under management and profitability.

Governance

Financial statements


Strategic report


expertiseQuality

Developing our people to realise their potential

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Developing our peopleOur people are at the heart of our relationship-led approach to putting clients first. They sustain our ability to continue providing a broad range of services. Our strategy is designed to attract, retain and develop the best talent, giving our clients access to high-quality people who are focused on delivering what they need most, when they need it.

AttractWe continue to attract able and talented people. The business has grown to 1,722 people through the net recruitment of 80 new people including seven partners over the last year. To ensure we maintain a strong talent pipeline, we have well established graduate, apprenticeship and intern programmes.

As an equal opportunities employer, we ensure that all job applicants are treated fairly and on merit. We believe that diversity of ability and ideas is vital to delivering a positive work environment and delivering excellent client service.

DevelopWe are committed to ensuring our employees and partners at all levels of the firm reach their full potential, equipping them with the development and training opportunities they need to optimise their personal and technical skills. A key focus is on developing management skills via training programmes, coaching and mentoring.

EngageHaving effective engagement with our people is crucial to our continuing success. We communicate regularly on matters affecting employees and partners, encouraging feedback and engagement in shaping and delivering change across the business. During the year, we enhanced our internal communications and introduced new employee portals on our intranet, to improve staff cascades and gain valuable feedback.

Our March 2018 staff survey achieved an overall engagement score of 77%, which is above the industry benchmarks for both financial and professional services.

The results demonstrate that our people are engaged in their roles and that they believe we put clients at the forefront of everything we do. Our survey shows that 81% of respondents understand the aims of our recently-launched updated strategy, 74% of respondents believe we are doing the right things to be successful as a firm and 72% say they receive the training and development they need to carry out their role effectively. We are committed to continuing to generate further improvements.

RetainOur overall staff turnover rate of 12.9% reflects our commitment to providing a fulfilling and rewarding work environment.

We recognise the important benefits that an appropriate work-life balance can have for the health and welfare of individuals and the business alike. This recognition is reflected in our retention rates.

We also believe our employees and partners should have a real stake in the long-term success of the business, which ensures the continuity that preserves relationships with our clients. To make sure our people are engaged and aligned with our strategic aims and the interests of all stakeholders, we encourage employees and partners to participate in our Sharesave Scheme and Matching Share Plans. Equity ownership across all levels of our business of 36.1% has increased by 1.6% over the last year.

RewardProviding competitive remuneration that reflects individual and firm performance as a whole is an important aspect of our work to retain the best talent. We regularly review our comprehensive remuneration package, including appropriate equity incentives, to ensure it remains competitive within the market. We continue to develop our reward structure to support our strategic objectives and to incentivise appropriate conduct and behaviours alongside financial performance. The alignment between performance and reward is being strengthened further by introducing a balanced scorecard.

This supports a balanced approach to growing the business profitably and sustainably. Encouraging the longevity of client relationships while retaining and developing talented people is key to our long-term success.

Future focus• Continue to attract and

retain top quality people with a strong cultural fit

• Seek to increase employee and partner equity ownership

• Enhance talent and leadership development programmes

• Maintain and build high levels of staff engagement

• Further align remuneration and balanced scorecard with strategic objectives


Working in unison today to deliver growth tomorrow

depthStrength


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Working in unisonOur strategy is focused on ensuring our services are delivered, communicated and integrated in a way that adds value to clients. This will be enhanced by our technology investment programme.

GovernanceWe are in the process of restructuring the governance arrangements across the group. These structural changes will deliver more expedient decision making and better reflect the way we serve clients. They include the creation of a single group executive committee to undertake the executive management of the business, operational infrastructure and resources of the whole firm. This will provide clear management accountability for performance. Membership of this committee will be drawn from across the group and it will report to the boards of our main trading entities. The committee will be supported by two operating committees, thereby replacing the subsidiary board structure which previously ran the two group divisions separately. Further details on governance arrangements can be found in the governance report from page 40.

Business process improvementWe are using the tools and technology from our multi-year programme to improve our internal business processes thereby optimising the efficiency of our operations. The application of new technology across the business will enable our people to work more efficiently and collaboratively, supported by greater customer insight, to better serve our clients. As we increasingly apply this technology across our business, we will improve risk management in areas such as data protection and information security. This will also reduce manual processing and enable us to spend more time engaging with clients.

Leveraging digitalWe are further developing a digital strategy, with user experience at the core. This strategy will improve our clients’ ability to communicate with us and our ability to interact internally across service lines. It will enhance our client communication, enabling us to build greater understanding of how our service offering can add value.

Unified communicationsWhile we have a strong brand reputation, we recognise that in order to support our growth aspirations we must broaden and strengthen efforts to create greater market awareness. We have adopted a new, unified approach to advertising and PR. This led to a new national print and digital campaign being launched in March 2018. We have also developed two headline marketing campaigns to support both our business and personal propositions respectively, as well as a corporate sponsorship programme.

Client care programmeWe enjoy high levels of client satisfaction but continue to strive to improve. We are therefore reviewing the way we currently gather and utilise client feedback across all business areas. The result will be the re-launch of our client care programme to ensure the valuable client feedback and insight gained effectively translates to changes in the way we interact with clients.

Future focus• Embed planned changes

in our governance model to ensure senior management remain effective and are focused on driving and managing business performance

• Implement business process improvements to streamline the business

• Maximise the opportunities to leverage the digital capability of the business

• Ensure the effective integration of any acquisitions

Inorganic growthOur strategy recognises that we need greater scale to meet our ambitions of becoming more effective, efficient and successful. As our market continues to experience further consolidation, we have and will explore proactive opportunities to acquire ‘bolt-on’ businesses and hire people with a client-focused culture that complements ours. Effectively integrating any acquisition is key to success. Making sure that we fully integrate people into our collaborative culture is a priority.



optimisationEfficiency

Building technologies to support the future


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Enhancing our technologyWe have embarked on a significant multi-year programme to transform our IT infrastructure and systems that will remove any reliance on legacy systems. Delivering a ‘future fit’ technology landscape that enables our strategic ambitions to be realised is a key part of our strategy.

We are in the process of replacing our legacy client relationship management system with a new cloud-based solution. This will enable us to provide the business with enhanced marketing and business-development capabilities. It will also support more personalised communications and greater visibility around client and prospect relationships.

We will have a platform that optimises our operations and delivers deeper client insights, enabling us to leverage and drive our digital agenda to support tomorrow’s business.

IT operating modelOur move from a largely in-house developed suite of applications to an ‘off the shelf’ package environment has also led to an updated IT operating model.

We continue to maintain a motivated, skilled, customer-centric IT function that is business literate, co-located and appropriately structured. This will adapt and evolve further as we complete implementation over the years to come.

Controlled environmentIn addition to the traditional areas of IT in our updated strategy, we are continually reviewing our robust IT controls in key areas such as data governance, data loss, fraud, cyber-attack and business continuity. This ensures controls meet the standards that our clients, regulators and other stakeholders expect of us.

Future focus• Continue implementing the

replacement of our core systems in investment management services

• Deliver the practice management system

• Build and implement new client relationship management system

• Evolve the IT operating model and control environment in line with the changing technology landscape and regulatory requirements

IT infrastructureDuring the year we created, delivered and moved all our people onto a modern cloud-based infrastructure, enabling them to serve clients irrespective of where they are working. This involved the provision of new end-user devices and migration to a new data centre.

Core systemsWe are currently undertaking the largest IT programme in the organisation’s history, to replace, refresh and modernise the technical infrastructure, systems and business processes supporting investment management services.

This will replace our existing legacy core systems and help us deliver more effectively the services our clients value. By reducing the amount of time our people spend on administration, we can increase the time they spend on adding value to our client relationships. We are due to complete initial implementation during the second half of 2019, with phases of further enhancement to follow.

In parallel, we are also introducing a new practice management system, which will provide a single modern interface to support our professional services businesses. This will significantly reduce workloads through enhanced client on-boarding, assignment management and reporting. It will also allow us to optimise how we deploy our people. We expect to have this in place during the second half of 2019.


KEY PERFORMANCE INDICATORS

Measuring our performance

DescriptionThe value of annual net inflows from the private client investment management business as a percentage of opening funds under management and advice.

PerformanceGrowth was driven by greater net inflows which were £120 million higher than prior year.

DescriptionTotal funds under management and advice at the end of the year.

PerformanceFUM increased by 6.9% compared to the FTSE 100 and the MSCI WMA Balanced Index, which increased by 4.2% and 2.9% respectively.

Funds under management and advice

Net organic growth rates

14 15 16 17 18

15.0 16.3 16.0 18.8 20.1

£bn

14 15 16 17 18

3.3 0.8 2.3 2.5 2.8

(%)

Operating income Adjusted operating profit

DescriptionTotal annual income from all operating activities.

PerformanceOperating income grew by 9.0%, driven by higher market levels, increased trading volumes and growth in transactional services.

DescriptionTotal operating profit before amortisation of intangible assets – client relationships.

PerformanceAdjusted operating profit increased by £5.6 million primarily due to growth in operating income.

14 15 16 17 18

199.1 215.1 222.5 244.6 266.7

£m

14 15 16 17 18

36.0 41.1 36.0 40.6 46.2

£m

PROFITABILITY AND GROWTH

Staff cost ratio

DescriptionStaff costs as a percentage of operating income.

PerformanceThe staff cost ratio decreased from 61.3% to 59.1% as a result of operating income growth.

14 15 16 17 18

61.8 61.0 63.1 61.3 59.1

(%)

Staff turnover ratio

DescriptionStaff who have left during the year as a percentage of average headcount.

PerformanceStaff turnover was 12.9%, broadly in line with prior year.

14 15 16 17 18

12.2 13.4 12.9 12.7 12.9

(%)

Staff numbers

DescriptionTotal average of full-time equivalent staff (including executive directors and partners) during the year.

PerformanceStaff numbers increased to support business growth and continued investment in IT infrastructure and systems.

14 15 16 17 18

1,406 1,452 1,553 1,642 1,722

PEOPLE

1 2 4 5

5 6


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Principal risks

For further details see pages 28 and 29.

Business risk

Financial risk

Liquidity risk

Market risk

Operational risk

People risk

Reputational & regulatory risk

CAPITAL MANAGEMENT AND LIQUIDITY

DescriptionTotal annual dividend per share (interim and final).

PerformanceThe total dividend per share increased by 12.5% to 36.0p per share, in line with dividend policy.

DescriptionAdjusted profit after tax divided by the weighted average number of ordinary shares.

PerformanceThe increase in adjusted basic earnings per share of 14.1% is driven by higher profit after tax of 14.9%.

Dividend to shareholders for the year

Adjusted basic earnings per share

14 15 16 17 18

26.0 29.0 29.0 32.0 36.0

Pence per share

14 15 16 17 18

53.2 61.1 51.9 60.2 68.7

Pence per share

Share price at 30 April

DescriptionThe company’s share price at the end of the year, as determined by the board based on the recommendations of our appointed investment bankers.

PerformanceThe increase in share price by 36.5% to £8.30 per share reflects a combination of higher market levels and relative business performance against competitors.

14 15 16 17 18

5.24 5.37 5.44 6.08 8.30

£ per share

Adjusted operating profit margin

DescriptionAdjusted operating profit as a percentage of operating income.

PerformanceAdjusted operating profit margin has increased by 0.7%, as a result of higher income.

14 15 16 17 18

18.1 19.1 16.2 16.6 17.3

(%)

Key performance indicators are monitored across four key areas and are used to measure the progress and success of our strategy.

Liquid asset buffer ratio

DescriptionHigh quality liquid assets held in reserve at the Bank of England as a percentage of liabilities – customer sterling deposits.

PerformanceThe ratio improved as a result of client money brought on balance sheet and deposited with the Bank of England.

14 15 16 17 18

53.8 49.4 43.7 40.3 81.5

(%)

Common equity tier 1 capital ratio1

DescriptionCommon equity tier 1 capital as a percentage of total risk weighted assets.

PerformanceThe ratio increased from 24.9% to 25.0% due to an increase in profits during the year1.

1 Includes full year audited profit

14 15 16 17 18

27.3 26.0 27.2 24.9 25.0

(%)

RETURNS TO SHAREHOLDERS 1 2 4 5

2 43 7


RISK MANAGEMENT

Risk management frameworkThe objectives of the risk management framework are to:

• align our business strategy and risk appetite

• pursue business objectives through the transparent identification and management of risk

• prioritise and select optimal business opportunities (i.e. those with a good risk/reward balance)

• inform and enhance risk-response decisions

• identify and manage transversal/cross-firm risks

• ensure a continuation of our culture of integrity, ethical values and competence

• ensure continuity of an overall ‘risk-conscious’ organisation

• ensure compliance with existing and emerging relevant regulation.

The risk management framework supports these objectives by establishing processes to:

• ensure there is an appropriate governance structure in place to identify and manage risks that provides the group with a level of risk assurance

• produce a comprehensive and accurate view of the risk profile, at an appropriate level of materiality, to inform the decision-making process and risk-taking

• provide management information on material risks which lie outside risk appetite, and on those volatile risks that require close management and monitoring.

A balanced approach to risk

Risk management framework (RMF)

Risk identification

Assess controls

Risk analysis

Risk appetite

Reporting

Additional actions

OVERSIGHT(Governance)

Boards and committees

Roles and delegated authorities

Policies

INSIGHT(Management information)

Errors, breaches, near misses and complaints

PAST

Risk profiles and quantifications

PRESENT

Predictor events

FUTURE

Systems and tools

Communication, education, training and guidance

Risk management methodology

The purpose of risk management is to identify, quantify and manage those risks that are inherent in the group’s business activities, in line with the board’s strategic objectives and risk appetite. In recent years, the group has made significant investment in its risk management and compliance capabilities to embed the risk management framework further.

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Risk management methodologyThe risk management methodology within the risk management framework consists of the following six interlinked steps:

Risk identification – this takes place through regular business monitoring and periodic reviews including risk-mapping exercises and internal audit reviews.

Risk appetite – once we have identified risks, we set an appetite for each material risk. This defines the amount of risk that the relevant board is prepared to accept in order to deliver its business objectives. Risk appetite reflects culture, strategic goals and the existing operating and control environment. The group’s risk appetite framework is illustrated below.

Risk analysis – having set the risk appetite, we can analyse each material risk to determine its probability and how its financial, reputational, operational and client impacts relate to that appetite. This can include the quantification of capital risk as part of the Internal Capital Adequacy Assessment Process (ICAAP).

Assess controls – we also assess the effectiveness of controls in reducing the probability of a risk occurring or, should it materialise, in mitigating its impact.

Additional actions – where differences exist between our risk appetite and the current residual risk profile, we take action either: to accept, avoid or transfer part or all of those risks which are outside our risk appetite; or to reconsider the risk appetite.

Reporting – ongoing reporting of risks to senior management provides insight to inform decision making and help them allocate resources to achieve business objectives.

Business Client service Financial Operational People Reputational

& regulatory

Key indicators

Risk appetite framework

Risk appetite statements

Credit, market, operational & liquidity

Key risks by legal entities

Top downrisk appetite(group level)

Risk arearisk appetite(ensures alignment of group level & business level)

Bottom uprisk appetite(business level)


Principal risks

RISK MANAGEMENT CONTINUED

Group level Risk Definition Key mitigating controls

Credit The risk of loss arising from a customer or counterparty failing to meet their financial obligations to a S&W entity as and when they fall due.

• Smith & Williamson Investment Services Limited executive committee oversight

• Review of management information framework and resulting actions

• Regular review of lending policy and limits• Counterparty reviews and due diligence• Daily monitoring of outstanding balances• Documented risk appetite policies and procedures

Liquidity The risk that assets are insufficiently liquid and/or S&W does not have sufficient financial resources available to meet liabilities as they fall due, or can secure such resources only at excessive cost. Liquidity risk also includes the risk that the group is unable to meet regulatory prudential liquidity ratios.

• Individual liquidity adequacy assessment process (ILAAP)• Contingency funding plan (CFP)• Review of management information framework and resulting

actions• Daily monitoring of liquidity limits• Daily cash flow reporting• Diversification of maturity and type of investment • Documented risk appetite policies and procedures

Market The risk that arises from fluctuations in the value of, or income arising from, movements in equity, bonds, or other traded products/markets, interest rates or foreign exchange rates that has a financial impact.

• Smith & Williamson Investment Services Limited executive committee oversight

• Market risk monitoring• Limits on interest rate exposure• Documented risk appetite policies and procedures

Business level Risk Definition Key mitigating controls

Business The risk of having an inadequate business model that may result in lower than anticipated profit or losses or exposes the group to unforeseen risks.

• Rigorous board review of business performance• Working groups and steering committees established to oversee

integration of group’s strategy • Documented business plans communicated to all staff• Documented policies and procedures

Client service The risk of inadequate systems and controls to deliver client service, including a failure in the investment process resulting in sub optimal investment performance, loss of key client(s) and/or material levels of business.

• Strong corporate governance and conduct risk management• Partner-led service to clients• Staff training, particularly relating to conduct risk• Self-certification by senior staff of actual or potential disputes

or claims • Investment process, market and performance monitoring

We have identified our risks at group and business levels to help manage key risks in a consistent and uniform way.


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Business level continued Risk Definition Key mitigating controls

Financial The risk of external market events, counterparty failure or internal funding requirements (where S&W entities are unable to meet liabilities).

• Group risk and compliance committee• Segregation of duties• Authorisation limits and management oversight• Dealing limits• Documented policies and procedures

Operational The risk of loss resulting from inadequate or failed processes, systems and controls including risks associated with key suppliers, outsourcing and change management.

• Group risk and compliance committee, group executive committee and board oversight

• Regular disaster recovery testing• Off-site backup of data• Business continuity agreements in place together with

documented disaster recovery plans • Project steering groups and working groups established• Documented policies and procedures

People The risk that loss of key staff or a lack of skilled resources (attracting and retaining staff) results in financial or non-financial loss to the group.

• Remuneration committee and nomination committee oversight• Competitive and transparent remuneration schemes• Succession and contingency planning• Staff training and development

Reputational & regulatory

The risk of having an inadequate model, processes, culture and capability in place to support the business in managing its regulatory obligations, potentially resulting in financial (including sanctions), operational and reputational implications.

• Proactive and regular contact with regulators• Active involvement in industry representative bodies• Impact assessment and reviews completed for upcoming

regulatory changes • Strong corporate governance and conduct risk management• Investment process, market and performance monitoring• Investment in staff training and development• Oversight by all boards and committees

Change in the previous 12 months

Over the last 12 months the board has concluded that the group and business level risks have remained static. However, the operational risks arising from change management, people and outsourcing remain a key focus. Ongoing investment in compliance and risk management capabilities, as well as the continued embedding of the risk management framework, has enhanced risk controls across the group. The group remains well capitalised and liquid with significant buffers above all regulatory requirements.

Emerging risks Risk Definition Context

Brexit The risk of an adverse impact on the group’s business model arising from UK government Brexit negotiations resulting in poor business growth and poor client outcomes.

Although the full impact of Brexit on the group is unknown until the UK/EU negotiations are finalised, we expect there to be limited impact as the group’s target market is in the UK. A project working group has been set up and is considering the options for the group based on the current views.

Data protection & cyber

The potential financial, reputational, operational and client related risks arising from a data protection, information security or cyber related breach. The additional risks associated with non-compliance with relevant rules and regulations.

Ensuring continued compliance with GDPR and the uncertainty around how severely the Information Commissioner’s Office (ICO) will use its powers causes this to remain as an emerging risk. Additionally, S&W’s continued investment in enhancing its technology and the move to more cloud based services will change the risk profile, making us more susceptible to ongoing cyber threats. To help mitigate these risks, we have increased our penetration testing (both internally and for external service providers) and embedded data governance controls within all core change management projects.


A robust year with strong performance overcoming challenges

FINANCIAL REVIEW

OverviewThe group delivered a strong financial performance, with year-on-year growth in operating income of 9.0% and adjusted operating profit of 13.8%, while continuing to make significant investments in people and systems.

Despite one-off costs, the overall financial performance was better than anticipated. This was primarily as a result of favourable market conditions and growth in operating profit supported by experienced talent recruited in the early part of the year.

Going forward, while global financial markets remain uncertain, our long-term growth strategy leaves us well positioned.

Group operating resultsOperating income for the year grew to £266.7 million (2017: £244.6 million), driven by market levels, higher commissions from increased trading volumes and growth in transactional business areas.

Operating expenses increased to £221.5 million (2017: £205.4 million), primarily due to project costs of £3.3 million related to modernising IT infrastructure and increased staff costs totalling £157.5 million (2017: £149.9 million) reflecting salary inflation, a 4.9% increase in headcount and increased variable compensation costs aligned to growth in operating income. Operating expenses also include approximately £5 million of one-off expenditure mainly relating to MIFID II and other regulatory compliance.

Operating profit increased to £45.2 million (2017: £39.2 million), while adjusted operating profit, which excludes the ‘amortisation of intangible assets – client relationships’, was £46.2 million (2017: £40.6 million). The adjusted operating margin was 17.3% (2017: 16.6%).

Grant HotsonGroup finance director

TaxThe overall effective tax rate for the year was 22.6% (2017: 22.1%). This is calculated as the tax charge in the financial statements of £10.4 million (2017: £8.8 million), divided by profit before tax of £46.1 million (2017: £39.8 million). A full reconciliation is set out in note 8.

Basic earnings per shareUnadjusted basic earnings per share increased by 15.9% to 67.2 pence (2017: 58.0 pence). Adjusted basic earnings per share, which excludes ‘amortisation of intangible assets – client relationships’ and is one of the group’s key performance indicators, increased by 14.1% to 68.7 pence (2017: 60.2 pence).

Distributions to shareholdersA final dividend for the year ended 30 April 2017 of 22.0 pence per ordinary share was paid to shareholders on 2 October 2017. An interim dividend for the year ended 30 April 2018 of 10.0 pence per ordinary share was paid on 23 February 2018.

Group results

2018 £m

(unless stated)

2017£m

(unless stated)

Operating income 266.7 244.6

Operating expenses (221.5) (205.4)

Operating profit 45.2 39.2

Adjusted operating profit 46.2 40.6

Profit before tax 46.1 39.8

Taxation (10.4) (8.8)

Profit after tax 35.6 31.0

Unadjusted basic earnings per share 67.2p 58.0p

Adjusted basic earnings per share 68.7p 60.2p

Dividend per share 36.0p 32.0p

Funds under management and advice 20.1bn 18.8bn

Funds under administration 11.7bn 9.2bn

Financial performance


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The board intends to maintain a progressive dividend policy, as set out in the chairman’s statement on page 2. The board is proposing a final dividend to shareholders of 26.0 pence per ordinary share to bring the total for the financial year to 36.0 pence per ordinary share (2017: 32.0 pence). Refer to the directors’ report on page 62 for further details.

Effect of changes in accounting standardsThere were no standards which became effective in the current year which have had a material impact on financial position or performance. IFRS 9 and IFRS 15 will become effective for the year ended 30 April 2019, however they are not expected to have a significant impact. Further details can be found in note 1 to the consolidated financial statements.

Future expenditure on IT infrastructure and systemsThe multi-year programme to modernise IT infrastructure continues into 2018/19. As set out in the strategy section on page 23, major improvements include modernising the technical infrastructure, systems and business processes supporting investment management and banking, and introducing a new practice management system to support tax and business services. Total expected costs for the year ended 30 April 2019, comprising both operating and capital expenditure, will be approximately £17 million.

Segmental reviewA review of the performance across the group’s operating segments – investment management and banking, tax and business services, and other – is presented below. Results are summarised, by segment, in note 3 to the consolidated financial statements.

Operating incomeOperating income for the investment management and banking segment increased by 9.3% over the prior year, mainly as a result of increased fee revenues.

Investment management and advisory fees grew by 10.3% to £113.8 million from £103.2 million. This was a result of increased funds under management, due to a combination of higher market levels and organic growth. The average MSCI WMA Balanced Index, based on billing dates, increased by 5.6% from 1,485 in 2017 to 1,568 in the year under review.

Trading activity increased marginally during the year. Commission income consequently rose by 3.3% from the prior year. This increase was reflected across the majority of private client offices, despite being offset by a 18.2% decrease in revenues from the fixed interest broking operation, which was closed at the end of March 2018.

Banking margin (the net margin on monies deposited with the wholesale market and the Bank of England) increased by 3.6% from the prior year, largely due to the increase in Bank of England base rate and higher cash balances.

The core business lines within the tax and business services segment showed strong operating income growth in the year under review, with business and private client tax, and assurance and business services growing by 12.2% and 8.6% respectively. Business tax in particular has benefited from a number of senior hires, which have helped to grow the advisory side of the business. Assurance and business services and private client tax have both benefited from a full year of operating income from the business units acquired from Grant Thornton, which are now fully integrated into the existing business. Despite operating in an uncertain economy, operating income for the financial services business grew 6.1%.

There was also continued strong growth in non-recurring transactional business lines, with corporate finance and forensics delivering growth of 22.2% and 16.7% respectively following a number of key appointments. Restructuring and recovery services showed a modest growth of 2.2%, with strong growth in the London market being offset by shrinkage in the regional businesses.

Operating income2018

£m2017

£m Change

Investment management and banking 147.6 135.0 9.3%

Assurance and business services 29.1 26.8 8.6%

Business and private client tax 46.0 41.0 12.2%

Financial services 10.5 9.9 6.1%

Fund administration 10.1 8.8 14.8%

Restructuring and recovery 9.1 8.9 2.2%

Forensic services 7.0 6.0 16.7%

Corporate finance 6.6 5.4 22.2%

Sundry 0.5 2.4 (79.2%)

Tax and business services 118.9 109.2 8.9%

Other 0.2 0.4 (50.0%)

266.7 244.6 9.0%


The fund administration business continued to grow strongly, with income growth of 14.8%. This was largely driven by a 27.2% increase in funds under administration to £11.7 billion (2017: £9.2 billion).

Operating income for the other segment decreased by £0.2 million due to an increase in net interest expense.

Operating expenses

Operating expenses for the investment management and banking segment increased by 8.3%, to £111.9 million (2017: £103.3 million). Direct costs increased by £1.7 million due to wage inflation and higher share incentive costs. The segment’s share of expenditure on indirect and overhead costs increased by 21.9%, largely due to continued growth in the business and the increased cost of regulation. The segment’s share of project costs, which include costs of implementing the core wealth system and improvements relating to the introduction of MiFID II, was £4.7 million (2017: £2.7 million).

Operating expenses for the tax and business services segment increased by 7.1% to £106.9 million (2017: £99.8 million). Direct costs increased by £6.2 million due to higher compensation costs from an increase in headcount to 914 (2017: 863) and wage inflation. The segment’s share of expenditure on indirect and overhead costs increased by 7.4%, while its share of project costs, which relate principally to implementing the practice management system, increased by £0.3 million.

Operating expenses for the other segment increased 17.4% to £2.7 million (2017: £2.3 million), primarily due to project costs which are directly attributable to group support operations. These costs included professional fees of £1.2 million associated with the merger discussions between the group and Rathbone Brothers Plc during the year.


Funds of £20.1 billion under management and advice were 6.9% higher than at the start of the year. The increase, which is analysed below, compares favourably to the FTSE 100 and the MSCI WMA Balanced Index, which increased respectively by 4.2% and 2.9% over the same period.


2018 £bn

2017 £bn

As at 1 May 18.8 16.0

– inflows1 1.5 1.0

– outflows1 (0.9) (0.6)

Net inflows 0.6 0.4

Market adjustments2 0.7 2.4

As at 30 April 20.1 18.8

1. Valued at the date of transfer in/out 2. Impact of market movements and relative

performance

Private client organic growth, one of the group’s key performance indicators (see page 24), has increased to 2.8% from 2.5% in the prior year.

Financial position

Client moneyOn 26 March 2018, the group standardised the way cash is held in client investment portfolios, such that client money account balances are now held as cash deposits by Smith & Williamson Investment Services Limited as the group’s banking subsidiary. As a result, a majority of client money accounts held off-balance sheet were transferred to the group’s on-balance sheet financial assets. The effect on the group’s balance sheet was a £818.6 million increase in cash and cash equivalents, and balances due to customers.

Intangible assetsIntangible assets arise primarily in relation to business combinations, computer software and the acquisition of client relationships. At 30 April 2018, the total carrying value of intangible assets was £116.8 million (2017: £113.3 million). During the year, software development costs of £5.1 million (2017: £2.4 million), relating to investment in replacement IT systems, were capitalised. No client relationship intangible assets were capitalised during the year and no goodwill was acquired.

Intangible assets related to the acquisition of software licences and costs associated with the production of software products controlled by the group are amortised over a definite useful life of four years. The total amortisation charge for the year was £0.6 million (2017: £0.2 million).

FINANCIAL REVIEW CONTINUED


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Client relationship intangible assets are amortised over their minimum estimated useful life of ten years. If and when a client relationship is lost, any related intangible assets are derecognised in the year. The total amortisation charge for client relationships, including the impact of any lost relationships, was £1.0 million (2017: £1.4 million).

Goodwill that has arisen on business combinations is not amortised, but is subject to a test for impairment on an annual basis. No goodwill was found to be impaired in the year under review or the preceding year.

LockupTotal lockup as at 30 April 2018, being the amount of capital tied up in accrued income and debtors, has increased to 3.8 months (2017: 3.6 months) representing a £3.9 million year-on-year increase in working capital. This increase is a reflection of growth in the business during the year and of our billing activity which is heavily skewed towards the final quarter of the financial year.

Defined benefit pension schemesThe group operates two funded defined benefit plans for qualifying employees, namely the S&W and NCL schemes. Both schemes are closed to new members.

At 30 April 2018, the NCL scheme reported a net surplus position of £1.2 million (2017: £0.7 million deficit), while the S&W scheme showed a small decline to a net flat position (2017: £0.1 million net surplus). Surpluses are not recognised in the balance sheet as the group does not expect to benefit from contribution holidays in respect of the plans and has no contractual right to a refund of contributions in the event of a wind up of the scheme.

The NCL scheme liabilities decreased by 27.2% to £25.2 million (2017: £34.6 million). The decrease was largely driven by transfers out of the scheme and cash commutations in the current year. Scheme assets decreased by 22.1% to £26.4 million (2017: £33.9 million) due to capital withdrawals from the scheme.

The S&W scheme liabilities and assets have remained relatively static at £0.7 million (2017: £0.6 million) and £0.7 million (2017: £0.7 million) respectively.

Capital, treasury and liquidityThe group’s regulatory capital, risk weighted assets and capital ratios at 30 April are shown below.

Capital requirements

For regulatory reporting purposes, the group is subject to proportional consolidation through which entities not subject to prudential supervision are excluded from the calculation of regulatory capital.

In the year to 30 April 2018, group risk weighted assets increased by 13.0% to £528.2 million (2017: £467.6m) reflecting an increase in deposits held. This increase in risk weighted assets was offset primarily by an increase in profits retained by entities subject to prudential consolidation.

A conservative capital position is at the heart of our business model. The group is profitable, resulting in organic capital generation whilst at the same time allowing the payment of a progressive dividend. As a result, the CET1 capital ratio increased from 24.9% to 25.0% reflecting the conservative risk weight assigned to our assets which are predominantly held with central banks and highly-rated institutions.

The group’s CET1 and total capital ratios continue to be comfortably ahead of minimum regulatory requirements based on the standardised approach to credit and operational risk. All entities subject to prudential capital requirements exceed minimum requirements on a stand-alone basis.

The group is required to allocate capital to cover the capital requirements to which it is subject to under the Capital Requirements Regulations and Capital Requirements Directive (collectively known as CRD IV). CRD IV is supplemented by Regulatory Technical Standards and the Prudential Regulatory Authority’s (PRA) rulebook which are subject to change as certain aspects of CRD IV are dependent on clarifications to be issued by European Banking Authority and adopted by the European Commission and the PRA.

Common equity tier 1 capital (CET1)2018

£m2017

£m

Share capital and premium 30.7 30.7

Reserves 191.3 161.8

222.0 192.5

Deductions (90.2) (75.9)

CET1 after deductions 131.8 116.6

Additional tier 1 – –

Tier 2 – –

Own funds 131.8 116.6

Risk-weighted assets 528.2 467.6

CET1/Tier 1/Total capital ratio 25.0% 24.9%


FINANCIAL REVIEW CONTINUED

The group holds capital in respect of:

Pillar 1 – minimum capital requirement

The group holds capital to cover the risk of losses arising from credit, counterparty, operational and market risks.

Pillar 2 – supplementary capital following supervisory review

The Pillar 2a capital requirement is set by the board and is subject to review by the PRA resulting in the imposition of Individual Capital Guidance (ICG) which comprises a proportion of risk weighted assets together with a fixed quantum in respect of pension obligation risk. At 30 April 2018, Pillar 2a represented 2.2% of risk weighted assets and the Total Capital Requirement (Pillar 1 and Pillar 2a) was 10.2%.

The ICG was last reviewed by the PRA in 2016. The board assesses Pillar 2a on an annual basis.

Capital conservation buffer (CCB)

The group is subject to the CCB under CRD IV, which is intended to result in a build up of capital by banks outside of periods of stress. At 1 January 2018, the CCB was set at 1.875% of risk weighted assets and will rise to 2.5% on 1 January 2019.

Countercyclical capital buffer (CCycB)

CCycB was introduced under CRD IV and is set by the Financial Policy Committee to curtail excessive credit growth in the UK economy. At 30 April 2018, CCyCB was set at zero for the UK. However the Financial Policy Committee has announced that it will rise to 0.5% in June 2018 and subsequently to 1% in November 2018.

The group prepares a Pillar 3 disclosure on an annual basis, which provides further detail about the group’s regulatory capital position. The Pillar 3 disclosure can be found on the group’s website.

Treasury and liquidity operations

Total assets at 30 April 2018 stood at £1,645 million (2017: £779 million) of which £1,150 million comprised client deposits with Smith and Williamson Investment Services Limited representing the uninvested cash component of client portfolios.

A prudent approach is taken with respect to capital and liquidity management. The security of client assets is of paramount importance to the board with the majority of our surplus funding being held in the form of high quality liquid assets. This explains the proportion of current assets represented by cash and balances with central banks. We regularly assess and stress test our liquidity requirements and continue to comfortably meet the liquidity coverage ratio.

The group undertakes stress testing as part of the Internal Capital Adequacy Assessment Process (ICAAP), Internal Liquidity Adequacy Assessment Process (ILAAP) and the Recovery and Resolution Plan (RRP).

Group borrowings comprise funding for the Smith & Williamson Holdings Limited Employee Benefit Trust of £19.4 million (2017: £18.8 million), which is guaranteed by the company.


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Cash flow and capital expenditureIncluded in cash and cash equivalents was £184.0 million (2017: £161.3 million) of the group’s net own cash. This increase was mainly due to growth in operating profit partially offset by additional capital expenditure during the year.

Net cash generated from operating activities include the effect of bringing client money accounts on balance sheet. At the year ended 30 April 2018, the total increase in amounts due to customers was £829.4 million (2017: £31.5 million). See client money section on page 32 for further details.

Net cash used in investing activities included capital expenditure of £6.0 million (2017: £6.1 million). Total costs of £10.6 million were spent on investment in new IT systems during the year, of which £5.1 million was capitalised and £5.5 million was expensed.

Net cash used in financing activities included returns to ordinary shareholders amounting to £17.7 million (2017: £16.2 million).

Viability statementThe directors have assessed the prospects and viability of the group over a three-year period in line with the requirements of the UK Corporate Governance Code, with which it has chosen to comply in this respect.

The directors have taken into account the group’s current position and the potential impact of the principal risks and uncertainties, based on the annual business plan and the risk assessment performed as part of the annual ICAAP.

The directors consider that three years continues to constitute an appropriate period over which to provide its viability statement given the uncertainties with predicting the future impact of investment markets on the business over longer periods.

As part of the viability statement, the directors confirm that a robust assessment of the principal risks facing the group has been undertaken together with stress and scenario testing of those risks to determine the sustainability of the group business model based on expected business performance in a stressed economic environment.

Based on this assessment, the directors have a reasonable expectation that the group will be able to continue in operation and meet its liabilities as they fall due to 2021.

Grant HotsonGroup finance director

28 June 2018

Extracts from the consolidated statement of cash flows2018

£m2017

£m

Net cash generated from operating activities 847.0 29.7

Net cash used in investing activities (5.5) (5.3)

Net cash used in financing activities (22.4) (19.4)

Net increase in cash and cash equivalents 819.1 5.0

Net cash and cash equivalents at the beginning of the year 289.8 284.8

Cash and cash equivalents at the end of the year 1,108.9 289.8

Group's net own cash at the end of the year 184.0 161.3


We have strengthened the alignment between performance and reward with a greater focus on the assessment of behaviours as part of our annual performance review process. This alignment will be developed further in 2018 with the launch of a new balanced scorecard to measure the performance of all staff and partners. Our reward structure continues to be developed to support our strategic objectives and incentivise appropriate conduct and behaviours alongside financial performance.

Diversity and inclusionDiversity and inclusion is an important focus area for Smith & Williamson. As an equal opportunities employer, we ensure that all job applicants, employees and partners are treated fairly and on merit. We believe that diversity of talent and ideas is vital to creating a positive work environment and delivering excellent client service. Having a diverse and inclusive workforce leads to more innovation and opportunities, access to a wider talent pool and, ultimately, to a better business performance.

During 2017 we have primarily focused on gender diversity. In July, we signed up to the HM Treasury’s Women in Finance Charter with a target of increasing the percentage of senior management roles occupied by women from 25% to 30% by 2022.

GovernanceThe corporate responsibility and charities committee includes representatives from all key business functions. It is responsible for developing and monitoring the group’s corporate responsibility initiatives. The chairman of the committee reports directly to the board.

PeopleWe are a people business, and our success is based upon the quality and commitment of our employees and partners. We strive to create a rewarding and fulfilling work environment, providing career development and training opportunities while promoting an appropriate work/life balance.

It is essential that our workforce is engaged, motivated and diverse, with a wide range of backgrounds, skills and experience. This is reflected in our recruitment and talent-development practices, using a wide range of training and development initiatives, coaching and mentoring to invest in our employees and partners. In 2017, our key focus was on the development of management skills across the group. Our talent pipeline is supported by the graduate, apprenticeship and summer internship programmes, which continue to provide opportunities across the education spectrum to a wide range of candidates. In total we have hired 70 graduate trainees, apprentices and interns during the year.

While the overall percentage of women in our workforce remained steady at just under 50% during the year, we are pleased to report that the percentage of senior management roles occupied by women has increased to 26%. Our talent pipeline of trainees and Higher Apprentices also reflects notable progress on gender diversity. The 2017 intake (which was 52% male and 48% female) was significantly better balanced than the 70% male 30% female intake of 2016. This increase is a result of specific recruitment efforts targeting female students.

As part of our broader diversity policy, we have set up a diversity and inclusion working group. Its brief is to raise the level of awareness and engagement among staff and partners relating to diversity and inclusion matters, and to help develop appropriate diversity strategies and action plans for the group.

Our 2017 Gender Pay Gap Report reported a mean gender pay gap of 12.95% and a median gender pay gap of 15.27% for employees. For partners within the LLPs we have a mean gender pay gap of 8.48% and a median gender pay gap of 13.58%. The mean gender bonus gap was 21.45% for employees and 31.15% for partners while the median stood at 28.85% for employees and 34.10% for partners. Our gender pay gap reflects our organisational structure as we have a higher proportion of men in senior roles and therefore the average male salary is higher than the average female salary. As an employer we are committed to reducing our gender pay gap and we continue to focus on ways to encourage and support the progression of women into senior roles.

Anti-bribery policySmith & Williamson values its reputation and is committed to maintaining the highest level of ethical standards in the conduct of its business affairs. The actions and

Exerting a positive influence

Smith & Williamson has a strong sense of corporate responsibility. We aim to manage the impact of our business on people, suppliers, communities, clients and the environment. To achieve this, we look for ways where we can make a positive influence in the communities where we work. We also seek to minimise our environmental footprint and to provide a professional and supportive workplace for our colleagues to work, enabling us to deliver the best possible service to our clients.

CORPORATE RESPONSIBILITY


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conduct of the firm’s staff as well as others acting on the firm’s behalf are key to maintaining these standards. Smith & Williamson does not tolerate bribery or corruption in any form.

The firm prohibits the offering, giving, solicitation or the acceptance of any bribe or corrupt inducement, whether in cash or in any other form: to or from any person or company wherever located, whether a public official or public body, or a private person or company; by any individual employee, director, agent, consultant, contractor or other person or body acting on the firm’s behalf; in order to gain any commercial, contractual or regulatory advantage for the firm in any way which is unethical or to gain any personal advantage, pecuniary or otherwise, for the individual or anyone connected the individual.

Sustainability is core to delivering on our strategic agendafocus

Future

The firm will investigate thoroughly any actual or suspected breach of this policy, or the spirit of the policy.

SuppliersWe have continued our commitment to being a living wage employer, ensuring that all contractors employed in our supply chain are paid the living wage.

Modern slaveryWe are committed to ensuring our business and supply chain are free from any slavery or human trafficking. As we operate in the financial services sector, many of the service providers we encounter are UK-based entities. They are often themselves regulated by governing bodies such as the ICAEW, FCA or Solicitors Regulation Authority (SRA) and therefore our due diligence processes for these suppliers in

relation to modern slavery are minimal. The other main types of service provider relate to essential office services, such as security, catering and cleaning.

Our office services are outsourced to organisations with their own due diligence procedures for employees and contractors. Our tender process for these contracts includes confirmation of the steps the potential suppliers take to ensure their businesses are free from modern slavery and human trafficking. The due diligence process includes verifying that they have sufficient policies and procedures in place to ensure fair treatment and pay of workers, adequate whistleblowing procedures and confirming that all those employed in the provision of services have the necessary documentation to work legally in the UK.


CommunitiesWe continue to support partners, employees and clients who personally undertake fundraising activities. During the year, we contributed £47,600 to charitable causes through this programme.

Charitable gifts totalling £32,000, made as part of our staff Christmas Appeal, contribute to this total. Every year, we invite staff to nominate a charity to receive a donation at Christmas. In 2017, we received nominations for over 150 charities covering a wide spectrum of causes, including medical research, children’s charities, hospices and community projects.

The committee selected 16 charities to support, with each receiving a donation of £2,000. There was an emphasis on supporting smaller, local charities, reflecting the cross-section of causes nominated and the geographical spread of our offices. The charities that received a donation were:

• Bournemouth Food Bank

• Dagenham & Redbridge Community Trust

• Hamilton Food Bank

• Katharine House Hospice, Banbury

• Keech Hospice Care

• Lamont Farm Project, Erskine

• Myositis UK

• North Ayrshire Women’s Aid

• PACT for Autism

• PoTS UK

• St Vincent de Paul Society, Dublin

• SeeSaw, Oxford

• Shooting Star Chase Hospice, Guildford

• The Albion Foundation, Birmingham

• The John Hewitt Society, Belfast

• The Sick Children’s Trust

Many employees and partners also dedicated time to supporting organisations in their local communities.

ClientsSmith & Williamson have provided Ethical and Environmental, Social & Governance (ESG) screening on a negative exclusion basis and a positive ‘best of breed’ basis for many years. We have a particularly strong reputation in this area as it plays to our strengths as a manager of genuinely bespoke, segregated portfolios and our reputation for client service.

As part of our further commitment to corporate responsibility, Smith & Williamson Investment Management LLP will shortly become a signatory of the UN Principles for Responsible Investing (PRI), joining a global community seeking to build a more sustainable financial system. This has been approved by the board and will require the integration of ESG factors into the investment process and demonstration of good stewardship through voting and engagement activities. We are finalising our arrangements and framework for our updated voting practices which we expect to complete during 2018.

EnvironmentWe are committed to minimising our impact on the environment by measuring and managing our environmental impact.

This year we have calculated the greenhouse gas (GHG) emissions from our activities for the 2017-18 reporting year and provide a comparative analysis in the table opposite. Our emissions were calculated by Carbon Clear using the main requirements of the ISO 14064-1:2006 standard for carbon reporting and the UK Government Greenhouse Gas Conversion Factors for Company Reporting 2017.

Moorgate LED lighting project

The Moorgate LED lighting replacement project had the objectives to reduce energy consumption as well as improving the office environment through improved lighting levels and reduced glare on monitors.

The replacement took place during February and March 2018 with a sample power reading on the 5th floor in early April demonstrating that a 48% reduction in power consumption has been achieved.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

23:0

022

:00

21:0

020

:00

19:0

018

:00

17:0

016

:00

15:0

014

:00

13:0

012

:00

11:0

010

:00

09:0

008

:00

07:0

006

:00

05:0

004

:00

03:0

002

:00

01:0

000

:00

5th floor North Lighting Circuit Weekday Power Consumption (kwh)

kwh

Time

Pre LED installation Post LED installation

CORPORATE RESPONSIBILITY CONTINUED


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The most significant change to our carbon footprint is in relation to electricity. This is in part down to a number of measures implemented to manage electricity usage, although mainly a result of the more carbon efficient production of power within the National Grid.

We have several initiatives in place to minimise our carbon footprint and reduce the impact of our operations on the environment. These should help to continue the positive trend in the intensity metric where we have seen a reduction of 25% in the tonnes of CO2 equivalent since the baseline of 2015/16. These initiatives include:

• At our London office (which accounts for 44% of our energy

usage) we have implemented sub-metering to identify waste and cut consumption. This will help us maximise the efficiency of the mechanical and electrical plant, delaying start times where possible, while maintaining a comfortable working environment.

• We have carried out a retro-fitting of LED lights across all floors in the London office and we are starting to see the benefits of this change (see the case study in this section for further details).

• We are looking at implementation of LED lighting across a number of offices. This is being incorporated in the new Guildford office fit-out as well as in the refurbishment of the Dublin Sandyford office.

• Reducing and, where possible, removing single use plastics. This includes removing plastic cups as well as using more concentrated cleaning products to reduce plastic container usage.

• Working with our recycling supplier in London we now separate and recycle all our food waste from the client kitchen.

Tax strategyOur tax strategy, which can be found on our website, is focused on ensuring that taxes (and tax risks) are managed to provide outcomes consistent with commercial substance and are within the parameters of the group’s strategic objectives. While we are mindful to run our business in a cost effective manner in line with our obligations to our shareholders, we do not participate in aggressive tax planning. We have an open, honest and positive working relationship with HMRC.

Our appetite for tax risk is low and our tax affairs are based on sound commercial principles and relevant tax legislation.

Approved by the board of directors on 28 June 2018 and signed on its behalf by:



28 June 2018

Scope 1: Gas, company vehicles, refrigerants Scope 2: Electricity Scope 3: Business travel, waste, water, paper & postage, other (WTT & T&D)

Sum of CO2e (tonnes)

2017/18 2016/17 2015/16

Total emissions: 5,351 Total emissions: 5,099Total emissions: 4,992

450.

8

1,64

3.4

2,89

7.8

417.

4 1,92

1.1

2,76

0.1

436.

0

2,07

1.9 2,

842.

9

CO2e (tonnes/FTE) Notes

1. Calculated using DEFRA conversion factors (2017).2. Electricity calculated using location based approach in

accordance with GHG Protocol Scope Reporting Guidance.3. This year we have included emissions associated with

refrigerants for the first time, resulting in an overall Scope 1 emissions increase.

4. Missing data for the last two months has been estimated in a number of categories using last year’s data for said months. Where the former was not available, we have used an average of the rest of the months.

5. WTT: well to tank, T&D: transmission and distribution losses.

6. Waste emissions for all years have been restated to correct the final destination of general waste (previously accounted for as landfill, now it has been confirmed that all waste is sent to combustion, significantly changing waste emission totals).

1.17

1.42 1.

55

2017/18 2016/17 2015/16


Governance

41 Chairman’s introduction

42 Board of directors

46 Corporate governance report

52 Audit and risk oversight committee report

56 Nominations committee report

58 Remuneration committee report

62 Directors’ report


Chairman’s introduction

Board focusThe board’s primary focus during the past financial year was developing our updated strategy which led to changes in our governance structure (see the chairman’s statement on page 3). This took much of the board’s time, in parallel with developing the growth plans that you can also read about elsewhere in this report.

Other areas for our attention included preparation for MiFID II and GDPR implementation, remuneration and strengthening our talent pipeline.

RemunerationWork on remuneration has chiefly involved our preparations for the forthcoming introduction of the balanced scorecard approach to performance management. Remuneration is driven by the group’s financial performance, plus a set of personal objectives including compliance and risk factors.

Andrew SykesNon-executive chairman

“The board’s primary focus... was developing our updated strategy which led to changes in our governance structure.”

Now, further factors around compliance, risk and group contribution will also be taken into account, and our focus has been on formalising how this will take place.

Talent and succession planningThe appointments committee regularly reviews our succession plans, as does the nominations committee at board level. Succession planning is an important focus under our updated strategy, ensuring that our future leadership teams receive all the preparation and development opportunities required to carry the business forward seamlessly.

Andrew SykesNon-executive chairman

28 June 2018

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smithandwilliamson.com 41smithandwilliamson.com

Board of directors

Appointment date

03/10/07

Experience

David is co-chief executive and managing partner of the investment management and banking division. During the year he was chairman of the investment management and banking subsidiary board and is the chair of the executive committee of Smith & Williamson Investment Services Limited. During the year he was also a member of the tax and business services subsidiary board and the group risk and compliance, operations and products and services oversight committees.

David became head of investment management and banking in 2007 and while his primary role is in the senior management of the firm, he is still involved in advising a number of longstanding clients.

Appointment date

28/10/04

Experience

Andrew has extensive experience as a non-executive director, particularly in the financial services sector. He is non-executive director of Intermediate Capital Group plc and Gulf International Bank UK Limited and was formerly an executive director of Schroders plc. During his 26 years with Schroders he held a number of senior investment banking and investment management roles. He also chaired the Schroder Group’s private banking businesses. Andrew joined the board in 2004. He was appointed deputy chairman in 2008 and non-executive chairman in September 2013.

Andrew is chairman of the nominations committee and a member of both the audit and risk oversight and remuneration committees.

Membership key

Remuneration committee

Chairman of remuneration committee

Audit and risk oversight committee

Chairman of audit and risk oversight committee

Nominations committee

Chairman of nominations committee

Andrew Sykes Non-executive chairman

David Cobb Co-chief executiveA

A

NA

N

N

R

R

R


Appointment date

01/01/10

Experience

Kevin is co-chief executive and managing partner of the tax and business services division. During the year he was chairman of the tax and business services subsidiary board and is chairman of the board of Smith & Williamson Fund Administration Limited. During the year he was also a member of the investment management and banking subsidiary board and the group risk and compliance, operations and products and services oversight committees. He is now the chair of the group executive committee.

Kevin became head of tax and business services in 2009 and while his primary role is in the senior management of the firm, he continues to maintain a number of client relationships. Kevin is also a member of the board of Nexia International.

Appointment date

22/08/16

Experience

Grant is the group finance director, having joined Smith & Williamson in 2016.

During the year he was chairman of the operations committee and a member of the group risk and compliance committee, the tax and business services and investment management and banking subsidiaries boards and the executive committee of Smith & Williamson Investment Services Limited.

Grant has over 20 years’ experience in the financial services sector. After qualifying as a chartered accountant, he spent seven years with a big four accountancy firm, where his clients were mainly asset management companies. Subsequently, Grant was chief financial officer and a member of the executive team at Ignis Asset Management Limited, having served as head of finance at Scottish Widows Investment Partnership.

Appointment date

01/01/10

Experience

Peter is head of private client investment management and, during the year, he was a member of the investment management and banking subsidiary boards.

Peter joined Smith & Williamson in 2001 following 12 years with Fleming Private Asset Management, where he advised high net worth clients in international portfolios, family OEICs and unit trusts. Peter continues to be a portfolio manager for high net worth clients. He chairs the group’s corporate responsibility and charities committee and is a member of the suitability committee.

Kevin Stopps Co-chief executive

Grant Hotson Group finance director

Peter Fernandes Head of private client investment management

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Elizabeth Chambers Independent non-executive director

Blake Goldring Non-executive director

Appointment date

24/07/14

Experience

Blake has been a non-executive director since 2014. He is a member of the nominations and remuneration committees.

Blake is the chairman and chief executive officer of AGF Management Limited, a publicly traded, global investment management firm based in Toronto. He first joined AGF in 1987 and held a series of senior positions before being appointed president in 1997, chief executive officer in 2000 and chairman in 2006. Prior to that, he worked in corporate banking for a major Canadian bank.

Blake holds the Chartered Financial Analyst designation, is a member of the Toronto Society of Financial Analysts and a Fellow of the Institute of Canadian Bankers. He also sits on a number of private and not-for-profit boards.

Appointment date

14/07/15

Experience

Elizabeth joined the board in July 2015. She is a member of the audit and risk oversight, nominations and remuneration committees.

Over her career Elizabeth held senior marketing and strategy roles in financial institutions and professional services firms, both in the UK and the USA. These roles have included positions at Barclays, Barclaycard, Bank of America, Reader’s Digest, Bingham McCutchen and Freshfields. Earlier in her career she was a partner in the financial institutions practice of McKinsey & Co.

Elizabeth is also an experienced non-executive director, having held roles with Dollar Financial Group, Hibu plc (formerly Yell Group) and the Home and Savings Bank. Until 2018 she was executive vice-president, chief strategy, product and marketing officer of the Western Union Company and was also on the supervisory board of the Western Union International Bank. She is on the advisory boards of several fintech startups, and previously led the boards of Barclays’ JVs with Home Retail Group (Argos), Thomas Cook and Solutions Personal Finance (Littlewoods).

Remuneration committee

Membership key

Chairman of remuneration committee

Audit and risk oversight committee

Chairman of audit and risk oversight committee

Nominations committee

Chairman of nominations committee

BOARD OF DIRECTORS CONTINUED

A N R N R

A

A

N

N

R

R


John Harley Independent non-executive director

Keith Jones Independent non-executive director and senior independent director

Andrew Fisher Non-executive director

Appointment date

15/01/18

Experience

Andrew joined the board in January 2018 as a director nominated by AGF Management Limited. He is a member of the audit and risk oversight committee.

With a career spanning 30 years in the financial services sector, initially with Coopers & Lybrand (now PricewaterhouseCoopers LLP) and then as chief executive of Cox Insurance Holdings, Andrew has held leadership and governance roles in a range of investment management and financial services businesses. Prior to joining the board Andrew was chief executive of Towry for eight years until he stepped down in April 2014. Andrew had previously acted as chief executive of Coutts Group and recently stepped down as a director at C Hoare & Co, the UK’s oldest private bank.

He has also acted as a senior adviser to the Carlyle Group.

Appointment date

23/07/15

Experience

Keith joined the board in July 2015. He is chairman of the remuneration committee and a member of the audit and risk oversight and nominations committees. He was appointed as the senior independent director in January 2017.

Prior to joining the board Keith had a wide ranging career in the financial services sector. Keith was chief executive of Aviva Global Investors, having previously been an executive director and partner of James Capel & Co and then Lazards. He was also a board director of NPI and chief executive officer of NPI Asset Management and, more recently, an adviser to Lloyds Bank plc.

Keith is an experienced non-executive director, having acted as chairman for Execution Noble and Haitong Securities and as a non-executive director of F&C Asset Management plc and Just Retirement Holdings. Presently he is chairman of Pemberton Asset Management, a non-executive director of Aon Hewitt and a senior adviser to Permira.

Appointment date

08/06/16

Experience

John chairs the audit and risk oversight committee and is a member of the remuneration and nominations committees.

Prior to joining the Board, John held senior management roles at Ernst & Young LLP and PricewaterhouseCoopers LLP. Since retiring from Ernst & Young LLP he has held a number of senior non-executive positions in the private and not for profit sectors. He has recently concluded his role as chairman of the University of Brighton, as a Panel member of the Competition and Markets Authority and an audit committee member of The Higher Education Funding Council in England. He continues to chair TradeRiver Finance, an emerging online supplier finance provider.

ANAA N R R

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UK Corporate Governance CodeThe board recognises the importance of good corporate governance in facilitating effective, entrepreneurial and prudent management that can deliver the long-term success of the company. The company is not quoted and therefore it is not required to comply with the UK Corporate Governance Code (the Code), which was published by the Financial Reporting Council in 2016. Instead it has developed its own governance arrangements, adopting and reflecting elements of the Code where they are considered appropriate for a group of our size and complexity.

The group reviewed its governance arrangements in March 2018 to ensure that they continue to be robust, reflect current regulatory requirements and are able to deliver a well-run business which has, at its heart, its clients and which recognises its responsibilities towards shareholders and other stakeholders in the business and the wider markets in which it operates.

Corporate governance report

The reporting lines for committees have been reviewed and changed where appropriate to streamline decision making and ensure appropriate escalation of issues. The group risk and compliance committee continues to report on risk issues and compliance matters to the audit and risk oversight committee. The terms of reference of the products and services oversight committee have been enhanced to reflect the product governance requirements of MiFID II and this reports to the group executive committee. The other major change which has been agreed is that the membership of the boards of Smith & Williamson Holdings Limited and its major trading entities will be conformed, such that the directors of Smith & Williamson Holdings Limited will serve as directors or management board members of each of the entities concerned.

The chairman will report further on the evolution of the group’s governance arrangements in the interim report to shareholders for the period ended 31 October 2018.

Committee structureDuring the year there were a number of committees that reported to the board. These included an audit and risk oversight committee, a nominations committee, an operations committee and a remuneration committee together with the corporate responsibility and charities committee, the work of which is described on pages 36 to 39. The terms of reference of each, agreed by the board, set out the functions that are delegated.

The operations committee, which met weekly, was responsible for aspects of management of the group and its members included executive directors and heads of support departments. Full details of the work of the audit and risk oversight committee, the nominations committee and the remuneration committee are set out on pages 52 to 61.

Since the year end the operations committee has been disbanded and, reflecting the group structure mentioned by the chairman in his report on pages 2 to 3, we have put in place a group executive committee, the membership of which is drawn from colleagues across the group, which reports to the boards of each of our main trading entities, and whose task will be to manage the business and to deliver the execution of our strategy.


Risk management frameworkThe group operates a three lines of defence model to support the risk management framework. Responsibility and accountability for risk management are effectively broken down into three lines as follows:

A number of key risk indicators, together with associated risk appetites for each, have been agreed by the board within a risk management policy and framework, which reflects the risks to the group’s business and the delivery of its strategy. Those key risk indicators sit within a consolidated risk map, which is agreed by the board and monitored by the group risk and compliance committee.

That committee reports to the audit and risk oversight committee and the board regularly if any key risks sit outside the risk tolerances set and recommends actions to bring them back within tolerance. The board also reviews subsidiary risk maps which are approved by the boards of the relevant entities.

The board considers emerging risks. On a six monthly basis, and more frequently when necessary, risks to which the group is, or may potentially be, exposed are assessed and included within the divisional and consolidated risk map as appropriate.

Particular risks that were discussed during the financial year related to the possibility of the UK leaving the EU (Brexit) and cyber security in the light of well publicised data breaches experienced by companies.

Risks are mitigated so far as is possible, whilst recognising that they cannot be eliminated completely. In its robust management of risk, the group focuses on the recruitment of high quality staff and the implementation of processes, policies and controls.

1. First line

The first line of defence is the business itself, i.e. individuals within the business have primary responsibility for managing risks, identifying control deficiencies and implementing remedial action plans to prevent the occurrence of control failures and the crystallisation of risks.

2. Second line

The second line of defence comprises the compliance and group risk teams, whose function is to identify risks by challenging (and supporting) the business to ensure that controls are operating effectively and to identify control deficiencies and action plans if these are not identified by the first line of defence.

3. Third line

The third line of defence is the internal audit teams, which are independent of the first and second lines of defence. Audit provides assurance to senior management that the group risk and compliance functions are operating effectively, as well as carrying out audits within the business to ensure that adequate systems and controls exist and are operating effectively. In addition, internal audits identify risks, control deficiencies and action plans where these have not been identified by the first and second lines of defence.

The boardThe board is ultimately responsible for the good governance of the group. It is chaired by Andrew Sykes, with Keith Jones as the senior independent director. Elizabeth Chambers and John Harley have served throughout the year as independent non-executive directors. Blake Goldring, the other non-executive director who served throughout the year, represents AGF Management Limited, the largest shareholder of the company. Robert Bogart, who also represented AGF Management Limited, left the board on 28 September 2017 and Andrew Fisher was appointed as his successor by AGF Management Limited on 15 January 2018, following the receipt of regulatory approval. As both Blake Goldring and Andrew Fisher represent AGF Management Limited neither would be considered to be independent. Andrew Sykes has served as a director for longer than nine years since he was first elected by shareholders. The nominations committee and the board were content that his long association with the group enabled him to provide a robust and effective challenge to management. He was considered to be independent in character and judgement and that had not been diminished by the length of time that he had served as a director.

The executive members of the board are David Cobb and Kevin Stopps, the co-chief executives, together with Grant Hotson, the group finance director, and Peter Fernandes, the head of private clients for investment management and banking.

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• The development of practices which promote the interests of clients and mitigate the risk of reputational damage or financial loss in respect of the group’s assets or the assets that it manages or controls on behalf of clients

• The development of a business model and practices that are designed to maintain and enhance market integrity

• The maintenance of policies such as those relating to conflicts and tax avoidance that demonstrate that the group deals fairly with its stakeholders

The board has a list of matters that are reserved for its decision, which cover the following areas:

Strategy and business development

During the year, the board discussed and approved the group strategy and business plan to 2025. The co-chief executives regularly present reports on the group’s performance against that plan and it was discussed extensively by directors at their strategy day in November 2017.

Board meetings and attendance

The board had eight scheduled meetings during the year and met on a number of other occasions to discuss specific matters, such as the potential merger with Rathbone Brothers Plc. The number of scheduled meetings that each director attended is shown below.

The role of the board is to establish a clear strategy for the group, to determine a risk appetite to support that strategy and to oversee an effective risk control framework. Statute requires that the board manages the affairs of the company for the benefit of all stakeholders, including shareholders. It understands that this is best achieved by:

• Encouraging a culture whereby long-term relationships are fostered with clients, who are treated fairly and are content with the service that they receive

• The development of services and products designed for positive client outcomes that are attractive and provide fair treatment for both existing and new clients

The strategy places emphasis on empowering our people, working in unison and enhancing technology. This continues to focus on the group’s core strengths and the services it provides to clients. The board has considered the plans to implement the strategy and the governance and other matters that support that strategy such as the group’s robust capital position and its shareholder base. It has also focused on the communication of the strategy to staff.

As reported in 2017, the board has continued to focus on the possible implications of Brexit. This focus will continue until such time as the terms of the UK’s exit have been agreed by the Government. The board has also focused on IT strategy, the further embedding of the group’s risk management framework and regulatory developments, such as MiFID II, which was implemented on 3 January 2018, and the General Data Protection Regulation (GDPR) which has come into effect in May 2018.

During the year the board considered opportunities to acquire businesses, both within the tax and business services division and in the investment management and banking division. Each acquisition was considered carefully to determine whether it would enhance the group’s business and maintain or enhance the service provided to clients.

Director

Number of meetings

eligible to attend

Number of meetings attended

R J Bogart1 5 5

E G Chambers 8 8

D M Cobb 8 8

P L Fernandes 8 8

A C Fisher2 2 2

B C Goldring 8 7

J H Harley 8 8

G T Hotson 8 8

K Jones 8 8

K P Stopps 8 8

A F Sykes 8 8

1. Resigned 28 September 20172. Appointed 15 January 2018

CORPORATE GOVERNANCE REPORT CONTINUED


Regulatory and tax

At each of its meetings, the board reviewed reports on the group’s regulatory capital. It also reviewed and agreed the group’s Pillar 3 disclosures and ICAAP. The ICAAP, in accordance with FCA and PRA prudential rules, requires regular assessments of the amounts, types and distribution of capital that the group considered adequate to cover the nature and level of the risks to which it is, or might be, exposed. The board also reviews and agrees the Internal Liquidity Adequacy Assessment Process (ILAAP), Recovery and Resolution Plan (RRP) and costs of wind down in addition to the Pillar 2a assessment to which reference is made in the financial review on page 34.

It received reports on the group’s compliance with the FCA’s CASS regulations from the CASS officer, together with his annual attestation.

Regulatory matters continue to be reported to the board and discussions during the year have focused on the implementation of MiFID II. The group had a number of work streams considering the impact of this directive on the group’s business and the processes that were put in place to ensure the group complied with the directive from January 2018. Work continues in respect of a number of areas, including that of product governance and the development of IT enhancements to ensure continued compliance with the directive. Updated and enhanced policies have been agreed in relation to the group’s compliance with the GDPR and its responsibility to ensure that client and other data continues to be protected.

The board has regular dialogue with the group’s regulators, in particular the FCA and PRA. Communications received from those regulators were reviewed and discussed by the board.

As noted in the chairman’s statement, Rathbone Brothers Plc approached the group to propose a possible merger. The board met on a number of occasions during the year to consider the initial proposals and to debate the merits of combining both businesses and what that could mean for clients, staff, shareholders and other stakeholders in the firm. The board was also mindful of the opportunities for stakeholders that could be created as a result of the implementation of the group’s agreed strategy, which continued to be developed alongside the proposals to merge with Rathbone Brothers plc. Once the board had concluded that it would be unable to reach agreement on the merger the talks were terminated. The board at that time reiterated its commitment to the independence of the firm and the potential IPO of the group no earlier than late 2019.

Risk and control

The board received regular reports from the group risk and compliance and the audit and risk oversight committees. During the year it agreed that the group legal and compliance director also fulfil the role of chief risk officer, following the resignation of the previous role holder.

Detailed information about the group’s approach to risk and the risk management framework may be found on pages 26 to 27.

Legal

The board receives regular updates from the group legal and compliance director that include current compliance and legal matters, as well as information about developments in best practice, regulatory requirements and developments in the law and corporate governance that affect the business. The reports include accounts of compliance monitoring activity. Directors are periodically reminded of their responsibilities both in law and from a regulatory perspective.

The board also considered an annual report from the group’s money laundering reporting officer, which focused on developments in anti-money laundering regulation and financial crime. Regular reports are made to the board regarding financial crime matters.

During the year the board received, considered and authorised the statements made in compliance with the Modern Slavery Act 2017, which appear on the group’s website.

An externally facilitated board effectiveness review is underway, led by BP&E Global. One focus for the review will be the new governance structure that is being developed to support the group strategy. The outcome of that review will be considered by the board in the early summer of 2018. Further information about the results of the review will be given in the interim report to shareholders for the six months ended 31 October 2018.

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Corporate responsibility

The annual report of the activities of the corporate responsibility and charities committee was received by the board, which has reiterated its commitment to the firm’s culture and values. Work this year has focused on developing management information regarding culture and values to evidence that the group, its staff and clients are aware of, and live, the culture and values that the group espouses. The board has discussed and agreed a number of matters relating to corporate and social responsibility and a full report of the group’s stance in respect of such matters may be found on pages 36 to 39.

Subsidiary boards

During the 2018 governance review, the directors of Smith & Williamson Holdings Limited have agreed to become directors or members of the management boards of a number of the group’s subsidiaries, with a number of existing board members agreeing to retire from that role. It is intended that this will streamline the group’s governance arrangements and reflects the group’s strategy of working in unison. Each such subsidiary has a list of matters reserved to it which has been agreed by the respective board, whilst other matters have been delegated to appropriate committees including the newly formed group executive committee and the group risk and compliance committee, which reports to the audit and risk oversight committee.

Finance

The board received the group management accounts at each of its meetings and approved both the annual report and accounts for the year ended 30 April 2017 and the group’s interim results for the six months ended 31 October 2017. The board also agreed the going concern and viability statements included within the annual report and accounts.

It considered and agreed to pay an interim dividend for the year ended 30 April 2018 to shareholders of the company and recommended the payment of a final dividend for the year ended 30 April 2017, which was approved at the annual general meeting in September 2017.

The board discussed and challenged the assumptions made in the group budget for the year ended 30 April 2019, ensuring that the budget, which it approved, was aligned to the group’s strategy and business plan.

The company’s shares are not quoted, but the fair value of a share was determined, on the instruction of the board, by independent investment bankers. Canaccord Genuity Limited was engaged to undertake that work in both May and November 2017.

People

The board received a report on the results of the annual compensation reviews, bonus arrangements and incentives awarded to staff, which was led by the remuneration committee. It also received reports from the group’s HR director on human resources matters and on promotions to partner, director and associate director.

The board received the annual report on the group’s adherence to the Women in Finance charter, which asks firms to make a commitment to improve gender balance within the financial services sector. It noted the formation of a diversity and inclusion working group and other initiatives in that regard. The board also received the results of the staff engagement survey. Further details regarding the group’s work on diversity and inclusion can be found on page 36. Culture continues to be a focus for the board and it considered a report on the topic as part of its consideration of the group’s strategy.

Board members attended development sessions during the year on a variety of topics, including cyber security, diversity, financial crime and regulatory developments. It is anticipated that this programme of updates will continue and be expanded over the coming year.

Operations and IT

The board has continued to receive regular reports regarding the group’s IT strategy and the implementation of new, or enhancements of existing, systems. As stated in the co-chief executives’ report, the group is investing significantly in technology with the introduction of additional digital channels and work is underway to replace the group’s core systems. The board has approved this investment as part of the strategy and receives regular updates regarding both these and other IT projects ensuring there is appropriate challenge in respect of timetables and delivery, together with oversight of the costs involved. The change management forum, which reported to the operations committee and now to the group executive committee, monitors in detail the progress of IT and other projects that are ongoing.

CORPORATE GOVERNANCE REPORT CONTINUED


Internal control and financial reportingThe board has overall responsibility for the group’s systems of internal control. The chairman of the audit and risk oversight committee is responsible for the internal audit function and has been supported by the chief risk officer until she left the group in 2018 and later by the group legal, risk and compliance director. The detailed review work is outsourced to Ernst and Young LLP. Audit reports from a rolling programme of work are received and reviewed by:

1. the group risk and compliance committee

2. the audit and risk oversight committee

3. other relevant committees

In adopting job descriptions, the board has assigned responsibility for risk management and regulatory compliance to the co-chief executives.

The group’s system of internal financial control includes restrictions on payment authorisations and execution, and, where appropriate and possible, duties are segregated. The annual budgeting, forecasting and monthly management reporting system, which applies throughout the group, enables trends to be evaluated and variances to be acted upon. The operations committee received monthly financial information on results and other performance data and the board reviewed financial and performance data at each of its regular meetings.

Any system of internal control, however, is designed to manage rather than eliminate the risk of failure to achieve business objectives and client outcomes. In establishing and reviewing the system of internal controls, the directors consider the nature and extent of relevant risks, the likelihood of a loss being incurred and costs of control.

Relations with shareholdersThe company has a programme of communication with its shareholders through the interim and annual reports and financial statements and at the annual general meeting. Shareholders are given the opportunity to participate by asking questions at that meeting or by submitting written questions in advance. Regular communication with the company’s largest shareholder, AGF Management Limited, is enhanced by its board representation.

Going concernThe group’s business activities, together with the factors likely to affect its future development and performance, are set out in the strategic review. In addition, the strategic review refers to the group’s capital position, cash flows and viability. The group’s objectives, policies and processes for managing its capital and financial risk management objectives, details of financial instruments and exposures to credit and liquidity risk, are set out in notes 38 and 39.

The group has adequate financial resources and a large, diversified client base. As a consequence, the directors believe that the group is well placed to manage its business risks successfully. The group’s capital management process is set out in note 38.

The directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis of accounting in preparing the annual report and accounts.

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Audit and risk oversight committee report

The members of the committee have extensive experience of financial matters and of the financial services industry. I have held senior management roles at Ernst & Young LLP and PricewaterhouseCoopers LLP and was chairman of the audit and risk oversight committee of NCS Trust until April 2017 when I retired from the board. Other members of the committee, as described on pages 42 to 45, have had experience in both financial services and professional practice.

As chairman of the committee, I will attend the annual general meeting of the company where I will have the opportunity to meet shareholders and answer questions in respect of matters for which the committee is responsible.

Roles and responsibilities of the committeeThe roles and responsibilities of the committee are set out in its terms of reference, which were reviewed and amended by the board as part of its recent governance review.

The committee met eight times during the year. All of the members attended each meeting which they were entitled to attend with the exception of Andrew Sykes, who was unable to attend two meetings, and Elizabeth Chambers and Robert Bogart, each of whom was unable to attend one meeting. The group finance director, the group legal and compliance director, the chief risk officer, together with the group financial controller, were in attendance at meetings, as were representatives from the group’s external and internal auditors, who also meet with the committee members before each meeting without management present.

Membership and attendance

MemberMeetings attended

John Harley (chairman) 8/8

Robert Bogart1 3/4

Elizabeth Chambers 7/8

Andrew Fisher2 1/2

Keith Jones 8/8

Andrew Sykes 6/8


The chairman’s statementIt is my pleasure to present to you the report of the audit and risk oversight committee’s deliberations during the financial year.

The financial stability of the group and the integrity of the group’s financial statements and its policies and procedures are vital in ensuring that the group retains the confidence of its shareholders, regulators and clients, such that the group continues in existence and is able to attract the best staff who enhance the group’s reputation and develop its services and products for clients in line with regulation and best practice. The work that the committee does underpins the group’s strategy.

Committee membersUnder my chairmanship, the members of the committee are:

Elizabeth Chambers Andrew Fisher Keith Jones Andrew Sykes

all of whom served as members throughout the financial year. Robert Bogart stepped down from his membership of the committee at the time that he retired from the board. Andrew Fisher became a member of the committee on his appointment as a director and I would like to welcome him to the committee, whilst recording the committee’s appreciation of the contribution made by Robert Bogart during the time that he served as a member.

John HarleyChairman


The committee is responsible for a number of audit and risk matters. In my report in 2017 I highlighted that, in the current year, the committee would focus on risk and prudential matters, including the embedding of the group’s risk management framework, and would continue to discuss Brexit as the plans for the UK’s departure from the EU become clearer.

During the year, the investment risk framework was agreed by the board and work is underway to embed that within the processes and systems in the group. Discussions regarding Brexit and its potential impact on the group continue.

Risk oversight

At each meeting the committee receives a summary of the risks across the group from the chief risk officer, together with a dashboard, highlighting the risks to the group. Since March 2018 that role has been combined with that of the group legal and compliance director and, in March 2018, the committee received that summary from her. During the year the committee received input from the subsidiary boards of Smith & Williamson Investment Management LLP, NCL Investments Limited, Smith & Williamson Fund Administration Limited and the tax and business services subsidiaries boards and made recommendations to the boards of Smith & Williamson Investment Services Limited and the company, as appropriate.

Risks identified on the risk dashboard which are regularly discussed include change management and projects, reflecting the amount of work being undertaken in this regard, together with the group’s IT infrastructure, cyber risks from an IT, data and people perspective, the group’s investment risk framework and its acquisitions and merger risk, particularly in the light of the potential merger with Rathbone Brothers Plc. Further information about the work that the committee

has undertaken to consider the embedding of the risk management framework is given below.

Risk and control framework

The committee receives, semi-annually, the top down risk maps on a consolidated basis and for each legal entity. During the year, it discussed and challenged the risk maps together with the legal entity risk appetite statements and key indicators.

A major focus for the committee has been the continued embedding of the overarching risk management framework across the group and ways in which it would be possible to measure that embeddedness. The risk management framework is described in detail on pages 26 to 27 and management information is being developed to assess how this is reflected and considered by staff when making decisions and in the culture of the group.

Regulatory risks

The committee keeps the group’s regulatory capital requirements under review, to ensure that there is sufficient capital for the group to pursue its strategy and that the group adheres to the requirements set out by the PRA and the FCA. During the year, the committee received regular reports on the prudential regulatory capital of the group. It also considered and challenged the ICAAP, ILAAP, RRP and costs of wind down. After reviewing the assumptions, risk scenarios and stress tests contained in these policies, it was content to recommend each to the board for approval. It has also considered changes that will be required to be made to the ICAAP and ILAAP in the future as a result of regulatory developments.

The Pillar 3 disclosures were considered and recommended to the board of Smith & Williamson Holdings Limited for its approval.

Significant other regulatory developments during the year on which the committee focused included the implementation of MiFID II and the forthcoming introduction of the GDPR, both of which impact the group. As a consequence the committee has discussed the risks to the delivery of MiFID II, GDPR governance and updates. Throughout the year it has received reports regarding the risks associated with MiFID II.

The introduction of the Fourth Money Laundering Directive and work to ensure the group’s compliance with the requirements set out in the directive have been considered by the committee. During the year a project began to review the group’s anti-money laundering and sanctions checking processes. Reports on the progress of that work were made to the committee together with a consideration of issues relating to financial crime.

The committee considered the CASS audit reports prepared by PricewaterhouseCoopers LLP, the group’s external auditor, for submission to the FCA and received reports from the group’s CASS officer regarding CASS matters.

The group’s whistleblowing policies were reviewed and agreed by the committee during the year.

The group’s regulators indicated their desire to be informed of the outsourcing arrangements for firms. The committee received, considered and agreed the list of the providers of outsourced services for the group and work is underway to enhance the processes by which the performance of the providers of these services are assessed.

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AUDIT AND RISK OVERSIGHT COMMITTEE REPORT CONTINUED

Operational risks

A continuing focus for the committee has been cyber security, which it recognises as being wider than solely an IT risk. It has considered cyber matters on a number of occasions, most recently receiving a presentation of a case study, from which a series of actions to be taken, further enhancing the group’s controls in this area, are being developed. The committee has also discussed ongoing training for staff in relation to cyber crime matters and enhancements to the group’s IT systems and, recognising that cyber security matters affect more than IT, to other of the group’s processes including data and human resources.

Reports on IT matters are considered regularly by the committee which is concerned to ensure that the risks arising from the group’s investment in technology and digital channels, to which reference has been made in both the chairman’s and co-chief executives’ reports, are managed appropriately and mitigated so far as possible.

The group has a number of transformational IT projects in progress such as core wealth and the practice management system. Whilst these are monitored by the change management forum the committee has received regular reports on each with a particular focus on the implementation and other risks involved.

During the year, the committee considered the risks inherent in the provision, by the group, of trust services through its subsidiary Smith & Williamson Trust Corporation Limited and the ways in which those risks were mitigated.

Facilitation of tax evasion – the committee received reports regarding the implementation of legislation to prevent the facilitation of tax evasion and the work undertaken to ensure that the group’s processes and procedures were robust in this regard.

IT systems – the committee is keen to ensure that as many processes as possible within the group are automated, especially with the advent of MiFID II and its enhanced reporting requirements. It receives regular reports on progress made to do so.

Regulatory and tax

The committee considered the group’s annual taxation status report and its tax strategy, which was made available on the group’s website in April 2018.

Audit

The committee received regular reports from Ernst & Young LLP, the group’s internal auditor, about the progress of the internal audit plan and material recommendations made in internal audit reports. The committee considered management’s responses to any matters of significance raised and received regular updates on the implementation of any recommendations made and accepted.

Both the internal and external audit plans for 2018/19 were considered and agreed by the committee.

People risks

The committee is responsible for considering and recommending to the board the appointment of the chief risk officer, the CASS officer and the group legal and compliance director. During the year, it considered the objectives for each for the financial year ended 30 April 2018 and, following the departure of the group’s chief risk officer, reviewed the handover arrangements pursuant to the senior managers’ regime. It was content to recommend that the group legal and compliance director assume that role, in addition to her existing responsibilities, having received assurance that each of those roles could be undertaken by one person, without impacting her ability to perform them.

Conduct risk was discussed at a number of the meetings of the committee and during the year, in addition to the conduct risks that are implicit in the group’s top down risks, the universe of risks from a conduct risk perspective were discussed.

Emerging risks

Brexit – the committee also considered the risk aspects of the potential impact on the group of Brexit. This will be an ongoing focus over the forthcoming year as the government’s negotiations in that regard continue. The committee has received a summary of advice on the potential consequences of Brexit on the services that it is able to provide to clients and on its staff both in the UK and overseas.


The committee received confirmation from PricewaterhouseCoopers LLP that there were no significant facts or matters that impacted its independence as auditors that were required to be brought to the attention of the committee. It confirmed that it had complied with the Auditing Practices Board’s Ethical Standards and that it was independent and able to express an objective opinion on the financial statements.

Additionally, confirmation was received that the auditors had implemented policies and procedures to meet the requirements of the Auditing Practices Board’s Ethical Standards.

At its meeting in December 2017, the committee considered and recommended to the board for approval the interim statements for the six months ended 31 October 2017. The funding of the interim dividend was considered and the committee confirmed that there were sufficient distributable reserves available for the board to pay the interim dividend on 23 February 2018.

Finance

Critical estimates and judgements made in the preparation of the annual report and accounts were considered by the committee, including those in relation to the group’s funded defined benefit pension plan and its liabilities for unfunded pension payments and share option and award assumptions.

The committee considered the carrying value of goodwill in both investment management and banking and tax and business services and concluded that there were no indications of impairment. The quantum and reasons for the provisions made in the annual report and accounts were considered and approved.

The going concern and viability statements were discussed, together with a paper regarding dividend funding and the review of the work of the committee that was included in the annual report and accounts. The committee confirmed that it was content to recommend to the board that the going concern basis of accounting be used in the preparation of the annual report and accounts.

Following these discussions, the committee was content to recommend to the board that, taken as a whole, the 2018 annual report and accounts are fair, balanced and understandable and provided the information necessary for shareholders to assess the company’s performance, business model and strategy.

Auditors

PricewaterhouseCoopers LLP were appointed as auditors in 2014. The committee was content with the effectiveness of the external audit for the year ended 30 April 2017 and recommended the re-appointment of that firm as auditors of the company for the year ended 30 April 2018. It is not intended that a tender for external audit services be undertaken during the year ended 30 April 2019.

Conclusion

The regulatory environment in which the group operates continues to evolve. The work of the committee during the next financial year will reflect this with an increasing focus on risk and prudential matters, such as those relating to GDPR and financial crime. The committee will also monitor the risks relating to the group’s significant IT developments in respect of the new core wealth and practice management systems, together with the work undertaken to mitigate the risks relating to data and cyber security. The committee will continue to discuss Brexit as the plans for the UK’s departure from the EU become clearer.

John HarleyChairman of the audit and risk oversight committee

28 June 2018

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Nominations committee report

During the year, the committee considered the succession plans for directors of the company, taking into account the challenges and opportunities facing the group and the skills and expertise needed on the board in the future. It continues to keep those plans under review. The committee also considered and approved the board diversity policy. Smith & Williamson recognises the benefits of having a diverse board and views diversity at board level as an important element in maintaining a competitive advantage. We regard the effectiveness of the board as a crucial element of governance and board composition is a key factor in that effectiveness.

All board appointments are made on merit, in the context of the skills, experience, independence and knowledge which the board requires as a whole to be effective. Subject to that overriding principle, Smith & Williamson believes that diversity of experience and approach, including gender diversity, amongst the board members is of great value when considering overall board balance and making new appointments to the board. Our priority is to ensure that the board continues to have strong leadership and the right mix of skills to deliver the business strategy.

The committee considered the results of the appraisals conducted by the chairman in 2017 in respect of non-executive directors and the co-chief executives, together with that conducted by the senior independent director on the chairman. The committee noted that there had been no regulatory or compliance breaches, including those relating to the conduct rules, by non-executive directors with senior management functions or by notified non-executive directors under the Senior Managers Regime. Therefore, each demonstrated ongoing fitness and propriety.



Andrew Sykes (chairman) 2/2


Blake Goldring 1/2

John Harley 2/2

Keith Jones 2/2

The chairman’s statementIt is my pleasure to present to you the report of the nominations committee’s deliberations during the financial year.

Under my chairmanship, the members of the committee are:

Elizabeth Chambers Blake Goldring John Harley Keith Jones

Roles and responsibilities of the committeeThe committee is tasked with considering the knowledge, skills and experience of the board, together with the succession plans for board members and recommending the appointment of directors to the board.

In last year’s report I highlighted that a focus for the committee would be on the training and development activities of individual directors. During the year board members had the opportunity to participate in two development sessions that were organised in-house and have been encouraged to participate in other, externally arranged, development activities.

Andrew Fisher was appointed a director of Smith & Williamson Holdings Limited by AGF Management Limited in succession to Robert Bogart. AGF Management Limited is entitled to do so under the company’s articles of association.



The committee considered those directors who were to retire by rotation at the 2017 Annual General Meeting and made recommendations to the board regarding my continued tenure, as I have served on the board for over nine years. I absented myself from that discussion. The committee recommended that Elizabeth Chambers and Peter Fernandes retire and offer themselves for re-appointment. The board was content to accept the recommendations of the committee that each continue to serve as a director on the basis that their extensive knowledge of the group’s business and its executives enabled them to provide effective challenge at meetings and their mix of skills and experience continued to be relevant to the group’s activities.

An externally facilitated board effectiveness review is underway, assisted by BP&E Global. I refer to this in my statement on page 3. The outcome of that review will be considered by both the committee and the board in the early summer of 2018. Further information about the results of the review will be given in the interim report to shareholders for the six months ended 31 October 2018.

The committee considered the report on its activities for the year, which was included within the 2017 annual report and accounts.

Looking forwardThe committee plans to focus on a number of matters during the year, including those relating to diversity, both at the board level and within senior management. There will be a continued emphasis on the training and development of directors to ensure that the board is well equipped to provide oversight of the group’s existing strategy and developing businesses.

Andrew SykesChairman of the nominations committee

28 June 2018

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Remuneration committee report

The committee received advice during the year from the co-chief executives and it was also assisted by a sub-committee of executives appointed by the committee. The committee can call for external advice, including legal advice, as required.

Remuneration policyThe main principles of the remuneration policy are to:

• align remuneration with the strategy and performance of the business

• ensure that remuneration is set at an appropriate and competitive level, taking into account market rates and best practice

• foster and support conduct and behaviours in line with our culture and values

• maintain a sound risk management framework

• ensure that the ratio between fixed and variable remuneration is appropriate and does not encourage excessive risk taking

• comply with all relevant regulatory requirements

• align incentive plans with business strategy and shareholder interests

The policy is designed to reward partners, directors and employees for delivery of both financial and non-financial objectives set in line with company strategy. As part of a “balanced scorecard” approach to variable remuneration, non-financial criteria including, but not limited to, compliance and risk issues, client management, supervision, leadership and teamwork are considered alongside financial performance.



Keith Jones (chairman) 8/8

Robert Bogart1 4/4


Blake Goldring2 3/3

John Harley 6/8

Andrew Sykes 8/8


The chairman’s statementIt is my pleasure to present the report of the remuneration committee’s work over the past financial year.

Under my chairmanship, the members of the committee are:

Elizabeth Chambers Blake Goldring John Harley Andrew Sykes

Blake Goldring joined the committee on 15 January 2018. Bob Bogart left the committee on 28 September 2017 when he stepped down from the board as a non-executive director.

The committee is governed by formal terms of reference which are reviewed and agreed by the board annually.

Roles and responsibilities of the committeeThe remuneration committee is responsible for setting the remuneration policy for all partners, directors and employees within the group including individuals designated as Material Risk Takers under the Remuneration Code. Our remuneration policy is designed to meet the requirements of the Code and provide a framework to attract, retain, motivate and reward employees and partners. The overall policy is designed to promote the long-term success of the group and to support prudent risk management, with particular attention to conduct risk. The remuneration of all executive directors of the board and all partners and directors within the group is the responsibility of the committee.

Keith JonesChairman


The remuneration committee remains committed to managing the balance between the equity and cash components of variable remuneration to support long- term engagement and sustained performance with appropriate risk management. Partners and directors are further encouraged to build up their equity stake in the business to align their interests with those of other shareholders.

The remuneration of individual executive directors is determined by the committee within the framework of this policy. The policy aims to provide overall remuneration that is competitive and will attract, motivate and retain high calibre individuals who can deliver successful business performance in the short and long term. It seeks to provide clear alignment between remuneration and the interests of both clients and shareholders.

What we have doneDuring the year, the committee met on eight occasions; among the issues considered and discussed were:

• a review of the remuneration policy for the group

• approval of the list of individuals identified as Material Risk Takers in relation to the Remuneration Code for the 2017-2018 financial year

• a review of regulatory changes to assess their potential impact on the group’s remuneration strategy

• approval of bonus pool calculations

• a review of the achievement of performance conditions for the Smith and Williamson Investment Management Long Term Incentive Plan and approval of vesting for the first tranche of awards

• determination of remuneration for executive directors

• approval of remuneration for all partners and directors within the group

• approval of the individual remuneration of Material Risk Takers

• determination of share and option awards for executive directors, partners and directors

• approval of the Gender Pay Gap Report

• approval of a deferred award scheme to encourage and reward the introduction of new business

• approval of the risk methodology for the calculation and assessment of bonus pools

• approval of a balanced scorecard to assess financial and non-financial performance

The committee continues to encourage the reward of equity under the Equity Matching Plan for partners in Smith & Williamson Investment Management LLP and Smith & Williamson LLP and the Matching Share Plan for employees. The Matching Plans are used to reward individual performance, encourage wider share ownership and align the long-term interests of employees and partners with other shareholders and the business. The committee sets and monitors overall limits on the potential dilution arising from the operation of the group’s incentive schemes in aggregate.

Details of all incentive plans for directors, partners and employees are contained in notes 26 and 27 of the financial statements. Details of share units issued to individual members of the LLPs are contained in note 29 of the financial statements.

During 2018, the committee will be undertaking a review of our reward structure to ensure that it aligns with our 2025 strategy and continues to support the long-term success of the business.

Annual report on remunerationThe fixed remuneration for each executive director is set on an annual basis or whenever there is a significant change in role or responsibility. In setting fixed remuneration the committee benchmarks each role against market data on companies of a similar size and complexity within the same sectors.

When considering variable remuneration for the executive directors, the committee takes account of overall business performance for the group and divisions, the achievement of both financial and non-financial objectives (including adherence to the principles of treating customers fairly, conduct risk, compliance and regulatory rules), personal performance and any other relevant policy of the board in respect of the year ended 30 April 2018. The committee agrees the individual allocation of variable remuneration and the proportion of that variable remuneration to be awarded as equity.

Executive directors’ fixed and variable remuneration is paid either as salary or bonus from the company or as profit shares of either, or both, of the LLPs.

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Salary and LLP profit shares

£

Cash bonus

£

Restricted share awards

£

2018 Total

£

2017 Total

£

Executives:

J T Boadle (to October 2016) – – – – 404,362

D M Cobb 427,878 550,000 120,000 1,097,878 1,089,244

P L Fernandes 325,298 460,000 90,000 875,298 866,663

G T Hotson (from August 2016) 291,860 250,000 100,000 641,860 438,796

K P Stopps 407,355 450,000 150,000 1,007,355 947,330

Non–executives:

R J Bogart (to September 2017) – – – – –

E G Chambers 47,917 – – 47,917 47,083

A C Fisher (from January 2018) – – – – –

B C Goldring – – – – –

J H Harley (from June 2016) 62,917 – – 62,917 49,569

P F Hazell (to November 2016) – – – – 34,735

K Jones 62,917 – – 62,917 57,672

A F Sykes 160,000 – – 160,000 160,000

1,786,142 1,710,000 460,000 3,956,142 4,095,454

The restricted share awards will be issued to the executive directors as share units in both Smith & Williamson Investment Management LLP and Smith & Williamson LLP.

During the year ended 30 April 2018 and 30 April 2017, the following awards were made to the executive directors:

SWHLMatching1

SWIM LLPEMP2

SW LLPEMP3

30 April 2018 Grant date Number Grant date Number Grant date Number

D M Cobb – – – – – –

P L Fernandes – – – – – –

G T Hotson – – 30/10/17 4,513 30/10/17 6,000

K P Stopps – – – – 30/10/17 40,001

30 April 2017

D M Cobb – – – – – –

P L Fernandes – – – – – –

G T Hotson 30/10/16 3,750 – – – –

K P Stopps – – – – 30/10/16 54,352

REMUNERATION COMMITTEE REPORT CONTINUED


SWIM LLPRSA4

SW LLPRSA5

30 April 2018 Grant date Number Grant date Number

D M Cobb 30/10/17 19,257 30/10/17 19,200

P L Fernandes 30/10/17 14,443 30/10/17 14,400

G T Hotson 30/10/17 7,522 30/10/17 10,000

K P Stopps 30/10/17 6,018 30/10/17 96,000

30 April 2017

D M Cobb 30/10/16 19,619 30/10/16 19,566

P L Fernandes 30/10/16 13,080 30/10/16 13,044

G T Hotson – – – –

K P Stopps 30/10/16 3,815 30/10/16 60,870

Further details of the above awards can be found in note 27.

Options exercised during the yearDuring the year ended 30 April 2018 and 30 April 2017, the following options were exercised by the executive directors:

RSA6

SWIM LLPMatching7

SW LLPMatching8

SWIM LLP RSA4

SW LLP RSA5

SWIM LLPLTIP9 Fair value

30 April 2018 Number Number Number Number Number Number £

D M Cobb – – – 21,053 30,000 124,000 760,589

P L Fernandes – – – 8,772 12,500 92,000 517,973

G T Hotson – – – – – – –

K P Stopps – – 69,375 2,193 50,000 – 160,15130 April 2017

J T Boadle 6,238 10,856 15,417 – – – 86,276

D M Cobb 12,475 13,570 – – – – 114,298

P L Fernandes 6,238 13,570 – – – – 82,052

K P Stopps 6,238 – 77,083 – – – 103,167

1. Smith & Williamson Holdings Limited Matching Share Plan, exercise price £nil2. Smith & Williamson Investment Management LLP SWHL Equity Matching Plan, exercise price £nil3. Smith & Williamson LLP SWHL Equity Matching Plan, exercise price £nil4. Smith & Williamson Investment Management LLP Restricted Share Awards Plan, exercise price £nil5. Smith & Williamson LLP Restricted Share Awards Plan, exercise price £nil6. Smith & Williamson Holdings Limited Occasional Executive Long Term Incentive Plan, exercise price £nil7. Smith & Williamson Investment Management LLP Matching Share Plan, exercise price £nil8. Smith & Williamson LLP Matching Share Plan, exercise price £nil9. Smith & Williamson Investment Management LLP Long Term Investment Plan, exercise price £nil

Keith JonesChairman of the remuneration committee

28 June 2018

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Directors’ report

DirectorsAll those who served as directors at any time during the year are listed on pages 42 to 45, with the exception of Robert Bogart who retired from the board on 28 September 2017.

Andrew Sykes, Keith Jones and Kevin Stopps retire at the annual general meeting and, being eligible, offer themselves for re-election.

Indemnity and insuranceThe directors have been covered by liability insurance throughout the year and the policy of insurance remains in force.

Financial instruments and risk managementInformation on the group's financial instruments and management of financial risk is disclosed in notes 1 and 39 respectively.

Corporate responsibilityWe are committed to minimising the environmental impact of our operations and to delivering continuous improvement in our environmental performance. See page 39 for more details on our total CO2e emissions data.

The directors present their annual report on the affairs of the group, together with the audited financial statements for the year ended 30 April 2018.

Registered company numberThe company’s registered number is 4533948.

Results and returns to shareholders during the yearThe consolidated results for the year are shown on page 67.

The directors are recommending a final dividend of 26.0 pence per share which, if approved by shareholders at the AGM, will be paid on 4 October 2018 to shareholders on the register of members at close of business on 14 September 2018. Dividends payable in respect of the year, subject to this approval, along with prior year payments, are set out below.

2018 2017

pence £m pence £m

Interim 10.0 5.2 10.0 5.2

Final 26.01 13.1 22.0 11.2

Total 36.0 18.3 32.0 16.4

1. Subject to approval by shareholders at the 2018 AGM.

Capital structureDetails of changes in the company’s share capital during the year are given in note 26 to the consolidated financial statements and details of the purchase and sale of shares in the company by the EBT are included in note 28.

Political donationsNo political donations were made during the year (2017: £nil).

Post balance sheet eventsThere were no post balance sheet events.

Future developments Likely future developments in the business of the group are discussed in our strategy on pages 17 to 23.

Branches outside the UK The group has a branch in Ireland.

Annual general meetingThe AGM will be held at on 27 September 2018 at our office at 25 Moorgate, London EC2R 6AY.

Substantial shareholdingsAt 30 April 2018, the company had been notified of the following interest of 3% or more in its ordinary share capital.

Number % held

AGF Management Limited(D ordinary shares) 16,640,685 29.94

Smith & Williamson Holdings Limited EBT(A ordinary shares) 4,805,950 8.65

Smith & Williamson Nominees Limited(A ordinary shares) 2,095,142 3.77


Share priceThe ex-dividend fair value of an ordinary share in the company at 30 April 2018 was £8.30 (2017: £6.08) and the range during the year was £7.01 to £8.30 (2017: £4.98 to £6.08).

Statement of directors' responsibilitiesThe directors are responsible for preparing the annual report and accounts in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs), as adopted by the European Union (EU). Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and of the company and of the profit or loss of the group and the company for that period. In preparing these financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently

• state whether applicable IFRSs as adopted by the EU have been followed, subject to any material departures disclosed and explained in the financial accounts

• make judgements and accounting estimates that are reasonable and prudent

• prepare the financial statements on a going concern basis, unless it is inappropriate to presume that the group and the company will continue in business.

Auditors and disclosure of information to auditorsEach person who is a director at the date of approval of the annual report and accounts confirms that:

• so far as the director is aware, there is no relevant audit information of which the company’s auditors are unaware

• the director has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the auditors were aware of that information

This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006.

PricewaterhouseCoopers LLP have expressed their willingness to continue in office as auditor and a resolution to reappoint them will be proposed at the forthcoming AGM.

Corporate governance statementThe company’s statement on corporate governance can be found in the corporate governance report on pages 46 to 51. The corporate governance report forms part of this directors’ report and is incorporated into it by cross-reference.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group’s and the company’s transactions, and disclose with reasonable accuracy at any time the financial position of the group and company and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards to the group financial statements, Article 4 of IAS Regulation. They are also responsible for safeguarding the assets of the group and 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 company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

On behalf of the board

D A SaundersCompany secretary

25 Moorgate London EC2R 6AY

28 June 2018

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Financial statements65 Independent auditors’ report

67 Consolidated financial statements

72 Notes to the consolidated financial statements

124 Company financial statements

128 Notes to the company financial statements


INDEPENDENT AUDITORS’ REPORT

Independent auditors’ report to the members of Smith & Williamson Holdings Limited


Report on the audit of the financial statements Opinion

In our opinion, Smith & Williamson Holdings Limited’s group financial statements and company financial statements (the “financial statements”):

• give a true and fair view of the state of the group’s and of the company’s affairs as at 30 April 2018 and of the group’s and the company’s profit and cash flows for the year then ended;

• have been properly prepared in accordance with IFRSs as adopted by the European Union; and

• have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”), which comprise: the consolidated and company balance sheets as at 30 April 2018; the consolidated income statement, the consolidated statement of comprehensive income, the company income statement and statement of comprehensive income, the consolidated and company cash flow statements, and the consolidated and company statements of changes in equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when:

• the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

• the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s and company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s and company’s ability to continue as a going concern.

Reporting on other information

The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.

With respect to the Strategic report and Directors’ report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included.

Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report certain opinions and matters as described below.

Strategic report and Directors’ report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’ report for the year ended 30 April 2018 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.

In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic report and Directors’ report.

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INDEPENDENT AUDITORS’ REPORT CONTINUED

66 Smith & Williamson │ Annual Report 2018

Responsibilities for the financial statements and the audit

Responsibilities of the directors for the financial statements As explained more fully in the statement of directors' responsibilities set out on page 63, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.

Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditors’ report.

Use of this report This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Other required reporting Companies Act 2006 exception reporting

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• we have not received all the information and explanations we require for our audit; or

• adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or

• certain disclosures of directors’ remuneration specified by law are not made; or

• the company financial statements are not in agreement with the accounting records and returns.

We have no exceptions to report arising from this responsibility.

Mark Pugh Senior statutory auditor

for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors, London

28 June 2018


CONSOLIDATED FINANCIAL STATEMENTS

Consolidated income statement for the year ended 30 April 2018


Note

Year ended 30 April 2018

£’000


£’000

Interest and similar income 4,879 4,637 Interest expense and similar charges (616) (425) Net interest income 4,263 4,212 Fee and commission income 314,644 276,944 Fee and commission expense (56,722) (41,493) Net fee and commission income 257,922 235,451 Net trading income 4,173 3,225 Share of results of associates 4 15 137 Other operating income 365 1,584 Operating income 266,738 244,609 Staff costs 5 (157,528) (149,874) Amortisation of intangible assets – client relationships 11 (972) (1,395) Other operating expenses 6 (63,014) (54,093) Operating expenses (221,514) (205,362) Operating profit 45,224 39,247 Dividend income 7 840 554 Profit before tax 46,064 39,801 Taxation 8 (10,421) (8,793) Profit for the year 35,643 31,008 Attributable to: Equity holders of the parent company 34,293 29,715 Non-controlling interests 1,350 1,293 35,643 31,008 Earnings per share for the year attributable to equity holders of the parent company • Unadjusted basic 9 67.2p 58.0p • Unadjusted diluted 9 66.4p 57.3p

The accompanying notes to the financial statements on pages 72 to 123 form an integral part of the financial statements.

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CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

Consolidated statement of comprehensive income for the year ended 30 April 2018


Note


£’000


£’000

Profit for the year 35,643 31,008 Items that will not be reclassified to profit or loss Net remeasurement of defined benefit assets: • Actual return less expected return on scheme assets 22 443 3,557 • Experience gains and losses arising on scheme liabilities 22 (62) (371) • Change in assumptions underlying the present value of scheme liabilities 1,408 (5,120) • Effect of asset ceiling (1,066) 1,188 Actuarial gain/(loss) on retirement annuities 22 113 (10) Tax effect of the above adjustments 8 (116) 116 720 (640) Items that may be reclassified subsequently to profit or loss Net gains on revaluation of available-for-sale assets 19 130 846 Gain transferred to income statement on disposal of available-for-sale assets (1) – Tax effect of the above adjustments 8 (23) 13 106 859 Exchange loss on translation of foreign subsidiaries (22) (74) (Loss)/gain on associate currency translation movement 4 (42) 302 Other comprehensive income for the year, net of tax 762 447 Total comprehensive income for the year 36,405 31,455 Attributable to: Equity holders of the parent company 35,055 30,162 Non-controlling interests 1,350 1,293 36,405 31,455



Consolidated balance sheet as at 30 April 2018


Note

As at 30 April 2018

£’000

As at 30 April 2017

£’000

Assets Non-current assets Intangible assets 11 116,823 113,274 Property, plant and equipment 12 4,165 5,152 Interests in associates 4 3,377 3,494 Investment securities – available-for-sale 19 302 301 Deferred tax assets 20 727 557 125,394 122,778 Current assets Cash and balances with central banks 13 1,064,816 293,180 Loans and advances to banks 14 63,511 15,410 Settlement balances – assets 15 88,950 87,412 Loans and advances to customers 16 38,983 36,927 Prepayments, accrued income and other receivables 17 67,709 59,708 Investment securities – held-to-maturity 18 187,543 155,381 Investment securities – available-for-sale 19 8,328 8,542 1,519,840 656,560 Total assets 1,645,234 779,338 Liabilities Non-current liabilities Retirement benefits 22 773 1,690 Accruals, deferred income, provisions and other payables 25 340 339 1,113 2,029 Current liabilities Other borrowed funds 21 19,408 18,766 Settlement balances – liabilities 23 88,658 87,176 Due to customers 24 1,149,744 320,380 Accruals, deferred income, provisions and other payables 25 99,840 88,254 Current tax liabilities 6,299 5,108 1,363,949 519,684 Total liabilities 1,365,062 521,713 Net assets 280,172 257,625 Equity Equity attributable to owners of the parent Share capital 26 5,557 5,557 Share premium 26 25,150 25,150 Own shares 28 (27,654) (23,426) Other reserves 119,648 119,542 Retained earnings 147,791 121,125 270,492 247,948 Non-controlling interests 29 9,680 9,677 Total equity 280,172 257,625

The accompanying notes to the financial statements on pages 72 to 123 form an integral part of the financial statements. The financial statements were approved by the board and authorised for issue on 28 June 2018 and signed on its behalf by:

A F Sykes G T Hotson Chairman Group finance director

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CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

Consolidated cash flow statement for the year ended 30 April 2018


Note


£’000


£’000

Cash flows from operating activities Profit before tax 46,064 39,801

Non-cash movements Depreciation of property, plant and equipment 12 1,622 1,471 Amortisation of intangible assets 11 1,590 1,598 Defined benefit pension costs and other retirement costs 30 338 (Decrease)/increase in provisions 25 (93) 508 Share of profit before tax in associate and profit on dilution 4 (15) (137) Share based payment charges 27 8,363 9,175 Gain on sale of investment in subsidiary – (1,312) Loss on disposal of property, plant and equipment 15 – Profit on disposal, less impairment, of investment securities – available-for-sale (27) – Other non-cash movement 160 (43) Operating cash flows before movements in operating assets and liabilities 57,709 51,399

Changes in operating assets and liabilities (Increase)/decrease in loans and advances to customers (2,056) 3,735 (Increase)/decrease in net settlement balances (56) 336 Increase in prepayments, accrued income and other receivables (8,001) (6,427) Increase in amounts due to customers 829,364 31,542 Increase in accruals, deferred income, provisions and other payables 11,680 6,992 Net purchase of investment securities – held-to-maturity (32,162) (48,881) Cash generated from operations 856,478 38,696 Defined benefit contribution and annuities paid (142) (534) Tax paid (9,308) (8,480) Net cash generated from operating activities 847,028 29,682

Cash flow from investing activities Purchase of property, equipment and intangible assets 11,12 (5,967) (6,115) Proceeds from sale of a subsidiary, net of cash disposed of – 1,028 Purchase of investment securities – available-for-sale – (448) Proceeds from sale of investment securities – available-for-sale 370 102 Dividends received from associate 4 90 126 Net cash used in investing activities (5,507) (5,307)

Cash flows from financing activities Investment in shares in EBT 28 (9,422) (6,691) Proceeds from sale of shares in EBT 5,355 4,263 Acquisition of interest in a subsidiary (1,022) (1,172) Distributions to shareholders (17,723) (16,171) Capital contributed by non-controlling interests 386 403 Net cash used in financing activities (22,426) (19,368)

Net increase in cash and cash equivalents 819,095 5,007 Cash and cash equivalents at beginning of the year 289,824 284,817 Cash and cash equivalents at the end of the year 13 1,108,919 289,824

Group's own net cash at the end of the year 13 184,018 161,320



Consolidated statement of changes in equity for the year ended 30 April 2018


Other reserves

Share capital

£'000

Share premium

£'000

Own shares £'000

Merger reserve

£'000

Capital redemption

reserve £'000

Available-for-sale reserve

£'000

Total other

reserves £'000

Retained earnings

£'000 Total £'000

Non-controlling

interests £'000

Total equity £'000

Equity at 1 May 2016 5,557 25,150 (21,607) 97,991 14,546 6,146 118,683 98,476 226,259 9,913 236,172 Profit for the year ended 30 April 2017 – – – – – – – 29,715 29,715 1,293 31,008 Other comprehensive income/(loss) for the year, net of tax – – – – – 859 859 (412) 447 – 447 Total comprehensive income – – – – – 859 859 29,303 30,162 1,293 31,455 Distributions to shareholders – – – – – – – (14,878) (14,878) (1,293) (16,171) Own shares bought – – (6,691) – – – – – (6,691) – (6,691) Own shares sold – – 4,872 – – – – – 4,872 – 4,872 EBT loss on sale of shares – – – – – – – (609) (609) – (609) Share based payments – – – – – – – 9,326 9,326 – 9,326 Deferred tax on equity items – – – – – – – 40 40 – 40 Acquisition of non-controlling interests – – – – – – – (533) (533) (639) (1,172) Capital contributed by non-controlling interests – – – – – – – – – 403 403 Equity at 30 April 2017 5,557 25,150 (23,426) 97,991 14,546 7,005 119,542 121,125 247,948 9,677 257,625 Profit for the year ended 30 April 2018 – – – – – – – 34,293 34,293 1,350 35,643 Other comprehensive income for the year, net of tax – – – – – 106 106 656 762 – 762 Total comprehensive income – – – – – 106 106 34,949 35,055 1,350 36,405 Distributions to shareholders – – – – – – – (16,373) (16,373) (1,350) (17,723) Own shares bought – – (9,422) – – – – – (9,422) – (9,422) Own shares sold – – 5,194 – – – – – 5,194 – 5,194 EBT gain on sale of shares – – – – – – – 161 161 – 161 Share based payments – – – – – – – 8,363 8,363 – 8,363 Deferred tax on equity items – – – – – – – 205 205 – 205 Acquisition of non-controlling interests – – – – – – – (639) (639) (383) (1,022) Capital contributed by non-controlling interests – – – – – – – – – 386 386 Equity at 30 April 2018 5,557 25,150 (27,654) 97,991 14,546 7,111 119,648 147,791 270,492 9,680 280,172


Retained earnings include the share option, actuarial and translation foreign currency reserves and movements thereon.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Notes to the consolidated financial statements for the year ended 30 April 2018


1. Principal accounting policies Smith & Williamson Holdings Limited is a company incorporated and domiciled in England and Wales.

The consolidated financial statements have been prepared in accordance with IFRSs as adopted by the EU and interpretations issued by the IFRS Interpretations Committee (IFRS IC). The financial statements are also prepared in accordance with those parts of the Companies Act 2006 that remain applicable to companies reporting under IFRSs as adopted by the EU. The financial statements have been prepared under the historical cost basis, except for certain financial instruments that are measured at fair value (see pages 78 and 79). The accounting policies have been applied consistently.

New and amended standards adopted by the group The group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 May 2017:

• Recognition of Deferred Tax Assets for Unrealised Losses – Amendments to IAS 12, and

• Disclosure initiative – amendments to IAS 7.

The adoption of these standards and amendments did not have any impact on the amounts recognised in the group’s financial statements.

The amendments to IAS 7 require disclosure of changes in liabilities arising from financing activities, see note 21.

New standards and interpretations not yet adopted Certain new accounting standards and interpretations, which have not been applied in these financial statements, were in issue but not yet mandatorily effective for the group. The group’s assessment of the impact of these new standards and interpretations is set out below.

IFRS 9 Financial instruments IFRS 9 is effective for financial years commencing on or after 1 January 2018. The first annual report published in accordance with IFRS 9 will be the 30 April 2019 report. The group plans to adopt a retrospective approach from 1 May 2018, with the practical expedients permitted under the standard. Comparatives for 2018 will not be restated.

The new classification and measurement rules for financial assets under IFRS 9 have a limited impact on the group as the measurement basis is unchanged from that under IFRS 39. Cash, loans and advances and securities measured at cost, previously classified as held-to-maturity securities, will be measured at amortised cost. Equity securities, previously classified as available-for-sale, will satisfy the conditions for classification at fair value through other comprehensive income.

The classification and measurement of financial liabilities in accordance with IFRS 9 remains largely unchanged from IAS 39 and they are either classified as financial liabilities at amortised cost or fair value through profit or loss.

The new impairment model requires the recognition of impairment provisions based on expected credit losses rather than only incurred credit losses as is the case under IAS 39. Expected credit losses are to be recognised on all financial instruments within scope from when they are originated or purchased. Full lifetime expected credit losses are recognised when a financial instrument deteriorates significantly in credit quality. Due to the short duration and high credit quality of the group’s financial assets and the high level of collateralisation, expected credit losses are expected to be immaterial (impact is less than 0.3% of total equity).

The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and extent of the group’s disclosures about its financial instruments.

IFRS 15 Revenue from contracts with customers IFRS 15 is effective for financial years commencing on or after 1 January 2018. The first annual report published in accordance with IFRS 15 will be the 30 April 2019 report. The group plans to adopt a modified retrospective approach from 1 May 2018. Comparatives for 2018 will not be restated.

The core principle of IFRS 15 is for entities to recognise revenue to depict the transfer of goods and services to customers in amounts that reflect the consideration (that is, payment) to which the group expects to be entitled in exchange for those goods or services. A five-step model is applied to determine when to recognise revenue, and at what amount.



Management has reviewed the terms and conditions of customer contracts across multiple business lines in order to determine, using the five-step model, the group’s performance obligation and the associated timing of each performance obligation. This review concluded that, while the basis of assessing revenue recognition is different to that used under IAS 18, the recognition point and measurement will be consistent.

Based on management’s assessment, the implementation of this standard is not expected to have an impact on the group’s reported financial position or performance. However, it will result in expanded disclosures in the group’s financial statements.

IFRS 16 Leases IFRS 16 is effective for financial years commencing on or after 1 January 2019. The first annual report published in accordance with IFRS 16 will be the 30 April 2020 report. The group plans to adopt a modified retrospective approach from 1 May 2019. Comparatives for 2019 will not be restated.

IFRS 16 eliminates the classification of leases as either operating leases or finance leases. Instead, any leases with more than 12 months’ term are recognised as an asset with the related future lease obligations shown as a liability.

Lessees initially recognise a right-of-use asset and lease liability based on the discounted payments required under the lease, taking into account the lease term (determined as the non-cancellable period for which the lessee has the right to use an asset including optional periods when an entity is reasonably certain to exercise the option to extend). Initial direct costs and restoration costs are included in the asset cost.

The discount rate is the rate implicit in the lease, unless this cannot readily be determined, in which case the lessee’s incremental rate of borrowing (the rate a lessee would pay if, instead of leasing, they financed the purchase of the asset) is used instead.

The lease liability is increased to reflect interest and reduced for lease payments made. The asset is depreciated in accordance with IAS 16 Property, Plant and Equipment.

As a result, the depreciation and interest charges will replace the lease cost currently charged to the income statement on a straight-line basis. This will result in a change in the profile of the charge taken in the income statement over the lease with higher costs taken in earlier years and a reduction in expenses in later years.

Based on management’s assessment, on initial application the new standard will have a substantial impact on the group’s balance sheet, materially grossing up assets and liabilities from office property leases by approximately £21.0 million. However, the standard is not expected to materially affect the group income statement with an estimated maximum annual impact of £0.3 million in the year of adoption from a change in the profile of the charge taken to the income statement over the life of the lease. It will also result in expanded disclosures in the group’s financial statements.

Going concern Reference to the group’s ability to continue as a going concern is included in the corporate governance section of this report.

Basis of consolidation The group financial statements consolidate those of the parent company and all of its subsidiaries as of 30 April each year. The parent controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. All subsidiaries have a reporting date of 30 April.

All transactions and balances between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the group.

Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable.

Non-controlling interests, presented as part of equity, represent the portion of a subsidiary’s profit or loss and net assets that is not held by the group. The group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interests.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED


1. Principal accounting policies (continued) Foreign currencies Functional and presentation currency The consolidated financial statements are presented in pounds sterling, which is the group’s presentation currency. Assets and liabilities of subsidiaries are translated at foreign exchange rates ruling at the balance sheet date. The income and expenses of such undertakings are translated at an average rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. Exchange differences arising from this translation are recognised in other comprehensive income. They are released into the income statement upon disposal of the relevant subsidiary.

Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Non-monetary items are translated at rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Income recognition Income is recognised at the fair value of the consideration received or receivable. The point at which revenue is recognised is described below.

Net fee and commission income Investment management, fund administration and advisory fees Management, fund administration and advisory fees are recognised on a continuous basis over the period in which the related services are provided. The fair value of fees received or receivable is measured based on the contracted rates by client and the current market position.

Fees in respect of contingent fee assignments are only recognised to the extent that the contingent events have occurred.

Performance fees Performance fees are only recognised once the specific assessment criteria have been met and the fee can be reliably measured.

Commissions Commission charges for executing transactions on behalf of clients are recognised when we have fulfilled our obligations to the client in respect of the transaction. The fair value of the commission received or receivable is measured based on the contractual commission rate.

Tax and business service fees (excluding fund administration) The fair value of the consideration received or receivable is based on the contractual terms of the engagement. Income represents amounts recoverable from clients for professional services provided during the year. Income is recognised when the amount can be reliably measured and it is probable that future economic benefits will flow.

Income recognition occurs in the period in which services are rendered by reference to the services performed to date compared to the total services to be performed.

Income in respect of contingent fee assignments (over and above any agreed minimum fee) is only recognised when the contingent event occurs.

Unbilled income on individual client assignments is included as accrued income within prepayments, accrued income and other receivables. Where individual on-account billings exceed revenue on client assignments, the excess is classified as fees in advance within accruals, deferred income, provisions and other payables.

Net interest income (referred to as the banking margin on page 31) Interest income or expense from interest-bearing financial instruments, except those classified as held for trading, is calculated using the effective interest method and recognised within net interest income.



The effective interest method is the method of calculating the amortised cost of a financial asset or liability (or group of assets and liabilities) and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts the expected future cash payments or receipts through the expected life of the financial instrument, or when appropriate, a shorter period, to the net carrying amount of the instrument. The application of the method has the effect of recognising income receivable (or expense payable) on the instrument evenly in proportion to the amount outstanding over the period to maturity or repayment. In calculating effective interest, the group estimates cash flows considering all contractual terms of the financial instrument but excluding future credit losses.

Net trading income Net trading income comprises net dealing profits earned on transactions entered into with the market at the request of clients.

Dividends Dividends are recognised when the right to receive the dividend is established.

Employee benefits Retirement benefits The group operates retirement benefit plans of both a defined contribution and defined benefit nature. Defined contribution pension schemes are funded by contributions which are separate from the group’s assets. Defined benefit schemes are closed to new members and further accrual.

The costs of defined contribution plans are charged to the income statement on the basis of contributions payable by the group during the year.

For defined benefit plans, the defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method.

The current service cost is recognised in the income statement as an employee benefit expense. The interest cost resulting from the increase in the present value of the defined benefit obligation over time and the interest income on assets is recognised as an employee benefit expense.

Past service costs are recognised immediately to the extent that benefits are already vested, or are otherwise amortised on a straight-line basis over the average period until the benefits become vested.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised outside of the income statement in other comprehensive income in the period in which they arise.

Share based payments The cost of share based employee compensation arrangements, whereby employees and partners receive remuneration in the form of shares or share awards, is recognised as an employee benefit expense in the income statement.

The total expense to be apportioned over the vesting period of the benefit is determined by reference to the fair value at the grant date of the shares or share awards awarded and the number that are expected to vest. The assumptions underlying the number of awards expected to vest are subsequently adjusted to reflect conditions prevailing at the balance sheet date. Fair value is measured by use of a binomial model.

Death in service benefits Insured death in service benefits are accounted for as defined contribution arrangements.

Profit sharing and bonus plans The group recognises a liability and an expense for bonuses and equivalent profit shares. The group recognises a provision when contractually obliged or when there is a past practice that has created a constructive obligation.

Employee benefit trust The assets and liabilities of the EBT, which purchases and holds ordinary shares of the company in connection with certain employee share schemes, are included within the group financial statements to the extent that the group has de facto control thereof. Any consideration paid or received by the EBT for the purchase or sale of the company’s own shares is shown as a movement in equity.

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1. Principal accounting policies (continued) Taxation The tax expense represents the sum of tax currently payable and deferred tax.

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 expense 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 at 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 the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates except where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

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, provided these rates are enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to other comprehensive income or equity, in which case it is dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the group intends to settle its current tax assets and liabilities on a net basis.

Intangible assets Goodwill Goodwill is stated at cost less subsequent accumulated impairment losses and is recognised as an asset with an indefinite life.

The group’s goodwill, arising either on incorporation or consolidation, represents the excess of the cost of acquisition over the group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of a subsidiary at the date of acquisition. Goodwill on incorporation relates to goodwill recognised as goodwill on incorporation before the date of transition to IFRS and has been retained at the previous UK GAAP amounts.

Goodwill is allocated to a cash generating unit (CGU) that represents the smallest identifiable group of assets generating cash inflows independent of other assets or groups of assets.

On disposal, attributable goodwill, that has not been subject to impairment, is included within the determination of the profit or loss on disposal.

Computer software and software development costs Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring in to use the specific software. These costs are considered to have a definite useful life and are amortised on the basis of that useful life (four years) on a straight-line basis.

Costs that are directly associated with the production of identifiable and unique software products controlled by the group, which are expected to generate economic benefits exceeding costs beyond one year, are recognised as intangible assets.

Computer software development costs recognised as assets are considered to have a definite useful life and are amortised on the basis of that useful life (four years) on a straight-line basis from the point they are brought into use.

Costs associated with developing or maintaining computer software programs that are not recognised as assets are recognised as an expense as incurred.



Client relationships Intangible assets classified as client relationships are recognised when acquired. Client relationships are initially recognised at cost and are subsequently measured at cost less accumulated amortisation and any accumulated impairment losses. The initial cost of client relationships is the fair value at the acquisition date.

When payments are made to teams of investment managers to acquire client relationships, elements of the total consideration may be deferred or contingent. In such cases the cost of the recognised client relationships includes the group’s best estimate of the future consideration likely to be paid. The consideration is based on the value after a period of certain categories of funds under management and advice introduced by investment managers to the group.

Client relationships are amortised on a straight-line basis over ten years, their minimum estimated useful lives.

Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any costs directly attributable to bringing the asset into use.

Depreciation is calculated on a straight-line basis to write down the assets less any estimated residual value by equal instalments over their estimated useful economic lives as follows:

Asset type Term of depreciation

Freehold and long leasehold property 40 years Short leasehold property the earlier of 10 years and life of lease Computer equipment 3 years Furniture, fittings and equipment 5 years Motor vehicles 4 years

The residual values and useful economic lives of all property, plant and equipment are reviewed and adjusted if appropriate, at the end of each financial year.

Gains and losses on disposals are calculated by comparing sale proceeds with carrying amounts and are included in the income statement.

Interests in associates An associate is an entity over which the group exercises significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the investee.

The results and assets and liabilities of associates are incorporated into these financial statements using the equity method of accounting. Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the group’s share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the group’s interest in that associate (which includes any long-term interest that, in substance, forms part of the group’s net investment in the associate) are recognised only to the extent that the group has incurred legal or constructive obligations or made payments on behalf of the associate.

Any excess of the cost of acquisition over the group’s share of the fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment. If the cost of acquisition is less than the fair value of the net assets of the associate acquired, the difference is recognised directly in the income statement.

Where a group company transacts with an associate of the group, profits and losses are eliminated to the extent of the group’s interest in the relevant associate.

Impairment of non-current assets 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). Where the asset does not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the CGU to which the asset belongs. An intangible asset, with an indefinite useful life, is tested for impairment annually and whenever there is an indication that the asset may be impaired.

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1. Principal accounting policies (continued) The recoverable amount is the higher of the fair value less cost to sell and the value-in-use. In determining a CGU’s or asset’s value-in-use estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects a current market assessment of the time value of money and risks specific to the CGU or asset that have not already been included in the estimate of future cash flows.

If the recoverable amount of the CGU or asset is estimated to be less than its carrying amount, the carrying amount of the CGU or asset is reduced to its recoverable amount. An impairment loss is immediately recognised as an expense.

Where an impairment loss subsequently reverses, other than in respect of goodwill, the carrying amount of the asset is increased to the revised estimate of its recoverable amount.

Cash and cash equivalents For the purpose of preparation of the cash flow statement, cash and cash equivalents include cash at bank and in hand and short-term deposits with an original maturity period of three months or less. Bank overdrafts that are an integral part of a group entity’s cash management are included in cash and cash equivalents where they have a legal right of set-off against positive cash balances and an intention to settle on a net basis, otherwise bank overdrafts are classified as borrowings.

Settlement balances Settlement balances, which are a sub-class of either financial assets or financial liabilities, are disclosed separately. They represent amounts that are either receivable or payable by the group in respect of unsettled trades. Purchases and sales of investments are recognised at settlement date and, in some cases, at trade date, which is the date on which the group commits to purchase or sell the asset.

In accordance with market practice settlement balances with clients, counterparties, Stock Exchange member firms and settlement offices are included in settlement balances gross for their unsettled bought and sold transactions respectively. These receivables or payables are initially recognised at fair value. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the receivable is impaired.

Financial instruments Financial assets and liabilities are recognised in the group’s balance sheet when the group becomes a party to the contractual provisions of the instrument. These balances are offset, and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

Financial assets The group classifies financial assets in the following categories: loans and receivables, held-to-maturity investments, available-for-sale investments and derivatives. The classification of financial assets is determined at initial recognition.

Financial assets are initially recognised at fair value. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership.

Loans and receivables Loans and receivables are carried at amortised cost using the effective interest method, less any impairment recognised to reflect irrecoverable amounts. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and where there is no intention of trading in those instruments.

Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the group’s management has the positive intention and ability to hold to maturity. Such investments are accounted for at amortised cost using the effective rate of interest method, less any impairment recognised to reflect irrecoverable amounts.



Available-for-sale investments Available-for-sale investments are non-derivative financial assets that are either designated in this category or not classified in any of the other categories. Available-for-sale investments are initially recognised at fair value plus transaction costs and are subsequently carried at fair value. Gains and losses arising from changes in the fair value of securities classified as available-for-sale are recognised in other comprehensive income. When securities classified as available-for-sale investments are sold or impaired, the accumulated fair value adjustments are included in the income statement as profit or loss from investment securities.

The fair values of quoted investments are based on bid prices in active markets at the reporting date. If the market for a financial asset is not active (including for unlisted securities), the group establishes fair value by using other valuation techniques. These include the use of recent arm’s length transactions and reference to other, substantially similar, instruments.

Derivatives The group trades derivatives, on behalf of clients, with a counter offset with the exchange or market. The group does not hold or issue derivatives for its own trading purposes but deals on a matched principal basis because this is required by, and is the custom of, the relevant markets. Clients lodge an initial margin with the group in cash or suitable stock, which is valued at a discount to market price with such discount being set at the group’s discretion but generally at the level recognised in the relevant market. Such stock is held by a group nominee or with its custodian. In addition, clients are required to provide additional variation margin in line with practice in the relevant market, for amounts indicated through the contract’s daily fair valuation. In line with market practice, both sides of the derivative position are valued at fair value being the market price at close of business and are included within settlement balances on a gross basis.

Impairment of financial assets Financial assets carried at amortised cost If there is objective evidence that a financial asset carried at amortised cost, or a group of such financial assets, has suffered an impairment loss, the recoverable amount of the asset, or group of assets, is estimated in order to determine the extent of the impairment loss. The group measures the amount of the impairment loss as the difference between the carrying amount of the asset, or group of assets, and the present value of estimated future cash flows from the asset, or group of assets, discounted at the effective interest rate of the asset, or group of assets, at initial recognition. The present value of estimated future cash flows excludes the impact of future credit losses that have not been incurred. Any impairment loss is recognised in profit or loss.

All impairment losses are reviewed at least at each reporting date. If subsequently the amount of the loss decreases as a result of a new event, the relevant element of the outstanding impairment loss is reversed through profit or loss. Interest on impaired financial assets is recognised at the original effective interest rate applied to the carrying amount as reduced by an allowance for impairment.

Financial assets carried at fair value When a decline in the fair value of a financial asset classified as available-for-sale has been recognised in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss is removed from equity and recognised in profit or loss. The loss is measured as the difference between the amortised cost of the financial asset and its current fair value. Impairment losses on available-for-sale equity instruments are not reversed through profit or loss, but those on available-for-sale debt instruments are reversed, if there is an increase in fair value that is objectively related to a subsequent event.

Financial liabilities Financial liabilities not held for trading are held at amortised cost and fluctuations in value are taken to the income statement.

Deposits and borrowings All deposits and borrowings by banks and customer accounts are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost: any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest rate method.

Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

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1. Principal accounting policies (continued) Other borrowed funds Other borrowed funds are initially recognised at fair value less directly attributable transaction costs.

After initial recognition, other borrowed funds are subsequently measured at amortised cost: any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the other borrowed funds using the effective interest rate method. Other borrowed funds are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Rentals payable under operating leases are charged to the income statement on a straight-line basis over the full lease term. Operating lease incentives are recognised as a reduction in the rental expense over the lease term.

Provisions Provisions are recognised when the group has a present legal or constructive obligation which, as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated.

Provisions are recognised for future committed property lease payments when the group receives no benefit from the property through continuing usage and future receipts from any sub-letting arrangements are less than the group’s future committed payments.

Provisions are measured at the present value of the directors’ best estimate of the expenditure required to settle the present obligation at the balance sheet date.

The group provides for dilapidation costs following advice from chartered surveyors and previous experience of exit costs. The estimated cost of fulfilling the leasehold dilapidation obligations is recognised on the group’s leasehold properties over the last five to seven years of the lease term.

Share capital The company has two classes of shares, A ordinary shares and D ordinary shares. Both classes are classified as equity.

Distributions to shareholders Distributions payable to the company’s A ordinary and D ordinary shareholders are recognised as a liability and deducted from equity in the period in which the shareholders’ right to receive payment is established.

Segmental reporting The group determines and presents operating segments based on the information that is provided internally to the board, which is the group’s chief operating decision maker. An operating segment is a component of the group that engages in business activities from which it may earn income and incur expenses, including income and expenses that relate to transactions with any of the group’s other components. Discrete financial information is available for operating segments. The board regularly renews and assesses the performance of an operating segment and will make decisions about the level of resources allocated to a segment. Operating segments are organised around the services provided to clients and a description of the services provided by each segment is given in the financial review section. No operating segments have been aggregated in the group’s financial statements. Transactions between operating segments are reported within the income or expenses for those segments. Indirect costs are allocated between segments in proportion to the principal cost driver for each category of indirect cost.



2. Critical accounting judgements and key sources of estimation uncertainty The group makes estimates and assumptions that could affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Accounting judgements Impairment of goodwill The impairment of goodwill is determined as set out in the accounting policies note 1 and requires estimates in relation to future cash flows and suitable discount rates. The carrying amount of goodwill in respect of incorporation or consolidation at the balance sheet date was £106.7 million (2017: £106.7 million). Note 11 summarises the potential impact on the carrying value of goodwill of key sensitivities.

Fiduciary activities Individual entities within the group commonly act as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and institutions. Such assets and the income arising thereon are excluded from these financial statements as they are not assets of the group.

The group holds money on behalf of some clients in accordance with the FCA client money rules. Such monies and the corresponding liability to clients are not shown on the face of the balance sheet as the group is not beneficially entitled thereto. Money held on behalf of clients at the end of the financial year is set out in note 33.

Fair value of financial instruments Valuation techniques are used in measuring the fair value of financial instruments where active market quotes are not available. In applying the valuation techniques where possible market inputs are used, consistent with observable data that market participants would use in pricing the instrument. Where applicable data is not observable, management uses the best estimate about the assumptions that market participants would make. These estimates may vary from the actual prices that would be achieved in an arm’s length transaction at the reporting date. Note 19 summarises the fair value estimation techniques used for the group’s unlisted investments.

HMRC The group continues to be subject to three enquiries by HMRC with regard to the treatment of share based payments, PAYE and National Insurance contribution (NIC) determinations in respect of client intangible payments and the amortisation of intangible fixed assets. The linked enquiries on PAYE and NIC determinations and amortisation of intangible fixed assets in respect of client relationship payments were fully provided in the 2016 consolidated financial statements. The group is awaiting HMRC ruling on the validity of PAYE determinations for 2008/09 and 2009/10 before finalising this matter. The share based payment Tribunal case was heard in May 2017 and was decided in the group’s favour. HMRC has since appealed the decision and the appeal hearing is set for February 2019.

Share based payments The group generally operates a bi-annual share selling window through the EBT. The group does not consider that this creates an obligation on the company to settle any awards in cash. See note 27 for further detail.

Accounting estimates Retirement benefits The group makes estimates about the range of long-term trends and market conditions to determine the value of the surplus or deficit on its retirement benefit schemes, based on the group’s expectation of the future and advice from qualified actuaries. Annuities are valued on the same basis as defined benefit schemes. The principal assumptions are set out in note 22.

Long-term forecasts and estimates are necessarily highly judgemental and subject to the risk that actual events may be significantly different to those forecast. If actual events deviate from the assumptions made by the group then the reported surplus or deficit in respect of retirement benefits may be materially different.

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2. Critical accounting judgements and key sources of estimation uncertainty (continued) Share based payments In determining the fair value of equity settled share based awards and the related charge to the income statement, the group makes assumptions about future events and market conditions. In particular, judgement must be formed as to the likely number of shares that will vest and the fair value of each award granted. The fair value is determined using a valuation model which is dependent on a number of assumptions about the group’s future dividend policy and the future volatility in the price of the group’s shares. Such assumptions are based on publicly available information, and reflect market expectations and advice taken from qualified personnel. Different assumptions about these factors to those made by the group could materially affect the reported value of share based payments. Details of the group’s share schemes and share based payments can be found in notes 26 and 27 respectively.

Accrued income Accrued income and work billed are recognised as income when there is a right to consideration and the outcome can be estimated reliably. This methodology is subject to significant estimation uncertainty due to the subjective nature of assessing both the stage of completion and recoverability of accrued income and different estimations could materially affect the reported value of accrued income. The review of the stage of completion and recoverability of accrued income is undertaken by the relevant partner or director on a client by client basis.

To minimise the estimation uncertainty risk a detailed year end review is undertaken at portfolio level to ensure consistency with group policy.

Professional indemnity provisions Estimates are required to judge the level of exposure on existing claims.



3. Segmental information For management purposes, the group is organised into three divisions: investment management and banking, tax and business services, and other. During the year ended 30 April 2018, the group changed its internal reporting structure with the Guildford investment management team now reported within the investment management and banking division rather than the tax and business services division. Prior year has been reported on a comparable basis. The group’s operations are predominantly in one geographical segment, the UK and Ireland.


Investment management and banking

£’000

Tax and business services

£’000 Other £’000

Total £’000

Segment results Net interest income 4,421 – (158) 4,263 Net fee and commission income 138,971 118,581 370 257,922 Other income 4,173 299 81 4,553 Operating income 147,565 118,880 293 266,738 Operating expenses before amortisation of intangible assets – client relationships (111,162) (106,632) (2,748) (220,542) Adjusted operating profit (see page 24) 36,403 12,248 (2,455) 46,196 Amortisation of intangible assets – client relationships (723) (249) – (972) Operating profit before tax 35,680 11,999 (2,455) 45,224 Dividend income 840 Taxation (10,421) Profit for the year 35,643 Segment assets 1,419,871 195,183 26,076 1,641,130 Interests in associates 3,377 Unallocated corporate assets 727 Consolidated total assets 1,645,234 Segment liabilities 1,246,119 76,482 36,162 1,358,763 Unallocated corporate liabilities 6,299 Consolidated total liabilities 1,365,062 Other segment items: Purchase of property, plant and equipment 418 419 – 837 Purchase of intangibles 2,565 2,565 – 5,130 Depreciation and amortisation 2,092 1,120 – 3,212

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3. Segmental information (continued)


Investment management and banking

£’000

Tax and business services

£’000 Other £’000

Total £’000

Segment results Net interest income 4,232 – (20) 4,212 Net fee and commission income 127,497 107,592 362 235,451 Other income 3,225 1,581 140 4,946 Operating income 134,954 109,173 482 244,609 Operating expenses before amortisation of intangible assets – client relationships (102,020) (99,636) (2,311) (203,967) Adjusted operating profit (see page 24) 32,934 9,537 (1,829) 40,642 Amortisation of intangible assets – client relationships (1,245) (150) – (1,395) Operating profit before tax 31,689 9,387 (1,829) 39,247 Dividend income 554 Taxation (8,793) Profit for the year 31,008 Segment assets 568,875 183,465 22,947 775,287 Interests in associates 3,494 Unallocated corporate assets 557 Consolidated total assets 779,338 Segment liabilities 411,095 71,314 34,196 516,605 Unallocated corporate liabilities 5,108 Consolidated total liabilities 521,713 Other segment items: Purchase of property, plant and equipment 1,319 1,319 – 2,638 Purchase of intangibles 2,297 1,180 – 3,477 Depreciation and amortisation 2,231 838 – 3,069



4. Interests in associates

2018 £’000

2017 £’000

At 1 May 3,494 3,184 Share of profit after tax 15 134 Dividend received (90) (126) Currency translation adjustment (42) 302 At 30 April 3,377 3,494

Interests in associates at 30 April 2018 include goodwill of £1.84 million (2017: £1.85 million). The total share of results of associates included in the income statement of £15,000 (2017: £137,000) comprises dilution of investment holding, profit on dilution, share of profit before tax and is net of a tax charge for the year of £400 (2017: £3,000) which is included in the total tax charge detailed in note 8.

The table below summarises the group’s share of assets, liabilities and results of associates as at 30 April 2018.

Country of

incorporation Assets £’000

Liabilities £’000

Revenues £’000

Profit after tax

£’000

% interest held

£’000

Nexia TS Pte Ltd Singapore 2,186 818 2,760 12 43.94% Nexia China Pte Ltd Singapore 17 6 8 – 20.00% IPM (Malta) Limited Malta 12 3 – 3 49.00%

The table below summarises the group’s share of assets, liabilities and results of associates as at 30 April 2017.

Country of

incorporation Assets £’000

Liabilities £’000

Revenues £’000

Profit after tax

£’000

% interest held

£’000

Nexia TS Pte Ltd Singapore 2,164 547 2,562 125 43.94% Nexia China Pte Ltd Singapore 39 15 5 – 20.00% IPM (Malta) Limited Malta 13 – 92 9 49.00%

The statutory financial year end of the Singapore associates does not coincide with the financial year of the group. The group’s share of assets, liabilities and results is based on the audited financial statements to 31 December 2017 and management reporting information made up to the financial year end of the group.

The assumptions used in the goodwill impairment review for the aggregated value of the associates are included in note 11.

5. Staff costs The average monthly number of full time equivalent staff (including executive directors and partners) was:

2018

Number 2017

Number

Investment management and banking 523 526 Tax and business services 914 863 Administrative staff 285 253 1,722 1,642

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5. Staff costs (continued) Their aggregate remuneration comprised:

2018 £’000

2017 £’000

Wages and salaries 131,701 124,186 Social security costs 6,595 6,566 Other staff costs 3,768 3,307 Pension costs • defined contribution plans 7,072 6,301 • defined benefit plans (note 22) 16 322 Other retirement costs 13 17 Cash based remuneration 149,165 140,699 Share option scheme costs (note 27) 8,363 9,175 157,528 149,874

The group operates a number of defined contribution pension schemes for employees, and two defined benefit pension schemes. The assets of the plans are held separately from those of the group in funds under the control of trustees.

Disclosure required by the Companies Act 2006 on directors’ remuneration, including salaries, partner profit shares and pension contributions, is included in the directors’ remuneration report and forms part of the financial statements.

6. Other operating expenses

2018 £’000

2017 £’000

Depreciation of property, plant and equipment 1,622 1,471 Amortisation of intangible assets (excluding client relationships) 618 203 Operating lease expenses 6,160 5,823 Other occupancy costs 6,174 5,591 Other operating expenses 47,033 39,790 (Profit)/loss on foreign exchange (15) 12 Loss on sale of property, plant and equipment 15 – Auditors’ remuneration (see below) 1,407 1,203 63,014 54,093

A more detailed analysis of auditors’ remuneration is provided below.

2018 £’000

2017 £’000

Fees payable to the company’s auditors for: The audit of the company’s annual accounts 65 58 The audit of the company’s subsidiaries pursuant to legislation 317 367 The provision of other services 1,025 778 1,407 1,203

The provision of other services relate primarily to one-off costs such as work related to the merger discussions.



7. Dividend income Dividend income comprises income from available-for-sale investments, as detailed below.

Number

of shares 2018 £’000

Number of shares

2017 £’000

Euroclear Plc (unlisted) 5,427 175 5,427 152 CG Asset Management Limited (unlisted) 7,394 665 7,394 402 840 554

8. Taxation

2018 £’000

2017 £’000

Current tax 10,521 8,913 Deferred tax (note 20) (100) (120) 10,421 8,793

UK corporation tax is calculated at 19.0% (2017: 19.9%) of the estimated assessable profit for the year.

Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

The tax on the group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:

2018 £’000

2017 £’000

Profit before tax 46,064 39,801 Tax calculated at domestic tax rates applicable to profits for the respective countries 8,634 7,800 Income not subject to tax (161) (136) Expenses not deductible for tax purposes 2,221 2,110 (Capital allowances in excess of depreciation)/depreciation in excess of capital allowances (34) 34 Share acquisition deduction (309) (165) Foreign tax on income taxable at source 27 26 Retirement benefit obligation deduction 5 (6) Loss/(profit) on disposal of property, plant and equipment and investments 29 (194) Over/(under) provision in respect of prior year 9 (676) 10,421 8,793

Tax recognised in the statement of comprehensive income comprises:

2018 £’000

2017 £’000

Actuarial movements 116 (116) Available-for-sale movements 23 (13) Debited/(credited) in the statement of comprehensive income 139 (129)

In addition to the tax recognised in the statement of comprehensive income, tax recognised in equity comprises:

2018 £’000

2017 £’000

Share acquisition deductions (205) (40) Credited to equity (205) (40)

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9. Earnings per share

2018 £’000

2017 £’000

Earnings attributable to equity holders of the parent company for unadjusted basic and diluted earnings per share 34,293 29,715 Amortisation on intangible assets – client relationships net of tax (note 11) 787 1,117 Earnings attributable to equity holders of the parent company for adjusted basic and diluted earnings per share 35,080 30,832

Number

’000 Number

’000

Weighted average number of A ordinary shares in issue during the year 34,425 34,572 Weighted average number of D ordinary shares in issue during the year 16,641 16,641 Number of shares for unadjusted and adjusted basic earnings per share 51,066 51,213 Number of dilutive A ordinary shares under share awards 611 647 Number of shares for unadjusted and adjusted diluted earnings per share 51,677 51,860 Basic earnings per share • Unadjusted 67.2p 58.0p • Adjusted 68.7p 60.2p Diluted earnings per share • Unadjusted 66.4p 57.3p • Adjusted 67.9p 59.5p

The number of shares used in the unadjusted basic earnings per share (EPS) calculation is the weighted average number of A and D ordinary shares in issue, less the weighted average number of shares owned by the EBT. The calculation of diluted EPS assumes conversion of all potentially dilutive ordinary shares. The company’s potentially dilutive ordinary shares arise from share awards. For share awards, a calculation is performed to determine the number of shares that could have been acquired at fair value, based upon the monetary value of the subscription rights attached to outstanding share awards.

10. Distributions to shareholders A final dividend for the year ended 30 April 2017 of 22.0 pence per A and D ordinary share was paid to shareholders on 2 October 2017.

An interim dividend for the year ended 31 April 2018 of 10.0 pence per A and D ordinary share was paid to shareholders on 23 February 2018. Details of the proposed final dividends can be found in the directors’ report on page 62.



11. Intangible assets

Goodwill on consolidation

£’000

Goodwill on incorporation

£’000

Computer software

£’000

Client relationships

£’000 Total £’000

Cost At 1 May 2016 49,968 64,844 8,196 21,058 144,066 Additions – – 2,360 1,117 3,477 Other movement – – – (100) (100) Currency translation adjustment – – – 14 14 At 30 April 2017 49,968 64,844 10,556 22,089 147,457 Additions – – 5,130 – 5,130 Disposal – – (1,972) – (1,972) Other movement – – – 17 17 Currency translation adjustment – – – (8) (8) At 30 April 2018 49,968 64,844 13,714 22,098 150,624 Accumulated amortisation and impairment At 1 May 2016 8,073 – 7,482 17,030 32,585 Amortisation – – 203 1,395 1,598 At 30 April 2017 8,073 – 7,685 18,425 34,183 Amortisation – – 618 972 1,590 Disposal – – (1,972) – (1,972) At 30 April 2018 8,073 – 6,331 19,397 33,801 Carrying amount At 30 April 2018 41,895 64,844 7,383 2,701 116,823 At 30 April 2017 41,895 64,844 2,871 3,664 113,274

Goodwill on incorporation arose on the incorporation of Smith & Williamson Chartered Accountants and Smith & Williamson.

Computer software comprises software development costs and other software costs not integral to computer hardware that meet the definition of an intangible asset.

For impairment testing purposes, goodwill has been allocated to the four CGUs shown in the table below, with the investment management and banking business segment comprising one CGU.

2018

Opening goodwill

£’000 Acquisition

£’000 Impairment

£’000

Currency translation adjustment

£’000

Closing goodwill

£’000

Investment management and banking 33,456 – – – 33,456 Tax and business services Smith & Williamson Corporate Finance Limited 525 – – – 525 Smith & Williamson Financial Services Limited 1,127 – – – 1,127 Smith & Williamson LLP 71,631 – – – 71,631 73,283 – – – 73,283 106,739 – – – 106,739

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11. Intangible assets (continued)

2017

Opening goodwill

£’000 Acquisition

£’000 Impairment

£’000

Currency translation adjustment

£’000

Closing goodwill

£’000

Investment management and banking 33,456 – – – 33,456 Tax and business services Smith & Williamson Corporate Finance Limited 525 – – – 525 Smith & Williamson Financial Services Limited 1,127 – – – 1,127 Smith & Williamson LLP 71,631 – – – 71,631 73,283 – – – 73,283 106,739 – – – 106,739

The recoverable amounts of these CGUs have been determined based on value-in-use calculations, using discounted cash flow projections prepared by management covering the five year period ending 30 April 2023. Cash flows beyond this period are extrapolated using the estimated long-term growth rates and applying the pre-tax discount rates referred to below.

The key assumptions in the value-in-use calculation are: the five year revenue and cost growth rates, the long-term economic growth rates (used to determine terminal values) and the pre-tax discount rates.

The following growth rates were applicable to all CGUs. UK revenue and cost growth rates from 1 May 2018 to 30 April 2023 have been estimated at between 4% and 6% per annum. Singapore revenue and cost growth rates from 1 May 2018 to 30 April 2023 have been estimated at between 10% and 11% per annum.

The revenue and cost growth rate assumptions were derived from the 2019 budget and five year business plan and reflect past experience, current trends, anticipated market developments and management’s experience.

The long-term growth rate of 2% was based upon the IMF forecast, as at April 2018, for GDP growth in 2023 of 2%.

The pre-tax discount rate was based on a number of factors including the risk-free rates in the UK (using the yield from 20 year British Government Securities, with a nominal zero coupon, as at 30 April 2018), the group’s estimated market risk premium and a premium to reflect the private status and size of the group. The pre-tax discount rate used was 8.5% (2017: 8.7%) for tax and business services and 9.9% (2017: 9.9%) for investment management and banking.

The group considers that the CGUs within tax and business services are all sufficiently comparable, in terms of recurring and non-recurring income, to support the adoption of the same assumptions (and thus pre-tax discount rates). The pre-tax discount rate for the investment management and banking division differs slightly due to the availability of sufficiently comparable quoted companies to support the alternative assumptions applied for beta and gearing.

Based on the results of the impairment tests performed, management believes there is no impairment of the carrying value of the goodwill in any CGU.

Value-in-use calculations are sensitive to changes in the key assumptions, the impact of which is set out in the table below:

Impact on value-in-use of:

Excess of value-in-use

over carrying value £’000

0.5% decrease in revenue

growth rate £’000

0.5% increase in cost growth

rate £’000

1.0% decrease in terminal

growth rate £’000

1.0% increase in pre-tax

discount rate £’000

Cash generating unit: Smith & Williamson LLP 123,990 (35,241) (31,220) (24,447) (30,205)

Management believes goodwill allocated to the investment management and banking division, Smith & Williamson Corporate Finance Limited and Smith & Williamson Financial Services Limited CGUs is unlikely to be materially impaired under any reasonable changes to key assumptions. The excess of value-in-use over carrying value is determined by reference to the net book value as at 30 April 2018. Revenue and cost sensitivities are equivalent to a 17.1% and 15.1% decrease respectively in the forecast year 5 operating profit.



12. Property, plant and equipment

Freehold and leasehold property

£’000

Computer equipment

£’000

Furniture, fittings and equipment

£’000 Total £’000

Cost At 1 May 2016 8,685 1,956 6,903 17,544 Additions 964 907 767 2,638 At 30 April 2017 9,649 2,863 7,670 20,182 Additions 93 374 370 837 Disposals – (1,216) (719) (1,935) Other movement – (187) – (187) At 30 April 2018 9,742 1,834 7,321 18,897 Accumulated depreciation At 1 May 2016 7,610 1,400 4,549 13,559 Charge for the year 391 340 740 1,471 At 30 April 2017 8,001 1,740 5,289 15,030 Charge for the year 478 375 769 1,622 Disposals – (1,205) (715) (1,920) At 30 April 2018 8,479 910 5,343 14,732 Carrying amount At 30 April 2018 1,263 924 1,978 4,165 At 30 April 2017 1,648 1,123 2,381 5,152

13. Cash and cash equivalents For the purpose of the cash flow statement, cash and cash equivalents comprise balances with an original maturity of three months or less:

2018 £’000

2017 £’000

Cash and balances with central banks 1,064,816 293,180 Loans and advances to banks (note 14) 63,511 15,410 Bank overdrafts (note 21) (19,408) (18,766) 1,108,919 289,824

Balances with central banks are interest-bearing and repayable on demand.

Included in cash and cash equivalents is £184.0 million (2017: £161.3 million) of the group’s own net cash.

On 26 March 2018, the group standardised the way cash is held in client investment portfolios, such that client money account balances are now held as cash deposits by Smith & Williamson Investment Services Limited as the group’s banking subsidiary. As a result, a majority of client money accounts held off-balance sheet were transferred to the group’s on-balance sheet financial assets. The effect on the group’s balance sheet was a £818.6 million increase in cash and cash equivalents, and balances due to customers.

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14. Loans and advances to banks

2018 £’000

2017 £’000

Loans and advances to banks 63,511 15,410

During the year ended 30 April 2018, client money account balances were transferred to the group’s on-balance sheet financial assets. Refer to note 13 for further details.

15. Settlement balances – assets

2018 £’000

2017 £’000

Market and client balances 88,950 87,412

16. Loans and advances to customers

2018 £’000

2017 £’000

Client loans 34,836 32,594 Client overdrafts 4,147 4,333 38,983 36,927

All client loans and overdrafts are at variable interest rates and are repayable on demand. Loans and advances are provided on a secured basis as per note 39.

17. Prepayments, accrued income and other receivables

2018 £’000

2017 £’000

Trade and fee receivables (gross) 27,291 24,782 Less: provision for impairment of trade and fee receivables (914) (923) Trade and fee receivables (net) 26,377 23,859 Prepayments 6,479 6,007 Accrued income 20,808 19,172 Other receivables 14,045 10,670 67,709 59,708

The net movement in the provision for impairment of trade receivables for the group during the year was a decrease of £9,000 (2017: £151,000 decrease). The income statement impact relating to the creation and utilisation of impairment provisions was a charge of £612,000 (2017: £207,000) within other operating expenses.

Concentrations of credit risk with respect to trade receivables are limited due to the group’s large and diverse client base. As a result, the directors do not believe that credit risk provisions, in excess of the provision for impairment of trade and fee receivables, are required.



18. Investment securities – held-to-maturity

2018 £’000

2017 £’000

Debt securities 187,543 155,381

2018

£’000 2017

£’000

At 1 May 155,381 106,500 Additions 207,043 216,631 Maturities (174,881) (167,750) At 30 April 187,543 155,381

19. Investment securities – available-for-sale

2018 £’000

2017 £’000

Equity securities – listed (level 1) 394 722 Equity securities – unlisted (level 3) 7,934 7,820 Current assets 8,328 8,542 Equity securities – listed (level 1) 302 301 Non-current assets 302 301 8,630 8,843

2018 £’000

2017 £’000

At 1 May 8,843 7,649 Additions – 448 Disposals (343) (100) Net changes in fair value 130 846 At 30 April 8,630 8,843

Fair value estimation The disclosure of fair value measurements by level is based on the following hierarchy:

• Level 1: quoted prices in active markets for identical assets or liabilities

• Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices)

• Level 3: inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)

There have been no transfers between level 1 and level 2 recurring fair value measurements during the year.

The fair value of listed investments is determined by reference to quoted prices on active markets.

Unlisted investments include the group’s holding in Euroclear plc and CG Asset Management Limited for which no observable market data is available as to their values.

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19. Investment securities – available-for-sale (continued) In April 2017, Euroclear plc bought back 80,806 own shares for £58 million. Although the group did not sell any of its shares held in Euroclear plc, the directors are of the opinion that the weighted average buyback transaction price of £630 per share is the amount that is most representative of the fair value of the group’s non-controlling equity interest of 5,427 shares in Euroclear plc at the measurement date.

At 30 April 2018, the group held 7,394 A shares, 10,809 B shares and 9,631 C shares in CG Asset Management Limited which are valued on an earnings yield basis.

The earnings yield calculation is sensitive to changes in the key assumptions, the impact of which is set out in the table below:

Decrease of 1% in earnings

yield £’000

Increase of 1% in earnings

yield £’000

(Decrease)/increase in fair value (328) 273

20. Deferred tax The following are the major deferred tax assets and liabilities recognised by the group, and the movements thereon, during the current and prior reporting years.

Pensions and other post retirement

benefits £’000

Available- for-sale

securities £’000

Share acquisition deduction

£’000

Other temporary

differences £’000

Total £’000

At 1 May 2016 283 (534) 270 244 263 Effect of change in tax rate to the income statement – – (10) (16) (26) Credit to income statement for the year – – 95 51 146 Effect of change in tax rate to equity 10 19 (3) – 26 Credit/(debit) to equity for the year 106 (6) 43 – 143 Other 5 – – – 5 At 30 April 2017 404 (521) 395 279 557 Credit to income statement for the year – – 29 71 100 (Debit)/credit to equity for the year (116) (23) 205 – 66 Other 4 – – – 4 At 30 April 2018 292 (544) 629 350 727

2018 £’000

2017 £’000

Deferred tax assets 1,271 1,078 Deferred tax liabilities (544) (521) Net deferred tax assets 727 557

The share acquisition deduction relates to the potential tax deduction that could arise if all outstanding options at the balance sheet date were exercised at the current fair value.



21. Other borrowed funds

Effective rate of interest 2018 £’000

2017 £’000

Bank overdrafts Libor or base rate + 1.75% (average) 9,408 8,766 Bank term loans Libor + 1.4% 10,000 10,000 19,408 18,766

The group has various loans and facilities with members of The Royal Bank of Scotland Group plc (RBS).

Multi-option facilities of £20.0 million (2017: £20.0 million) are provided in respect of financing the purchase by the EBT of the company’s shares. Smith & Williamson Fund Administration Limited has a £5.0 million (2017: £5.0 million) overdraft facility.

Overdraft facilities amounting to €650,000 and €450,000 are provided to Smith & Williamson Freaney Limited and Smith & Williamson Freaney Employment Services Limited respectively.

Overdraft facilities are reviewed annually.

RBS has a fixed and floating charge over the assets of Smith & Williamson LLP, which amounts to £110.6 million (2017: £103.2 million).

The group has the following undrawn borrowing facilities:

2018 £’000

2017 £’000

Floating rate - expiring within one year 6,558 7,161

An analysis of the movement in other borrowed funds is presented below.

2018 £’000

2017 £’000

At 1 May 18,766 16,473 Investment in shares in EBT 9,422 6,691 Proceeds from sale of shares in EBT (5,355) (4,263) Transfer of funds from the company to the EBT (3,500) – Other operating cash flows 75 (135) At 30 April 19,408 18,766

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22. Retirement benefits The group operates two funded defined benefit plans which are closed to new members.

The most recent actuarial valuations of these plans were carried out as at 30 April 2018 by Goddard Perry Actuarial LLP. The present value of the defined benefit obligations, and the related current service cost and past service cost, were measured using the projected unit credit method. The assets of the NCL Scheme are managed by a subsidiary of the group, Smith & Williamson Investment Management LLP.

The schemes are administered by trustees in accordance with their trust deeds and rules and relevant legislation. The employer meets the cost of providing scheme benefits. The contributions payable by the employer are set by the trustees after consulting the employer and in accordance with the funding requirements of the Pensions Act 2004. The trustees’ other duties include managing the investment of plan assets and administration of plan benefits.

The principal assumptions used for the purpose of the actuarial valuation were as follows:

S&W scheme NCL scheme

2018

% 2017

% 2018

% 2017

%

Rate of increase in salaries – – 3.2 3.4 Discount rate 2.8 2.7 2.8 2.7 Inflation rate 3.2 3.4 3.2 3.4 Rate of increase to deferred pensions in excess of the GMP 2.5 2.7 2.5 2.7

Pension increase assumption fixed at

0% or 3% fixed at 0% or 3% – –

• RPI capped at 5% p.a 3.1 3.3 • CPI capped at 3% p.a 2.2 2.3

The assumed life expectancy for the membership of the NCL and S&W schemes, applied in the current year and prior year, was based upon the standard table known as S2NA using the CMI_2016 projection based on year of birth and with a long-term rate of improvement of 1% per annum.

The life expectancy for a current 65 year old male is 22 years (2017: 22 years) and a 65 year old female is 24 years (2017: 24 years).

Amounts recognised in the balance sheet under IAS 19 in relation to these plans are as follows:

S&W scheme NCL scheme Total

2018 £’000

2017 £’000

2018 £’000

2017 £’000

2018 £’000

2017 £’000

Fair value of plan assets: Equities and property – – 19,256 18,118 19,256 18,118 Bonds – – 4,950 6,939 4,950 6,939 Other assets 522 511 1,732 2,517 2,254 3,028 With profits 177 173 – – 177 173 Cash 26 50 387 6,289 413 6,339 725 734 26,325 33,863 27,050 34,597 Present value of funded obligations (699) (622) (25,173) (34,570) (25,872) (35,192) Surplus/(deficit) in scheme 26 112 1,152 (707) 1,178 (595) Amounts not recognised due to effect of asset ceiling (26) (112) (1,152) – (1,178) (112) Retirement benefit obligation recognised in the balance sheet – – – (707) – (707)



Surpluses are not recognised as the group does not expect to benefit from contribution holidays in respect of the plans and has no contractual right to a refund of contributions in the event of a wind up of the scheme.


2018 £’000

2017 £’000

2018 £’000

2017 £’000

2018 £’000

2017 £’000

Movement in surplus/(deficit): Net assets/(liabilities) at 1 May 112 111 (707) 1,190 (595) 1,301 Net income/(expenses) recognised in income statement 3 4 (19) (326) (16) (322) Remeasurement (loss)/gain recognised in statement of comprehensive income (89) (3) 1,878 (1,931) 1,789 (1,934) Contributions paid by the company – – – 360 – 360 Net assets/(liabilities) at 30 April 26 112 1,152 (707) 1,178 (595)

The amounts recognised in the income statement in respect of the group’s defined benefit plans are as follows:


2018 £’000

2017 £’000

2018 £’000

2017 £’000

2018 £’000

2017 £’000

Current service cost – – – 368 – 368 Net interest (3) (4) 19 (42) 16 (46) (3) (4) 19 326 16 322

The charge for the year is included in the employee benefits expense in the income statement. The actual return on plan assets was £1.3 million (2017: gain of £4.6 million). Actuarial gains and losses have been recognised in retained earnings.

The changes in the present value of obligations are as follows:


2018 £’000

2017 £’000

2018 £’000

2017 £’000

2018 £’000

2017 £’000

Defined benefit obligation at 1 May 622 605 34,570 29,245 35,192 29,850 Current service cost – – – 368 – 368 Interest on funded obligation 17 21 821 1,003 838 1,024 Actuarial losses/(gains) arising from: • Financials (11) 56 (1,000) 5,623 (1,011) 5,679 • Demographics (6) (8) (391) (551) (397) (559) • Experience 101 (28) (39) 399 62 371 Employee contribution – – – 11 – 11 Benefits paid (24) (24) (8,788) (1,528) (8,812) (1,552) Defined benefit obligation at 30 April 699 622 25,173 34,570 25,872 35,192

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22. Retirement benefits (continued) The changes in the fair value of plan assets are as follows:


2018 £’000

2017 £’000

2018 £’000

2017 £’000

2018 £’000

2017 £’000

Plan assets at 1 May 734 716 33,863 30,435 34,597 31,151 Remeasurement of defined benefit asset: • Interest income 20 25 802 1,045 822 1,070 • Return on scheme asset (excluding

amounts included in interest income) (5) 17 448 3,540 443 3,557 Employer contribution – – – 360 – 360 Employee contribution – – – 11 – 11 Benefits paid (24) (24) (8,788) (1,528) (8,812) (1,552) Plan assets at 30 April 725 734 26,325 33,863 27,050 34,597

The plan assets do not include any of the group’s own financial instruments, nor any property occupied by, or other assets used by, the group.

All equity and debt instruments have quoted prices in active markets.

The overall expected rate of return is calculated by weighting the individual rates in accordance with the anticipated balance in the plan’s investment portfolio.

The history of the plans is as follows:

S&W scheme

2018 £’000

2017 £’000

2016 £’000

2015 £’000

2014 £’000

Present value of defined benefit obligation (699) (622) (605) (636) (699) Fair value of plan assets 725 734 716 723 755 Asset 26 112 111 87 56 Actuarial (loss)/gain recognised in statement of comprehensive income (89) (3) 20 (11) 77

NCL scheme

2018 £’000

2017 £’000

2016 £’000

2015 £’000

2014 £’000

Present value of defined benefit obligation (25,173) (34,570) (29,245) (30,282) (29,253) Fair value of plan assets 26,325 33,863 30,435 32,508 31,116 Asset/(liability) 1,152 (707) 1,190 2,226 1,863 Actuarial gain/(loss) recognised in statement of comprehensive income 1,878 (1,931) (977) 500 2,451

Total

2018 £’000

2017 £’000

2016 £’000

2015 £’000

2014 £’000

Present value of defined benefit obligation (25,872) (35,192) (29,850) (30,918) (29,952) Fair value of plan assets 27,050 34,597 31,151 33,231 31,871 Asset/(liability) 1,178 (595) 1,301 2,313 1,919 Actuarial gain/(loss) recognised in statement of comprehensive income 1,789 (1,934) (957) 489 2,528



At 30 April 2018, the group has recognised the following in equity:

S&W scheme

£’000 NCL scheme

£’000 Total £’000

Actuarial loss at 1 May 2017 292 1,140 1,432 Remeasurement loss/(gain) during the year 89 (1,878) (1,789) Deferred tax on actuarial reserve (15) 319 304 Surplus in scheme – asset ceiling adjustment (86) 1,152 1,066 Deferred tax on surplus on scheme 15 (196) (181) Actuarial loss at 30 April 2018 295 537 832

At 30 April 2017, the group has recognised the following in equity:

S&W scheme

£’000 NCL scheme

£’000 Total £’000

Actuarial loss at 1 May 2016 285 518 803 Remeasurement loss during the year 3 1,931 1,934 Deferred tax on actuarial reserve (1) (328) (329) Surplus in scheme – asset ceiling adjustment 1 (1,190) (1,189) Deferred tax on surplus on scheme – 202 202 Effect of change in deferred tax rate 4 7 11 Actuarial loss at 30 April 2017 292 1,140 1,432

The history of experience adjustments is as follows:

S&W scheme

2018 £’000

2017 £’000

2016 £’000

2015 £’000

2014 £’000

Experience adjustments on scheme liabilities 84 20 (19) 32 (49) Experience adjustments on scheme assets (5) 17 1 21 28

NCL scheme

2018 £’000

2017 £’000

2016 £’000

2015 £’000

2014 £’000

Experience adjustments on scheme liabilities (1,430) 5,471 (984) 1,701 (2,142) Experience adjustments on scheme assets 448 3,540 (1,961) 2,201 309

Total

2018 £’000

2017 £’000

2016 £’000

2015 £’000

2014 £’000

Experience adjustments on scheme liabilities (1,346) 5,491 (1,003) 1,733 (2,191) Experience adjustments on scheme assets 443 3,557 (1,960) 2,222 337

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22. Retirement benefits (continued) It is currently estimated that the sponsoring employers of the defined benefit schemes will contribute approximately £nil to the NCL scheme and £nil to the S&W scheme in the coming year.

The two key assumptions affecting the results of the valuation are the discount rate and inflation. In order to demonstrate the sensitivity of the results to these assumptions, the actuary has recalculated the defined benefit obligations for each scheme by varying each of these assumptions in isolation whilst leaving the other assumptions unchanged. For example, in order to demonstrate the sensitivity of the results to the discount rate, the actuary has recalculated the defined benefit obligations for each scheme using a discount rate that is 0.25% higher than used for calculating the disclosed figures. A similar approach has been taken to demonstrate the sensitivity of the results to the other key assumption.

At 30 April 2018, the summary of the sensitivities in respect of the two schemes is set out below:

S&W scheme

Effect of change in assumptions Liabilities

£’000 Assets £’000

Surplus £’000

Increase/ (decrease) in surplus

£’000

No change 699 725 26 – 0.25% rise in discount rate 678 725 47 21 0.25% fall in discount rate 721 725 4 (22) 0.25% rise in inflation 700 725 25 (1) 0.25% fall in inflation 698 725 27 1

NCL scheme


£’000 Assets £’000

Surplus £’000


£’000

No change 25,173 26,325 1,152 – 0.25% rise in discount rate 24,011 26,325 2,314 1,162 0.25% fall in discount rate 26,417 26,325 (92) (1,244) 0.25% rise in inflation 26,011 26,325 314 (838) 0.25% fall in inflation 24,213 26,325 2,112 960



At 30 April 2017, the summary of the sensitivities in respect of the two schemes is set out below:

S&W scheme


£’000 Assets £’000

Surplus £’000


£’000

No change 622 734 112 – 0.25% rise in discount rate 601 734 133 21 0.25% fall in discount rate 641 734 93 (19) 0.25% rise in inflation 622 734 112 – 0.25% fall in inflation 621 734 113 1

NCL scheme


£’000 Assets £’000

Surplus £’000


£’000

No change 34,570 33,863 (707) – 0.25% rise in discount rate 32,837 33,863 1,026 1,733 0.25% fall in discount rate 36,434 33,863 (2,571) (1,864) 0.25% rise in inflation 36,034 33,863 (2,171) (1,464) 0.25% fall in inflation 33,144 33,863 719 1,426

Funding arrangements NCL scheme The trustees use the projected unit funding method to fund the scheme. The last full triennial actuarial valuation was undertaken as at 31 December 2015. Since the scheme closed to future accrual with effect from 31 March 2017 and at the last valuation there was a surplus of assets over accrued liabilities (technical provisions) there are no employer contributions required for the forthcoming year.

S&W scheme The trustees use the projected unit funding method to fund the scheme. The last full triennial actuarial valuation was undertaken as at 1 May 2014. No contributions are currently required from the employer.

The main risks for the schemes are:

Investment return risk If the assets underperform the returns assumed in setting the funding targets then additional contributions may be required at subsequent valuations.

Investment match risk The schemes invest significantly in equities, whereas the funding targets are closely related to the returns on bonds. If equities fall in value relative to the matching asset of bonds, additional contributions may be required.

Longevity risk If future improvements in longevity exceed the assumptions made for scheme funding then additional contributions may be required.

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22. Retirement benefits (continued) Retirement annuities Annuities relate to the group’s estimated liability to certain former partners, their spouses or employees of the Smith & Williamson group.

An analysis of the changes in the present value of obligations is as follows:

2018 £’000

2017 £’000

Defined benefit obligation at 1 May 983 1,076 Interest cost 16 16 Foreign exchange loss 30 55 Actuarial (gain)/loss (113) 10 Benefits paid (143) (174) Defined benefit obligation at 30 April 773 983

Summary of retirement benefits

Retirement benefit assets 2018 £’000

2017 £’000

NCL scheme assets not recognised on balance sheet due to asset ceiling adjustment 1,152 – S&W scheme asset not recognised on balance sheet due to asset ceiling adjustment 26 112 1,178 112

Retirement benefit liabilities 2018 £’000

2017 £’000

NCL scheme liability – (707) Annuities (773) (983) (773) (1,690)

23. Settlement balances – liabilities

2018 £’000

2017 £’000

Market and client balances 54,261 53,081 Other items in the course of settlement 34,397 34,095 88,658 87,176

24. Due to customers

2018 £’000

2017 £’000

Client deposits repayable on demand 1,135,906 311,737 Client deposits with agreed maturity dates of under 12 months 13,838 8,643 1,149,744 320,380

Deposits repayable on demand carry variable interest rates. Fixed maturity deposits carry fixed interest rates.




25. Accruals, deferred income, provisions and other payables

2018 £’000

2017 £’000

Trade payables 2,541 2,371 Other payables 35,984 29,313 Fees in advance 3,011 3,267 Other taxes and social security 9,971 8,809 Accruals 28,654 24,497 Amounts due to individual members of group partnerships 17,502 17,340 Provision for liabilities (see below) 2,177 2,657 Current liabilities 99,840 88,254 Other payables 340 339 Non-current liabilities 340 339

Smith & Williamson LLP received B capital contributions of £7.8 million (2017: £7.6 million) and Smith & Williamson Investment Management LLP received B capital contributions of £9.7 million (2017: £9.8 million) from individual members of the relevant limited liability partnership. The B capital contributions are repayable on retirement from the relevant limited liability partnership.

Provisions for liabilities comprise the following:

Professional indemnity provision

£’000 Dilapidations

£’000

Onerous lease provision

£’000

Deferred consideration

£’000

Deferred bonus

compensation £’000

Total provisions

£’000

At 1 May 2016 568 840 270 – – 1,678 Acquisitions in the year – – – 841 – 841 Charged to income statement 208 253 11 – 391 863 Used during the year – (218) (152) – – (370) Release of provision (212) (143) – – – (355) At 30 April 2017 564 732 129 841 391 2,657 Payments made in the year – – – (290) – (290) Charged to income statement 306 335 – – – 641 Used during the year – (33) (75) – – (108) Release of provision (418) – (25) – (291) (734) Other movement (6) – – 17 – 11 At 30 April 2018 446 1,034 29 568 100 2,177

The deferred purchase consideration represents the group’s best estimate of the future payments likely to be made to teams of investment managers for acquired client relationship intangible assets.

The deferred bonus compensation represents the group’s best estimate of the future bonus payments likely to be made in respect of the sale of Smith & Williamson Trustees (Jersey) Limited.

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26. Share capital and share premium A and D ordinary shares have a par value of 10 pence per share. All issued shares are fully paid.

The following movements in issued share capital occurred during the year:

A ordinary shares

Number ’000

D ordinary shares

Number ’000

Total number of shares Number

’000

Share capital

£’000

Share premium

£’000 Total £’000

At 1 May 2016 38,928 16,641 55,569 5,557 25,150 30,707 Issue of A ordinary shares 1 – 1 – – – At 30 April 2017 38,929 16,641 55,570 5,557 25,150 30,707 Issue of A ordinary shares 2 – 2 – – – At 30 April 2018 38,931 16,641 55,572 5,557 25,150 30,707

All classes of ordinary shares have equal rights in relation to dividends and other distributions and returns of capital.

Under the terms of the company’s articles, A ordinary shareholders who are partners or employees of the group who sell their shares and are not ‘good leavers’ as defined in the articles of association of the company, sell such shares at a discount to fair value if they were not acquired from the EBT, through the exercise of options or by a new issue after 29 October 2002, except new issues in respect of acquisitions.

AGF Management Limited, as holder of the D ordinary shares, is entitled to appoint directors. All classes of shares rank pari passu in the event of the company being wound up.

Smith & Williamson Holdings Limited Sharesave Scheme Under the terms of the Smith & Williamson Sharesave Scheme (Sharesave), at 30 April 2018 certain directors and employees held options to acquire A ordinary shares as detailed.

Date options granted Number Exercise price

October 2013 16,651 £4.63 November 2014 43,623 £5.43 November 2015 82,708 £5.84 November 2016 261,188 £4.98 November 2017 225,556 £7.01

Sharesave is a HMRC tax efficient savings-related share scheme, where participants buy shares with their savings at a fixed price (the ‘option price’). Participants can choose to save between £10 and £500 a month under the scheme. At the end of a three or five year savings term they are able to use the savings to buy shares at the option price.

Deferred Option Plan Under the terms of the Smith & Williamson Holdings Limited Deferred Option Plan (Deferred), at 30 April 2018 certain partners, directors and employees held options to acquire A ordinary shares as detailed.


March 2015 6,151 £nil March 2016 6,619 £nil

These options are exercisable between two to three years from grant.



Matching Share Plan Under the terms of the Smith & Williamson Holdings Limited Matching Share Plan (Matching), at 30 April 2018 certain partners, directors and employees held options to acquire A ordinary shares as detailed.


October 2015 64,963 £nil October 2016 117,794 £nil October 2017 101,905 £nil

Participants purchase A ordinary shares in Smith & Williamson Holdings Limited (‘purchased shares’) at the then current fair value and receive an award over an equivalent number of shares at £nil (‘matching shares’). In accordance with the plan rules, the purchased shares are held by trustees on the participants’ behalf, and, as the beneficial owner of the shares, participants receive the same benefits as A ordinary shareholders. The purchased shares are subject to time restrictions of between two and three years and, if the purchased shares are sold or transferred before the end of the time restrictions, any matching shares will lapse.

Long Term Investment Plan Under the terms of the Smith & Williamson Holdings Limited Long Term Investment Plan (LTIP), at 30 April 2018 certain directors held options to acquire A ordinary shares as detailed.


October 2014 404,000 £nil

These awards will vest in four equal tranches on each of the 4th, 5th, 6th and 7th anniversary of the date of grant.

Performance conditions 1. As at the first vesting date, the participant must have repapered to repapering project standard and within the timetable defined for the project at least 95% (in number) of the client accounts under his control as at the date.

2. Provided condition 1 above is satisfied, each remaining tranche of shares will vest on the relevant vesting date subject to revenue performance over the performance period compared against revenue performance in the year ending 30 April 2014 (base year) as follows:

• the tranche will vest in full should revenues have fallen by less than 10% from base year

• the tranche will vest at 80% should revenues have fallen by between 10% and less than 20% from base year

• the tranche will vest at 50% should revenues have fallen between 20-30% from base year

• should revenues decline by more than 30% then the tranche will not vest

‘Revenues’ means the fees, commission and banking turn earned by Smith & Williamson Investment Management LLP on clients managed by the participant during the relevant period.

Smith & Williamson Investment Management LLP Smith & Williamson Investment Management LLP Matching Share Plan Under the terms of the Smith & Williamson Investment Management LLP Matching Share Plan (Matching), at 30 April 2018 certain partners held options to acquire share units as detailed.



Participants purchase share units in Smith & Williamson Investment Management LLP (‘purchased shares’) at the then current fair value and receive an award over an equivalent number of shares at £nil (‘matching shares’). In accordance with the plan rules, the purchased shares are held by trustees on the participants’ behalf, and, as the beneficial owner of the shares, participants receive the same benefits as share unit shareholders. The purchased shares are subject to time restrictions of between two and three years and, if the purchased shares are sold or transferred before the end of the time restrictions, any matching shares will lapse.

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26. Share capital and share premium (continued) Smith & Williamson Investment Management LLP SWHL Equity Matching Plan Under the terms of the Smith & Williamson Investment Management LLP SWHL Equity Matching Plan (EMP), at 30 April 2018 certain partners held options to acquire share units as detailed.


October 2016 271,544 £nil October 2017 459,209 £nil

Participants purchase A ordinary shares in Smith & Williamson Holdings Limited (‘purchased shares’) at the then current fair value and receive an award up to the value of the purchased shares in Smith and Williamson Investment Management LLP shares units at £nil (‘matching shares’). In accordance with the plan rules, the purchased shares are held by trustees acting as a nominee on the participants’ behalf, and, as the beneficial owner of the shares, participants receive the same benefits as A ordinary shareholders. The purchased shares are subject to time restrictions of between two and four years and, if the purchased shares are sold or transferred before the end of the time restrictions, any matching shares will lapse.

Smith & Williamson Investment Management LLP Deferred Option Plan Under the terms of the Smith & Williamson Investment Management LLP Deferred Option Plan (Deferred), at 30 April 2018 certain partners held options to acquire share units as detailed.


March 2015 67,731 £nil April 2015 11,905 £nil March 2016 42,895 £nil February 2017 55,344 £nil March 2018 29,558 £nil

These options are generally exercisable three years from grant.

Smith & Williamson Investment Management LLP Long Term Investment Plan Under the terms of the Smith & Williamson Investment Management LLP Long Term Investment Plan (LTIP), at 30 April 2018 certain partners held options to acquire share units as detailed.


October 2014 4,980,000 £nil

These awards will vest in four equal tranches on each of the 4th, 5th, 6th and 7th anniversary of the date of grant.

Performance conditions for partners who are not members of the board: 1. As at the first vesting date, the participant must have repapered to repapering project standard and within the timetable defined for the project at least 95% (in number) of the client accounts under his control as at the date.

2. Provided condition 1 above is satisfied, each remaining tranche of shares will vest on the relevant vesting date subject to revenue performance over the performance period compared against revenue performance in the year ending 30 April 2014 (base year) as follows:



• the tranche will vest at 50% should revenues have fallen between 20-30% from base year


‘Revenues’ means the fees, commission and banking turn earned by Smith & Williamson Investment Management LLP on clients managed by the participant during the relevant period.



Performance conditions for partners who are members of the board: 1. As at the first vesting date, the London Private Client department or the investment management and banking division (as applicable) must have repapered to post repapering project standard and within the timetable defined for the project at least 95% (in number) of the client accounts under their control at that date. If this condition is not satisfied to the satisfaction of the committee on that date the award will lapse (unless the committee determines otherwise).

2. The participant must ensure that all practices within London Private Client department or the investment management and banking division (as applicable) comply with the appropriate regulatory guidelines and codes of practice and are designed to foster and support prudent risk management including the implementation and management by the participant of the appropriate conduct risk framework. This condition will be tested on each vesting date. If it is not satisfied to the satisfaction of the committee as at any vesting date the tranche which would otherwise have vested on that date will lapse.

3. Subject to conditions 1 and 2, each remaining tranche of shares will vest on the relevant vesting date subject to revenue performance over the performance period compared against revenue performance for the London Private Client department in the year ending 30 April 2014 (base year) as follows:



• the tranche will vest at 50% should revenues have fallen by between 20-30% from base year


‘Revenues’ means the fees, commission and banking turn earned by clients managed by the London Private Client department.

4. The committee also has an additional power to adjust awards for those executive directors who are participants if it is not satisfied that the overall performance and profitability of the group warrants vesting.

Smith & Williamson Investment Management LLP Restricted Share Awards Plan Under the terms of the Smith & Williamson Investment Management LLP Restricted Share Awards Plan (RSA), at 30 April 2018 certain partners held options to acquire share units as detailed.



These options are exercisable three years from grant.

Smith & Williamson LLP Smith & Williamson LLP Matching Share Plan Under the terms of the Smith & Williamson LLP Matching Share Plan (Matching), at 30 April 2018 certain partners held options to acquire share units as detailed.



Participants purchase share units in Smith & Williamson LLP (‘purchased shares’) at the then current fair value and receive an award over an equivalent number of shares at £nil (‘matching shares’). In accordance with the plan rules, the purchased shares are held by trustees on the participants’ behalf, and, as the beneficial owner of the shares, participants receive the same benefits as share unit shareholders. The purchased shares are subject to time restrictions of between two and three years and, if the purchased shares are sold or transferred before the end of the time restrictions, any matching shares will lapse.

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26. Share capital and share premium (continued) Smith & Williamson LLP SWHL Equity Matching Plan Under the terms of the Smith & Williamson LLP SWHL Equity Matching Plan (EMP), at 30 April 2018 certain partners held options to acquire share units as detailed.


October 2016 944,496 £nil October 2017 931,768 £nil

Participants purchase A ordinary shares in Smith & Williamson Holdings Limited (‘purchased shares’) at the then current fair value and receive an award up to the value of the purchased shares in Smith and Williamson LLP shares units at £nil (‘matching shares’). In accordance with the plan rules, the purchased shares are held by trustees acting as a nominee on the participants’ behalf, and, as the beneficial owner of the shares, participants receive the same benefits as A ordinary shareholders. The purchased shares are subject to time restrictions of between two and three years and, if the purchased shares are sold or transferred before the end of the time restrictions, any matching shares will lapse.

Smith & Williamson LLP Deferred Option Plan Under the terms of the Smith & Williamson LLP Deferred Option Plan (Deferred), at 30 April 2018 certain partners held options to acquire share units as detailed.


June 2014 46,125 £nil April 2015 6,819 £nil

These options are exercisable between three to four years from grant.

Smith & Williamson LLP Restricted Share Awards Plan Under the terms of the Smith & Williamson LLP Restricted Share Awards Plan (RSA), at 30 April 2018 certain partners held options to acquire share units as detailed.



These options are exercisable three years from grant.



27. Share based payments The share schemes, detailed in note 26, attract a share based payment charge under IFRS 2 ‘Share Based Payments’. The group has no legal or constructive obligation to settle options awarded for cash under any of the share schemes and has never done so in the past. As detailed in note 28, the EBT was established to buy and sell the company’s shares and it generally does this by operating a bi-annual share selling window. As there is no obligation on the EBT (or group) to offer a share selling window, or to accept offers to sell that are received, no present obligation exists until the EBT accepts an offer. As such, the existence of the share selling window does not, in itself, create a present obligation to repurchase shares in the company. Therefore it does not create a constructive obligation on the group to settle any share awards in cash. As a consequence, awards under all of the share schemes are treated as equity settled.

Details of awards outstanding in respect of the company’s shares for the schemes are as follows:


Number

Weighted average

exercise price £


Number

Weighted average

exercise price £

Outstanding at 1 May 1,357,069 2.07 1,237,749 1.86 Granted during the year 335,697 4.88 473,871 3.17 Exercised during the year (294,104) 1.52 (223,153) 1.40 Lapsed during the year (67,504) 4.71 (131,398) 5.18 Outstanding at 30 April 1,331,158 2.77 1,357,069 2.07 Exercisable at 30 April – – – –

The weighted average life of outstanding options was two years (2017: two years).

Details of the number of share options outstanding by type of company scheme were as follows:

CSOP Sharesave Deferred Matching LTIP RSA Total

Outstanding at 1 May 2016 20,550 423,891 69,530 187,589 505,000 31,189 1,237,749 Granted during the year – 301,523 29,982 142,366 – – 473,871 Exercised during the year (20,550) (58,727) (50,265) (62,422) – (31,189) (223,153) Lapsed during the year – (125,329) – (6,069) – – (131,398) Outstanding at 30 April 2017 – 541,358 49,247 261,464 505,000 – 1,357,069 Granted during the year – 233,628 – 102,069 – – 335,697 Exercised during the year – (86,676) (36,477) (69,951) (101,000) – (294,104) Lapsed during the year – (58,584) – (8,920) – – (67,504) Outstanding at 30 April 2018 – 629,726 12,770 284,662 404,000 – 1,331,158

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27. Share based payments (continued) Details of options outstanding in respect of Smith & Williamson Investment Management LLP and Smith & Williamson LLP share units are as follows:

Smith & Williamson Investment Management LLP Smith & Williamson LLP


number

Weighted average exercise

price £


number


price £


number


price £


number


price £

Outstanding at 1 May 7,412,279 – 7,422,979 – 3,001,163 – 2,611,766 – Granted during the year 536,007 – 465,316 – 1,071,368 – 1,042,863 – Exercised during the year (1,603,414) – (423,740) – (949,181) – (552,160) – Lapsed during the year (15,000) – (52,276) – (3,477) – (101,306) – Outstanding at 30 April 6,329,872 – 7,412,279 – 3,119,873 – 3,001,163 – Exercisable 30 April – – – – – – – –

The weighted average life of outstanding options in Smith & Williamson Investment Management LLP and Smith & Williamson LLP was two years (2017: two years) and two years (2017: one year) respectively.

Details of the number of share options outstanding by type of scheme are as follows:

Smith & Williamson Investment Management LLP Deferred Matching EMP LTIP RSA Total

Outstanding at 1 May 2016 160,032 959,305 – 6,225,000 78,642 7,422,979 Granted during the year 151,258 – 277,544 – 36,514 465,316 Exercised during the year (11,903) (411,837) – – – (423,740) Lapsed during the year – (41,519) – – (10,757) (52,276) Outstanding at 30 April 2017 299,387 505,949 277,544 6,225,000 104,399 7,412,279 Granted during the year 29,558 – 459,209 – 47,240 536,007 Exercised during the year (121,512) (206,884) – (1,243,000) (32,018) (1,603,414) Lapsed during the year – (7,000) (6,000) (2,000) – (15,000) Outstanding at 30 April 2018 207,433 292,065 730,753 4,980,000 119,621 6,329,872

Smith & Williamson LLP Deferred Matching EMP RSA Total

Outstanding at 1 May 2016 81,999 2,282,304 – 247,463 2,611,766 Granted during the year – – 949,383 93,480 1,042,863 Exercised during the year (13,638) (538,522) – – (552,160) Lapsed during the year – (44,282) – (57,024) (101,306) Outstanding at 30 April 2017 68,361 1,699,500 949,383 283,919 3,001,163 Granted during the year – – 931,768 139,600 1,071,368 Exercised during the year (15,417) (838,866) (2,398) (92,500) (949,181) Lapsed during the year – (988) (2,489) – (3,477) Outstanding at 30 April 2018 52,944 859,646 1,876,264 331,019 3,119,873



The value of the options is measured by the use of a binomial pricing model. The inputs into the binomial model were as follows:

Date options granted

Expected dividend yield

%

Exercise price

£ Volatility

%

Risk free rate

%

October 2013 4.5 4.625 30 2.28 June 2014 4.5 Nil N/A N/A October 2014 4.5 Nil N/A N/A November 2014 4.5 5.425 N/A 2.09 March 2015 4.5 Nil N/A N/A April 2015 4.5 Nil N/A N/A October 2015 4.5 Nil N/A N/A November 2015 4.5 5.835 30 0.97 November 2015 4.5 5.835 30 1.38 March 2016 4.5 Nil N/A N/A November 2016 4.5 4.980 30 0.42 November 2016 4.5 4.980 30 0.71 October 2016 4.5 Nil N/A N/A February 2017 4.5 Nil N/A N/A October 2017 4.5 Nil N/A N/A November 2017 4.5 7.010 30 0.60 November 2017 4.5 7.010 30 0.86 March 2018 4.5 Nil N/A N/A

With the exception of awards where the strike price is £nil, the share price at the grant date is the same as the exercise price. The expected life of the options is 2.5 to 7 years. An assumed attrition rate of 3% per annum is applied to the majority of awards.

Expected volatility is determined by discounting the weighted average volatility of comparable listed companies to comparable private company volatility, while the expected dividend yield is based on the historic average dividend yield. The share price at the time of the grant of the awards was the fair value of the shares. Fair value is defined under IFRS and is the price used as the basis for any transactions in the shares. The fair value of shares is determined on a six-monthly basis by investment bankers appointed by the board. The board has power at any time to make its own fair value determination if it considers that it is necessary to do so.

The group recognised a charge of £8.4 million (2017: £9.2 million) in relation to share based payment transactions in the year. The value of the shares at 30 April 2018 was £8.30 (2017: £6.08).

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28. Own shares

Smith & Williamson

Holdings Limited EBT

2018 Number

‘000

2017 Number

‘000

Number of shares At 1 May 4,604 4,359 Shares sold to employees (989) (979) Shares bought from shareholders 1,191 1,224 At 30 April 4,806 4,604

2018

£’000 2017

£’000

Cost At 1 May 23,426 21,607 Shares sold to employees (5,194) (4,872) Shares bought from shareholders 9,422 6,691 At 30 April 27,654 23,426

The EBT was established to buy and sell the company’s shares. Shares held by the EBT are for distribution to partners and employees and certain family members of partners and employees under incentive arrangements. The EBT is funded by an overdraft from RBS which is guaranteed by the company and an intercompany loan from the company. Interest on amounts drawn down and running costs are borne by Smith & Williamson Corporate Services Limited in its capacity as sponsoring employer for the group. The EBT has waived the right to receive dividends but not capital distributions on shares held in the company.

29. Non-controlling interests Smith & Williamson LLP and Smith & Williamson Management LLP issue share units to their individual members. Individual members may also sell shares to the group during specified share trading windows or upon ceasing membership. The following movements occurred during the year:

Smith & Williamson Investment

Management LLP Smith & Williamson LLP Total Number £’000 % interest Number £’000 % interest £’000

At 1 May 2016 2,174,398 7,196 3.8% 3,981,863 2,717 6.7% 9,913 Issued during the year 451,504 362 674,653 40 402 Sold during the year (138,862) (393) (361,470) (245) (638) At 30 April 2017 2,487,040 7,165 4.3% 4,295,046 2,512 7.2% 9,677 Issued during the year 1,829,296 267 1,288,392 119 386 Sold during the year (178,680) (339) (297,266) (44) (383) At 30 April 2018 4,137,656 7,093 7.0% 5,286,172 2,587 8.7% 9,680

At 30 April 2018, the group held the remaining shares in Smith & Williamson Investment Management LLP and Smith & Williamson LLP of 55,190,368 and 55,668,534 (2017: 55,011,688 and 55,371,268) share units, respectively.

At 30 April 2018, individual members held options outstanding in respect of Smith & Williamson Investment Management LLP and Smith & Williamson LLP share units which were 6,329,872 and 3,199,873 respectively (see note 26 and 27 for option details). These options vest over a period of up to four years.

The combination of issued share units and options outstanding, as at 30 April 2018, will provide individual members with an aggregate interest in Smith & Williamson Investment Management LLP and Smith & Williamson LLP, following full vesting, of 15.9% and 13.1% respectively.



30. Capital commitments At the balance sheet date, the group had no material capital commitments in respect of property, plant and equipment (2017: £nil).

31. Operating leases At the balance sheet date, the group had outstanding obligations under non-cancellable operating leases that fall due as follows:

2018 £’000

2017 £’000

Within one year 6,726 6,723 In the second year to fifth year inclusive 23,212 24,823 After five years 5,163 5,957 35,101 37,503

Operating lease payments represent rentals payable by the group for certain office properties and motor vehicles. Total future sub-lease payments receivable are £604,000 (2017: £223,000).

32. Contingent liabilities and commitments The company is from time to time involved in legal actions that are incidental to its operations. Currently the company is not involved in any legal actions that would significantly affect the financial position or profitability of the company.

The group continues to be subject to three enquiries by HMRC with regard to the treatment of share based payments, PAYE and NIC determinations on the treatment of client relationship payments and the amortisation of intangible fixed assets. Full provision for the potential cost to the group was made in the 2016 consolidated financial statements. No further provision is required.

At 30 April 2018, the group’s undrawn commitments to lend to its clients were £44.1 million (2017: £28.4 million).

33. Fiduciary activities The group provides custody, trustee, corporate administration, investment management and advisory services to third parties, which involves the group making allocations and purchase and sale decisions in relation to a wide range of financial instruments. Those assets that are held in a fiduciary capacity are not included in these financial statements as, in the directors’ judgement, the primary risks and rewards of these assets and money rest with the group’s clients and, as such, are not assets of the group.


At 30 April 2018 the group, acting as trustee, held client money amounting to £9.2 million (2017: £866.6 million) in accordance with the FCA client money rules.

34. Post balance sheet events There have been no material post balance sheet events.

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35. Related party transactions The group provides accommodation and services to Nexia Smith & Williamson Audit Limited. The company and Nexia Smith & Williamson Audit Limited are considered to be related as they have certain shareholders in common. Smith & Williamson Corporate Services Limited and Smith & Williamson LLP have provided staff to Nexia Smith & Williamson Audit Limited, the charge in the year being £13.3 million (2017: £12.4 million). Accommodation and other overheads totalling £2.4 million (2017: £2.2 million) have been charged to Nexia Smith & Williamson Audit Limited by the group.

The amount owed to Smith & Williamson LLP, a subsidiary of the group, by Nexia Smith & Williamson Audit Limited at 30 April 2018 was £6.7 million (2017: £6.2 million).

At the balance sheet date, the group had the following guarantees in place for related parties:

2018 Base currency

‘000

2017 Base currency

‘000

2018 £ equivalent

‘000

2017 £ equivalent

‘000

Overdraft facilities: - Nexia TS S$416 S$245 228 135 SME Working Capital Loan: - Nexia TS S$156 S$– 86 – Indemnity for financial loss: - Nexia Smith & Williamson Audit Limited £2,000 £2,000 2,000 2,000 Total 2,314 2,135

The remuneration of the key management personnel of the group, who are defined as the directors of the parent company, is set out in the remuneration committee report. The value of share based payments awards to key management in the year ended 30 April 2018 was £847,000 (2017: £994,000). At 30 April 2018, key management and their close family members had outstanding deposits of £854,000 (2017: £75,000), which were made on normal business terms. Loans to key management and their close family members at 30 April 2018 amounted to £nil (2017: £nil). Some key management and their close family members make use of the services provided by companies within the group. Charges for such services are made at various staff rates. Distributions to key management and their close family members during the year were £1.046 million (2017: £1.120 million).

All amounts outstanding with related parties are unsecured and will be settled in cash. No guarantees have been given or received in respect of amounts outstanding. No provisions have been made for doubtful debts in respect of the amounts owed by the related parties.



36. Interests in structured entities A structured entity is defined as an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only, or when the relevant activities are directed by means of contractual arrangements. The group has assessed whether the funds it manages are structured entities and concluded that managed funds are structured entities unless substantive removal or liquidation rights exist.

IFRS 12 includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates and structured entities. The adoption of IFRS 12 has resulted in additional disclosures in respect of these interests. There is no impact on the group’s profit or loss for the current or prior year or on the equity reported.

The group has interests in structured entities as a result of contractual arrangements arising from the management of assets on behalf of its clients. These structured entities typically consist of unitised vehicles such as Open Ended Investment Companies and Authorised Unit Trusts, which entitle investors to a percentage of the vehicle’s net asset value. The structured entities are financed by the purchase of units or shares by investors.

The business activity of all structured entities, in which the group has an interest, is the management of assets in order to maximise investment returns for investors from capital appreciation and/or investment income. The group earns a management fee from its structured entities, based on a percentage of the entity’s net asset value and, where contractually agreed, a performance fee, based on outperformance against predetermined benchmarks.

As fund manager, the group does not guarantee returns on its funds or commit to financially support its funds.

The group does not have any material, individually or collectively, seed capital investments in funds managed by the group.

The table below shows the funds under management and advice of structured entities that the group manages and fee income that it receives from these entities. The carrying value of the group’s interest in these entities is considered to be the value of the funds under management and advice reflected below.

At 30 April 2018

Type Number of

funds

Net funds under management

and advice £bn

Investment management/administration

fees for the year ended 30 April 2018

£’000

Management fees receivable

£’000

Investment Management 61 2.1 11,561 566 Fund Administration 166 11.7 9,939 4,546 At 30 April 2017

Type Number of funds

Net funds under management

and advice £bn

Investment management/administration

fees for the year ended 30 April 2017

£’000

Management fees receivable

£’000

Investment Management 68 1.9 11,940 1,046 Fund Administration 164 9.2 8,594 3,116

The group has no direct exposure to losses in relation to the funds under management and advice reported above as the investment risk is borne by external investors. The main risk the group faces from its interest in funds under management and advice managed on behalf of external investors is the loss of fee income as a result of the withdrawal of funds by clients. Outflows from funds are dependent on market sentiment, asset performance and investor considerations.

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37. Group entities The company has holdings, directly or indirectly, in the following entities. Subsidiaries denoted by * are direct subsidiaries of the company. The principal operations are carried out in the country of incorporation.

Name Principal activity

Ordinary shares/share units % held

Registered office

Smith & Williamson LLP Accountancy 91 1 Smith & Williamson Investment Management LLP Investment management 93 1 Smith & Williamson Corporate Finance Limited Corporate finance *100 1 Smith & Williamson Services Limited Services company *100 1 Smith & Williamson Investment Services Limited Banking *100 1

Smith & Williamson Fund Administration Limited Fund administration and unit trust managers *100 1

Smith & Williamson Financial Services Limited Pensions and insurance *100 1 Smith & Williamson Investment Management (Ireland) Limited OEIC managers *100 2 Smith & Williamson Trust Corporation Limited Trust company *100 1

NCL Investments Limited Investment management and stockbroking 100 1

Smith & Williamson Freaney Limited Chartered accountancy *100 3 Smith & Williamson Corporate Services Limited Services company 100 1 25 Moorgate Limited Property management 100 1 Oakfield Trustees Limited Trust company 100 7 Smith & Williamson Freaney Employment Services Limited Services company 100 3 Smith & Williamson (Channel Islands) Limited Chartered accountancy *100 4 Smith & Williamson Pensioneer Trustee Limited Pensions *100 5 Smith & Williamson International Limited Investment management *100 4 1 Riding House Street Limited Dormant 100 1 Athenaeum Directors Limited Dormant 100 1 Athenaeum Secretaries Limited Dormant 100 1 Cunningham Coates Limited Dormant 100 6 M & A International Limited Dormant 100 1 M & Partners Limited Dormant 100 1 NCL (Nominees) Limited Dormant 100 1 NCL (Securities) Limited Holding company *100 1 Smith & Williamson Freaney (UK) Limited Dormant 100 1 Smith & Williamson Group Holdings Limited Holding company 100 1 Smith & Williamson I M Limited Holding company *100 1 Smith & Williamson Nominees Limited Dormant 100 1 Smith & Williamson Tax LLP Dormant 100 1 Smith & Williamson TBS Holdings Limited Holding company *100 1 St Vincent St Fund Administration Limited Dormant 100 1 Smith & Williamson Trustees Limited Dormant 100 1 1. 25 Moorgate, London, EC2R 6AY, England 2. Trinity Point, 10-11 Leinster Street South, Dublin 2, DO2 EF85, Republic of Ireland 3. Paramount Court, Corrig Road, Sandyford Business Park, Dublin 18, D18 R9C7, Republic of Ireland 4. Weighbridge House, Liberation Square, St. Helier, Jersey, JE2 3NA 5. 12 Herbert Street, Dublin 2, D02 X240, Republic of Ireland 6. 32-38 Linenhall Street, Belfast, County Antrim, BT2 8BG, Northern Ireland 7. 4th Floor Portwall Place, Portwall Lane, Bristol BS1 6NA, England



Regulation Smith & Williamson Investment Services Limited is authorised by the PRA and regulated by the FCA and the PRA in the UK. Smith & Williamson Investment Management LLP, NCL Investments Limited, Smith & Williamson Fund Administration Limited, Smith & Williamson Financial Services Limited and Smith & Williamson Corporate Finance Limited are authorised and regulated by the FCA in the UK. Smith & Williamson Investment Management (Ireland) Limited and branches of Smith & Williamson Investment Management LLP and Smith & Williamson Financial Services Limited are regulated in Ireland by the Central Bank of Ireland.

Smith & Williamson LLP is licensed by the Institute of Chartered Accountants in England and Wales to provide a range of investment services.

Smith & Williamson Freaney Limited is authorised to carry on investment business by the Institute of Chartered Accountants in Ireland.

Smith & Williamson International Limited is regulated by the Jersey Financial Services Commission.

NCL Investments Limited is a member firm of the London Stock Exchange.

38. Capital management Accounting capital is defined as the total of share capital, share premium, retained earnings and other reserves less own shares. Total capital at 30 April 2018 was £280.2 million (2017: £257.6 million). In accordance with CRD IV, a prudential regulatory consolidation group has been created. This consists of the parent company, regulated and ancillary entities. This is referred to as the PCG. Regulatory capital for the PCG is subject to supervision by the PRA and is calculated in accordance with CRD IV. These require certain adjustments to and certain deductions from accounting capital, the latter principally in respect of intangible assets, investments in group companies outside the PCG and the holding of own shares.

The group’s objectives when managing capital are to:

• comply with the capital requirements set by the regulators of the banking and other regulated markets where the group operates;

• safeguard the group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for its other stakeholders; and

• maintain a strong capital base to support the future strategy and development of the business.

The PCG undertakes an annual Internal Capital Adequacy Assessment Process which considers current, as well as projected, capital requirements. The regulatory capital figures for the PCG and, where relevant, its constituent companies are monitored against their respective regulatory capital requirements derived using the CRD IV Pillar 1 and Pillar 2 methodologies. At 30 April 2018, the PCG’s total capital, including profits for the full year to 30 April 2018, was £131.8 million (2017: £116.6 million).

Capital and liquidity adequacy is monitored on a daily, monthly and less frequent basis as required. Surplus capital levels are forecast on a monthly basis, taking account of proposed dividends and investment requirements, to ensure appropriate buffers are maintained. The group regularly reports its capital position to its lead regulator, the PRA. The group uses the standardised approach to credit risk and operational risk under CRD IV.

Regulatory capital requirements have been met throughout the financial year ended 30 April 2018.

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39. Financial risk management The group offers a range of services to private clients, family and charitable trusts and corporate clients. As part of the banking service, the group uses non-retail funding instruments to invest liquid asset balances and to manage the risks arising from its operations.

The group has a formal structure for managing risk, including established risk limits, reporting lines, mandates and other control procedures.

The group does not use derivative financial instruments for risk management purposes. The fair values of the group’s assets and liabilities are not materially different from their carrying amounts.

a) Categories of financial instruments The group classifies financial assets in the following categories: loans and receivables, held-to-maturity investments and available-for-sale investments. Held-to-maturity investments and available-for-sale investments are shown in notes 18 and 19 respectively.

All financial liabilities are held at amortised cost, as described in the accounting policies in note 1.

b) Strategy in using financial instruments As a group which includes authorised institutions, the group’s activities include the use of financial instruments but the group does not trade financial instruments for its own account. The group accepts deposits from customers, at a mix of fixed and floating rates, and uses financial instruments to provide a return while offering competitive interest rates to clients.

c) Credit risk The primary source of credit risk arises from placing funds with and holding interest bearing securities issued by banks, building societies and central governments. It is the group’s policy to place funds with a range of high quality financial institutions approved by the board. Investments are diversified to avoid excessive exposures to individual counterparties, groups of connected counterparties or geographical location.

Exposure to credit risk is managed through lending limits and by reference to external ratings. Limits are reviewed at least annually and more frequently if individual or market conditions dictate.

Loans and advances to banks and cash and cash equivalents The group has exposures to a range of financial institutions through its banking book. The group policy requires that all such exposures are only entered into with counterparties or groups of counterparties approved by the board after reference to each counterparty’s Fitch rating. Exposures are monitored on a daily basis and reviewed by the Smith & Williamson Services Limited (SWIS) executive committee on a monthly basis. The SWIS executive committee may suspend a counterparty and/or withdraw funds or liquidate a holding if market conditions dictate.

Settlement balances Settlement risk arises where payment is made or a transfer of a security is effected in the expectation of a corresponding delivery of a security or cash. The vast majority of transactions are on a delivery versus payment basis (DvP), with near immediate exchange of cash and securities. Outstanding settlement balances, both DvP and free deliveries, are monitored on a daily basis. No settlement balances were impaired at the balance sheet date (2017: £nil).

Loans and advances to customers Loan book Loans and overdrafts are provided to clients on a secured basis either against portfolios held in one of the group’s nominee companies or against property over which the group holds a charge. Loans are reviewed on an annual basis as a minimum, and more frequently if individual or market conditions dictate.

All loans and extensions to loans are approved by a minimum of two members of the SWIS executive committee, against a set exposure limit for the loan book.

At 30 April 2018 the total advanced as loans was £34.8 million (2017: £32.6 million), which included loans of £449,000 (2017: £384,000) to employees. Loans to employees are unsecured.



Overdrafts Overdrafts may arise from time to time, principally due to timing differences between the purchase and sale of client assets. Overdrafts are actively monitored and reviewed by the credit review committee.

Trade and fee receivables Trade and fee receivables relate to fees that have been invoiced to, but not settled by, clients. The group has policies in place to ensure that services are provided to clients with an appropriate credit history. Client invoices are typically due for payment on issue and accordingly all trade and fee receivables are disclosed past due. Where trade receivables are impaired, in view of normal client payment patterns, full provision is made against any such trade receivables. The collection of receivables is monitored by individual business lines on a monthly basis. Senior management periodically reviews, as a preventative measure, potential bad debts and takes appropriate risk mitigating action at local levels.

Derivatives It is not group policy to hold or issue derivatives for its own trading purposes. It deals on a matched principal basis because this is required by, and is the custom of, the relevant markets.

Maximum exposure to credit risk The group’s on-balance sheet credit risk exposure at 30 April 2018, ignoring the value of any collateral held, amounted to £1,506 million (2017: £643.4 million). Financial guarantees of £2.3 million (2017: £2.1 million) were granted to related parties (note 35) and £nil (2017: £nil) were granted to clients. Off-balance sheet balances are shown in section d) Liquidity risk below. For accrued income and other receivables, the amount stated is after any provisions for impairment.

Neither past due nor impaired Cash and balances with central banks, loans and advances to banks and held-to-maturity assets were neither past due nor impaired and are further analysed below by reference to the Fitch rating at the balance sheet date.

2018 £’000

2017 £’000

Cash and balances with central banks – AA+ to AA- 933,716 186,091 Cash and balances with central banks – A+ to A- 64,470 47,377 Cash and balances with central banks – BBB+ 63,381 59,457 Cash and balances with central banks – unrated 3,249 255 Loans and advances – AA+ to AA- 24,813 10,221 Loans and advances – A+ to A- 35,441 1,023 Loans and advances – BBB+ 3,257 4,166 Held-to-maturity assets – AA+ to AA- 61,000 8,750 Held-to-maturity assets – A+ to A- 126,543 146,631 1,315,870 463,971

Loans and advances to customers were neither past due nor impaired at the balance sheet date.

d) Liquidity risk Liquidity risk is the risk that the group is unable to meet its obligations as they fall due. The group operates strict criteria for counterparties, to ensure that all investments are liquid and placed with high quality counterparties. The group manages this risk by placing deposits across a range of maturities and by maintaining a stock of liquid and tradable assets. The risk is monitored daily against liquidity limits and reviewed monthly by the SWIS executive committee. The group also maintains banking facilities with external organisations.

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39. Financial risk management (continued) Cash flows The table below analyses financial assets and liabilities of the group on an undiscounted future cash flow basis according to the contractual maturity into relevant maturity groupings based upon the remaining period at the balance sheet date. Balances with no fixed maturity are included in the ‘over 5 years’ category. Included within the ‘under 1 month’ category are amounts that are either repayable on demand or which have no contractual maturity.

At 30 April 2018

Under 1 month £’000

1 to 3 months

£’000

3 to 12 months

£’000

1 to 5 years £’000

Over 5 years £’000

Total £’000

Assets Cash and balances with central banks 1,064,816 – – – – 1,064,816 Loans and advances to banks 63,511 – – – – 63,511 Settlement balances – assets 88,950 – – – – 88,950 Loans and advances to customers 38,983 – – – – 38,983 Accrued income and other receivables 27,072 29,718 3,672 395 373 61,230 Investment securities – held-to-maturity 15,000 12,019 160,524 – – 187,543 Investment securities – available-for-sale – – 8,328 302 – 8,630 Total 1,298,332 41,737 172,524 697 373 1,513,663 Liabilities Other borrowed funds 19,408 – – – – 19,408 Settlement balances – liabilities 88,658 – – – – 88,658 Due to customers 1,147,047 1,319 1,378 – – 1,149,744 Accruals, provisions and other payables 55,961 32,069 5,682 3,207 250 97,169 Total 1,311,074 33,388 7,060 3,207 250 1,354,979 Net liquidity gap (12,742) 8,349 165,464 (2,510) 123 158,684



At 30 April 2017

Under 1 month £’000

1 to 3 months

£’000

3 to 12 months

£’000

1 to 5 years £’000

Over 5 years £’000

Total £’000

Assets Cash and balances with central banks 293,180 – – – – 293,180 Loans and advances to banks 15,410 – – – – 15,410 Settlement balances – assets 87,412 – – – – 87,412 Loans and advances to customers 36,927 – – – – 36,927 Accrued income and other receivables 23,672 25,830 3,553 356 334 53,745 Investment securities – held-to-maturity 23,430 27,450 104,501 – – 155,381 Investment securities – available-for-sale – – 8,542 301 – 8,843 Total 480,031 53,280 116,596 657 334 650,898 Liabilities Other borrowed funds 18,766 – – – – 18,766 Settlement balances – liabilities 87,176 – – – – 87,176 Due to customers 316,767 3,238 375 – – 320,380 Accruals, provisions and other payables 52,619 24,090 5,353 2,421 843 85,326 Total 475,328 27,328 5,728 2,421 843 511,648 Net liquidity gap 4,703 25,952 110,868 (1,764) (509) 139,250

Off-balance sheet items Cash flows resulting from the group’s off-balance sheet financial liabilities relate to operating lease commitments detailed in note 31, contingent liabilities and commitments in note 32 and related party indemnities and guarantees as detailed in note 35.

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39. Financial risk management (continued) e) Market risk Interest rate risk During the year, the SWIS executive committee set an overall pre-tax interest rate exposure limit of £2.0 million (2017: £1.2 million) for the total profit or loss resulting from an unexpected, immediate and sustained 2% (2017: 2%) movement in sterling interest rates for Smith & Williamson Investment Services Limited, the principal operating subsidiary subject to interest rate risk. The potential total profit or loss is calculated on the basis of the average number of days to repricing of the interest bearing liabilities compared with the period to repricing on a corresponding amount of interest bearing assets. The total potential impact on profit or loss before tax was £1,258,299 (2017: £412,191) at the balance sheet date for a 2% (2017: 2%) movement in interest rates.

Part of the group’s return on financial instruments is obtained from controlled mismatching of the dates on which interest receivable on assets and interest payable on liabilities are next reset to market rates or, if earlier, the dates on which the instruments mature. The tables on the following page summarise these repricing mismatches on the group’s non-trading book at 30 April 2018 and 2017. Items are allocated to time bands by reference to the earlier of the next contractual interest rate repricing date and the maturity date.

At 30 April 2018

Under 3 months

£’000

3 to 6 months

£’000

6 to 12 months

£’000

1 to 5 years £’000

Non-interest bearing

£’000 Total £’000

Assets Cash and balances with central banks 1,064,816 – – – – 1,064,816 Loans and advances to banks 63,511 – – – – 63,511 Settlement balances – assets – – – – 88,950 88,950 Loans and advances to customers 38,983 – – – – 38,983 Accrued income and other receivables – – – – 61,230 61,230 Investment securities – held-to-maturity 27,019 45,524 115,000 – – 187,543 Investment securities – available-for-sale – – – – 8,630 8,630 Total 1,194,329 45,524 115,000 – 158,810 1,513,663 Liabilities Other borrowed funds 19,408 – – – – 19,408 Settlement balances – liabilities – – – – 88,658 88,658 Due to customers 1,148,366 1,378 – – – 1,149,744 Accruals, provisions and other payables – – – – 97,169 97,169 Total 1,167,774 1,378 – – 185,827 1,354,979 Interest rate sensitivity gap 26,555 44,146 115,000 – (27,017) 158,684



At 30 April 2017

Under 3 months

£’000

3 to 6 months

£’000

6 to 12 months

£’000

1 to 5 years £’000

Non-interest bearing

£’000 Total £’000

Assets Cash and balances with central banks 293,180 – – – – 293,180 Loans and advances to banks 15,410 – – – – 15,410 Settlement balances – assets – – – – 87,412 87,412 Loans and advances to customers 36,927 – – – – 36,927 Accrued income and other receivables – – – – 53,745 53,745 Investment securities – held-to-maturity 50,880 51,500 53,001 – – 155,381 Investment securities – available-for-sale – – – – 8,843 8,843 Total 396,397 51,500 53,001 – 150,000 650,898 Liabilities Other borrowed funds 18,766 – – – – 18,766 Settlement balances – liabilities – – – – 87,176 87,176 Due to customers 320,005 375 – – – 320,380 Accruals, provisions and other payables – – – – 85,326 85,326 Total 338,771 375 – – 172,502 511,648 Interest rate sensitivity gap 57,626 51,125 53,001 – (22,502) 139,250

Foreign exchange risk The group continuously monitors its exposure to currency fluctuation risks based on balance sheet items and expected cash flows.

The group had no significant foreign exchange risk.

40. Ultimate controlling party At 30 April 2018, the company had no ultimate controlling party.

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COMPANY FINANCIAL STATEMENTS

Company income statement and statement of comprehensive income for the year ended 30 April 2018


Note


£’000


£’000

Revenue 34,729 30,357 Cost of sales (16,963) (12,105) Gross profit 17,766 18,252 Profit on sale of investment in subsidiary 42 – 1,359 Operating expenses 43 (16,420) (17,035) Operating profit 1,346 2,576 Investment revenue 44 20,433 18,171 Profit before tax 21,779 20,747 Taxation 45 (558) (628) Profit for the year attributable to equity holders of the company 21,221 20,119


£’000


£’000

Profit for the year attributable to equity holders of the company 21,221 20,119 Items that may subsequently be reclassified to profit or loss Net gains on revaluation of available-for-sale assets 54,121 88,174 Gain transferred to income statement on disposal of available-for-sale assets – (1,359) Other comprehensive income for the year, net of tax 54,121 86,815 Total comprehensive income for the year attributable to equity holders of the company 75,342 106,934



Company balance sheet as at 30 April 2018


Note

As at 30 April 2018

£’000

As at 30 April 2017

£’000

Assets Non-current assets Intangible assets 46 7,117 2,538 Property, plant and equipment 47 553 576 Investments in subsidiaries – available-for-sale 48 430,280 376,160 Investment securities – available-for-sale 49 302 301 438,252 379,575 Current assets Cash and cash equivalents 11,657 12,132 Prepayments, accrued income and other receivables 50 9,883 7,782 21,540 19,914 Total assets 459,792 399,489 Liabilities Non-current liabilities Deferred tax 13 5 Accruals, deferred income, provisions and other payables 51 302 301 315 306 Current liabilities Accruals, deferred income, provisions and other payables 51 4,462 2,957 Current tax liabilities 353 539 4,815 3,496 Total liabilities 5,130 3,802 Net assets 454,662 395,687 Equity Share capital 26 5,557 5,557 Share premium 26 25,150 25,150 Other reserves 394,838 340,717 Retained earnings 29,117 24,263 Total equity 454,662 395,687


The financial statements were approved by the board and authorised for issue on 28 June 2018 and signed on its behalf by:

A F Sykes G T Hotson Chairman Group finance director

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COMPANY FINANCIAL STATEMENTS CONTINUED

Company cash flow statement for the year ended 30 April 2018


Note


£’000


£’000

Cash flows from operating activities Profit before tax 21,779 20,747 Amortisation of intangible assets 46 474 47 Depreciation of property, plant and equipment 47 10 – Profit on sale of investment in subsidiary 42 – (1,359) Other non-cash movement 47 187 - Operating cash flows before movements in operating assets and liabilities 22,450 19,435 Changes in operating assets and liabilities Increase in prepayments, accrued income and other receivables (2,101) (198) Increase in accruals, deferred income, provisions and other payables 1,506 965 Cash generated from operations 21,855 20,202 Tax paid (736) (469) Net cash inflow from operating activities 21,119 19,733 Cash flows from investing activities Purchase of property, equipment and intangible assets 46,47 (5,227) (2,780) Purchase of investment in subsidiaries available-for-sale 48 – (466) Proceeds from sale of investment in subsidiaries available-for-sale 48 – 1,660 Net cash used in investing activities (5,227) (1,586) Cash flows from financing activities Distributions to shareholders (16,367) (14,880) Net cash used in financing activities (16,367) (14,880) Net (decrease)/increase in cash and cash equivalents (475) 3,267 Cash and cash equivalents at the beginning of the year 12,132 8,865 Cash and cash equivalents at the end of the year 11,657 12,132



Company statement of changes in equity for the year ended 30 April 2018


Other reserves

Share capital

£’000

Share premium

£’000

Merger reserve

£’000

Capital redemption

reserve £’000

Available-for-sale reserve

£’000

Total other reserves

£’000

Retained earnings

£’000

Total equity £’000

Equity at 1 May 2016 5,557 25,150 47,392 14,546 201,964 263,902 9,024 303,633 Profit for the year ended 30 April 2017 – – – – – – 20,119 20,119 Other comprehensive income for the year – – – – 86,815 86,815 – 86,815 Total comprehensive income – – – – 86,815 86,815 20,119 106,934 Distributions to shareholders – – – – – – (14,880) (14,880) Transfer of realised merger reserve (note 52) – – (10,000) – – (10,000) 10,000 – Equity at 30 April 2017 5,557 25,150 37,392 14,546 288,779 340,717 24,263 395,687 Profit for the year ended 30 April 2018 – – – – – – 21,221 21,221 Other comprehensive income for the year – – – – 54,121 54,121 – 54,121 Total comprehensive income – – – – 54,121 54,121 21,221 75,342 Distributions to shareholders – – – – – – (16,367) (16,367) Equity at 30 April 2018 5,557 25,150 37,392 14,546 342,900 394,838 29,117 454,662


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NOTES TO THE COMPANY FINANCIAL STATEMENTS

Notes to the company financial statements for the year ended 30 April 2018


41. Significant accounting policies The separate financial statements of the company are presented as required by the Companies Act 2006. As permitted by that Act, the separate financial statements have been prepared in accordance with IFRSs as adopted by the EU.

The principal accounting policies adopted are the same as those set out in note 1 to the consolidated financial statements. In addition, investments in subsidiaries are accounted for in line with the requirements of IAS 39. The company provides services to other entities within the Smith & Williamson group. Fees receivable for services are recognised as revenue in the accounting period in which the services are provided. Cost of sales represents the cost of the services provided to the group companies.

The company charges the group’s employing entities for the fair value of share awards granted to their employees by the EBT.

42. Profit on sale of investment in subsidiary

2018 £’000

2017 £’000

Profit on sale of investment in Smith & Williamson Trustees (Jersey) Limited (note 48) – 1,359

43. Operating expenses Operating profit has been arrived at after charging:

2018 £’000

2017 £’000

Operating expenses 15,103 16,410 Amortisation of intangible assets 474 47 Auditors’ remuneration for the audit of the company’s financial statements 65 58 Auditors’ remuneration for other non-audit services 778 520 16,420 17,035

Other non-audit services relate primarily to one-off costs such as work related to the merger discussions.

44. Investment revenue

2018 £’000

2017 £’000

Dividend income – intercompany 20,433 18,171



45. Taxation

2018 £’000

2017 £’000

Current tax 549 628 Deferred tax 9 – 558 628

The tax on the company’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to its profits as follows:

2018 £’000

2017 £’000

Profit before tax 21,779 20,747 Tax calculated at the average rate of UK corporation tax 19.0% (2017: 19.9%) 4,138 4,133 (Capital allowances in excess of depreciation)/depreciation in excess of capital allowances (11) 9 Profit on disposal of investments – (271) Expenses not deductible for tax purposes 313 307 Non-taxable income (3,882) (3,620) Under provision in respect of prior year – 70 558 628

46. Intangible assets

Computer software

£’000

Cost At 1 May 2016 381 Additions 2,204 At 30 April 2017 2,585 Additions 5,053 At 30 April 2018 7,638 Accumulated amortisation At 1 May 2016 – Charge for the year 47 At 30 April 2017 47 Charge for the year 474 At 30 April 2018 521 Carrying amount At 30 April 2018 7,117 At 30 April 2017 2,538

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NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED


47. Property, plant and equipment

Computer equipment

£’000

Cost At 1 May 2016 – Additions 576 At 30 April 2017 576 Additions 174 Other movement (187) At 30 April 2018 563 Accumulated amortisation At 1 May 2016 – Charge for the year – At 30 April 2017 – Charge for the year 10 At 30 April 2018 10 Net book value At 30 April 2018 553 At 30 April 2017 576

48. Investments in subsidiaries – available-for-sale The company accounts for investments in subsidiaries in line with the requirements of IAS 39. They are therefore accounted for as an available-for-sale asset and included at their current market fair values.

2018 £’000

2017 £’000

Equity investments Unlisted 430,280 376,160

Available-for-sale securities are the company’s direct holdings in its subsidiaries.

The change in the company’s holdings in available-for-sale investments in the year is summarised below:

Available- for-sale

£’000

At 1 May 2016 289,200 Gains from changes in fair value recognised in other comprehensive income 88,154 Additions in the year 466 Disposals in the year (1,660) At 30 April 2017 376,160 Gains from changes in fair value recognised in other comprehensive income 54,120 At 30 April 2018 430,280



In the prior year, the company purchased Smith & Williamson Trust Corporation Limited from a fellow group company as part of a restructuring project. The consideration paid was £266,000. In addition, the company acquired additional shares in Smith & Williamson Fund Administration Limited with a value of £200,000.

Also in the prior year, the company sold its interest in Smith & Williamson Trustees (Jersey) Limited for a total amount of £1,659,877.

Details of the company’s direct investments in subsidiaries are as follows.

Name Principal activity

2018 % ownership

interest

2017 % ownership

interest Registered

office

NCL (Securities) Limited Holding company 100% 100% 1 Smith & Williamson Corporate Finance Limited Corporate finance 100% 100% 1 Smith & Williamson Financial Services Limited Pensions 100% 100% 1 Smith & Williamson Freaney Limited Chartered accountancy 100% 100% 3 Smith & Williamson Investment Services Limited Banking 100% 100% 1 Smith & Williamson Services Limited Service company 100% 100% 1 Smith & Williamson TBS Holdings Limited Holding company 100% 100% 1 Smith & Williamson IM Limited Holding company 100% 100% 1

Smith & Williamson Fund Administration Limited Fund administration and unit trust managers 100% 100% 1

Smith & Williamson Investment Management (Ireland) Limited OEIC manager 100% 100% 2 Smith & Williamson (Channel Islands) Limited Chartered accountancy 100% 100% 4 Smith & Williamson Pensioneer Trustee Limited Pension trustee 100% 100% 5 Smith & Williamson International Limited Investment management 100% 100% 4 Smith & Williamson Trust Corporation Limited Trust company 100% 100% 1 1. 25 Moorgate, London, EC2R 6AY, England 2. Trinity Point, 10-11 Leinster Street South, Dublin 2, DO2 EF85, Republic of Ireland 3. Paramount Court, Corrig Road, Sandyford Business Park, Dublin 18, D18 R9C7, Republic of Ireland 4. Weighbridge House, Liberation Square, St. Helier, Jersey, JE2 3NA 5. 12 Herbert Street, Dublin 2, D02 X240, Republic of Ireland

49. Investment securities – available-for-sale

2018 £’000

2017 £’000

Equity securities Listed (level 1) 302 301

The change in the company’s holdings in available-for-sale investments in the year is summarised below:

Available- for-sale

£’000

At 1 May 2016 281 Gains from changes in fair value recognised in other comprehensive income 20 At 30 April 2017 301 Gains from changes in fair value recognised in other comprehensive income 1 At 30 April 2018 302

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50. Prepayments, accrued income and other receivables

2018 £’000

2017 £’000

Amount due from group companies 9,883 7,782

The fair value of prepayments, accrued income and other receivables is not materially different to their carrying amount.

51. Accruals, deferred income, provisions and other payables

2018 £’000

2017 £’000

Accruals 4,038 2,691 Payables due to related parties 424 266 Current liabilities 4,462 2,957 Other payables 302 301 Non-current liabilities 302 301

52. Merger reserve

2018 £’000

2017 £’000

At 1 May 37,392 47,392 Return of capital – (10,000) At 30 April 37,392 37,392

On 2 June 2016, the company received a return of capital of £10 million from its subsidiary NCL (Securities) Limited. The distribution resulted in an equivalent portion of the merger reserve being realised and being transferred to retained earnings.



53. Related party transactions The company’s related parties are the directors, other group companies and Nexia Smith & Williamson Audit Limited.

The remuneration of the key management personnel of the group, who are defined as the directors, is set out in the directors’ remuneration report. Details of the fair value of share based payments awards, dividends paid to, and outstanding deposits by key management and their close family members is included in note 35.

All amounts outstanding with related parties are unsecured and will be settled in cash. No guarantees have been given or received in respect of amounts outstanding. No provisions have been made for doubtful debts in respect of the amounts owed by the related parties. The company from time to time is charged or recharges other group companies in respect of staff, services provided and other overhead costs. The EBT’s overdraft facility with RBS as per note 21 is guaranteed by the company.

During the year, the transactions between the company and other group companies were as follows:

2018 £’000

2017 £’000

Intercompany charges receivable from group companies 34,729 30,357 Intercompany charges payable to group companies 16,963 12,105

At the balance sheet date, the amounts due from other group companies were as follows:

2018 £’000

2017 £’000

Smith & Williamson Investment Services Limited – 1,401 Smith & Williamson Holdings Limited Employee Benefit Trust 9,883 6,381 Total amount due from group companies 9,883 7,782 Smith & Williamson Group Holdings Limited (114) (266) Smith & Williamson Investment Management LLP (310) - Total amount due to group companies (424) (266)

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54. Financial risk management The company’s financial risk management is consistent with the group’s approach as set out in note 39. The sections relevant to the company have been included below.

Maximum exposure to credit risk The only credit risk the company is exposed to is on intercompany balances and cash balances, and as such credit risk is not considered to be material.

a) Liquidity risk The directors are of the opinion that the company does not have any significant liquidity risk.

b) Market risk Price risk Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from foreign exchange risk). The company is exposed to price risk through its holdings of equity investments in subsidiaries which are carried at fair value.

Fair values The fair value of the company’s financial assets and liabilities are not materially different from their carrying values.

The table below analyses the financial instruments measured at fair values into a fair value hierarchy based on the valuation techniques used to determine the fair value:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

• Level 2: inputs other than quoted price included within level 1 that are observable for the asset or liability, either directly or indirectly

• Level 3: inputs for the asset or liability that are derived from formal valuation techniques that include inputs for the asset or a liability that are not based on observable market data

At 30 April 2018 Level 1

£’000 Level 2

£’000 Level 3 £’000

Total £’000

Investments in subsidiaries – available-for-sale Investment management and banking entities – – 329,280 329,280 Tax and business services entities – – 101,000 101,000 – – 430,280 430,280

At 30 April 2017 Level 1

£’000 Level 2

£’000 Level 3 £’000

Total £’000

Investments in subsidiaries – available-for-sale Investment management and banking entities – – 295,000 295,000 Tax and business services entities – – 81,160 81,160 – – 376,160 376,160

There has been no transfer between level 1, level 2 and level 3 recurring fair value measurements during the year.

The fair value of the level 3 investments is calculated on a multiples based approach which has been benchmarked where possible to comparable listed peers and precedent market transactions (details of the multiples are provided in the table below), with a 20% liquidity discount applied.



Description

Fair value at 30 April 2018

£’000 Valuation technique Range

Investment management and banking entities 329,280 Revenue multiple Price–earnings ratio

3.0 – 3.3 14.7 – 16.0

Tax and business services entities 101,000 Revenue multiple Price–earnings ratio

0.97 – 1.14 12.9 – 15.2

Significant increases/(decreases) in any of these inputs in isolation would result in a significantly higher/(lower) fair value measurement. The model produced a range of valuations based on the inputs, from which we have taken the mean as our current fair value. The range of valuation produced by the model was as follows:

Low

£’000 High

£’000

Investment management and banking entities 315,840 342,720 Tax and business services entities 94,080 107,920 409,920 450,640

The sensitivity of the model to changes in the liquidity discount, the impact of which is set out in the table below:

Effect of a 5% increase in

the liquidity discount

£’000

Effect of a 5% decrease in

the liquidity discount

£’000

Investment management and banking entities (20,580) 20,580 Tax and business services entities (6,313) 6,313 (26,893) 26,893

Foreign exchange risk The directors are of the opinion that the company does not have any significant foreign exchange risk.

55. Capital management Capital is managed on a group basis as detailed in note 38.

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CORPORATE INFORMATION


Company information

Non-executive chairman A F Sykes

Executive directors D M Cobb P L Fernandes G T Hotson K P Stopps

Non-executive directors E G Chambers A C Fisher B C Goldring J H Harley K Jones

Independent auditors PricewaterhouseCoopers LLP 7 More London Riverside London SE1 2RT

Bankers Royal Bank of Scotland plc 2½ Devonshire Square London EC2M 4XJ

Corporate lawyers Macfarlanes LLP 20 Cursitor Street London EC4A 1LT

Registrar Link Asset Services 6th Floor 65 Gresham Street London EC2V 7NQ

Company secretary and registered office D A Saunders 25 Moorgate London EC2R 6AY Company No. 4533948

smithandwilliamson.com

Our offices

London 25 Moorgate London EC2R 6AY t: 020 7131 4000 f: 020 7131 4001

Belfast The Linenhall 32-38 Linenhall Street Belfast BT2 8BG t: 028 9072 3000 f: 028 9072 3001

Birmingham 3rd Floor 9 Colmore Row Birmingham B3 2BJ t: 0121 710 5200 f: 0121 710 5201

Bristol Portwall Place Portwall Lane Bristol BS1 6NA t: 0117 376 2000 f: 0117 376 2001

Cheltenham Festival House Jessop Avenue Cheltenham GL50 3SH t: 01242 506050 f: 01242 506051

Dublin Paramount Court Corrig Road Sandyford Business Park Dublin 18, D18 R9C7 Republic of Ireland t: +353 1 614 2500 f: +353 1 614 2501

Dublin 12 Herbert Street Dublin 2, D02 X240 Republic of Ireland t: +353 1 500 6500 f: +353 1 500 6501

Glasgow 206 St Vincent Street Glasgow G2 5SG t: 0141 222 1100 f: 0141 222 1101

Guildford Onslow House Onslow Street Guildford Surrey GU1 4TL t: 01483 407 100 f: 01483 407 101

Jersey 3rd Floor Weighbridge House Liberation Square St. Helier Jersey JE2 3NA t: 01534 716 850 f: 01534 716 851

Salisbury Old Library Chambers 21 Chipper Lane Salisbury Wiltshire SP1 1BG t: 01722 431 000 f: 01722 431 001

Southampton 4th Floor Cumberland House 15-17 Cumberland Place Southampton SO15 2BG t: 023 8082 7600 f: 023 8082 7601

Associate offices

People’s Republic of China Nexia China Pte Ltd – Nexia TS (Shanghai) Co Ltd Room A, 20 Floor Heng Ji Building No. 99 East Huai Road Huang Pu District, Shanghai 200021 t: +8621 6047 8716 f: +8621 6047 8712

Singapore Nexia TS Pte Ltd 100 Beach Road Shaw Tower #30-00, Singapore 189702 t: +65 6534 5700 f: +65 6534 5766

British Virgin Islands RHSW (BVI) Limited Level 4, The Barracks PO Box 3162 Road Town, Tortola VG1100 British Virgin Islands t: +1 (284) 852 2275

Cayman Islands RHSW (Cayman) Limited Windward 1 Regatta Office Park PO Box 897 Grand Cayman KY1-1103 Cayman Islands t: +1 (345) 949 7576 f: +1 (345) 949 8295

Malta IPM (Malta) Limited 1, Block C, Skyway Offices 179 Marina Street Pieta, PTA 9042 Malta t: +356 21 222 777 f: +356 21 221 692


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