TIDMCAY
RNS Number : 0014Q
Charles Stanley Group PLC
24 November 2016
This announcement constitutes Inside Information within the
meaning of article 7 of the EU Market Abuse Regulation
24 November 2016
Charles Stanley Group PLC (the Company)
Proposed Share Award Scheme
Charles Stanley concludes consultation with Investment Managers
and agrees new remuneration arrangements.
The Board of Charles Stanley Group PLC is pleased to announce
that its remuneration consultation with the Group's investment
management teams, both employed and self-employed associates, has
been successfully concluded. Investment managers representing
approximately 90% of funds under management and administration have
currently accepted the proposals, further detail about which is set
out below.
The principal benefits of the new remuneration arrangements are
that they:
-- harmonise the incentive schemes for employed and associate
investment managers whilst recognising the differences inherent
between both groups;
-- are based on profit contribution rather than revenue and
therefore more aligned with the interests of shareholders;
-- encourage behaviours that will drive positive client outcomes; and
-- lower the ratio of compensation paid as a percentage of
revenues, though the potential remains for investment managers to
increase their total compensation subject to profit
contribution.
Paul Abberley, Chief Executive Officer, commented:
"The conclusion of this agreement marks a major milestone in the
continued turnaround of the Group.
It has been important for us to work collaboratively with our
Investment Managers to create a solution that works in the best
interests of us all and which is right for the long term. I would
like to thank all our stakeholders for their patience during this
important time and I am delighted that the conclusion of the
process will enable all our staff to come together to work toward
delivering sustainable profits, with a focus on enhancing the
customer experience, growing revenues and improving operating
efficiencies."
As partial consideration for the employed investment managers
agreeing to enter into less attractive contractual terms than
previous, and in part to align their interests more fully with
those of shareholders in achieving profitable growth for the Group,
a condition of the proposals is the making of certain share awards
to such investment managers. These will be for up to 5% of the
Group's issued share capital and will be facilitated via a new
employee share plan to be created for this purpose; the Charles
Stanley Employed Investment Managers Share Plan (the "Share
Plan").
Establishment of the Share Plan is subject to shareholder
approval (as required by the Listing Rules). Approval is being
sought for the proposed 5% maximum dilution under the Share Plan to
be in addition to the aggregate 10% dilution in respect of existing
share schemes. Consequently, the Group is also proposing related
changes to the dilution limits in both the Group's Performance
Share Plan (the "PSP") and Save As You Earn Plan (the "SAYE Plan")
to accommodate the introduction of the Share Plan. Although the
Group anticipates that awards under the Share Plan will be
satisfied through the issue of new ordinary shares, the Group has
the flexibility to purchase shares in the market to satisfy the
awards.
Background to, and reasons for, the introduction of the Share
Plan
Charles Stanley's investment management services division has
been built up over many years through a combination of organic
growth, acquisition and recruitment of investment management teams.
Some of these investment managers have been recruited as employees
and others as self-employed associates. This has resulted in the
Group having a wide range of remuneration arrangements in place
with its investment managers and the Board considers these
arrangements are no longer entirely aligned with the interests of
shareholders. This is substantially a result of a number of the
arrangements focusing on revenue rather than profit-contribution.
The Board believes that a focus on profits rather than revenue
generation will help to return the Group to a position of
sustainable profitability.
The Group therefore engaged in a consultation process with both
its employed and associate investment management teams to seek to
rebalance the variable element of their compensation. The principal
objectives of this process were to:
1. harmonise their respective incentive schemes whilst
recognising the differences inherent between employed and
self-employed models;
2. make all incentive schemes profit-based and therefore more
aligned with the interests of shareholders;
3. ensure all incentive schemes are structured to ensure they
encourage behaviours that will drive positive client outcomes;
and
4. lower the ratio of compensation paid as a percentage of revenues.
The first stage of the consultation was concluded in March 2016
when the investment managers agreed to interim measures that
subsist solely for the current financial year. The second stage of
the consultation, covering all of the items highlighted above, have
just concluded. Whilst the detail of the terms are commercially
sensitive, the substance is as follows:
1. the new remuneration terms will take effect from 1 April
2017, being the beginning of the Group's next financial year;
2. the number of schemes in existence will be rationalised and
the Group will operate two schemes: one for employed investment
managers and one for self-employed associates;
3. both schemes will be profit-based, taking into account all
direct costs and some allocated costs. Key distinctions between the
two schemes will be that:
a. whereas employed investment managers will receive a salary,
self-employed associate teams will be paid a base amount derived as
a percentage of revenue;
b. in addition to their direct costs, employed investment
managers will be charged a per account levy to cover the cost of
various central services. By comparison, self-employed associate
teams will be charged a straight percentage of revenue for the same
services.
After taking account of these costs, variable remuneration will
be calculated based on hurdled net pre-tax profit margins
achieved;
4. an element of the variable remuneration under both schemes
will be governed by conduct measures; and
5. Investment managers, whether employed or self-employed, can
earn more under the new remuneration schemes than the old schemes
if they grow their business profitably. Nevertheless, it is
anticipated that the overall remuneration of investment managers as
a proportion of revenue will be reduced.
As part of the arrangements with employed investment managers,
the Board has agreed to create the Share Plan. This is part in
consideration for them voluntarily agreeing to amend their
employment contracts with less generous remuneration terms and part
to align their interests more closely with those of Shareholders
and incentivise them to grow managed funds in a profitable
fashion.
Awards under the Share Plan will also act as a retention
mechanism during this period of change.
Summary Terms of the Share Plan
It is proposed that the Share Plan will be divided between two
pools, Pool A and Pool B. Pool A will represent up to 40% of the
total ordinary shares available under the Share Plan. Pool B will
be for the balance. Key aspects of Pool A and Pool B are summarised
below:
Pool A
-- Awards under Pool A will only be made to employed investment
managers entering into revised contracts.
-- Pool A awards will in the ordinary course vest when the Group
publishes its audited accounts for the year ending 31 March
2020.
-- There are no performance conditions attaching to the Pool A
awards. This is because they are being awarded in consideration for
the employed investment managers agreeing to less generous
contractual terms.
Pool B
-- Awards under Pool B will only be made to members of employed
investment management teams ("Employed Teams").
-- Pool B awards will entitle participants to receive ordinary
shares if the audited net pre-tax margin of the employed investment
management teams collectively is 15% or more for the financial year
ending 31 March 2022 (the "Margin Condition"). Ordinary shares will
be distributed earlier if the Margin Condition is satisfied in
respect of the financial years ending 31 March 2020 or 31 March
2021. If the Margin Condition is not met, the awards will
lapse.
-- For the financial year ended 31 March 2016, the pre-tax
profit margin for the investment management division was 7.8%. This
is compared to a margin of 11.8% for the six months ended 30
September 2016.
-- The number of Pool B awards made to investment management
teams will be determined based upon the growth in their weighted
managed assets between 1 April 2017 and the vesting date relative
to that of all Employed Teams. For the purposes of the calculation,
managed assets will be weighted both according to whether they are
discretionary or advisory managed assets and by the revenue margin
achieved. To illustrate, if a team contributes 10% of the total
growth of weighted managed assets over the vesting period, they
will be awarded 10% of ordinary shares available for Pool B
awards.
-- The number of ordinary shares received pursuant to any award
under Pool B may be reduced if the FUM of the Employed Teams
declines (disregarding market movements) between 1 April 2017 and
the date of vesting.
Participation in the Share Plan will not be open to individuals
who are currently executive directors of Charles Stanley Group plc.
The only way in which an executive director of Charles Stanley
Group plc could receive ordinary shares under the Share Plan is if
a member of an Employed Team is promoted to become an executive
director of Charles Stanley Group plc between the date of this
circular and the delivery of ordinary shares under the Share
Plan.
The principal grant of awards to subscribe for ordinary Shares
under Pool A will, if the Share Plan is approved by the
shareholders, be made as soon as possible after the Group announces
its results in respect of the financial year ending 31 March
2017.
Following vesting, the net number of ordinary shares received by
participants will also be subject to a one year holding period.
Risk Factors
The Board considers that if the Share Plan is not approved, or
if the amendments to the PSP and SAYE Plan are not approved, and
the Group is unable to grant the intended awards to employed
investment managers, there is a significant risk that the
investment managers will not accept the proposed reduced
remuneration and contract terms and will terminate their employment
with the Group. In the event that this happens there is a risk that
the Group could experience a significant outflow of funds under
management and administration from clients associated with those
investment managers. Whilst the Board has made contingency
arrangements for this possible outcome, it could lead to a material
reduction in profitability.
The issue of ordinary shares under the Share Plan may lead to
the dilution of existing shareholders' interests in the Group of up
to 5%. The Group currently anticipates that awards under the Share
Plan will be satisfied through the issue of new ordinary shares (to
the extent they vest), however the scheme allows for the awards to
be satisfied by market purchases. The Board believes that the
benefits arising from investment managers accepting the change in
remuneration terms and anticipated improvement in profitability,
together with the benefit of aligning the interests of the
investment managers more closely with those of shareholders, will
outweigh the cost of dilution if it arises.
Extraordinary General Meeting
A general meeting of the Group will be convened to seek
shareholder approval for resolutions to put the Share Plan and
related amendments to the Group's Employee Share Plans into effect.
A circular containing the notice of meeting will be sent to
shareholders shortly.
Irrevocable undertakings and expressions of intent
The Group has received irrevocable undertakings to vote in
favour of the resolutions to be proposed at the General Meeting
from certain shareholders and Directors amounting, in aggregate, to
10,142,619 Ordinary Shares, representing approximately 20.0% of the
Group's existing issued share capital as of 23 November 2016.
The Company has also received non-binding letters of intent to
vote in favour of the resolutions to be proposed at the General
Meeting from the Shareholders in respect of 10,796,394 Ordinary
Shares, representing approximately 21.3% of the Company's existing
issued share capital as of 23 November 2016.
Recommendation
The Directors are of the opinion that the proposals to be
considered at the General Meeting are in the best interests of the
Group and its members as a whole and are most likely to promote the
success of the Group for the benefit of its members as a whole.
Accordingly, the Directors unanimously recommend that shareholders
vote in favour of the resolutions to be proposed at the General
Meeting.
Ben Money-Coutts
Chief Financial Officer
For further information, please contact:
Charles Stanley Canaccord Peel Hunt Redleaf Communications
Joanne Vowles Genuity Guy Wiehahn Rebecca Sanders-Hewett
Public Relations Andrew Buchanan 020 7418 Charlie Geller
Manager 020 7523 8893 020 7382 4730
Via Redleaf 4661 CScapitalmarkets@redleafpr.com
Communication
Notes to editors:
Charles Stanley traces its origins to 1792 and is one of the
oldest firms on the London Stock Exchange. Charles Stanley today
provides holistic wealth management services to private clients,
charities and smaller institutions. These are delivered by over 450
professionals located in 25 offices throughout the UK, both direct
to clients and to intermediaries. Our services include investment
portfolio management and financial planning, supported by in-house
administration and custody for investment portfolios, SIPPs and
ISAs to enhance the quality of service provided. In addition,
Charles Stanley Direct provides an award winning direct to customer
Execution-only dealing platform for equities and funds.
Forward looking statements
Certain information contained in this announcement constitutes
forward looking information. This information may relate to future
events or the Company's future performance. All information other
than information of historical fact is forward looking information.
The use of any of the words "anticipate", "plan", "continue",
"estimate", "expect", "may", "will", "project", "should",
"believe", "predict" and "potential" and similar expressions are
intended to identify forward looking information. This information
involves known and unknown risks, uncertainties and other factors
that may cause actual results or events to differ materially from
those anticipated in such forward looking information. No assurance
can be given that this information will prove to be correct and
such forward looking information included in this announcement
should not be unduly relied upon. This information speaks only as
of the date of this announcement. The Company does not undertake
any obligation to publicly update or revise any forward looking
information except as required by applicable securities laws.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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