Smith & Williamson revenue hits £278m as profitability rises
Smith & Williamson, the financial and professional services firm, has reported 4.3% growth as operating income hits £278m and confirmed it is still planning to list in 2020
15 Jul 2019
The firm, ranked eighth in the Accountancy Daily Top 75 Firms ranking, saw operating income increase 4.3% year-on-year to £278.1m (FY2018: £266.7m) while adjusted operating profit increased by 4.8% to £48.4m (FY2018: £46.2m). Although revenue growth was not as high as FY2018, when fee income rose 8.9%, there was double-digit growth in profitability after tax to £40.3m (FY2018: £35.6m), up 13.2%.
Professional services income, including revenue from tax and business services was up 6.5% to £104.7m, although the firm has changed its reporting lines this year.
The group revised its operating segment structure during the year ended 30 April 2019, following the reorganisation of management and governance structures. Comparatives have been restated and operating income on a comparable basis has increased by 6.5% to £104.7m (2018: £98.3m) for professional services.
The core business lines within the professional services segment showed strong operating income growth in the year under review, with business and private client tax up 9.7%, and assurance and business services growing by 12.6%.
For management purposes, the group is now organised into four operating segments: financial services, professional services, fund administration and other. The prior year, which was previously organised into three operating segments; investment management and banking, tax and business services and other, has been reported on a comparable basis. The group’s operations are predominantly in one geographical segment, the UK and Ireland.’
The previous year the firm reported growth in tax at 12% year on year, forensic accounting up 17% and corporate finance up 22%.
The firm’s business model is based on a mix of financial and professional services, with a significant managed funds business. The funds under management and advice service line increased by 6.5% year-on-year to £21.4bn (FY2018: £20.1bn); with an 18.8% increase in funds under administration to £13.9bn.
‘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,’ said Andrew Sykes, non-executive chairman of Smith & Williamson.
The group’s long-term strategy is centred on the three core objectives of developing the firm’s people, delivering integrated services and investing in technology, with a view to listing in 2020.
This year saw the formation of a group executive committee to lead the execution of strategy and focus on greater integration across the business as whole; tightening up the firm’s governance structure and changes in the group’s approach to managing and developing staff to support the commitment to more collaborative working. There has also been progress on a major technology transformation programme to enhance the group’s IT infrastructure.
The upgrading of the IT infrastructure is critical to plans to list the business.
‘We continue to plan for a listing to take place at some juncture in 2020, subject to market conditions,’ Sykes stated in the firm’s annual report.
‘We are progressing steadily with our IT programme with good progress on the new investment management system, and extensive planning on the scoping for the practice management system in professional services. On the professional services side, we have rescheduled the timetable for implementation of the practice management system, but still plan to go live by April 2020.’
Brexit concerns have also seen the firm take action to protect the firm and its clients. It has set up a new MiFID-authorised subsidiary, Smith & Williamson Investment Management (Europe) Limited, as the operating vehicle for investment and financial planning activities, based in Ireland. This will be the European hub for operations, allowing the firm to operate across EU member states in the event of a no-deal Brexit.
The firm strengthened its presence in Ireland by completing a merger with Dublin-based accountancy firm LHM Casey McGrath in October 2018, which doubled the size of its professional services operations in Ireland.
Kevin Stopps, co-chief executive of Smith & Williamson, said: ‘This was a year characterised by solid performance, with continued investment in our strategic priorities. Growth rates across a number of our professional services core business areas have been encouraging, particularly in tax, assurance and business services and restructuring and recovery services. Our financial services business has also performed well, led by higher market levels and increased banking income.’
The group continues to invest in career development and training and has launched a talent programme to identify and develop highly-motivated and engaged leaders across the group, as well as an inaugural Women’s Network, which has attracted more than 160 members in the four months since inception. The firm now has 1,803 people, and appointed 24 partners and directors over the last year. However, the tight recruitment market was highlighted as a risk with ‘attraction of talent in a very competitive marketplace, development and retention of key talent, and maintaining employee engagement during a period of change’.
There are also plans to relocate the London operation to a new head office in 2022.
David Cobb, co-chief executive of Smith & Williamson, added: ‘We remain committed to our long-term strategy and have been encouraged by engagement levels within the business and the tangible results it has delivered so far. We are focused on delivering profitability but place equal importance on how we achieve it in accordance with the group's strategic objectives and our commitment to growing the business sustainably.
‘As we reflect on a solid performance across our business lines, we remain uniformly positive about the future of our business and are optimistic about our growth prospects. We continue to face challenges but our business is in a good position to withstand them.’
By Sara White