The true performance of WHIreland (“WHI”) is obscured by a raft of exceptional costs, some of which have been quantified and some of which, particularly double-running costs during the changeover of their back office systems, are just included under “administrative expenses”. So we consider the £0.4m operating profit before exceptionals to be very conservative.
The past twelve months or so have involved a long, hard slog to complete “Project Discovery” to transfer the Private Client back office administration to the SEI platform and restructure the front office while preparing for the well-intentioned but controversial MiFID II. Over the last two years WHI has spent over £3.6m to reorganise its business so that it can simultaneously provide an outstanding service to clients and satisfy regulatory requirements, with expectation that the reorganisation will lead to savings of more than £1m pa.
These costs have (unsurprisingly) pushed WHI’s statutory results into loss despite its achieving “pre-exceptional“ profits in the last 12 months, and swallowed £3m< of its cash. Last week WHI announced that it had agreed, subject to shareholder approval, to raise £2.4m through a placing of 2m new shares at 120p, the “market bid price” on Friday. This will add to the £10.5m cash in its interim balance sheet.
Despite the slog, WHI has continued to pick up awards for customer service helping it to attract new clients. So it has grown the size and, more importantly, quality of both its private client AUM and its corporate client list
In particular, it is continuing to grow its more valuable Discretionary Assets under Management – by 10.7% during the period to £1.125bn. Total AUM has grown more slowly, by 3% to £2.94bn, as WHI has used the MiFID exercise (see below) to shed some unprofitable clients.
MiFID II has massively changed the regulatory environment with the intention of helping investors but at huge cost – stockbrokers have had to write to every single client to agree new terms and conditions of service, processes have been redesigned in order to identify various costs (thereby increasing costs!) and conditions have been placed on the supply of research which directly contradict US rules. WHI is pleased that it had completed all its preparations in time for the launch date earlier this month and sees some potential benefits that will compensate a little for the £0.2m cost.