TIDMBRK
RNS Number : 8706R
Brooks Macdonald Group PLC
11 March 2021
11 March 2021
BROOKS MACDONALD GROUP PLC
HALF-YEAR RESULTS FOR THE SIX MONTHSED 31 DECEMBER 2020
"Record FUM of GBP15.5bn and profit margin of 25%, underpinned
by continued strategic momentum."
Brooks Macdonald Group plc ("Brooks Macdonald" or the "Group")
today announces its half-year results for the six months ended 31
December 2020.
Strong financial performance
-- Total Funds under Management ("FUM") reached a record level
of GBP15.5 billion at 31 December 2020 (30 June 2020: GBP13.7
billion, 31 December 2019: GBP13.1 billion), representing an
increase of 13.3% in the period, driven by:
- Robust investment performance of 9.5% despite volatile
markets, compared to an increase of 6.5% in the MSCI PIMFA Private
Investor Balanced Index
- Net flows of GBP(367) million (H1 FY20: GBP(506) million),
with Q2 stronger than Q1, evidencing early signs of an improving
trend
- Completion of the acquisition of Lloyds Banking Group's
Channel Islands funds and wealth management business in
November.
-- Revenue increased by 1.8% to GBP55.9 million (H1 FY20:
GBP54.9 million) with the positive impact on average FUM of strong
investment performance and two acquisitions partly offset by weaker
net flows, particularly in Q1.
-- Underlying profit before tax up 21.7% to GBP14.0 million (H1
FY20: GBP11.5 million) with a significantly increased underlying
profit margin of 25.1% (H1 FY20: 20.9%), driven by higher revenue
and strong cost discipline.
-- Statutory profit before tax increased 84.1% to GBP14.1
million (H1 FY20: GBP7.7 million), due to the improved underlying
performance and an exceptional gain related to the Lloyds Channel
Islands acquisition.
-- Underlying diluted earnings per share rose by 8.3% to 73.2p
(H1 FY20: 67.6p), reflecting higher total underlying earnings
partly offset by the issue of new shares in relation to the
acquisition of Cornelian Asset Managers Group Limited.
-- Group net flows have been marginally positive in the calendar
year to end February, excluding the Defensive Capital Fund ("DCF")
which continues to experience outflows in line with trends in the
Targeted Absolute Return sector. Net flows at the Group level are
expected to be modestly positive for H2.
-- Interim dividend raised by 9.5% to 23.0p (H1 FY20: 21.0p) in
line with the Group's progressive dividend policy and underlining
the Board's confidence in Brooks Macdonald's strong balance sheet
and future prospects.
Entering the next phase of the strategy
-- The Group entered the next phase of its strategy during the
period, based on its vision for Brooks Macdonald as the leading
investment managers for intermediaries. The strategy is focused on
accelerating growth and value creation, grounded in the Group's
purpose of realising ambitions and securing futures.
Building momentum in organic growth
-- Focus on delivering for advisers and clients throughout the
pandemic generated growth momentum:
- Continued rapid growth for the Group's Responsible Investment
Service ("RIS") with FUM up c.50%
- Increasing traction, with a strong pipeline, for the BM
Investment Solutions offering, providing a white-labelled bespoke
proposition to advisers and their clients
- Strong growth in the Group's other specialist services - Court
of Protection, Decumulation, and the AIM Portfolio Service -
reflecting the benefit of service innovation to meet clients'
changing needs
- Bringing together the private client teams across UKIM and
Financial Planning, continuing to deliver the same high level of
service to those clients (representing c.GBP2.5bn FUM) as to our
intermediated clients.
Investment to deliver best-in-class adviser experience and
client service
-- Commenced a strategic partnership with SS&C Technologies
("SS&C"), a global provider of software and technology
services, to deliver a best-in-class digital experience for
advisers and clients.
-- Expect to complete the transition on to the SS&C platform by the end of this calendar year.
Successful integration of high-quality, accretive
acquisitions
-- Completed the acquisition of Lloyds Banking Group's Channel
Islands funds and wealth management business, increasing
International's FUM by almost 60% with immediate earnings
enhancement.
-- Successfully integrated Cornelian Asset Managers Limited
(acquisition completed February 2020), delivering the planned
synergies despite the pandemic.
-- Both on track to deliver planned earnings accretion.
Developing and supporting our people, attracting new talent
-- Ongoing focus on safeguarding the wellbeing of employees
while continuing to deliver for advisers and clients, including
being flexible for staff with home schooling commitments.
-- Employee engagement continuing to improve, with latest survey
showing 14 point improvement in employee engagement score relative
to the first survey in 2019, 2 points up on the most recent survey
in May 2020.
-- Continued to invest in new talent bringing fresh ideas and
relationships to complement the experience in the business.
Caroline Connellan, CEO, commented:
"We continued to make good progress in the first half of the
year, delivering strong financial performance as we moved into the
next phase of our strategy, focused on accelerating growth and
value creation. Our ongoing robust investment performance, coupled
with high-quality acquisitions, brought FUM to record levels and,
alongside strong cost discipline, resulted in record underlying
profit margin. This shows that the investment we have made and the
actions we have taken are delivering financial and strategic
benefits for the business now and positioning us well for the
future.
"I am particularly proud of how our people have delivered for
advisers and clients through the pandemic and I am grateful to them
for their efforts. The blend of experience and expertise that our
people have, from those already deeply embedded in the Brooks
Macdonald client-centred culture to those bringing new external
insights, is a great strength.
"Looking ahead, client sentiment has held up well and, although
the timescale for easing of lockdown restrictions remains
uncertain, we continue to have a positive outlook. Momentum is
building in the business and we are on track to meet full year
profit expectations."
Financial highlights: H1 FY21 H1 FY20(2) FY 2020
Underlying(1) profit before tax (GBPm) 14.0 11.5 23.0
Underlying(1) profit margin before tax
(%) 25.1 20.9 21.2
Statutory profit before tax (GBPm) 14.1 7.7 10.0
Statutory profit margin before tax (%) 25.2 14.0 9.2
Underlying(1) diluted earnings per share
(p) 73.2 67.6 123.7
Statutory diluted earnings per share
(p) 77.2 44.1 43.1
Interim dividend per share (p) 23.0 21.0 53.0
----------------------------------------- ------- ---------- -------
Business highlights: H1 FY21 H1 FY20(2) FY 2020
FUM (GBPbn) 15.5 13.1 13.7
Revenue (GBPm) 55.9 54.9 108.6
Total net assets (GBPm) 129.0 118.9 123.5
Cash balances (3) (GBPm) 38.6 33.2 50.2
------------------------- ------- ---------- -------
Revenue by segment: H1 FY21 H1 FY20(2) FY 2020
UK Investment Management (GBPm) 46.9 45.9 91.4
International (GBPm) 7.1 7.0 13.4
Financial Planning (GBPm) 1.9 2.0 3.8
-------------------------------- ------- ---------- -------
Financial calendar:
Results announcement 11 March 2021
Ex-dividend date for interim dividend 18 March 2021
Record date for interim dividend 19 March 2021
Interim dividend payment date 16 April 2021
------------------------------------- -------------
(1) The underlying figures represent the results for the Group's
continuing activities excluding underlying adjustments as listed in
the Interim Management Report. The Board considers the underlying
profit to be a more appropriate reflection of the Group's
performance compared to statutory profit. A reconciliation between
the Group's statutory and underlying profit before tax is also
included in the Interim Management Report.
(2) Comparative figures have been restated to reflect the
correct recognition of the Authorised Corporate Director fees and
associated costs in respect of one of the Group's managed OEICs and
the correct VAT treatment on the fees recognised on the Managed
Portfolio Service offered through third party models. Refer to Note
2a of the Condensed consolidated financial statements for details
on the restatement.
(3) Cash balances for H1 FY20 excludes the proceeds from the
share placing held in November 2019 re the Cornelian acquisition to
ensure a more like-for-like comparison.
An analyst meeting will be held at 9.30am on Thursday 11 March.
Please contact Katherine Bell at FTI Consulting on 07976 870961 or
e-mail brooksmacdonald@fticonsulting.com for further details.
LEI: 213800WRDF8LB8MIEX37
Enquiries to:
Brooks Macdonald Group plc www.brooksmacdonald.com
Caroline Connellan, CEO 020 7659 3492
Ben Thorpe, Group Finance Director
Peel Hunt LLP (Nominated Adviser and
Broker)
Rishi Shah / John Welch 020 7418 8900
FTI Consulting brooksmacdonald@fticonsulting.com
Ed Berry / Katherine Bell 07703 330199 /
07976 870961
Notes to editors
Brooks Macdonald Group plc, through its various subsidiaries,
provides leading investment management services in the UK and
internationally. The Group, which was founded in 1991 and began
trading on AIM in 2005, had discretionary Funds under Management of
GBP15.5 billion as at 31 December 2020.
Brooks Macdonald offers a range of investment management
services to private high net worth individuals, pension funds,
institutions, charities and trusts. The Group also provides
financial planning as well as international investment management,
and acts as fund manager to a range of onshore and international
funds.
The Group has twelve offices across the UK and the Channel
Islands including London, East Anglia, Hampshire, Leamington Spa,
Leeds, Manchester, Taunton, Tunbridge Wells, Scotland, Wales,
Jersey and Guernsey.
Interim management report
A strong six months
Brooks Macdonald has had a strong half year, with record FUM at
the end of the period of GBP15.5 billion, excellent financial
results, robust investment performance and continued progress on
our strategy.
Against the unprecedented background of the COVID-19 pandemic,
the Group continued to improve its financial performance during the
first half of the financial year. Revenues were up 1.8% to GBP55.9
million (H1 FY20 Restated: GBP54.9 million) with the positive
impact of strong investment performance and two acquisitions partly
offset by weaker net flows, particularly in Q1 (three months to 30
September 2020). Underlying costs decreased by 3.5% to GBP41.9
million (H1 FY20 Restated: GBP43.4 million) as we continued to
enforce strong cost discipline. This resulted in an underlying
profit before tax of GBP14.0 million, a 21.7% increase on the prior
period (H1 FY20 Restated: GBP11.5 million).
We delivered further progress on our stated medium-term target
of increasing margins, with underlying profit margin rising to a
record 25.1% (H1 FY20 Restated: 20.9%) and underlying diluted EPS
increasing by 8.3% to 73.2p (H1 FY20 Restated: 67.6p).
Statutory profits increased materially on the prior period from
GBP7.7 million to GBP14.1 million driven by improvements in
underlying performance and a gain arising on the Lloyds Channel
Islands acquisition. In keeping with our stated progressive
dividend policy and the improved results for the period, the Group
is declaring an interim dividend of 23.0 pence per share, a 9.5%
uplift on the interim dividend paid last year.
Despite a backdrop of volatile markets driven by the pandemic,
our Centralised Investment Process achieved robust risk adjusted
returns for clients in the period and is ahead of the relevant ARC
benchmarks across all risk profiles over three, five and ten years.
We maintained our focus on advisers and clients, announcing a
partnership with SS&C to deliver best-in-class adviser
experience and client service.
The Group continued to invest in talent, with selective hires
across all areas and levels. Our talent focus in the period was on
identifying and implementing remote training and people development
approaches. Throughout the pandemic, our focus has been on the
wellbeing of our people, while continuing to deliver for clients
and advisers.
On 30 November 2020, we completed the acquisition of Lloyds
Banking Group's Channel Islands wealth management and funds
business, bringing in nearly GBP900m of FUM and augmenting our
International business's proposition to clients, advisers and
trustees.
Moving into the next phase of our strategy
Our client and adviser relationships, coupled with our culture
and Centralised Investment Process, are key strengths of the
organisation and position us well for the future.
We entered the next phase of our strategy in the period focused
on accelerating growth and value creation, based on three key value
drivers:
-- Market-leading organic growth
-- Service and operational excellence
-- Selective high-quality acquisitions
We completed the strategy that we laid out in November 2017 to
deliver improved returns from a sustainable and scalable business.
Through each phase, we did what we said we would do - reinforcing
the foundations of the business, improving our proposition for
advisers and clients, increasing efficiency and effectiveness, and
investing in our people and our infrastructure.
We delivered improving underlying profit and profit margins
year-on-year and, in 2020, we complemented our organic growth
strategy with two high-quality, value-enhancing acquisitions: first
Cornelian Asset Managers, completed at the end of February, and
then the Lloyds Channel Islands acquisition, completed at the end
of November.
The Group's purpose, for all our stakeholders - clients,
intermediaries, staff, shareholders and the wider society - is to
help them realise their ambitions and secure their futures. Our
mission is to protect and enhance our clients' wealth through the
provision of investment management and advice underpinned by
excellent client services.
Our vision for Brooks Macdonald is as the leading investment
manager for intermediaries - we are an investment manager focused
on working with intermediaries to support their clients and to help
them build successful businesses. We also have complementary
private client and financial planning businesses.
Improvements across the Group
During the period, we made good progress across the business,
continuing to deliver high standards of service for advisers and
clients through the pandemic while maintaining our focus on the
wellbeing of staff.
The increases in revenue and underlying profit were
predominantly in UK Investment Management reflecting the full
period contribution from the Cornelian acquisition, whereas the
results in International and Financial Planning were broadly in
line with H1 FY20.
Our Centralised Investment Process has continued to perform
well, giving returns ahead of the relevant ARC Private Client Index
across all risk profiles for three and five years; continued good
performance is critical to medium-term client retention and an
important element of our proposition to advisers.
Partnership announced with SS&C Technologies
In October, we announced a strategic partnership with SS&C
Technologies ("SS&C"), a global provider of software and
technology services to the financial services industry, to deliver
best-in-class adviser experience and client service through
technology and innovation. The collaboration will provide a
market-leading digital experience for the Group's intermediaries
and clients. A number of Brooks Macdonald staff transferred to
SS&C as part of the partnership and, since the period end, the
first business migrations have been completed successfully. We
expect to complete the transition on to the SS&C platform this
calendar year.
Continued growth in our ESG proposition
The Group's ESG offering, the Responsible Investment Service
("RIS"), continued to show rapid growth since its launch in October
2018, with UKIM RIS FUM up almost 50% in the period. We launched
the ESG Suitability Discussion guide in September to support
advisers discussing ESG issues with clients, and rolled RIS out to
our International business.
Adviser and client focus in UKIM
During the first half of the financial year, our external focus
has had two elements: supporting our existing advisers and clients
through the stresses of the pandemic, protecting their wealth and
helping secure their future; and working to ensure that net flows
returned to positive territory in the new year as per prior
guidance.
From the early days of the pandemic, our teams have proactively
reached out to advisers and clients to support them as they
considered the impact of the economic consequences of lockdown on
their investment portfolios.
In most cases, our view has been that the right approach is to
stay invested and in general that has proved a sound course of
action, as can be seen in our investment performance. We have
received strong positive feedback from many advisers and clients,
saying how much they appreciated our support.
Flows have been improving through the period, with UKIM gross
inflows almost 40% higher in Q2 (three months to 31 December 2020)
than the prior quarter, and gross outflows declining.
Encouragingly, the quarter-on-quarter comparison is positive across
BPS, MPS and Funds.
Within the BPS umbrella, our specialist services - Responsible
Investment Service, Decumulation, and Court of Protection - have
all been performing well, recording positive net flows during the
period.
Funds FUM declined in the period, driven by the Defensive
Capital Fund, which had net outflows of 23.8%, reflecting trends in
the Targeted Absolute Return sector.
Continued reinvigoration of International
Our International business delivered encouraging progress with
the leadership of Andrew Shepherd continuing to reinvigorate the
business, focusing on delivering for clients, advisers and
trustees.
The highlight of the period was the completion of the Lloyds
Channel Islands acquisition. This brought a near 60% increase in
FUM, added multi-asset and fixed income fund capability which
augments International's proposition to clients, advisers and
trustees, and extended the Group's international intermediary
distribution reach. Since we are running the business on a
different operating model to Lloyds, certain changes had to be made
before completion and the earnings accretion is therefore close to
full run-rate from Day 1.
The team is working both to integrate the former Lloyds
employees who transferred to International and focus the business
on its core opportunities. We expect this, along with steps to make
the organisation more efficient, to continue to drive improved
profitability in the medium term. We continue to see potential for
material value creation in International as the reinvigoration
continues.
Private client teams to be brought together
Our vision for Brooks Macdonald is as the leading investment
manager for intermediaries. Complementing this, we have circa
GBP2.5 billion FUM in direct private client relationships, and we
continue taking steps to deliver the same high level of service and
experience for those clients as we do for our intermediated
clients. As part of those steps, we are bringing together the
private client teams across UKIM and Financial Planning, with
Adrian Keane-Munday becoming Head of Advice, reporting to the Head
of UKIM, Robin Eggar.
Positive medium-term outlook, short-term uncertainty
The broader context for the first half of our financial year has
been unprecedented with a global pandemic, a series of lockdowns
and the biggest calendar year decline in UK GDP for over 300 years.
Nonetheless, we have been able to deliver strong financial results
underpinned by robust investment performance. We have successfully
integrated Cornelian and completed the Lloyds Channel Islands
acquisition, with the bulk of the operating model changes made
ahead of completion so earnings accretion is close to full run rate
from Day 1.
We continue to see improvement in FUM flows and expect net flows
to be modestly positive in the second half. UKIM pipeline is
strong, particularly in BM Investment Solutions, and momentum is
building. BPS conversion times have been impacted by a third
lockdown. Underlying momentum in International is boosted by the
Lloyds Channel Islands acquisition, however net flows in H2,
excluding the acquisition, are expected to be negative due to the
loss of a lower yielding institutional mandate.
Overall, client sentiment has held up well and we continue to
have a positive outlook over the medium term, with the fundamental
opportunity for the Group as strong as it has ever been, although
in the short term the outlook remains uncertain, affected by the
impact of lockdown on the time taken to convert new business
opportunities to funds under management. We are confident in our
vision for Brooks Macdonald as the leading investment manager for
intermediaries, supported by our three strategic value drivers of
strong organic growth, market-leading adviser experience and client
service, and selective high-quality acquisitions.
Group financial results summary
Six months Six months 12 months
to to to
31 Dec 2020 31 Dec 2019(1) 30 Jun 2020
GBPm GBPm GBPm
-------------------------------------- ------------ --------------- ------------
Revenue 55.9 54.9 108.6
Fixed staff costs (20.0) (18.8) (39.8)
Variable staff costs (7.4) (7.6) (10.8)
-------------------------------------- ------------ --------------- ------------
Total staff costs (27.4) (26.4) (50.6)
FSCS levy - (0.2) (2.2)
Non-staff costs (14.5) (16.8) (32.8)
-------------------------------------- ------------ --------------- ------------
Total non-staff costs (14.5) (17.0) (35.0)
-------------------------------------- ------------ --------------- ------------
Total underlying costs (41.9) (43.4) (85.6)
-------------------------------------- ------------ --------------- ------------
Underlying profit before tax 14.0 11.5 23.0
Underlying adjustments 0.1 (3.8) (13.0)
-------------------------------------- ------------ --------------- ------------
Statutory profit before tax 14.1 7.7 10.0
Taxation (2.0) (1.5) (3.6)
-------------------------------------- ------------ --------------- ------------
Statutory profit after tax 12.1 6.2 6.4
-------------------------------------- ------------ --------------- ------------
Underlying profit margin before tax 25.1% 20.9% 21.2%
Underlying diluted earnings per share 73.2p 67.6p 123.7p
Statutory profit margin before tax 25.2% 14.0% 9.2%
Statutory diluted earnings per share 77.2p 44.1p 43.1p
Dividends per share 23.0p 21.0p 53.0p
-------------------------------------- ------------ --------------- ------------
1. Comparative figures have been restated to reflect the correct
recognition of the Authorised Corporate Director fees and
associated costs in respect of one of the Group's managed OEICs and
the correct VAT treatment on the fees recognised on the Managed
Portfolio Service offered through third-party models. Refer to Note
2a of the Condensed consolidated financial statements for details
on the restatement.
The Group saw strong financial performance in the six months to
31 December 2020 ("H1 FY21") driven by the contribution from the
Cornelian and the Lloyds Channel Islands acquisitions and continued
cost discipline resulting in a record underlying profit before tax
of GBP14.0 million (H1 FY20 Restated: GBP11.5 million) and an
underlying profit margin of 25.1% (H1 FY20 Restated: 20.9%).
Revenue
The Group's total revenue for the first half of the financial
grew by 1.8% to GBP55.9 million. This increase was due to higher
average FUM levels driven by strong investment performance and the
acquisition of Cornelian and the Lloyds Channel Islands businesses
which combined, contributed GBP5.5 million to the headline figure.
The rise in revenue was offset by a reduction in FUM related income
of GBP1.8 million in the Brooks Macdonald core business driven by
net outflows recorded in FY20 and during the first quarter of this
financial year, and by a decrease in non-FUM related income (GBP2.7
million), in the main due to lower interest income, and a slight
drop in Financial Planning income (GBP0.1 million).
As noted in the following table, the yield on BPS fees for UKIM
remained stable during the first half at 67.8 bps, whilst non-fee
income declined by 3.2 bps to 18.4 bps largely due to a reduction
in interest and other income as noted above.
MPS saw a decline in fee yield by 5.3 bps compared to the prior
period. This was primarily driven by a change in mix with Platform
MPS growing more rapidly than custody MPS. The impact of last
year's reduction in the Platform MPS headline rates and the
introduction of lower tiered rates for larger mandates also had an
impact, although these were in part, offset by higher levels of net
new business. As announced to the market on 7 January 2021, the
standard fee rate for MPS fees will reduce going forward in view of
the removal of the application of VAT to this service.
The decline in Funds fee yields by 2.6 bps is also due to a
change in mix reflecting the outflows seen during the period in the
Defensive Capital Fund, which attracts relatively higher rates.
Similarly to UKIM, International saw a dip in non-fee income
yields of 10.0 bps driven by a decrease in interest and
transactional income, including impact of FX movement, during the
period.
Revenue, yields and average FUM
Revenue Yields Average FUM
H1 FY21 H1 FY20 Change H1 FY21 H1 FY20 Change H1 FY21 H1 FY20 Change
GBPm GBPm % bps bps bps GBPm GBPm %
----------------------- ------- ------- ------ ------- ------- ------ ------- ------- ------
BPS fees 27.6 28.3 (2.5) 67.8 67.8 - 8,077 8,304 (2.7)
BPS non-fees 7.5 9.0 (16.7) 18.4 21.6 (3.2) - - -
----------------------- ------- ------- ------ ------- ------- ------ ------- ------- ------
Total BPS 35.1 37.3 (5.9) 86.2 89.4 (3.2) 8,077 8,304 (2.7)
MPS 4.0 4.2 (4.8) 42.5 47.8 (5.3) 1,867 1,746 6.9
----------------------- ------- ------- ------ ------- ------- ------ ------- ------- ------
UKIM discretionary 39.1 41.5 (5.8) 78.0 82.1 (4.1) 9,944 10,050 (1.1)
Funds 2.6 3.5 (25.7) 43.8 46.4 (2.6) 1,177 1,500 (21.5)
----------------------- ------- ------- ------ ------- ------- ------ ------- ------- ------
Total UKIM excluding
CAM 41.7 45.0 (7.3) 74.4 77.5 (3.1) 11,121 11,550 (3.7)
CAM 4.7 - n/a 70.0 - n/a 1,332 - n/a
----------------------- ------- ------- ------ ------- ------- ------ ------- ------- ------
Total UKIM including
CAM 46.4 45.0 3.1 73.9 77.5 (3.6) 12,453 11,550 7.8
International fees 4.5 4.4 2.3 53.8 53.5 0.3 1,659 1,637 1.3
International non-fees 1.3 2.1 (38.1) 15.5 25.5 (10.0) - - -
Lloyds CI 0.8 - n/a 99.6 - n/a 153 - n/a
----------------------- ------- ------- ------ ------- ------- ------ ------- ------- ------
Total International 6.6 6.5 1.5 72.3 79.3 (7.0) 1,812 1,637 10.7
----------------------- ------- ------- ------ ------- ------- ------ ------- ------- ------
Total FUM related
revenue 53.0 51.5 2.9 73.7 77.7 (4.0) 14,265 13,187 8.2
Financial Planning
- UK 1.9 2.0 (5.0)
Financial Planning
- International 0.5 0.5 -
Other income 0.5 0.9 (44.4)
----------------------- ------- ------- ------ ------- ------- ------ ------- ------- ------
Total non-FUM
related revenue 2.9 3.4 (14.7)
----------------------- ------- ------- ------ ------- ------- ------ ------- ------- ------
Total Group revenue 55.9 54.9 1.8
----------------------- ------- ------- ------ ------- ------- ------ ------- ------- ------
Underlying costs
Total underlying costs for the Group fell by 3.5% from GBP43.4
million (restated) to GBP41.9 million, demonstrating the Group's
continued focus on cost discipline and the full delivery of the
cost synergies set out at the time of acquisition for both the
Cornelian and Lloyds Channel Islands businesses. Excluding
acquisitions, costs were down from GBP43.4 million to GBP39.5
million, a reduction of 9.0%.
Staff costs
Total staff costs increased by 3.8% to GBP27.4 million. Fixed
staff costs increased from GBP18.8 million to GBP20.0 million with
GBP0.9 million comprising the incremental costs of the 30 heads
onboarded as part of the Cornelian and Lloyds Channel Islands
acquisitions. The remainder reflects the Group's continued
investment in talent, principally in the client facing roles as we
continue to grow the business.
Variable staff costs reduced by 7.9% to GBP7.0 million excluding
the Cornelian and Lloyds incremental variable staff costs. This
decrease includes a credit of GBP0.6 million recognised in the
period following the lapsing of share options granted under an LTIS
award in 2017, which did not meet the performance conditions at the
vesting date. The bonus pool accrual for the half year is in line
with last year, however, given the majority of last year's bonus
pool was accrued in H1 FY20, we would expect this year's bonus pool
to be up on last year if performance continues at current
levels.
Non-staff costs
Non-staff costs amounted to GBP14.5 million, a decrease of 14.7%
on the prior period, even with the additional costs arising from
the Cornelian and Lloyds Channel Islands acquisitions of GBP1.1
million. The bulk of the cost reduction was seen in Change costs
(GBP1.6 million) as the Group completed business remediation in
FY20 and is now focused on growth and ongoing client and adviser
focused technology enhancements. Property and office costs
decreased by GBP0.8 million, partly driven by the saving achieved
from the Group moving to a single office in London in March 2020.
Travel and entertaining spend was also down on last year (GBP0.5
million) as a result of reduced travel and client-facing activities
caused by the COVID-19 pandemic.
Combining the above gave rise to an underlying profit before
taxation for the half year of GBP14.0 million, an increase of 21.7%
on the prior year (H1 FY20 Restated: GBP11.5 million) resulting in
a profit margin of 25.1%, up by 4.2 points on last year (H1 FY20
Restated: 20.9%).
On a statutory basis, the profit before tax nearly doubled on
the prior year at GBP14.1 million (H1 FY20 Restated: GBP7.7
million) largely due to a GBP5.0 million gain recognised on the
Lloyds Channel Islands acquisition. The other one-off underlying
adjustments for the period are similar in quantum to the prior
year, with acquisition and integration-related costs broadly in
line, however, the amortisation of client-relationship intangible
assets has doubled from GBP1.1 million to GBP2.3 million due to the
recognition of intangible assets arising on the Cornelian and
Lloyds Channel Islands acquisitions. A breakdown of the underling
adjustments together with an explanation of each is included in the
Reconciliation between underlying and statutory profits
section.
Funds under management
Six months Six months 12 months
to to to
31 Dec 2020 31 Dec 2019 30 Jun 2020
GBPm GBPm GBPm
------------------------------------------- ------------ ------------ ------------
Opening FUM 13,685 13,147 13,147
Organic net new business (367) (506) (774)
FUM acquired in the period 882 - 1,181
Investment performance 1,303 448 131
------------------------------------------- ------------ ------------ ------------
Total FUM growth 1,818 (58) 538
------------------------------------------- ------------ ------------ ------------
Closing FUM 15,503 13,089 13,685
------------------------------------------- ------------ ------------ ------------
Organic net new business (2.7%) (3.8%) (5.9%)
Total FUM movement 13.3% (0.4%) 4.1%
------------------------------------------- ------------ ------------ ------------
Investment performance in the period 9.5% 3.4% 1.0%
MSCI PIMFA Private Investor Balanced Index 6.5% 2.9% (3.5%)
------------------------------------------- ------------ ------------ ------------
Total FUM at 31 December 2020 reached a record high of GBP15.5
billion (H1 FY20: GBP13.1 billion; FY20: GBP13.7 billion),
representing an increase of 18.4% and 13.3% on the FUM levels at H1
FY20 and FY20 respectively. The increase for the first half of the
financial year was driven by strong investment performance (GBP1.3
billion) and the completion of the Lloyds Channel Islands
acquisition in November 2020 (GBP0.9 billion), partially off-set by
net outflows of GBP0.4 billion.
Net outflows are on an improving trend, with the outflows
largely driven by redemptions in our Defensive Capital Fund (GBP0.2
billion) reflecting trends in the Targeted Absolute Return sector
and the exit of a single mandate in MPS platforms (GBP0.1 billion)
as it moved from discretionary to advisory.
Investment performance continued to be strong, up 9.5% in the
period, compared to an increase of 6.5% in the MSCI PIMFA Private
Investor Balanced Index.
Closing FUM by service and segment
The table below shows the closing FUM broken down by segment and
by our key services within UKIM at 31 December 2020 and comparative
periods.
H1 FY21
31 Dec 31 Dec vs. H1 30 Jun
2020 2019 FY20 2020
GBPm GBPm % GBPm
-------------- ------ ------ ------- ------
BPS 8,910 8,332 6.9 8,247
MPS 1,962 1,755 11.8 1,809
Funds 2,045 1,369 49.4 2,051
-------------- ------ ------ ------- ------
UKIM total 12,917 11,456 12.8 12,107
International 2,586 1,633 58.4 1,578
-------------- ------ ------ ------- ------
Total FUM 15,503 13,089 18.4 13,685
-------------- ------ ------ ------- ------
Segmental analysis
The Group reports its results across three key operating
segments, UK Investment Management, International and Financial
Planning. The tables below provide a breakdown of the half year
performance broken down by these segments, with comparatives.
UK Investment Financial Group and
H1 FY21 (GBPm) Management International Planning consolidation Total
-------------------------------- ------------- ------------- --------- -------------- ------
Revenue 46.9 7.1 1.9 - 55.9
Direct costs (19.9) (4.3) (1.4) (16.3) (41.9)
-------------------------------- ------------- ------------- --------- -------------- ------
Operating contribution 27.0 2.8 0.5 (16.3) 14.0
Internal cost recharges (12.3) (1.4) (0.9) 14.6 -
-------------------------------- ------------- ------------- --------- -------------- ------
Underlying profit/(loss) before
tax 14.7 1.4 (0.4) (1.7) 14.0
Underlying profit/(loss) margin
before tax 31.3% 19.7% (21.1%) n/a 25.1%
-------------------------------- ------------- ------------- --------- -------------- ------
UK Investment Financial Group and
H1 FY20(1) (GBPm) Management International Planning consolidation Total
-------------------------------- ------------- ------------- --------- -------------- ------
Revenue 45.9 7.0 2.0 - 54.9
Direct costs (20.5) (4.0) (1.5) (17.4) (43.4)
-------------------------------- ------------- ------------- --------- -------------- ------
Operating contribution 25.4 3.0 0.5 (17.4) 11.5
Internal cost recharges (12.3) (1.6) (1.1) 15.0 -
-------------------------------- ------------- ------------- --------- -------------- ------
Underlying profit/(loss) before
tax 13.1 1.4 (0.6) (2.4) 11.5
Underlying profit/(loss) margin
before tax 28.5% 20.0% (30.0%) n/a 20.9%
-------------------------------- ------------- ------------- --------- -------------- ------
1. Comparative figures have been restated to reflect the correct
recognition of the Authorised Corporate Director fees and
associated costs in respect of one of the Group's managed OEICs and
the correct VAT treatment on the fees recognised on the Managed
Portfolio Service offered through third-party models. Refer to Note
2a of the Condensed consolidated financial statements for details
on the restatement.
The UKIM and Financial Planning business segments reported an
improvement in performance during the first half of the financial
year. International reported a stable underlying profit margin at
20% with further improvement expected in the second half of the
year driven by the Lloyds Channel Islands acquisition.
UKIM and International recognised an increase in revenues during
the period, up by 2.2% and 1.4% respectively, largely as a result
of the Cornelian and Lloyds Channel Islands acquisitions. The
decrease in direct costs within UKIM led to a higher underlying
profit margin of 31%. International's total costs increased
marginally in line with revenues resulting in a stable profit
margin on the prior period.
Financial Planning reported a slight decline in revenues by
5.0%, however, the reduction in both its direct and indirect costs
meant its margin improved from -30.0% to -21.1% over the period. As
announced in December 2020, Financial Planning will be integrated
within the UKIM business segment in the second half of the
financial year to ensure the Group is best placed to deliver the
best possible service and experience for both our private clients
and our intermediaries.
Reconciliation between underlying and statutory profits
Underlying profit before tax is considered by the Board to be a
more accurate reflection of the Group's performance when compared
to the statutory results as this excludes income and expense
categories, which are deemed of a non-recurring nature or a
non-cash operating item. Reporting at an underlying basis is also
considered more appropriate for external analyst coverage and peer
group benchmarking, allowing a more accurate like-for-like
comparison. A reconciliation between underlying and statutory
profit before tax for the six months ended 31 December 2020, with
comparatives is shown in the following table:
Six months Six months 12 months
to to to
31 Dec 2020 31 Dec 2019(1) 30 Jun 2020
GBPm GBPm GBPm
--------------------------------------------------- ------------ --------------- ------------
Underlying profit before tax 14.0 11.5 23.0
Acquisition-related costs:
* Gain arising on acquisition 5.0 - -
* Deal structuring and legal costs - (2.0) (2.8)
* Integration and staff retention costs (2.4) - (1.4)
Amortisation of client relationships and contracts
acquired with fund managers (2.3) (1.1) (2.9)
Changes in fair value of consideration and related
disposals (0.2) (0.1) (0.2)
Head office relocation costs - (0.6) (1.2)
Goodwill impairment - - (4.5)
--------------------------------------------------- ------------ --------------- ------------
Statutory profit before tax 14.1 7.7 10.0
--------------------------------------------------- ------------ --------------- ------------
1. Comparative figures have been restated to reflect the correct
recognition of the Authorised Corporate Director fees and
associated costs in respect of one of the Group's managed OEICs and
the correct VAT treatment on the fees recognised on the Managed
Portfolio Service offered through third-party models. Refer to Note
2a of the Condensed consolidated financial statements for details
on the restatement.
Acquisition-related costs (GBP2.6 million net credit)
i. Gain arising on acquisition (GBP5.0 million gain)
A gain on purchase was recognised in respect of the Lloyds
Channel Islands acquisition as the net identifiable assets acquired
were greater than the total purchase consideration paid. Refer to
Note 7 of the Condensed consolidated financial statements for
details on the acquisition accounting.
ii. H1 FY20 - Deal structuring and legal costs (GBP2.0 million
charge)
These represent costs incurred in relation to the acquisition of
Cornelian Asset Managers Group Limited announced on 22 November
2019. The costs incurred include corporate finance services, legal
fees and due diligence fees.
iii. Integration and staff retention costs (GBP2.4 million charge)
These comprise the costs incurred in integrating the Cornelian
acquisition, which completed on 28 February 2020, and the Lloyds
Channel Islands acquisition, which completed on 30 November 2020.
It also includes payments made to key employees who were retained
by the Group for a short period of time to assist with the
integration of the businesses.
The above items are being excluded from the Group's underlying
performance as they were one-off in nature.
Amortisation of client relationships and contracts acquired with
fund managers (GBP2.3 million charge)
These intangible assets are created in the course of acquiring
funds under management and are amortised over their useful life,
which has been assessed to range between 5 and 20 years. The charge
for the period includes the newly acquired investment management
contracts arising on the Cornelian and Lloyds Channel Islands
acquisitions. The amortisation charge has been excluded from the
underlying profit since it is a significant non-cash item. Refer to
Note 10 to the Condensed consolidated financial statements for more
details.
Changes in fair value of consideration and related disposals
(GBP0.2 million charge)
This comprises the fair value measurement arising on deferred
payments and receipts from acquisitions and disposals carried out
by the Group, together with their associated net finance costs.
H1 FY20 Head office relocation costs (GBP0.6 million charge)
The Group's previous London offices based in Welbeck Street and
Bevis Marks were relocated to a single site at 21 Lombard Street in
the City of London. As a result of the move, dual running costs
were incurred on the three locations until the office leases at
Bevis Marks and Welbeck Street expired in March 2020. The dual
running costs and other costs associated with the move have been
excluded from underlying profit in view of their one-off
nature.
FY20 Goodwill impairment
In FY20, the Group recognised an impairment charge in respect of
the Levitas business as the anticipated future cash flows arising
from the recently entered partnership agreement with the
distributor of the Levitas fund fell below expectations and no
longer supported the associated goodwill carrying value. This
partnership is still active and FUM flows could improve in due
course.
Taxation
The Group's Corporation Tax charge on underlying profits for the
period was GBP2.5 million (H1 FY20 Restated: GBP2.0 million)
representing an effective tax rate of 17.9% (H1 FY20: 17.4%). The
effective tax charge for the current period includes the
recognition of deferred tax on the acquired client relationship
intangible assets as part of the Cornellian and Lloyds Channel
Islands acquisitions. Refer to Note 6 to the Condensed consolidated
financial statements for more details.
Earnings per share
The Group's basic statutory earnings per share for the six
months ended 31 December 2020 was 77.3p (H1 FY20 Restated: 44.1p).
On an underlying basis, diluted earnings per share increased by
8.3% to 73.2p (H1 FY20 Restated: 67.6p). Details on the basic and
diluted earnings per share are provided in Note 8 of the Condensed
consolidated financial statements.
Dividend
The Group has a progressive dividend policy, growing dividends
in line with the Group's underlying earnings. The Board recognises
the importance of dividends to shareholders and the benefit of
providing sustainable shareholder returns. In determining the level
of dividend in any year, the Board considers a number of factors
such as the level of retained earnings, future cash commitments,
statutory profit cover, capital and liquidity requirements and the
level of profit retention required to sustain the growth of the
Group. The Board has declared an interim dividend of 23.0p (H1
FY20: 21.0p). This represents an increase of 9.5% compared to the
previous period. The interim dividend will be paid on 16 April 2021
to shareholders on the register as at 19 March 2021. Refer to Note
9 of the Condensed consolidated financial statements for more
details.
Financial position and regulatory capital
The Group's financial position remains strong with net assets of
GBP129.0 million at 31 December 2020 (H1 FY20 Restated: GBP118.9
million). As at 31 December 2020, the Group had a total capital
ratio of 17.2% (H1 FY20 Restated: 18.5%). Total capital ratio is
defined as the Group's own funds as a proportion of the total fixed
overhead exposure amount (being 12.5 times the Pillar I
requirement).
The total net assets and the total capital ratio calculation
take into account the respective period's interim profits (net of
the declared interim dividends) as these are deemed to be verified
at the date of publication of the half year results. The
comparative figures strip out the impact of the share placing
carried out in November 2019 to fund the acquisition of Cornelian
for a more like-for-like comparison. The slight year-on-year
decline was driven by the acquisition of the Lloyds Channels
Islands business, which was funded from the firm's own
resources.
Brooks Macdonald Asset Management Limited, the Group's main
operating subsidiary, is an IFPRU 125k Limited Licence Firm
regulated by the Financial Conduct Authority ("FCA"). In view of
this, the Group is classified as a regulated group and subject to
the same regime. As required under FCA rules, and those of both the
Jersey and Guernsey Financial Services Commission, the Group
assesses its regulatory capital and liquidity on an ongoing basis
through the Internal Capital Adequacy Assessment Process ("ICAAP")
and Adjusted Net Liquid Asset ("ANLA") assessments, which include
performing a range of stress tests and scenario analysis to
determine the appropriate level of regulatory capital and liquidity
that the Group needs to hold. Surplus levels of capital and
liquidity are forecast, taking into account known outflows and
proposed dividends to ensure that the Group maintains sufficient
capital and liquidity at all times.
The FY20 ICAAP review was conducted for the period ended 30 June
2020 and signed off by the Board in December 2020. Regulatory
capital forecasts are performed monthly and take into account
expected dividends and intangible asset acquisitions and disposals
as well as budgeted and forecast trading results.
The Group's Pillar III disclosures are published annually on the
Group's website ( www.brooksmacdonald.com ) and provide further
details about the Group's regulatory capital resources and
requirements. The Group monitors a range of capital and liquidity
statistics on a daily and monthly basis.
Spearpoint legacy matters
During the period, we continued to make progress in dealing
proactively with the previously announced legacy matters arising
from the former Spearpoint business, which we acquired in 2012.
These matters relate both to a number of discretionary portfolios
formerly managed by Spearpoint, now managed by our Jersey office,
and to a Dublin-based fund, for which Spearpoint acted as
investment manager. While we accept no legal liability in these
matters, we have a deep commitment to treating customers fairly and
seeking to protect our clients' best interests.
In October 2020, the Jersey Financial Services Commission
("JFSC"; "Commission") announced that it had resolved its
investigation into International's compliance with the Code of
Practice for Investment Business ("the IB Code") in relation to
certain historic investments. The announcement stated that the
Commission had found certain breaches of the IB Code and that it
had concluded its investigation. We were pleased to note both that
the investigation had concluded and that the statement acknowledged
that International had engaged openly and co-operatively with the
JFSC in respect of the investigation.
We continue to be in discussions with relevant stakeholders as
we seek to bring these matters to a conclusion.
Cash flow and capital expenditure
The Group continues to have strong levels of cash generation
from operations. Total cash resources at the end of December 2020
were GBP38.6 million (H1 FY20: GBP33.2 million, excluding the
proceeds from the share placing ran in November 2019 to finance the
Cornelian acquisition). The Group had no borrowings at 31 December
2020 (H1 FY20: GBPnil).
During the period to 31 December 2020, the Group incurred
capital expenditure of GBP2.6 million. This comprised technology
related development of GBP2.0 million, property related costs of
GBP0.4 million and IT and office equipment of GBP0.2 million. The
technology related spend was primarily incurred in connection with
our strategic partnership with SS&C where the collaboration
will provide a market-leading digital experience for the Group's
intermediaries and clients. The capital expenditure incurred in the
first half includes legal fees in relation to the master agreement,
planning and scoping the implementation programme and software
costs to re-platform. These will be amortised over a ten-year
period from the point at which the new platform goes live in H2
FY22.
Condensed consolidated financial statements
Condensed consolidated statement of comprehensive income
for the six months ended 31 December 2020
Six months
ended Year ended
Six months
31 Dec 2020 ended 30 Jun 2020
31 Dec 2019(1)
(unaudited) (unaudited) (audited)
----
Note GBP'000 GBP'000 GBP'000
------------------------------------------ ---- ------------- --------------- ------------
Revenue 4 55,855 54,896 108,558
Administrative costs (46,371) (47,127) (93,794)
Other gains/(losses) - net 5 (18) (55) (4,519)
------------------------------------------ ---- ------------- --------------- ------------
Operating profit 9,466 7,714 10,245
Gain on bargain purchase 7 4,966 - -
Finance income 31 132 261
Finance costs (317) (151) (454)
------------------------------------------ ---- ------------- --------------- ------------
Profit before tax 14,146 7,695 10,052
Taxation 6 (2,003) (1,491) (3,626)
------------------------------------------ ---- ------------- --------------- ------------
Profit for the period attributable to
equity holders of the Company 12,143 6,204 6,426
Other comprehensive income - - -
------------------------------------------ ---- ------------- --------------- ------------
Total comprehensive income for the period 12,143 6,204 6,426
------------------------------------------ ---- ------------- --------------- ------------
Earnings per share
Basic 8 77.3p 44.1p 43.2p
Diluted 8 77.2p 44.1p 43.1p
------------------------------------------ ---- ------------- --------------- ------------
1. See Note 2a for details regarding the restatement as a result
of the Authorised Corporate Director ("ACD") fees and associated
costs and also the output VAT on Platform MPS.
The accompanying notes form an integral part of these Condensed
consolidated financial statements.
Condensed consolidated statement of financial position
as at 31 December 2020
31 Dec 2020 31 Dec 2019(1,2) 30 Jun 2020
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
--------------------------------------- ---- ------------ ---------------- -----------
Assets
Non-current assets
Intangible assets 10 94,371 48,403 83,804
Property, plant and equipment 11 3,295 2,385 3,181
Right of use assets 12 6,646 7,434 6,991
Financial assets at fair value through
other comprehensive income 13 500 500 500
Other non-current receivables 13 - 94 -
Deferred tax assets 1,784 1,917 1,524
--------------------------------------- ---- ------------ ---------------- -----------
Total non-current assets 106,596 60,733 96,000
Current assets
Trade and other receivables 13 27,525 27,301 26,081
Financial assets at fair value through
profit or loss 13 608 175 549
Cash and cash equivalents 13 38,600 62,639 50,168
--------------------------------------- ---- ------------ ---------------- -----------
Total current assets 66,733 90,115 76,798
--------------------------------------- ---- ------------ ---------------- -----------
Total assets 173,329 150,848 172,798
--------------------------------------- ---- ------------ ---------------- -----------
Liabilities
Non-current liabilities
Lease liabilities 14 (6,162) (7,278) (6,659)
Deferred consideration 15 (298) - (6,300)
Provisions 16 (237) (131) (219)
Other non-current liabilities 13 (560) (570) (330)
Deferred tax liabilities (7,987) (2,119) (7,230)
--------------------------------------- ---- ------------ ---------------- -----------
Total non-current liabilities (15,244) (10,098) (20,738)
Current liabilities
Trade and other payables 13 (19,041) (18,333) (22,765)
Current tax liabilities 13 (118) (125) (480)
Lease liabilities 14 (1,355) (1,592) (1,275)
Deferred consideration 15 (7,799) (405) (1,691)
Provisions 16 (739) (1,370) (2,308)
--------------------------------------- ---- ------------ ---------------- -----------
Total current liabilities (29,052) (21,825) (28,519)
--------------------------------------- ---- ------------ ---------------- -----------
Net assets 129,033 118,925 123,541
--------------------------------------- ---- ------------ ---------------- -----------
Equity
Share capital 18 161 157 161
Share premium 18 78,071 68,817 77,982
Other reserves 7,042 6,087 6,398
Retained earnings 43,759 43,864 39,000
--------------------------------------- ---- ------------ ---------------- -----------
Total equity 129,033 118,925 123,541
--------------------------------------- ---- ------------ ---------------- -----------
1. See Note 2a for details regarding the restatement as a result
of the output VAT on Platform MPS.
2. See Note 2a for details regarding the reclassification of
current deferred consideration and current provisions for the
comparative periods.
The Condensed consolidated financial statements were approved by
the Board of Directors and authorised for issue on 10 March 2021,
signed on their behalf by:
C M Connellan B L Thorpe
CEO Group Finance Director
Company registration number: 4402058
The accompanying notes form an integral part of these Condensed
consolidated financial statements.
Condensed consolidated statement of changes in equity
for the six months ended 31 December 2020
Retained
Share capital Share premium Other reserves earnings Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ---- ------------- ------------- -------------- --------- -------
Balance at 30 June 2019 139 39,068 4,575 43,091 86,873
------------------------------- ---- ------------- ------------- -------------- --------- -------
Comprehensive income
Profit for the period - - - 6,361 6,361
Adjustment on restatement(1) - - - (157) (157)
Other comprehensive income - - - - -
------------------------------- ---- ------------- ------------- -------------- --------- -------
Total comprehensive expense - - - 6,204 6,204
Transactions with owners
Issue of ordinary shares 18 18 29,749 - - 29,767
Share-based payments - - 2,492 - 2,492
Share-based payments exercised - - (1,031) 1,031 -
Purchase of own shares by
employee benefit trust - - - (2,080) (2,080)
Tax on share options - - 51 - 51
Dividends paid 9 - - - (4,382) (4,382)
------------------------------- ---- ------------- ------------- -------------- --------- -------
Total transactions with owners 18 29,749 1,512 (5,431) 25,848
------------------------------- ---- ------------- ------------- -------------- --------- -------
Balance at 31 December 2019 157 68,817 6,087 43,864 118,925
------------------------------- ---- ------------- ------------- -------------- --------- -------
Comprehensive income
Profit for the period - - - 222 222
Other comprehensive income - - - - -
------------------------------- ---- ------------- ------------- -------------- --------- -------
Total comprehensive income - - - 222 222
Transactions with owners
Issue of ordinary shares 18 4 9,165 - - 9,169
Share-based payments - - 1,079 - 1,079
Share-based payments exercised - - (739) 739 -
Purchase of own shares by
employee benefit trust - - - (2,527) (2,527)
Tax on share options - - (29) - (29)
Dividends paid 9 - - - (3,298) (3,298)
------------------------------- ---- ------------- ------------- -------------- --------- -------
Total transactions with owners 4 9,165 311 (5,086) (4,394)
------------------------------- ---- ------------- ------------- -------------- --------- -------
Balance at 30 June 2020 161 77,982 6,398 39,000 123,541
------------------------------- ---- ------------- ------------- -------------- --------- -------
Comprehensive income
Profit for the period - - - 12,143 12,143
Other comprehensive income - - - - -
------------------------------- ---- ------------- ------------- -------------- --------- -------
Total comprehensive income - - - 12,143 12,143
Transactions with owners
Issue of ordinary shares 18 - 89 - - 89
Share-based payments - - 1,560 - 1,560
Share-based payments exercised - - (1,065) 1,065 -
Purchase of own shares by
employee benefit trust - - - (3,450) (3,450)
Tax on share options - - 149 - 149
Dividends paid 9 - - - (4,999) (4,999)
------------------------------- ---- ------------- ------------- -------------- --------- -------
Total transactions with owners - 89 644 (7,384) (6,651)
------------------------------- ---- ------------- ------------- -------------- --------- -------
Balance at 31 December 2020 161 78,071 7,042 43,759 129,033
------------------------------- ---- ------------- ------------- -------------- --------- -------
1. See Note 2a for details regarding the restatement as a result
of the output VAT on Platform MPS.
The accompanying notes form an integral part of these Condensed
consolidated financial statements.
Condensed consolidated statement of cash flows
for the six months ended 31 December 2020
Six months Six months
ended ended Year ended
31 Dec 2020 31 Dec 2019 30 Jun 2020(1)
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
---------------------------------------------- ---- ------------ ------------ ---------------
Cash flow from operating activities
Cash generated from operations 17 8,994 9,927 29,433
Taxation paid (2,963) (4,464) (5,865)
---------------------------------------------- ---- ------------ ------------ ---------------
Net cash generated from operating activities 6,031 5,463 23,568
Cash flows from investing activities
Purchase of intangible assets 10 (1,999) (427) (1,614)
Purchase of property, plant and equipment 11 (577) (430) (1,958)
Deferred consideration paid 15 (421) (919) (919)
Acquisition of subsidiary, net of cash
acquired 7 (5,287) - (21,102)
Proceeds from sale of discontinued operations - 390 568
Interest received 31 125 252
Finance costs paid - - (5)
---------------------------------------------- ---- ------------ ------------ ---------------
Net cash used in investing activities (8,253) (1,261) (24,778)
Cash flows from financing activities
Payment of lease liabilities and initial
direct costs 14 (986) (708) (2,111)
Proceeds of lease reverse premium - 1,250 1,250
Dividends paid to shareholders 9 (4,999) (4,382) (7,680)
Purchase of own shares by employee benefit
trust (3,450) (2,080) (4,607)
Proceeds of issue of shares 18 89 29,767 38,936
Shares issued as consideration - - (9,000)
---------------------------------------------- ---- ------------ ------------ ---------------
Net cash generated (used in)/from financing
activities (9,346) 22,847 16,788
---------------------------------------------- ---- ------------ ------------ ---------------
Net increase in cash and cash equivalents (11,568) 28,049 15,578
Cash and cash equivalents at beginning
of period 50,168 34,590 34,590
---------------------------------------------- ---- ------------ ------------ ---------------
Cash and cash equivalents at end of period 38,600 62,639 50,168
---------------------------------------------- ---- ------------ ------------ ---------------
1. See Note 17 for details regarding changes to the prior period
classification of cash flows from operating activities and cash
flows from investing activities.
The accompanying notes form an integral part of these Condensed
consolidated financial statements.
Notes to the condensed consolidated financial statements
for the six months ended 31 December 2020
1. General information
Brooks Macdonald Group plc ("the Company") is the Parent Company
of a group of companies ("the Group"), which offers a range of
investment management services to private high net worth
individuals, pension funds, institutions, charities and trusts. The
Group also provides financial planning as well as international
investment management, and acts as fund manager to a range of
onshore and international funds. The Group's primary activities are
set out in its Annual Report and Accounts for the year ended 30
June 2020.
The Company is a public limited company, incorporated and
domiciled in the United Kingdom under the Companies Act 2006 and is
listed on AIM. The address of its registered office is 21 Lombard
Street, London, EC3V 9AH.
The Interim Report and Accounts were approved for issue on 10
March 2021. The Condensed consolidated financial statements have
been independently reviewed but are not audited.
2. Accounting policies
a) Basis of preparation
The Group's Condensed consolidated financial statements are
prepared and presented in accordance with IAS 34 'Interim Financial
Reporting' as adopted by the European Union. They have been
prepared on a going concern basis with reference to the accounting
policies and methods of computation and presentation set out in the
Group's Consolidated financial statements for the year ended 30
June 2020, except as stated below. The Condensed consolidated
financial statements should be read in conjunction with the Group's
audited financial statements for the year ended 30 June 2020, which
have been prepared in accordance with International Financial
Reporting Standards ("IFRS") and IFRS Interpretations Committee
("IFRS IC") interpretations, as adopted by the European Union and
the Companies Act 2006 applicable to companies reporting under
IFRS.
The information in the Interim Report and Accounts does not
comprise statutory accounts within the meaning of Section 434 of
the Companies Act 2006. The Group's Consolidated financial
statements for the year ended 30 June 2020 have been reported on by
the Group's auditor and delivered to the Registrar of Companies.
The report of the auditor was unqualified and did not draw
attention to any matters by way of emphasis. It contained no
statement under Section 498(2) or (3) of the Companies Act
2006.
At the time of approving the Condensed consolidated financial
statements, the Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in
operational existence for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in preparing these
Condensed consolidated financial statements.
Comparative period restatement
ACD fees and associated costs
As reported in the Annual Report and Accounts for the year ended
30 June 2020, the Group noted that the recognition of the
Authorised Corporate Director ("ACD") fees and associated costs in
respect of the IFSL Brooks Macdonald Funds, one of the regulated
OEICs managed by the Group, were not in line with the investment
management agreement between the Group and the ACD. The revenue
recognised in the Group was grossed up whereby the Annual
Management Charge and other associated fees levied by the ACD to
the OEICs were recognised as revenue, and the fees that are
subsequently paid out from this fee recognised as expenses. The
Group has no legal obligation to pay the ACD fees and other fund
associated costs; therefore, only the investment management fee
paid to the Group for acting as the OEIC's Investment Manager
should have been recognised in the Group's books as a revenue item.
As a result, for the six months ended 31 December 2019, reported
revenue and costs were overstated by GBP656,000. Accordingly, the
Condensed consolidated statement of comprehensive income has been
restated by this amount to reflect the correct accounting
treatment. There was no impact to total comprehensive income and
retained earnings. The restatement has impacted the UK Investment
Management segment in Note 3, the Portfolio management fee income
in the revenue table in Note 4 and the revenue generated in the
United Kingdom per Note 4a.
VAT on Platform MPS
As reported in the Annual Report and Accounts for the year ended
30 June 2020, the Group begun a review of its Managed Portfolio
Service ("MPS"). When conducting this review, it was noted that the
fees received on MPS offered through third-party platforms
("Platform MPS") were not being correctly accounted for and
historically treated as exempt from VAT. As a result, income
derived from this service was overstated, the VAT liability arising
on the fees collected was understated and consequently the Group
has under-recovered its entitlement to input VAT credit. Since
previously reported revenue from Platform MPS was overstated, the
Directors concluded it prudent to rectify the error.
Accordingly, the Group recognised a prior period adjustment to
reduce revenue by GBP239,000 for the output VAT on Platform MPS and
reduce administrative costs by GBP44,000 for the entitlement to
input VAT credit for the six months ended 31 December 2019. The
decrease to profit before tax as a result of this restatement for
the six months ended 31 December 2019 was GBP194,000. This
reduction in profit before tax has resulted in the income tax
expense to be reduced by GBP37,000. The total reduction to total
comprehensive income for the six months ended 31 December 2019 was
GBP157,000. The restatement has impacted the UK Investment
Management segment in Note 3, the Portfolio management fee income
in the revenue table in Note 4 and the revenue generated in the
United Kingdom per Note 4a. The Condensed consolidated statement of
financial position at 31 December 2019 was restated to reflect this
increase in trade and other payables to recognise the additional
VAT liability due to HMRC of GBP194,000 and reduce current tax
liabilities by the reduced income tax expense of GBP37,000. The
opening balances to the comparative information at 1 July 2019 were
also restated to reflect the reduction in retained earnings of
GBP431,000 and an increase in trade and other payables of
GBP431,000.
Comparative period reclassification
Current deferred consideration has been recognised on the face
of the Condensed consolidated statement of financial position in
the current period. In previous periods, current deferred
consideration was recognised within current provisions. The
comparative information has therefore been reclassified by moving
GBP1,691,000 from current provisions to current deferred
consideration at 30 June 2020, and moving GBP405,000 from current
provisions to current deferred consideration at 31 December 2019,
to be consistent with the current period.
b) Changes in accounting policies
The Group's accounting policies that have been applied in
preparing these Condensed consolidated financial statements are
consistent with those disclosed in the Annual Report and Accounts
for the year ended 30 June 2020.
In the six months ended 31 December 2020, the Group did not
adopt any new standards or amendments issued by the IASB or
interpretations issued by the IFRS IC that have had a material
impact on the Condensed consolidated financial statements.
New standards, amendments and interpretations listed in the
table below were newly adopted by the Group but have not had a
material impact on the amounts reported in these Financial
statements. They may, however, impact the accounting for future
transactions and arrangements.
Standard, amendment or interpretation Effective date
-------------------------------------------------------- --------------
Definition of a Business (Amendments to IFRS 3) 1 January 2020
Definition of Material (Amendments to IAS 1 and IAS 8) 1 January 2020
Interest Rate Benchmark Reform (Amendments to IFRS 9,
IAS 39 and IFRS 7) 1 January 2020
COVID-19-related Rent Concessions (Amendment to IFRS 16) 1 January 2020
-------------------------------------------------------- --------------
Future new standards and interpretations
These Financial statements have been prepared in accordance with
IFRS and IFRS IC interpretations, as adopted by the European Union
and the Companies Act 2006. As a result of the UK leaving the
European Union on 31 December 2020, the Group's Consolidated
financial statements for the year ending 30 June 2021 will be
prepared under international accounting standards in conformity
with the Companies Act 2006. It should be noted that this will not
have any impact on the recognition, measurement or disclosure in
the Group's Consolidated financial statements.
A number of new standards are effective for annual periods
beginning after 1 July 2020 and earlier application is permitted;
however, the Group has not early adopted any new or amended
standards in preparing these Condensed consolidated financial
statements. None of the standards not yet effective are expected to
have a material impact on the Group's Financial statements.
3. Segmental information
For management purposes the Group's activities are organised
into three operating divisions: UK Investment Management,
International and Financial Planning. The Group's other activity,
offering nominee and custody services to clients, is included
within UK Investment Management. These divisions are the basis on
which the Group reports its primary segmental information to the
Executive Committee, which is the Group's chief operating
decision-maker. In accordance with IFRS 8 'Operating Segments',
disclosures are required to reflect the information that the Board
of Directors uses internally for evaluating the performance of its
operating segments and allocating resources to those segments. The
information presented in this note is consistent with the
presentation for internal reporting.
The UK Investment Management segment offers a range of
investment management services to private high net worth
individuals, pension funds, institutions, charities and trusts. The
International segment is based in the Channel Islands and offers a
similar range of investment management and financial planning
services as the UK Investment Management segment and the Financial
Planning segment. Financial Planning offers wealth management
services to high net worth individuals and families, giving
independent "whole of market" financial advice enabling clients to
build, manage and protect their wealth. The Group segment
principally comprises the Group Board's management and associated
costs, along with the consolidation adjustments.
Following the Cornelian and Lloyds Channel Islands (Note 7)
acquisitions, the activities since acquisition have been included
in the UK Investment Management segment and International segment
respectively.
Revenues and expenses are allocated to the business segment that
originated the transaction. Sales between segments are carried out
at arm's length. Centrally incurred expenses are allocated to
business segments on an appropriate pro rata basis.
UK Investment Financial Group and consolidation
Six months ended 31 Dec 2020 Management International Planning adjustments Total
(unaudited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ------------- ------------- --------- ----------------------- ---------
Total segment revenue 49,833 7,058 1,846 - 58,737
Inter segment revenue (2,882) - - - (2,882)
--------------------------------------- ------------- ------------- --------- ----------------------- ---------
External revenues 46,951 7,058 1,846 - 55,855
Underlying administrative costs (19,772) (4,289) (1,342) (16,360) (41,763)
--------------------------------------- ------------- ------------- --------- ----------------------- ---------
Operating contribution 27,179 2,769 504 (16,360) 14,092
Allocated costs (12,301) (1,468) (859) 14,628 -
Underlying other gains/(losses)
- net, finance income and finance
costs (92) 2 (16) 20 (86)
--------------------------------------- ------------- ------------- --------- ----------------------- ---------
Underlying profit/(loss) before
tax 14,786 1,303 (371) (1,712) 14,006
Gain on bargain purchase - - - 4,966 4,966
Acquisition-related costs (435) (1,961) - 40 (2,356)
Amortisation of client relationships (343) (260) - (1,648) (2,251)
Finance cost of deferred consideration - (1) - (158) (159)
Changes in fair value of deferred
consideration - - - (60) (60)
Profit mark-up on Group allocated
costs 89 (43) (49) 3 -
--------------------------------------- ------------- ------------- --------- ----------------------- ---------
Profit/(loss) before tax 14,097 (962) (420) 1,431 14,146
Taxation (2,003)
--------------------------------------- ------------- ------------- --------- ----------------------- ---------
Profit for the period attributable
to equity holders of the Company 12,143
--------------------------------------- ------------- ------------- --------- ----------------------- ---------
Six months ended 31 Dec 2019 UK Investment Financial Group and consolidation
(1) Management International Planning adjustments Total
(unaudited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ------------- ------------- --------- ----------------------- ---------
Total segment revenue 46,337 7,023 1,962 8 55,330
Inter segment revenue (434) - - - (434)
--------------------------------------- ------------- ------------- --------- ----------------------- ---------
External revenues 45,903 7,023 1,962 8 54,896
Underlying administrative costs (20,567) (4,085) (1,464) (17,354) (43,470)
--------------------------------------- ------------- ------------- --------- ----------------------- ---------
Operating contribution 25,336 2,938 498 (17,346) 11,426
Allocated costs (12,235) (1,599) (1,075) 14,909 -
Underlying other gains - net,
finance income and finance costs 49 32 - 2 83
--------------------------------------- ------------- ------------- --------- ----------------------- ---------
Underlying profit/(loss) before
tax 13,150 1,371 (577) (2,435) 11,509
Acquisition-related costs - - - (2,080) (2,080)
Amortisation of client relationships
and contracts acquired with
fund managers (358) (210) - (520) (1,088)
Head office relocation costs (444) (91) (38) - (573)
Changes in fair value of contingent
consideration - - (55) - (55)
Finance cost of deferred consideration - - - (25) (25)
Finance income from contingent
consideration - - 6 1 7
--------------------------------------- ------------- ------------- --------- ----------------------- ---------
Profit/(loss) before tax 12,348 1,070 (664) (5,059) 7,695
Taxation (1,491)
--------------------------------------- ------------- ------------- --------- ----------------------- ---------
Profit for the period attributable
to equity holders of the Company 6,204
--------------------------------------- ------------- ------------- --------- ----------------------- ---------
1. See Note 2a for details regarding the restatement to the UK
Investment Management segment as a result of the ACD fees and
associated costs and also the output VAT on Platform MPS.
UK Investment Financial Group and consolidation
Management International Planning adjustments Total
Year ended 30 Jun 2020 (audited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ------------- ------------- --------- ----------------------- --------
Total segment revenue 95,950 13,335 3,831 (6) 113,110
Inter segment revenue (4,552) - - - (4,552)
--------------------------------------- ------------- ------------- --------- ----------------------- --------
External revenues 91,398 13,335 3,831 (6) 108,558
Underlying administrative costs (42,004) (8,026) (3,161) (32,424) (85,615)
--------------------------------------- ------------- ------------- --------- ----------------------- --------
Operating contribution 49,394 5,309 670 (32,430) 22,943
Allocated costs (24,143) (2,890) (1,926) 28,959 -
Net finance income 1 50 - 29 80
--------------------------------------- ------------- ------------- --------- ----------------------- --------
Underlying profit/(loss) before
tax 25,252 2,469 (1,256) (3,442) 23,023
Goodwill impairment - - - (4,471) (4,471)
Acquisition-related costs (1,085) (606) - (2,570) (4,261)
Amortisation of client relationships
and contracts acquired with
fund managers (701) (420) - (1,762) (2,883)
Head office relocation costs (1,166) - - - (1,166)
Finance cost of deferred consideration - - - (145) (145)
Changes in fair value of contingent
consideration - - (54) - (54)
Finance income from contingent
consideration - - 7 2 9
Profit mark-up on Group allocated
costs 221 (136) (85) - -
--------------------------------------- ------------- ------------- --------- ----------------------- --------
Profit/(loss) before tax 22,521 1,307 (1,388) (12,388) 10,052
Taxation (3,626)
--------------------------------------- ------------- ------------- --------- ----------------------- --------
Profit for the period attributable
to equity holders of the Company 6,426
--------------------------------------- ------------- ------------- --------- ----------------------- --------
4. Revenue
Six months
ended Year ended
Six months
31 Dec 2020 ended 30 Jun 2020
31 Dec 2019(1)
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
-------------------------------- ------------ --------------- ------------
Portfolio management fee income 46,893 48,359 95,108
Financial services commission 166 66 481
Advisory fees 2,167 2,380 4,325
Fund management fees 6,629 4,091 8,644
-------------------------------- ------------ --------------- ------------
Total revenue 55,855 54,896 108,558
-------------------------------- ------------ --------------- ------------
1. See Note 2a for details regarding the restatement as a result
of the ACD fees and associated costs and also the output VAT on
Platform MPS.
a) Geographic analysis
The Group's operations are located in the United Kingdom and the
Channel Islands. The following table presents external revenue
analysed by the geographical location of the Group entity providing
the service.
Six months
ended Year ended
Six months
31 Dec 2020 ended 30 Jun 2020
31 Dec 2019(1)
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------- ------------ --------------- ------------
United Kingdom 48,797 47,873 95,223
Channel Islands 7,058 7,023 13,335
---------------- ------------ --------------- ------------
Total revenue 55,855 54,896 108,558
---------------- ------------ --------------- ------------
1. See Note 2a for details regarding the restatement as a result
of the ACD fees and associated costs and also the output VAT on
Platform MPS.
b) Major clients
The Group is not reliant on any one client or group of connected
clients for the generation of revenues.
5. Other gains/(losses) - net
Other gains/(losses) - net represent the net changes in the fair
value of the Group's financial instruments and intangible assets
recognised in the Condensed consolidated statement of comprehensive
income.
Six months Six months
ended ended
31 Dec 2020 31 Dec 2019 Year ended
30 Jun 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------------------------------------------------- ------------ ------------ ------------
Loss from changes in fair value of deferred consideration
payable (Note 15) (60) - -
Gain from changes in fair value of financial assets
at fair value through profit or loss (Note 13) 42 - 6
Loss from changes in fair value of contingent
consideration receivable (Note 13) - (55) (54)
Goodwill impairment (Note 10) - - (4,471)
---------------------------------------------------------- ------------ ------------ ------------
Total other gains/(losses) - net (18) (55) (4,519)
---------------------------------------------------------- ------------ ------------ ------------
6. Taxation
The current tax expense for the six months ended 31 December
2020 was calculated based on the Corporation Tax rate of 19%,
applied to the taxable profit for the six months ended 31 December
2020 (H1 FY20: 19%; FY20: 19%).
Six months Six months
ended ended Year ended
31 Dec 2020 31 Dec 2019(1) 30 Jun 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
------------------------------------------------ ------------ --------------- ------------
UK Corporation Tax 2,582 2,293 3,991
Over provision in prior years - - (66)
------------------------------------------------ ------------ --------------- ------------
Total current taxation 2,582 2,293 3,925
Deferred tax credits (510) (802) (674)
(Over)/under provision of deferred tax in prior
years (69) - 462
Research and development tax credit - - (87)
------------------------------------------------ ------------ --------------- ------------
Total income tax expense 2,003 1,491 3,626
------------------------------------------------ ------------ --------------- ------------
1. See Note 2a for details regarding the restatement as a result
of the output VAT on Platform MPS.
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 time apportioned tax
rate applicable to profits of the consolidated entities in the UK
as follows:
Six months Six months
ended ended Year ended
31 Dec 2020 31 Dec 2019(1) 30 Jun 2020
(unaudited) (unaudited) (audited)
----------------------------------------------------------------- ------------ --------------- ------------
Profit before taxation 14,146 7,695 10,052
Profit multiplied by the standard rate of tax
in the UK of 19% (H1 FY20: 19%;
FY20: 19%) 2,688 1,462 1,910
Tax effect of amounts that are not deductible
(taxable) in calculating taxable income:
* Overseas tax losses not available for UK tax purposes 4 (24) (24)
* Disallowable expenses 258 206 394
* Share-based payments 33 (396) (139)
* Depreciation and amortisation 37 248 336
* Gain on bargain purchase (943) - -
* Non-taxable income (5) (5) (10)
* (Over)/under provision of deferred tax in prior years (69) - 396
* Research and development tax credit - - (87)
* Impairment charges - - 850
----------------------------------------------------------------- ------------ --------------- ------------
Income tax expense 2,003 1,491 3,626
----------------------------------------------------------------- ------------ --------------- ------------
Following a change by HMRC on the Corporation Tax payments on
account, the Group made six payments on account during the year
ended 30 June 2020, with the financial year ending 30 June 2021
reverting back to four payments during the year.
Deferred tax assets and liabilities are calculated at 19% (H1
FY20: 17%; FY20: 19%) being the rate that is expected to be in
force when the temporary differences unwind. The UK Government
announced in its 2021 budget on 3 March 2021 that there is a
planned increase in the rate of Corporation Tax from 19% to 25%
with effect from 1 April 2023. As a result, the relevant deferred
tax balances will have to be remeasured once the increase in the
Corporation Tax rate is substantively enacted. The planned increase
has not had an impact on the Group for the six months ended 31
December 2020. This increase in the Corporation Tax rate will have
an estimated impact of GBP1,500,000 increase on the deferred tax
liability from 1 April 2023.
During the year ended 30 June 2020, the Group made a claim for
research and development tax relief in relation to qualifying
expenditure on software development incurred in the year ended 30
June 2019. This resulted in a reduction in the Corporation Tax
liability in the respective year of GBP87,000.
7. Business combinations
On 30 November 2020, the Group acquired Lloyds Bank
International's Channel Islands wealth management and funds
business ("Lloyds Channel Islands acquisition"). The acquisition
brings a high-quality discretionary client base, adds a multi-asset
and fixed income fund range to the Group's offering, and increases
distribution reach through well-established intermediary
relationships. The acquisition consisted of the entire share
capital of Lloyds Investment Fund Managers Limited (renamed Brooks
Macdonald International Fund Managers Limited following
acquisition), and a portfolio of discretionary management private
clients.
The acquisition has been accounted for using the acquisition
method and details of the purchase consideration are as
follows:
Note GBP'000 GBP'000
------------------------------------------------ ----- ------- -------
Business consideration 4,650
Business consideration adjustment i (1,070)
------------------------------------------------ ----- ------- -------
Initial business consideration - Discretionary
business 3,580
Shares consideration 4,650
Excess for net assets ii 95
------------------------------------------------ ----- ------- -------
Initial shares consideration - Funds business 4,745
------------------------------------------------------- ------- -------
Initial cash paid 8,325
Deferred contingent consideration at fair value iii 308
------------------------------------------------ ----- ------- -------
Total purchase consideration 8,633
------------------------------------------------------- ------- -------
i. Following completion, an adjustment was made to the business
consideration in relation to the revenue that has transferred to
the Group. The adjustment reflects the fall in revenue acquired by
the Group compared to the expected revenue that would transfer to
the Group in the Sale and Purchase Agreement ("SPA").
ii. Per the SPA, the completion balance sheet was to contain net
assets of GBP2,500,000 to be acquired by the Group. Any excess or
deficit of the actual net assets acquired would be paid or recouped
by the Group. The actual net assets acquired by the Group were
GBP2,595,000 resulting in the Group paying additional consideration
of GBP95,000.
iii. The total cash deferred contingent consideration is
GBP334,000, payable in two years following completion, based on the
client attrition of the funds under management acquired over the
two-year period.
The fair value of the deferred consideration liability has been
remeasured at 31 December 2020, and remains unchanged, which
assumes the deferred consideration criteria will be met resulting
in the full GBP334,000 to be paid in two years. The client
attrition has been forecast using a similar outflows pattern to
that experienced by the rest of the Group. The client attrition is
dependent on several unpredictable variables including client
sentiment and market conditions.
Client relationship intangible assets of GBP9,080,000 and
GBP3,147,000 were recognised on acquisition in respect of the
expected cash inflows and economic benefit from the discretionary
and fund management contracts acquired respectively. A gain on
bargain purchase of GBP4,284,000 was recognised on acquisition in
relation to the discretionary business and a gain on bargain
purchase of GBP682,000 was recognised on acquisition in relation to
the funds business as the net identifiable assets acquired were
greater than the total purchase consideration, which has been
recognised in the Condensed consolidated statement of comprehensive
income. The fair value of the assets acquired are the gross
contractual amounts and all are considered to be fully recoverable.
The fair value of the identifiable assets and liabilities acquired,
at the date of acquisition, are detailed in (a) below.
Directly attributable acquisition costs of GBP19,000 (H1 FY20:
GBPnil; FY20: GBP606,000) and integration costs of GBP1,942,000 (H1
FY20: GBPnil; FY20: GBPnil) were incurred in the acquisition and
integration of the Lloyds Channel Islands acquisition, which have
been charged to administrative costs in the Condensed consolidated
statement of comprehensive income but excluded from underlying
profit.
a) Net assets acquired through business combination
GBP'000
--------------------------------------------------------- -------
Trade and other receivables 31
Financial assets at fair value through profit and loss 4
Cash at bank 3,038
Trade and other payables (363)
Corporation tax payable (115)
--------------------------------------------------------- -------
Total net assets recognised by acquired companies 2,595
Fair value adjustments:
Client relationship contracts - discretionary business 9,080
Client relationship contracts - fund-management business 3,147
Deferred tax liabilities (1,223)
--------------------------------------------------------- -------
Net identifiable assets 13,599
Gain on bargain purchase (4,966)
--------------------------------------------------------- -------
Total purchase consideration 8,633
--------------------------------------------------------- -------
The trade and other receivables were recognised at their fair
value, being the gross contractual amounts.
b) Impact on reported results from date of acquisition
In the period from acquisition to 31 December 2020, the Lloyds
Channel Islands acquisition earned revenue of GBP767,000 and
statutory profit before tax of GBP392,000.
c) Net cash outflow resulting from business combinations
GBP'000
-------------------------------------------- -------
Total purchase consideration 8,633
Less:
Deferred cash consideration at fair value (308)
-------------------------------------------- -------
Cash paid to acquire Lloyds Channel Islands 8,325
Less cash held by Lloyds Channel Islands (3,038)
-------------------------------------------- -------
Net cash outflow - investing activities 5,287
-------------------------------------------- -------
8. Earnings per share
The Board of Directors considers that underlying earnings per
share provides a more appropriate reflection of the Group's
performance in the period. Underlying earnings per share, which is
an alternative performance measure, are calculated based on
'underlying earnings', which is also an alternative performance
measure and is defined as earnings before underlying adjustments
listed below. The tax effect of these adjustments has also been
considered.
Earnings for the period used to calculate earnings per share as
reported in these Condensed consolidated financial statements were
as follows:
Six months
ended
Six months
31 Dec 2020 ended Year ended
31 Dec 2019(1) 30 Jun 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------------------------------------------------- ------------ --------------- ------------
Earnings attributable to ordinary shareholders 12,143 6,204 6,426
Underlying adjustments
Gain on bargain purchase (Note 7) (4,966) - -
Acquisition-related costs 2,356 2,080 4,261
Amortisation of acquired client relationship contracts
(Note 10) 2,251 1,072 2,867
Finance cost of deferred consideration (Note 15) 159 25 145
Changes in fair value of deferred consideration
(Note 15) 60 - -
Changes in fair value of contingent consideration
(Note 13) - 55 54
Head office relocation costs - 573 1,166
Amortisation of contracts acquired with fund managers
(Note 10) - 16 16
Finance income of contingent consideration (Note
13) - (7) (9)
Goodwill impairment (Note 10) - - 4,471
Tax impact of adjustments (479) (495) (939)
---------------------------------------------------------- ------------ --------------- ------------
Underlying earnings attributable to ordinary shareholders 11,524 9,523 18,458
---------------------------------------------------------- ------------ --------------- ------------
1. See Note 2a for details regarding the restatement as a result
of the output VAT on Platform MPS.
Basic earnings per share is calculated by dividing earnings
attributable to ordinary shareholders by the weighted average
number of shares in issue throughout the period. Diluted earnings
per share represents the basic earnings per share adjusted for the
effect of dilutive potential shares issuable on exercise of
employee share options under the Group's share-based payment
schemes, weighted for the relevant period. The weighted average
number of shares in issue during the six months ended 31 December
2020 was as follows:
Six months Six months
ended ended
31 Dec 2020 31 Dec 2019 Year ended
30 Jun 2020
(unaudited) (unaudited) (audited)
Number of Number of Number of
shares shares shares
--------------------------------------------------- ------------ ------------ ------------
Weighted average number of shares in issue 15,710,199 14,075,329 14,870,729
Effect of dilutive potential shares issuable on
exercise of employee share options 26,391 18,383 46,052
--------------------------------------------------- ------------ ------------ ------------
Diluted weighted average number of shares in issue 15,736,590 14,093,712 14,916,781
--------------------------------------------------- ------------ ------------ ------------
Six months
ended Year ended
Six months
31 Dec 2020 ended 30 Jun 2020
31 Dec 2019(1)
(unaudited) (unaudited) (audited)
p p p
------------------------------ ------------ --------------- ------------
Based on reported earnings:
Basic earnings per share 77.3 44.1 43.2
Diluted earnings per share 77.2 44.1 43.1
Based on underlying earnings:
Basic earnings per share 73.4 67.7 124.1
Diluted earnings per share 73.2 67.6 123.7
------------------------------ ------------ --------------- ------------
1. See Note 2a for details regarding the restatement as a result
of the output VAT on Platform MPS.
9. Dividends
Six months
ended
Six months
31 Dec 2020 ended Year ended
31 Dec 2019 30 Jun 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
----------------------------------------- ------------ ------------- ------------
Final dividend paid on ordinary shares 4,999 4,382 4,382
Interim dividend paid on ordinary shares - - 3,298
----------------------------------------- ------------ ------------- ------------
Total dividends 4,999 4,382 7,680
----------------------------------------- ------------ ------------- ------------
An interim dividend of 23.0p (six months ended 31 December 2019:
21.0p) per share was declared by the Board of Directors on 10 March
2021. It will be paid on 16 April 2021 to shareholders who are on
the register at the close of business on 19 March 2021. In
accordance with IAS 10, this dividend has not been included as a
liability in the Condensed consolidated financial statements at 31
December 2020.
A final dividend for the year ended 30 June 2020 of 32.0p (year
ended 30 June 2019: 32.0p) per share was paid to shareholders on 6
November 2020.
10. Intangible assets
Acquired Contracts
client acquired
Computer relationship with fund
Goodwill software contracts managers Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- -------- --------- ------------- ---------- -------
Cost
At 1 July 2019 35,776 8,874 32,161 3,521 80,332
Additions - 427 - - 427
----------------------------------------- -------- --------- ------------- ---------- -------
At 31 December 2019 35,776 9,301 32,161 3,521 80,759
Additions 16,111 1,187 25,623 - 42,921
Cost of intangible assets on acquisition
of subsidiary - 1,006 - - 1,006
Disposals - (991) - - (991)
----------------------------------------- -------- --------- ------------- ---------- -------
At 30 June 2020 51,887 10,503 57,784 3,521 123,695
Additions - 1,999 12,227 - 14,226
----------------------------------------- -------- --------- ------------- ---------- -------
At 31 December 2020 51,887 12,502 70,011 3,521 137,921
----------------------------------------- -------- --------- ------------- ---------- -------
Accumulated amortisation and impairment
At 1 July 2019 6,742 3,192 16,726 3,505 30,165
Amortisation charge - 1,103 1,072 16 2,191
----------------------------------------- -------- --------- ------------- ---------- -------
At 31 December 2019 6,742 4,295 17,798 3,521 32,356
Amortisation charge - 1,341 1,795 - 3,136
Accumulated amortisation of intangible
assets on acquisition of subsidiary - 919 - - 919
Accumulated amortisation on disposals - (991) - - (991)
Impairment 4,471 - - - 4,471
----------------------------------------- -------- --------- ------------- ---------- -------
At 30 June 2020 11,213 5,564 19,593 3,521 39,891
Amortisation charge - 1,408 2,251 - 3,659
----------------------------------------- -------- --------- ------------- ---------- -------
At 31 December 2020 11,213 6,972 21,844 3,521 43,550
----------------------------------------- -------- --------- ------------- ---------- -------
Net book value
At 1 July 2019 29,034 5,682 15,435 16 50,167
At 31 December 2019 29,034 5,006 14,363 - 48,403
At 30 June 2020 40,674 4,939 38,191 - 83,804
----------------------------------------- -------- --------- ------------- ---------- -------
At 31 December 2020 40,674 5,530 48,167 - 94,371
----------------------------------------- -------- --------- ------------- ---------- -------
a) Goodwill
Goodwill acquired in a business combination is allocated at
acquisition to the cash generating units ("CGUs") that are expected
to benefit from that business combination. The carrying amount of
goodwill in respect of these CGUs within the operating segments of
the Group comprises:
31 Dec 2020
31 Dec 2019 30 Jun 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
------------------------------------------------------ ------------ ------------ -----------
Funds
Braemar Group Limited ("Braemar") 3,320 3,320 3,320
Levitas Investment Management Services Limited
("Levitas") - 4,471 -
------------------------------------------------------ ------------ ------------ -----------
3,320 7,791 3,320
International
Brooks Macdonald Asset Management (International)
Limited and Brooks
Macdonald Retirement Services (International)
Limited (collectively "Brooks
Macdonald International") 21,243 21,243 21,243
Cornelian
Cornelian Asset Managers Group Limited ("Cornelian") 16,111 - 16,111
Total goodwill 40,674 29,034 40,674
------------------------------------------------------ ------------ ------------ -----------
At the reporting date, there were no indicators that the
carrying amount of goodwill in relation to any of the CGUs should
be impaired, therefore, the recoverable amount calculations have
not been performed.
b) Computer software
Computer software costs are amortised on a straight-line basis
over an estimated useful life of four years. Costs incurred on
internally developed computer software are initially recognised at
cost and when the software is available for use the costs are
amortised on a straight-line basis over an estimated useful life of
four years.
c) Acquired client relationship contracts
This asset represents the fair value of future benefits accruing
to the Group from acquired client relationship contracts. The
amortisation of client relationships is charged to the Condensed
consolidated statement of comprehensive income on a straight-line
basis over their estimated useful lives (15 to 20 years).
During the six months ended 31 December 2020, the Group acquired
client relationship contracts totalling GBP12,227,000, as part of
the Lloyds Channel Islands acquisitions (Note 7), which were
recognised as separately identifiable intangible assets in the
Consolidated statement of financial position. The additions
included contracts related to the discretionary business of
GBP9,080,000, with a useful economic life of 15 years, and
GBP3,147,000 related to the fund-management business, with a useful
economic life of six years.
d) Contracts acquired with fund managers
This asset represented the fair value of the future benefits
accruing to the Group from contracts acquired with fund managers.
Payments made to acquire such contracts are initially recognised at
cost and amortised on a straight-line basis over an estimated
useful life of five years.
11. Property, plant and equipment
Fixtures,
fittings
Leasehold and office
improvements equipment IT equipment Total
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ------------- ----------- ------------ -------
Cost
At 1 July 2019 3,150 8,305 3,334 14,789
Additions 273 137 20 430
--------------------------------------- ------------- ----------- ------------ -------
At 31 December 2019 3,423 8,442 3,354 15,219
Additions 968 191 369 1,528
Cost of property, plant and equipment
on acquisition of subsidiary 19 104 195 318
Disposals (466) (7,720) (1,436) (9,622)
--------------------------------------- ------------- ----------- ------------ -------
At 30 June 2020 3,944 1,017 2,482 7,443
Additions 414 21 142 577
--------------------------------------- ------------- ----------- ------------ -------
At 31 December 2020 4,358 1,038 2,624 8,020
--------------------------------------- ------------- ----------- ------------ -------
Accumulated depreciation
At 1 July 2019 1,420 7,942 2,250 11,612
Depreciation charge 719 223 280 1,222
--------------------------------------- ------------- ----------- ------------ -------
At 31 December 2019 2,139 8,165 2,530 12,834
--------------------------------------- ------------- ----------- ------------ -------
Depreciation charge 353 94 359 806
Accumulated depreciation of property,
plant and equipment on acquisition of
subsidiary 19 102 123 244
Depreciation charge (466) (7,720) (1,436) (9,622)
--------------------------------------- ------------- ----------- ------------ -------
At 30 June 2020 2,045 641 1,576 4,262
Depreciation charge 180 46 237 463
--------------------------------------- ------------- ----------- ------------ -------
At 31 December 2020 2,225 687 1,813 4,725
--------------------------------------- ------------- ----------- ------------ -------
Net book value
At 1 July 2019 1,730 363 1,084 3,177
At 31 December 2019 1,284 277 824 2,385
At 30 June 2020 1,899 376 906 3,181
--------------------------------------- ------------- ----------- ------------ -------
At 31 December 2020 2,133 351 811 3,295
--------------------------------------- ------------- ----------- ------------ -------
12. Right of use assets
Property
GBP'000
-------------------- --------
Cost
At 30 June 2020 8,491
Additions 414
-------------------- --------
At 31 December 2020 8,905
-------------------- --------
Depreciation
At 30 June 2020 1,500
Depreciation charge 759
-------------------- --------
At 31 December 2020 2,259
-------------------- --------
Right of use assets
At 30 June 2020 6,991
-------------------- --------
At 31 December 2020 6,646
-------------------- --------
The additions relate to additional property leases that
commenced during the six months ended 31 December 2020.
13. Financial instruments
The analysis of financial assets and liabilities into their
categories as defined in IFRS 9 Financial Instruments is set out in
the following table.
31 Dec 2020 31 Dec 2019(1) 30 Jun 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
----------------------------------------------------------- ------------ -------------- -----------
Financial assets
Financial assets at fair value through profit
or loss:
Investment in regulated OEIC 591 - 549
Investment in recognised funds 17 - -
Contingent consideration receivable - 175 -
Financial assets at fair value through other comprehensive
income:
Unlisted redeemable preference shares 500 500 500
Financial assets at amortised cost:
Trade and other receivables 27,525 27,301 26,081
Cash and cash equivalents 38,600 62,639 50,168
Other receivables - 94 -
----------------------------------------------------------- ------------ -------------- -----------
Total financial assets 67,233 90,709 77,298
----------------------------------------------------------- ------------ -------------- -----------
Financial liabilities
Financial liabilities at fair value through profit
or loss:
Deferred consideration (Note 15) 8,097 405 7,991
Financial liabilities at amortised cost:
Trade and other payables 19,041 18,333 22,765
Current tax liabilities 118 125 480
Lease liabilities (Note 14) 7,517 8,870 7,934
Provisions (Note 16) 976 1,501 2,526
Other non-current liabilities 560 570 330
----------------------------------------------------------- ------------ -------------- -----------
Total financial liabilities 36,309 29,804 42,026
----------------------------------------------------------- ------------ -------------- -----------
1. See Note 2a for details regarding the restatement as a result
of the output VAT on Platform MPS.
The following table provides an analysis of the financial assets
and liabilities that, subsequent to initial recognition, are
measured at fair value. These are grouped into the following levels
within the fair value hierarchy, based on the degree to which the
inputs used to determine the fair value are observable:
-- Level 1 - derived from quoted prices in active markets for
identical assets or liabilities at the measurement date;
-- Level 2 - derived from inputs other than quoted prices
included within Level 1 that are observable, either directly or
indirectly; and
-- Level 3 - derived from inputs that are not based on observable market data.
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------------- -------- -------- -------- --------
Financial assets
At 1 July 2019 - - 1,113 1,113
Net changes in fair value charged to the Condensed
consolidated statement of comprehensive income - - (55) (55)
Finance income of contingent consideration - - 7 7
Payments received during the period - - (390) (390)
--------------------------------------------------- -------- -------- -------- --------
At 31 December 2019 - - 675 675
--------------------------------------------------- -------- -------- -------- --------
Additions 543 - - 543
Net changes in fair value charged to the Condensed
consolidated statement of comprehensive income 6 - - 6
Finance income of contingent consideration - - 3 3
Payment received during the period - - (178) (178)
--------------------------------------------------- -------- -------- -------- --------
At 30 June 2020 549 - 500 1,049
Additions 4 - - 4
Net changes in fair value charged to the Condensed
consolidated statement of comprehensive income 42 - - 42
Net changes in fair value charged to the Condensed
consolidated statement of financial position 13 - - 13
--------------------------------------------------- -------- -------- -------- --------
At 31 December 2020 608 - 500 1,108
--------------------------------------------------- -------- -------- -------- --------
Comprising:
Financial assets at fair value through other
comprehensive income - - 500 500
Financial assets at fair value through profit
and loss 608 - - 608
--------------------------------------------------- -------- -------- -------- --------
Total financial assets 608 - 500 1,108
--------------------------------------------------- -------- -------- -------- --------
At 31 December 2020, the Group held an investment of 500,000
redeemable GBP1 preference shares in an unlisted company
incorporated in the UK. The preference shares carry an entitlement
to a fixed preferential dividend at a rate of 8% per annum,
reducing to 4% per annum from April 2021. Unlisted preference
shares are classified as financial assets at fair value through
other comprehensive income. They have been valued using a
perpetuity income model, which is based upon the preference
dividend cash flows.
During the six months ended 31 December 2020, the Group
completed the Lloyds Channel Islands acquisition (Note 7). On
acquisition, Lloyds Investment Fund Managers Limited (renamed
Brooks Macdonald International Fund Managers Limited following
acquisition), held investment positions in the underlying
recognised funds, totalling GBP4,000. Investment positions in
recognised funds are a standard amount of shares per fund that
Brooks Macdonald International Fund Managers Limited holds to
facilitate daily shares and redemptions by the unit holders. The
requirement to advise the custodian of shares to be created or
cancelled within two hours of the valuation point, which is
generally before the dealing prices for the day have been released,
results in Brooks Macdonald International Fund Managers Limited
holding shares. The value of the investment positions in the
recognised funds at 31 December 2020 was GBP17,000.
During the year ended 30 June 2020, the Group acquired Cornelian
Asset Managers Group Limited. On acquisition, Cornelian Asset
Managers Group Limited held 500,000 shares in five of the SVS
Cornelian Risk Managed Passive Funds, totalling GBP543,000. During
the six months ended 31 December 2020, the Group recognised a gain
on these investments of GBP42,000. The Group's holding in the SVS
Cornelian Risk Managed Passive Funds at 31 December 2020 was
GBP591,000.
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- -------- -------- -------- --------
Financial liabilities
At 1 July 2019 - - 1,299 1,299
Finance cost of deferred consideration - - 25 25
Payments made during the period - - (919) (919)
--------------------------------------- -------- -------- -------- --------
At 31 December 2019 - - 405 405
--------------------------------------- -------- -------- -------- --------
Additions - - 7,466 7,466
Finance cost of deferred consideration - - 120 120
--------------------------------------- -------- -------- -------- --------
At 30 June 2020 - - 7,991 7,991
--------------------------------------- -------- -------- -------- --------
Additions - - 308 308
Change in fair value - - 60 60
Finance cost of deferred consideration - - 159 159
Payments made during the period - - (421) (421)
--------------------------------------- -------- -------- -------- --------
At 31 December 2020 - - 8,097 8,097
--------------------------------------- -------- -------- -------- --------
Comprising:
Deferred consideration (Note 15) - - 8,097 8,097
--------------------------------------- -------- -------- -------- --------
Total financial liabilities - - 8,097 8,097
--------------------------------------- -------- -------- -------- --------
Deferred consideration is recognised at fair value through
profit or loss and is valued using the net present value of the
expected amounts payable based on management's forecasts and
expectations. For more details see Note 15.
14. Lease liabilities
GBP'000
--------------------------------------------- -------
At 30 June 2020 7,934
Additions 396
Payments made against lease liabilities (986)
Finance cost of lease liabilities 173
--------------------------------------------- -------
At 31 December 2020 7,517
--------------------------------------------- -------
Analysed as:
Amounts falling due within one year 1,355
Amounts falling due after more than one year 6,162
--------------------------------------------- -------
At 31 December 2020 7,517
--------------------------------------------- -------
The additions relate to additional property leases that
commenced during the six months ended 31 December 2020.
15. Deferred consideration
Deferred consideration is split between non-current liabilities
and current liabilities to the extent that it is due to be paid
within one year of the reporting date. It reflects the Directors'
best estimate of amounts payable in the future in respect of
certain client relationships and subsidiary undertakings that were
acquired by the Group. Deferred consideration is measured at its
fair value based on discounted expected future cash flows. The
movements in the total deferred consideration balance during the
period were as follows:
Six months
ended
Six months
31 Dec 2020 ended Year ended
31 Dec 2019 30 Jun 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
--------------------------------------------- ------------ ------------- ------------
At beginning of period 7,991 1,299 1,299
Additions 308 - 7,466
Finance cost of deferred consideration 159 25 145
Change in fair value 60 - -
Payments made during the period (421) (919) (919)
--------------------------------------------- ------------ ------------- ------------
At end of period 8,097 405 7,991
--------------------------------------------- ------------ ------------- ------------
Analysed as:
Amounts falling due within one year 7,799 405 1,691
Amounts falling due after more than one year 298 - 6,300
--------------------------------------------- ------------ ------------- ------------
At end of period 8,097 405 7,991
--------------------------------------------- ------------ ------------- ------------
During the six months ended 31 December 2020, the Group
completed the Lloyds Channel Islands acquisition (Note 7) and part
of the consideration is to be deferred over a period of two years.
The total cash deferred consideration of GBP334,000 was recognised
at its fair value of GBP308,000 on acquisition. The deferred
consideration is payable in December 2022 based on the future
revenue generated by the discretionary business acquired. During
the six months ended 31 December 2020, the Group recognised a
finance cost of GBP1,000 on the Lloyds Channel Islands acquisition
deferred consideration. The fair value of the Lloyds Channel
Islands acquisition deferred consideration at 31 December 2020 was
GBP309,000.
During the six months ended 31 December 2020, the fair value of
the estimated deferred consideration for Cornelian Asset Managers
Group Limited was revalued by GBP60,000 due to a change in the
estimated timing of when the consideration will be payable. Full
details of the Cornelian acquisition are disclosed in Note 10 of
the 2020 Annual Report and Accounts. During the six months ended 31
December 2020, the Group recognised a finance cost of GBP151,000 on
the Cornelian deferred consideration. The fair value of the
Cornelian deferred consideration at 31 December 2020 was
GBP7,788,000, with the full balance payable within one year,
recognised in current liabilities.
During the six months ended 31 December 2020, the final payment
was made in relation to the acquisition of Levitas totalling
GBP421,000 (H1 FY20: GBP919,000; FY20: GBP919,000). Full details of
the Levitas acquisition are disclosed in Note 13 of the 2015 Annual
Report and Accounts. The fair value of the Levitas deferred
consideration at 30 June 2020 was GBPnil.
Deferred consideration is classified as Level 3 within the fair
value hierarchy, as defined in Note 13.
16. Provisions
Exceptional
costs of
resolving Regulatory Leasehold
Client compensation legacy matters levies dilapidations Total(1)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- ------------------- --------------- ---------- --------------- --------
At 1 July 2019 100 701 928 366 2,095
Charge to the Condensed consolidated
statement of comprehensive income 172 - 162 279 613
Utilised during the period (119) (39) (949) (100) (1,207)
------------------------------------- ------------------- --------------- ---------- --------------- --------
At 31 December 2019 153 662 141 545 1,501
Charge to the Condensed consolidated
statement of comprehensive income 94 - 2,009 102 2,205
Additions on acquisition of
subsidiary - - - 103 103
Utilised during the period (209) (54) (649) (370) (1,282)
------------------------------------- ------------------- --------------- ---------- --------------- --------
At 30 June 2020 38 608 1,501 380 2,527
Charge to the Condensed consolidated
statement of comprehensive income 208 - 16 23 231
Utilised during the period (169) (8) (1,517) (104) (1,782)
------------------------------------- ------------------- --------------- ---------- --------------- --------
At 31 December 2020 77 600 - 299 976
------------------------------------- ------------------- --------------- ---------- --------------- --------
Analysed as:
Amounts falling due within one
year 77 600 - 62 739
Amounts falling due after more
than one year - - - 237 237
------------------------------------- ------------------- --------------- ---------- --------------- --------
Total provisions 77 600 - 299 976
------------------------------------- ------------------- --------------- ---------- --------------- --------
1. See Note 2a details on the reclassification of current
deferred consideration and current provisions for the comparative
periods.
a) Client compensation
Client compensation provisions relate to the potential liability
arising from client complaints against the Group. Complaints are
assessed on a case-by-case basis and provisions for compensation
are made where judged necessary. The amount recognised within
provisions for client compensation represents management's best
estimate of the potential liability. The timing of the
corresponding outflows is uncertain as these are made as and when
claims arise.
b) Exceptional costs of resolving legacy matters
Following a review into legacy matters arising from the former
Spearpoint business, which was acquired by the Group in 2012, a
provision was recognised for costs of resolving these including
associated expenses in the years ended 30 June 2017 and 30 June
2018. These matters relate to a number of discretionary portfolios
formerly managed by Spearpoint, now managed by Brooks Macdonald
Asset Management (International) Limited, and a Dublin-based fund,
for which Spearpoint acted as investment manager. During the six
months ended 31 December 2020, no further provisions were made (H1
FY20: GBPnil; FY20: GBPnil). The amount utilised during the six
months ended 31 December 2020 of GBP8,000 represented goodwill
payments made to clients.
c) Regulatory levies
The amount utilised during the period relates to the Financial
Services Compensation Scheme levy for the 2020/21 scheme year
(accrued in FY20). The expected levy for the 2021/22 scheme year
has been announced by the FSCS but does not yet meet the
recognition criteria for a provision. This will be recognised in
June 2021 as part of the FY21 results.
d) Leasehold dilapidations
Leasehold dilapidations relate to dilapidation provisions
expected to arise on leasehold premises held by the Group, and
monies due under the contract with the assignee of leases on the
Group's leased properties. During the six months ended 31 December
2020, the Group settled dilapidations on the cessation of a lease
for GBP104,000.
17. Reconciliation of operating profit to net cash inflow from
operating activities
Six months Six months
ended ended Year ended
31 Dec 2020 31 Dec 2019(1) 30 Jun 2020(2)
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
----------------------------------------------------- ------------ --------------- ---------------
Operating profit before tax 9,466 7,714 10,245
Depreciation of property, plant and equipment 463 1,222 2,028
Depreciation of right of use assets 759 533 1,256
Amortisation of intangible assets 3,659 2,191 5,327
Other gains/(losses) - net 18 55 4,519
(Increase)/decrease in receivables (1,408) (619) 2,642
Decrease in payables (4,203) (2,923) (202)
(Decrease)/increase in provisions (1,550) (594) 431
Increase/(decrease) in other non-current liabilities 230 (144) (384)
Share-based payments charge 1,560 2,492 3,571
----------------------------------------------------- ------------ --------------- ---------------
Net cash inflow from operating activities 8,994 9,927 29,433
----------------------------------------------------- ------------ --------------- ---------------
1. See Note 2a for details regarding the restatement as a result
of the output VAT on Platform MPS.
2. The cash held by subsidiary entities acquired has been
recognised in cash flows from investing activities on the Condensed
consolidated statement of cash flows. In the prior period this had
been classified as cash generated from operations and therefore has
been changed to reflect the correct classification. The changes
made to the prior period numbers are that acquisition of
subsidiaries, net of cash acquired has been increased by
GBP6,655,000, working capital movement in receivables has been
increased by GBP1,948,000, working capital movement in payables has
been reduced by GBP1,246,000 and net assets acquired in business
combination has been decreased by GBP7,357,000.
18. Share capital and share premium
The movements in share capital and share premium during the
period were as follows:
Share
Number of Exercise price capital Share premium Total
shares p GBP'000 GBP'000 GBP'000
------------------------------ ---------- ----------------- -------- ------------- --------
At 1 July 2019 13,950,071 139 39,068 39,207
Shares issued:
* on placing 1,690,141 - 17 29,383 29,400
* on exercise of options 15,876 1,381.0 - 1,725.0 1 255 256
* to Sharesave Scheme 9,710 1,400.0 - 1,738.0 - 111 111
------------------------------ ---------- ----------------- -------- ------------- --------
At 31 December 2019 15,665,798 157 68,817 68,974
Shares issued:
* as consideration 453,172 - 4 8,996 9,000
* on exercise of options 9,986 1,381.0 - 1,719.0 - 172 172
* to Sharesave Scheme (1,854) 1,237.0 - 1,738.0 - (3) (3)
------------------------------ ---------- ----------------- -------- ------------- --------
At 30 June 2020 16,127,102 161 77,982 78,143
Shares issued:
* on exercise of options 4,134 1,452.0 - 60 60
* to Sharesave Scheme 1,700 1,400.0 - 1,738.0 - 29 29
------------------------------ ---------- ----------------- -------- ------------- --------
At 31 December 2020 16,132,936 161 78,071 78,232
------------------------------ ---------- ----------------- -------- ------------- --------
The total number of ordinary shares issued and fully paid at 31
December 2020 was 16,132,936 (at 31 December 2019: 15,665,798; at
30 June 2020: 16,127,102).
On 27 November 2019, the Group issued 1,690,141 ordinary shares
by way of a non-pre-emptive placing for non-cash consideration. The
shares were placed at an equivalent of 1,775p per share, which
raised GBP29,400,000, net of GBP600,000 share issue costs, offset
against share premium arising on the issue. The shares were issued
to fund the acquisition of Cornelian.
The was total value of share capital issued on exercise of
options and to Sharesave Scheme members in the six months ended 31
December 2020 was GBPnil (H1 FY20: GBP1,000; FY20: GBPnil).
Employee Benefit Trust
The Group established an Employee Benefit Trust ("EBT") on 3
December 2010 to acquire ordinary shares in the Company to satisfy
awards under the Group's Long-Term Incentive Scheme and Long-Term
Incentive Plan. At 31 December 2020, the EBT held 548,548 (at 31
December 2019: 274,157; at 30 June 2020: 409,163) 1p ordinary
shares in the Company, acquired for a total consideration of
GBP9,809,000 (at 31 December 2019: GBP4,915,000; at 30 June 2019:
GBP7,519,000) with a market value of GBP9,013,000 (at 31 December
2019: GBP5,867,000; at 30 June 2020: GBP6,800,000). They are
classified as treasury shares in the Condensed consolidated
statement of financial position, their cost being deducted from
retained earnings within shareholders' equity.
19. Equity-settled share-based payments
Share options granted during the six months ended 31 December
2020 under the Group's equity-settled share-based payment schemes
were as follows:
Exercise
price Fair value Number of
p p options
------------------------- --------- ------------- ---------
Long-Term Incentive Plan nil 1,447 - 1,577 192,471
------------------------- --------- ------------- ---------
No options were granted in respect of the Company's other
equity-settled share-based payment schemes during the six months
ended 31 December 2020. The charge to the Condensed consolidated
statement of comprehensive income for the six months ended 31
December 2020 in respect of all equity-settled share-based payment
schemes was GBP1,075,000 (H1 FY20: GBP1,980,000; FY20:
GBP3,952,000).
The total amount recognised in the Condensed consolidated
statement of comprehensive income of GBP1,075,000 (H1 FY20:
GBP1,980,000) in relation to the share-based payments comprises
GBP1,560,000 (H1 FY20: GBP2,492,000) of the equity reserve charge
netted off by the release of the prior year accrual of GBP485,000
(H1 FY20: GBP512,000) pertaining to the respective discretionary
compensation.
20. Related party transactions
There were no related party transactions during the six months
ended 31 December 2020 and no balances outstanding at 31 December
2020 owed to or from related parties.
21. Guarantees and contingent liabilities
The Group could, in the course of its business, be subject to
legal proceedings and/or regulatory activity. Should such an event
arise, the Directors would consider its best estimate of the amount
required to settle the obligation and, where appropriate and
material, establish a provision. While there can be no assurances
that circumstances will not change, based upon information
currently available to them, the Directors do not believe there is
any possible activity or event that could have a material adverse
effect on the Group's financial position.
A claim has been made against Brooks Macdonald Financial
Consulting Limited, a subsidiary of the Group, for unspecified
losses. The claimant has not determined the quantum of the claim so
it is not possible to reliably estimate the potential impact should
the claim succeed. There remains significant uncertainty
surrounding the claim, and it is not possible to forecast the
timing, likelihood or quantum of any economic outflow. Accordingly,
no provision for any liability has been recognised at this
stage.
Brooks Macdonald Asset Management Limited, a subsidiary company
of the Group, has an agreement with the Royal Bank of Scotland plc
to guarantee settlement for trading with CREST stock on behalf of
clients. The Group holds client assets to fund such trading
activity. Additional levies by the Financial Services Compensation
Scheme may give rise to further obligations based on the Group's
income in the current or previous years. Nevertheless, the ultimate
cost to the Group of these levies remains uncertain and is
dependent upon future claims resulting from institutional
failures.
During the year ended 30 June 2020, a small number of clients
rejected goodwill offers made by Brooks Macdonald Asset Management
(International) Limited in connection with the exceptional costs of
resolving legacy matters (Note 16b), which were released from the
provision. It is possible that one or more complainants might issue
claims against Brooks Macdonald Asset Management (International)
Limited, but no such claims have been issued as at 31 December
2020. As a result, it is not possible to estimate the potential
outcome of claims or to assess the quantum of any liability with
any certainty at this stage.
22. Principal risks and uncertainties
The principal risks and uncertainties facing the Group are in
line with those disclosed and included within the Group's 2020
Annual Report and Accounts for the year ended 30 June 2020.
23. Events since the end of the period
No material events have occurred between the reporting date and
the date of signing the Condensed consolidated financial
statements.
Statement of Directors' responsibilities
The Directors confirm that the Interim Report and Accounts have
been prepared in accordance with International Accounting Standard
34, 'Interim Financial Reporting', as adopted by the European Union
and that the interim management report includes a fair review of
the information required by DTR 4.2.7 and DTR 4.2.8, namely:
-- an indication of important events that have occurred during
the first six months and their impact on the Condensed consolidated
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- material related party transactions in the first six months
and any material changes in the related party transactions
described in the last annual report.
The Directors of Brooks Macdonald Group plc are listed
below.
By order of the Board of Directors
B L Thorpe
Group Finance Director
10 March 2021
Independent review report of Brooks Macdonald Group plc
Report on the Condensed consolidated interim financial
statements
Our conclusion
We have reviewed Brooks Macdonald Group Plc's consolidated
interim financial statements (the "interim financial statements")
in the Interim Report and Accounts of Brooks Macdonald Group Plc
for the period from 1 July 2020 to 31 December 2020 (the
"period").
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the AIM Rules for
Companies.
What we have reviewed
The Interim financial statements comprise:
-- the condensed consolidated statement of financial position as at 31 December 2020;
-- the condensed consolidated statement of comprehensive income for the period then ended;
-- the condensed consolidated statement of cash flows for the period then ended;
-- the condensed consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The Interim financial statements included in the Interim Report
and Accounts of Brooks Macdonald Group Plc have been prepared in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the AIM
Rules for Companies.
As disclosed in note 2 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the group is
applicable law and International Financial Reporting Standards
("IFRSs") as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the Directors
The Interim Report and Accounts, including the Interim financial
statements, is the responsibility of, and has been approved by the
directors. The directors are responsible for preparing the Interim
Report and Accounts in accordance with the AIM Rules for Companies,
which require that the financial information must be presented and
prepared in a form consistent with that which will be adopted in
the company's annual financial statements.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Report and Accounts based on
our review. This report, including the conclusion, has been
prepared for and only for the company for the purpose of complying
with the AIM Rules for Companies and for no other purpose. We do
not, in giving this conclusion, 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.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Report and Accounts and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
10 March 2021
Further information
Directors
Alan Carruthers Chairman
Caroline Connellan CEO
Ben Thorpe Group Finance Director
Robert Burgess Non-Executive Director (appointed 1 August
2020)
Dagmar Kershaw Non-Executive Director (appointed 1 July
2020)
John Linwood Non-Executive Director
Richard Price Non-Executive Director
Diane Seymour-Williams Non-Executive Director (resigned 27 October
2020)
David Stewart Non-Executive Director (resigned 31 July
2020)
Financial calendar
Interim results announced 11 March 2021
Ex-dividend date for interim 18 March 2021
dividend
Record date for interim dividend 19 March 2021
Payment date of interim dividend 16 April 2021
Company information
Company Secretary Phil Naylor
Company registration number 4402058
Registered office 21 Lombard Street, London, EC3V 9AH
Website www.brooksmacdonald.com
Cautionary statement
The Interim Report and Accounts for the six months ended 31
December 2020 has been prepared to provide information to
shareholders to assess the current position and future potential of
the Group. The Interim Report and Accounts contains certain
forward-looking statements concerning the Group's financial
condition, operations and business opportunities. These
forward-looking statements involve risks and uncertainties that
could impact the actual results of operations, financial condition,
liquidity, dividend policy and the development of the industry in
which the Group operates and differ materially from the impression
created by the forward-looking statements. Any forward-looking
statement is made using the best information available to the
Directors at the time of their approval of this report. Past
performance cannot be relied on as a guide to future
performance.
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