TIDMBRK
RNS Number : 4352B
Brooks Macdonald Group PLC
20 September 2018
BROOKS MACDONALD GROUP PLC
CORRECTION: Final Results for the year ended 30 June 2018
This announcement replaces the announcement of Final Results for
the year ended 30 June 2018 that was issued at 7am on 20 September
2018 (RNS Number 3279B). In the Chairman's Statement on page 5, in
the last line of the sixth paragraph, the dividend record date for
payment of the final dividend has been corrected to 28 September
2018. All other information is unchanged.
20 September 2018
BROOKS MACDONALD GROUP PLC
Final Results for the year ended 30 June 2018
Delivered market-leading growth in funds under management,
crossing the GBP100m revenue threshold
Brooks Macdonald Group plc ("Brooks Macdonald" or "the Group"),
the AIM listed wealth management group, today announces its audited
results for the year ended 30 June 2018.
Financial Highlights
Year ended Year ended Change
30.06.2018 30.06.2017
Total discretionary funds under
management ("FUM") GBP12.4bn GBP10.5bn 18.7%
Revenue, continuing operations GBP101.6m GBP88.8m 14.4%
Underlying Results*
Underlying profit before tax GBP18.0m GBP17.0m 6.1%
Underlying profit margin 17.7% 19.1% -1.4ppt
Underlying earnings per share 117.7p 105.1p 12.0%
Statutory Results
Statutory profit before tax GBP6.7m GBP8.0m -16.4%
Statutory earnings per share 39.4p 43.0p -8.2%
Net cash GBP30.9m GBP32.2m -3.9%
Dividends
Proposed final dividend 30.0p 26.0p 15.4%
Total dividend 47.0p 41.0p 14.6%
*Adjustments are in respect of the amortisation of intangible
assets, finance cost and changes in fair value of deferred
consideration, impairment of carrying value of goodwill (Levitas)
and legacy matters provision (Spearpoint). All figures quoted as
"underlying" are for continuing operations only, i.e., excluding
the impact of the operation and disposal of Braemar Estates;
"statutory" figures include all operations
Business Highlights
-- Strong organic growth (net new discretionary business) of 13%
(GBP1.4bn) and above benchmark investment performance contributing
to 19% (GBP2.0bn) increase in FUM to GBP12.4bn, reflecting strength
of offering and relationships:
o Strong growth in BPS and MPS, 17% and 23% respectively
o BMI reached GBP1.7bn FUM with 6% organic growth, up from 1% in
FY17 (FY17 FUM: GBP1.5bn)
o Funds grew 32% to GBP1.5bn FUM (FY17: GBP1.2bn) with the
Defensive Capital Fund moving over GBP0.5bn and our third party
investment solution funds now at GBP0.6bn
-- 14% increase in revenue, crossing the GBP100m threshold. All
four businesses made good contributions, with revenue yield
stabilising in second half of financial year
-- Underlying profit before tax increased by 6.1% to GBP18.0m,
while underlying profit margin fell from 19.1% to 17.7%. This
included the impact of the GBP4m spend on our risk management and
operational framework. GBP2m of that spend was a one-off
investment, without which the underlying profit margin would have
been 19.7%, reflecting both material revenue growth and renewed
cost discipline
-- Statutory profit before tax affected by the previously
announced GBP5.5m increase in provision for resolving legacy
matters (FY17: GBP6.5m), a GBP2.5m write-down of capitalised
software assets (FY17: zero), GBP2.4m of amortisation of acquired
client relationships (FY17: GBP2.5m), and a net GBP1.3m charge
related to the deferred consideration for the Levitas transaction
(FY17: GBP2.0m gain)
-- Total dividend increased by 15% to 47.0p (FY17: 41.0p)
reflecting the Board's continued confidence in the strength of the
underlying business and commitment to a progressive dividend
policy
-- Successful delivery of additional FY18 investment to
strengthen foundations and meet regulatory demands
o Delivered major regulatory projects including MiFID II and
GDPR
o Upgraded risk management and operational framework
o Strengthened management team, enhancing functional
capability
o Sale of Braemar Estates, our property management business
-- Continued focus on delivering high service levels meeting the
needs of clients and advisers. Emphasis of non-client activity has
now moved to driving effectiveness and efficiency from the
business, improving processes and building a scalable operating
model to support future growth and deliver medium-term margin
improvement
-- Channel Islands legacy issues resolution progressing,
continuing to work with all stakeholders, including relevant
regulators
-- Macroeconomic uncertainty affecting investor sentiment over
the summer, but we remain confident in the strength of our client
and adviser relationships and our core offerings.
Caroline Connellan, Chief Executive of Brooks Macdonald,
commented:
"I am pleased that we have maintained strong business
performance while also making good progress on regulatory change
and strengthening our foundations for future growth. Our net new
business of 13% is again the highlight of our results, reflecting
the strength of our client and adviser relationships. This, coupled
with above benchmark investment performance, drove FUM to GBP12.4bn
at the year end.
"In parallel, we have improved our underlying profit margin
excluding one-off risk-related expenditure, which is particularly
pleasing given the level of regulatory and additional functional
spend. Looking ahead, we recognise we have more to do, and our
focus is now turning to ensuring we are easy to do business with
and to achieving higher profit margins in the medium term.
"After a strong year and in line with the industry, we're seeing
some impact of macroeconomic uncertainty on investor sentiment as
we move into the new financial year. However, the fundamental
opportunity for our business model remains strong and we remain
confident in our positioning and ability to build on our success to
date."
Analysis of discretionary fund flows over the year
FY18 FY17
------------------------------- -------------------------------
GBP000m UKIM Funds BMI Total UKIM Funds BMI Total
------ ------ ------ ------- ------ ------ ------ -------
Opening FUM 7,768 1,159 1,529 10,456 6,158 796 1,348 8,301
------ ------ ------ ------- ------ ------ ------ -------
Net new business 913 355 98 1,365 643 290 17 951
------ ------ ------ ------- ------ ------ ------ -------
Performance 507 22 66 594 968 72 163 1,203
------ ------ ------ ------- ------ ------ ------ -------
Closing FUM 9,187 1,535 1,693 12,414 7,768 1,159 1,529 10,456
------ ------ ------ ------- ------ ------ ------ -------
Organic growth
% 11.8% 30.6% 6.4% 13.1% 10.4% 36.5% 1.3% 11.5%
------ ------ ------ ------- ------ ------ ------ -------
Total growth
% 18.3% 32.4% 10.7% 18.7% 26.2% 45.5% 13.4% 25.9%
====== ====== ====== ======= ====== ====== ====== =======
An analyst meeting will be held at 9.15 for 9.30am on Thursday,
20 September at the offices of MHP Communications, 6 Agar Street,
London, WC2N 4HN. Please contact Robert Collett-Creedy on
020 3128 8147 or e-mail brooks@mhpc.com for further details.
Enquiries to:
Brooks Macdonald Group plc
Caroline Connellan, Chief Executive
Ben Thorpe, Finance Director 020 7499 6424
Peel Hunt LLP (Nominated Adviser and Broker)
Guy Wiehahn / Adrian Haxby 020 7418 8900
MHP Communications 020 3128 8540
Reg Hoare / Simon Hockridge / Charlie Barker brooks@mhpc.com
/ Robert Collett-Creedy
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
(FUM) of GBP12.4bn as at 30 June 2018.
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 offshore investment management and
acts as fund manager to regulated OEICs providing specialist funds
in the property and structured return sectors.
The Group has twelve offices across the UK and the Channel
Islands including London, Hampshire, Leamington Spa, Manchester,
Taunton, Tunbridge Wells, York, Scotland, Wales, Jersey, and
Guernsey.
www.brooksmacdonald.com / @BrooksMacdonald
LEI: 213800WRDF8LB8MIEX37
CHAIRMAN'S STATEMENT
I am pleased to report that the Group continues to make strong
progress.
Our funds under management increased during the financial year
from GBP10.5bn to GBP12.4bn, an increase of 18.7%. Our revenues
have exceeded GBP100m for the first time, and after absorbing GBP4m
of additional cost in our risk management and operational framework
(GBP2m one-off, GBP2m ongoing) we have reported an increase in
underlying profit before tax from GBP17.0m to GBP18.0m. Underlying
earnings per share have risen 12.0% from 105.1p to 117.7p, partly
driven by a reduced tax charge due to a research and development
credit.
Statutory profit before tax has fallen from GBP8.0m in FY17 to
GBP6.7m in FY18, the reduction principally due to a write down of
capitalised software assets and a charge related to the deferred
consideration for the Levitas transaction. Statutory earnings per
share were 39.4p (FY17: 43.0p).
I am pleased to highlight that our investment performance
continues to be ahead of the Asset Risk Consultants ("ARC") Private
Client Index benchmarks across all risk mandates, over 1, 3 and 5
years.
We opened an office in Wales during the financial year,
underscoring the importance of our regional network which is
responsible for over half of the Group's UK FUM.
The Board has recommended a final dividend of 30.0p (FY17:
26.0p) which, subject to approval by shareholders, will result in
total dividends for the year of 47.0p (FY17: 41.0p). This
represents an increase of 14.6% on the previous year and reaffirms
the Board's confidence in the strength of the business and our
commitment to a progressive dividend policy. The final dividend
will be paid on 2 November 2018 to shareholders on the register at
the close of business on 28 September 2018.
There have been several changes to the Board during the last
year. Chris Macdonald retired as a non-executive director in March
but remains an adviser to the business he co-founded twenty seven
years ago. Ben Thorpe has joined us as Finance Director since the
year end, succeeding Simon Jackson who resigned in April. We have
been pleased to appoint two non-executive directors - David
Stewart, a former Chief Executive of the Coventry Building Society,
who joined the Board in May, and John Linwood, a former Chief
Technology Officer for the BBC, whose appointment takes effect
today.
In Caroline Connellan's first full year as Chief Executive, we
have maintained strong commercial performance and strengthened our
business for future growth. We have invested in risk management and
delivered major regulatory projects. In parallel we have upgraded
our functional capability more broadly, adding key skills to the
leadership team to complement our existing client focused
leadership and investment expertise. We recognise that there is
more to do to take Brooks Macdonald to a position where we can
fully realise economies of scale which are commensurate with our
growth, and Caroline and her team will continue to drive forward
that programme of work.
Looking ahead, there is material uncertainty in the UK's
macroeconomic outlook, especially given that the nature of the UK's
future relationship with the EU remains unclear with only six
months left before Brexit. Further, global geopolitical risks, in
particular the emerging risk of trade wars, are weighing on market
sentiment, and we remain cautious in our external outlook. However,
we are confident that the Group is well positioned for most
scenarios, supported by a strong balance sheet with net cash of
GBP30.9m at year end. We expect to deliver both enhanced profit
margins in the medium term and strong future growth driven by our
continued focus on meeting client and adviser expectations and our
robust investment performance.
Christopher Knight
Chairman
CHIEF EXECUTIVE'S REVIEW
Introduction
I am pleased that my first full year as Chief Executive of
Brooks Macdonald has seen the business continue its market-leading
levels of organic growth which is testament to the strength of our
core offerings and our client and adviser relationships. During the
year, we have also invested to support future growth, driven a
renewed focus on cost discipline and taken steps to ensure a strong
pipeline of growth opportunities. I would like to thank all our
teams, who have worked hard in these areas throughout the year,
while maintaining focus on supporting our clients and advisers.
We have reinforced our strong foundations through developing a
clear articulation of the guiding principles underpinning our
client-centric culture, by ensuring that the benefits of our Group
Centralised Investment Process are delivered consistently to all
our clients, and undertaking a review of how we best serve our
major strategic adviser partners, present and future, building on
the strength of our existing relationships. We have taken the first
steps to achieve our medium-term goal of increasing margins through
cost discipline, made progress in addressing the Channel Islands
legacy matters and upgraded the Group's functional capabilities,
both through senior appointments and the investment in our risk and
operational framework. As announced at the half year, we completed
the sale of Braemar Estates, our Property Management business, in
line with the emphasis on our core offerings and margin
improvement.
Looking forward, our focus remains on meeting client and adviser
needs and delivering market-leading levels of organic growth, with
work underway to enhance our offering. For example, our revamped
Court of Protection service and our Responsible Investing
proposition will be launched in the coming months.
Our core business is discretionary fund management and financial
planning, both in the UK and internationally through our Channel
Islands subsidiary. Building on our improved cost discipline, we
are now moving to develop our operating model to make Brooks
Macdonald easier to deal with for both clients and advisers, make
it easier for our people to perform their roles efficiently and
effectively, and deliver increased value from our growth. This will
involve re-engineering of core processes, eliminating duplication
and accumulated inefficiencies, and capturing digital opportunities
to support our current offering. We recognise that what we have
achieved this year is only a first step and there is some way to go
- but we have made a good start and we are confident of delivering
the full potential inherent in the Brooks Macdonald business over
the coming years.
Growth in funds under management, revenue and underlying
profit
At the start of 2018 the 'goldilocks' environment seen in the
second half of 2017 was called into question as the effects of
quantitative tightening from the US Federal Reserve began to be
felt. This shortage of USD liquidity led to several bouts of
volatility, initially catalysed by inflation concerns in February
then concerns about the viability of emerging market debt burdens
in May. The corporate earnings backdrop however has been strong and
this has supported sentiment. These earnings, together with largely
range bound equity markets, have brought equity valuations closer
to their longer term averages in the US as well as the rest of the
world. In light of this we have retained our weightings to equity
sectors, particularly our preferred themes of Technology and
Healthcare, whilst making some changes to the non-equity portion of
the portfolio. We have cut our exposure to the UK commercial
property sector given the lower yields and possibility of higher
volatility from the asset class should we see a downturn in the UK
economic outlook. In addition we have gradually been reducing our
exposure to corporate credit in favour of gilts as we have concerns
over the deteriorating quality of this asset class at a time when
spreads are very low and leverage is rising.
Against this backdrop, the Group maintained momentum throughout
the financial year, achieving annual growth in our discretionary
funds under management of 18.7%, to stand at a new record of
GBP12.4bn at 30 June 2018 (FY17: GBP10.5bn). Of the GBP2.0bn
increase, GBP1.4bn was net new business (13.1% of opening FUM) and
GBP0.6bn came from investment performance (5.7%, compared to a 4.2%
increase in the MSCI Wealth Management Association ("WMA") UK
Private Investor Balanced Index over the year).
Revenue crossed the GBP100m threshold for the first time,
reaching GBP101.5m (FY17: GBP88.8m), with all four businesses
contributing strongly. Revenue yield in our core UK Investment
Management business stabilised over the financial year after
declining in the second half of FY17 and into early FY18.
Underlying profit before tax for the year was GBP18.0m (FY17:
GBP17.0m), an increase of 6.1% on the previous year, representing
an underlying profit margin of 17.7% (FY17: 19.1%). The margin
decline was driven by the one-off GBP2m investment in our risk
management and operational framework, without which the margin
would have been 19.7%. This increase has been achieved while
absorbing an increased level of regulatory and functional spend.
Underlying earnings per share increased by 12.0% to 117.7p (FY17:
105.1p). While this is a strong result for the underlying business,
statutory profit before tax for the year fell by 16.4% to GBP6.7m
(FY17: GBP8.0m) held back by a write-down in the value of software
intangible assets, as well as a reduction in the fair value of the
deferred consideration relating to the Levitas business. A full
reconciliation of underlying and statutory profit can be found in
the strategic report.
Review of business performance
UK Investment Management ("UKIM") continues to be our largest
and most profitable business. Over the year, we maintained strong
new business flows, despite a short setback in the markets around
March which temporarily affected investor sentiment. UKIM profit
margins were affected by the costs of regulatory change and
investment in our risk management and operational framework. Our
success in maintaining market-leading levels of organic growth is
driven by the strength of our relationships with advisers and we
continue to work to maintain and improve these through high service
levels and ongoing enhancements to our offering. The level of
penetration of the adviser community by discretionary fund managers
remains low and we are confident that regulatory and commercial
trends mean that the flow of firms looking to outsource investment
management will remain strong.
Our Centralised Investment Process continues to deliver
consistently strong investment performance, notably during the
brief market setback earlier this year. Our portfolios across all
risk mandates are delivering above benchmark returns according to
ARC private client indices over one, three and five year periods.
In May this year we were, for the third consecutive year, awarded
the prestigious industry Gold Standard Award for service in
discretionary fund management and we were once again proud to
receive five star ratings from Defaqto for each of the main
discretionary offerings: our Bespoke Portfolio Service ("BPS"),
direct Managed Portfolio Service ("MPS") and our platform MPS. In
addition, we came top for adviser satisfaction across the 14
aspects of service covered in the survey.
We were successful at the Citywire Regional Star Awards in 2018,
with professional advisers voting our York, Hampshire and
Leamington Spa offices as winners of their respective geographical
categories. We thank all our adviser partners for their continued
support.
BPS is a premium and fully personalised service for private
clients, charities and pension funds, and remains our principal
offering, representing GBP7.7bn of FUM in the UK (62.0% of Group
FUM). The pension opportunity, in particular Self-Invested Personal
Pensions ("SIPPs"), continues to be significant, as does the growth
of Individual Savings Accounts ("ISAs") and our AIM Portfolio
Service. In line with the industry we have seen a reduction in
demand for Defined Benefit transfers in recent months as the sector
adjusts to the servicing and suitability assessment demands of the
product. However, although not reaching the highs of recent years,
we expect this to improve over time, given the ongoing and growing
need for individuals to seek financial planning advice before and
through retirement.
MPS consists of ten model portfolios with distinct risk profiles
and objectives, and is available to those investing smaller
amounts, allowing our investment management capabilities to be
accessed by a wider range of individuals through their financial
advisers. Assets in the UK now stand at GBP1.5bn (FY17: GBP1.2bn),
which accounts for 12.0% of total FUM, having seen rapid growth
(22.9%) over the year. These assets are held either directly with
us or through a third party platform, with platform assets seeing
particularly strong growth in the year. We expect asset
accumulation in MPS to continue as the popularity of model
multi-asset portfolios continues to grow due to their lower charges
and ease of access.
Our Funds business grew to GBP1.5bn FUM, an increase of 32.4%
over the year (FY17: GBP1.2bn). We have now completed the
previously announced move of this business into UK Investment
Management, with the exception of our property funds (the Ground
Rent Income Fund and UK Agricultural Land Fund) and we will report
on that basis going forward. The IFSL Brooks Macdonald Defensive
Capital Fund, within the targeted absolute return sector, had
another strong year with 38.1% growth in FUM and our Multi-Asset
Funds also saw 20.4% growth during the year. The fastest growing
part of our Funds business in this year was our third party
investment solution funds, which grew by 50.9%. We expect this
white labelling approach to be a major focus for growth going
forward as we explore new routes to bring the benefits of our
Centralised Investment Process to advisers in a way that best suits
their business model.
Our International business based in the Channel Islands
delivered net organic growth well up on last year at 6.4% (FY17:
1.3%). Since the financial year end, the business has experienced
an increase in attrition, as expected following the departure of
one of our client-facing teams.
Financial Planning also had a good year, with revenue slightly
below last year's record levels. We continue to focus on delivering
a comprehensive independent financial planning service to private
clients and on seeking new opportunities to support future growth,
robustly managing any perceived channel conflict.
Legacy matters arising from the former Spearpoint business
We announced in July 2017 our decision to deal proactively with
certain legacy matters arising from the former Spearpoint business
which we acquired in 2012. These matters relate to both a number of
discretionary portfolios formerly managed by Spearpoint, now
managed by our Jersey office, and 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. We developed a plan to resolve these matters and
accordingly we made a GBP6.5m provision in the financial results
for the year to 30 June 2017.
As subsequently announced with our interim results in March
2018, it became apparent that the calculation of the goodwill
offers for the discretionary portfolio clients was affected by
quality issues with data derived from legacy systems. To ensure
that the calculation was fair to clients, we therefore initiated a
comprehensive review of the data sources, calculations and
methodology, requiring extensive use of third party expertise to
extract the data, and to provide advice and quality assurance.
Having concluded this review, we issued final goodwill offer
letters by the end of March 2018. 75% of the clients receiving a
goodwill offer have now accepted, with these acceptances accounting
for 66% of the offers by value.
In parallel, we have been in extensive and prolonged discussions
with the Board of the Dublin-based fund, seeking to deal with the
matter proactively. A goodwill proposal for the fund's shareholders
was made to the directors. We have made some progress but we have
been unable to reach agreement with the directors as yet. We remain
committed to reaching a settlement on terms in line with the
initial goodwill proposal and we continue to engage with the
directors. Throughout the discussion, our focus has been on
treating customers fairly and seeking to protect the fund's
shareholders' best interests.
The effect of movements in the expected total cost of goodwill
offers and associated expenses is an increase of GBP5.5m from the
previous provision to GBP12.0m. We provided for the additional
amount as an exceptional item in the financial report for the six
months to 31 December 2017; as such, it reduces statutory profit
but does not affect underlying profit. To date, GBP5.8m of the
provision has been utilised.
We continue to be in discussions with all stakeholders,
including relevant regulators, as we seek to bring these matters to
a conclusion.
Delivering our strategy
We have worked over this year to refine our strategy in the
context of the market opportunity and external trends, and will
continue to build out over comings months. Our strategy is based on
three pillars:
-- Build on a foundation of success, leveraging our strengths;
-- Focus our business to deliver increased value from our future
growth, through greater efficiency and effectiveness, delivering
improved profit margins over the medium term;
-- Seek new opportunities for growth, continuing to grow FUM
organically with new segments, propositions and partnerships.
For the business to remain competitive, maximise the opportunity
from our market positioning and deliver greater value to
shareholders, successful delivery across all three pillars is
critical. We see several phases in delivering the strategy, with
the emphasis across the three pillars changing as we move
forward.
Our success to date has been built on our commitment to the
adviser community and strength of relationships, our consistent
investment performance and our client-centric culture. In the past
year, as a first phase, we have reinforced these foundations
through a series of actions. We have built functional capability
and bolstered the leadership team, complementing the existing
client and investment management expertise which has brought the
business to where it is today. Secondly, we have articulated the
guiding principles which underpin our client-centric, "can do"
culture. We have placed further emphasis on ensuring the benefits
of our Centralised Investment Process are delivered consistently to
all our clients. We have upgraded our risk management and
operational framework, in parallel with delivering a demanding
regulatory change agenda. And we have driven greater cost
discipline through the business. All of this has contributed to the
improved margin (excluding one-offs) we have delivered in FY18.
The changes we have made so far have resulted in a stronger
platform to support future growth but we recognise there is more to
do to ensure we are easy to do business with and to deliver
increased value from our franchise. We are moving into a phase of
driving for efficiency and effectiveness - streamlining processes,
eliminating duplication and making sure the overall business is
scalable, enabling us to capture economies of scale commensurate
with our growth and delivering increased profit margins in the
medium term. In parallel, we will expand the pipeline of growth
opportunities through product proposition development, deepening
and widening our adviser relationships, capturing digital
opportunities to support our current offering, and identifying
opportunities in new or under-served client segments where can
leverage our expertise and proposition.
Outlook
We are pleased to report another strong year, and we look
forward to building on our success to date and continuing to
position the business to deliver sustainable growth into the
future. Throughout this journey we remain focused on meeting the
needs of our clients and advisers, while delivering business
efficiency and effectiveness to improve margins in the medium term
and achieve increased value from our growth opportunities.
We have started our new financial year dealing with the
industry-wide impact of macroeconomic uncertainty and regulatory
trends. Notwithstanding our relative short-term caution around
markets and client sentiment, we are confident in the strength of
our client and adviser relationships and our core offerings.
Finally, I would like to reiterate my thanks to everyone at
Brooks Macdonald for their passion, energy and commitment to our
business.
Caroline Connellan
Chief Executive
STRATEGIC REPORT
We are an independent investment management firm providing a
wide range of investment and wealth management services to private
clients, pension funds, charities, professional intermediaries and
trustees through our three businesses:
-- UK Investment Management (including Funds) - providing
discretionary fund management services and open-ended investment
company products to clients and their introducers as well as other
discretionary managers from 10 offices across the UK
-- Financial Planning - providing wealth management services to
UK clients from our London office
-- International - providing discretionary fund management and
wealth management services to clients and their introducers across
Europe, South Africa and the UAE from offices in Jersey and
Guernsey.
[1] In the segmental reporting (note 1), four business are
listed with funds shown separately. However, this is an historic
view, since the funds business has now integrated into UK
Investment Management from 1 July 2018 and will not be reported
separately going forward.
Our services
Brooks Macdonald manages GBP12.4 billion for its clients as of
30 June 2018, making us one of the leading private client
investment managers. We provide discretionary investment management
solutions to private clients, families, charities and trustees. We
also provide financial planning advice to high net-worth
individuals and families, and through our funds we provide
multi-asset and specialist fund products to the retail sector.
UK Investment Management
Within our UK Investment Management business, we have six
distinct service lines:
-- Bespoke Portfolio Service
BPS is our flagship offering, designed for clients who want an
individual investment portfolio constructed to meet their specific
requirements. The investment manager maintains a detailed knowledge
of the client's investment requirements, including their risk
appetite, allowing the manager to construct focused, efficient
portfolios supporting the delivery of risk-adjusted investment
returns appropriate to the client's needs. The range of investments
includes unit trusts, open-ended investment companies,
exchange-traded funds, investment trusts and cash, as well as
individual equity and bond securities. Investment managers for BPS
service follow our Group-level Centralised Investment Process,
which is based on the three key principles of our investment
philosophy:
o Using a proven active investment process - we have central
asset allocation and investment committees which combine strategic
and tactical approaches to asset allocation with rigorous
individual security selection, leveraging the broad expertise and
experience of the Committee members as well as the in-depth
knowledge of our specialist sector research teams
o Effective risk management - we seek to produce strong
"risk-adjusted" returns, not just generating profits but also
working to limit the potential for losses. We have embedded
qualitative and quantitative risk controls into our investment
process
o Maintaining a portfolio focus - we give our individual
investment managers a level of discretion in managing client
portfolios to their individual mandates, within defined boundaries
set by our investment and asset allocation committees, ensuring
that the benefit of the centralised investment process is delivered
to all our clients.
-- AIM Portfolio Service
Our AIM Portfolio Service ("APS") provides clients with access
to a carefully selected portfolio of AIM-listed companies, with
preference given to companies that we judge to have attractive
long-term investment potential. We restrict our investment universe
to companies that we believe qualify for Business Property Relief
("BPR"), allowing investors to benefit from Inheritance Tax ("IHT")
exemptions. As APS portfolios are typically invested in a
concentrated group of small-to-medium sized UK companies, we
consider APS to be "high risk". While APS is monitored and overseen
by the central investment committee, it does not follow the
Centralised Investment Process.
-- Managed Portfolio Service
Managed Portfolio Service ("MPS") provides a choice of
investment into a range of risk-managed model portfolios, each
investing in an array of different assets. Each model portfolio is
designed to achieve specific investment objectives within a
specific risk profile. MPS portfolios are managed by a dedicated
team of investment managers, applying our Centralised Investment
Process.
-- Multi-Asset Funds
Our Multi-Asset Fund ("MAF") range allows investors to gain
access to our discretionary management expertise and proven
Centralised Investment Process through a pooled fund solution. We
offer a range of four risk-managed multi-asset funds: Defensive
Income, Cautious Growth, Balanced and Strategic Growth. By
differing their levels of equity exposure, the range caters for
both investors seeking capital growth and more cautious investors
looking to generate income while preserving their capital.
-- Third Party Funds
We design specific investment propositions for advisers and
intermediaries who are looking for investment solutions meeting
specific investment objectives for their clients. These are
delivered in pooled fund formats to which we provide investment
management, leveraging our broad investment management and asset
allocation expertise. This capability and the associated
intellectual capital were developed initially to support the
Levitas relationship.
-- Specialist funds
We also provide investment management to a small number of
specialist funds. The largest is our highly successful Defensive
Capital Fund ("DCF") which has grown to GBP543 million at 30 June
2018. We also provide investment management to the Ground Rent
Income Fund (FUM at 30 June 2018 GBP103 million) and the UK
Agricultural Land Fund (FUM at 30 June 2018 GBP4 million).
Financial Planning
Our Financial Planning business provides wealth management
services to high net worth individuals and families. We provide
independent "whole of market" financial advice, enabling clients to
build, manage and protect their wealth. Our service is
advice-driven, rather than product-driven, providing clients with a
coherent, affordable strategy, aimed at achieving their long-term
goals. In addition to our financial planning service, we work in
collaboration with other professional advisers, such as solicitors,
accountants and wealth managers, to help them provide a
comprehensive service to their clients. We provide a comprehensive
fee-based service, encompassing both financial advice and mortgage
services.
International
Our International business, based in the Channel Islands, has a
similar range of investment management and financial planning
services. The services are designed to meet the particular
requirements of the offshore and international markets and the
investment management follows our Group-level Centralised
Investment Process. We provide a comprehensive range of investment
services to private clients, trusts and advisers, available in
sterling, euros or US dollars:
-- International Bespoke Portfolio Service
-- International Managed Portfolio Service
-- International Multi-Asset Funds (also available in Singapore dollars)
-- Single-strategy solutions, which invest directly in the
traditional asset classes of bonds and equities for ultra high net
worth clients, with higher entry thresholds. Our Corporate Bond
Strategy invests in a diversified portfolio of investment-grade
bonds to provide a balance of income, security and liquidity, while
the Direct Equity Strategy is structured to provide capital
appreciation and income growth through direct investment in high
quality stocks.
The International business also has a financial planning arm,
Brooks Macdonald Retirement Services, where we provide a
comprehensive service for private clients who require wider
planning around their investments, also focusing on financial
protection, pensions and investments.
Group performance
Results
The Group's underlying profit before tax increased by 6.1% in
the year to GBP18.0m (FY17: GBP17.0m). Total revenue increased
14.4% to GBP101.6m (FY17: GBP88.8m). Total underlying costs
increased by 16.4% to GBP83.7m (FY17: GBP71.9m). Underlying
earnings per share was 117.7p (FY17: 105.1p), an increase of 12.0%.
The Group's underlying profit margin fell to 17.7% (FY17:
19.1%).
Profit before tax from continuing operations fell 22.0% to
GBP6.2m (FY17: GBP7.9m) and underlying adjustments increased by
29.7% to GBP11.8m (FY17: GBP9.1m). Statutory basic earnings per
share from continuing operations fell 15.7% to 35.5p (FY17: 42.1p).
Statutory profit before tax fell 16.4% to GBP6.7m (FY17: GBP8.0m)
which includes profit from discontinued operations which was
GBP0.5m (FY17: GBP0.1m).
Table 1
2018 2017 restated(1)
GBPm (unless GBPm (unless
stated) stated)
Total revenue 101.6 88.8
Underlying costs (83.7) (71.9)
Underlying net finance income 0.1 0.1
Underlying profit before tax(2) 18.0 17.0
Underlying margin(3) 17.7% 19.1%
Underlying adjustments (11.8) (9.1)
------------- -----------------
Profit before tax from continuing
operations 6.2 7.9
Profit from discontinued operations 0.5 0.1
Statutory profit before tax 6.7 8.0
Taxation (1.3) (2.2)
Profit after tax 5.4 5.8
------------- -----------------
Underlying basic earnings per
share(4) 117.7p 105.1p
Basic earnings per share from
continuing operations 35.5p 42.1p
Statutory basic earning per
share 39.4p 43.0p
Dividends per share(5) 47.0p 41.0p
(1) Prior periods have been restated to separate the results
of discontinued operations, consistent with the presentation
in the current period.
(2) A reconciliation between underlying profit before tax
and profit before tax is shown in Table 2
(3) Underlying profit as a percentage of total revenue
(4) Underlying earnings per share for comparative periods
have been restated to include software amortisation and exclude
discontinued operations, consistent with the treatment in
the current period
(5) The total interim dividend and the final dividend for
the financial year
Underlying performance measures
We use underlying profit before tax, underlying costs,
underlying earnings per share and underlying margin to measure and
report on the financial performance of the Group, in order to aid
comparability between periods. These underlying measures are used
by both the Board and management for planning and reporting, whilst
also providing useful insight for investors and analysts.
The underlying profit figure is calculated based on statutory
profit before tax adjusted to exclude any items of income or
expense that are infrequent or unusual and exclude the impact of
discontinued operations. These items are considered to be outside
the ordinary course of business.
Other adjusted-for items of income or expense may recur from one
period to the next. Although they recur over multiple periods they
are the result of events or decisions which the directors consider
to be outside the ordinary course of business. Income or
expenditure adjusted for historically has included impairment of
carrying value of intangible assets and changes in fair value of
deferred consideration and contingent consideration which are not
considered to be reflective of the Group's underlying business
performance. Provisions made to cover costs of resolving legacy
matters are also adjusted for on this basis.
Additionally, the amortisation expense of acquired client
relationships and contracts acquired with fund managers is an
expense which investors and analysts typically add back when
considering profit before tax or earnings per share ratios.
In previous years, the amortisation expense of software was
excluded when calculating underlying profit. This has now become
material and continuing in nature resulting in the amortisation
expense of software now included when calculating underlying
profit.
Funds Under Management
As at 30 June 2018, discretionary FUM totalled GBP12,414m (FY17:
GBP10,456m). Over the year, FUM grew by GBP1,958m (18.7%). Of this,
GBP1,365m (13.1%) was net new business and GBP594m (5.7%) was
investment performance. As a comparison, the MSCI WMA Private
Investor Balanced Index grew by 4.2% over the year.
2018 2017
GBPm GBPm
Opening discretionary FUM 10,456 8,301
Net new discretionary business 1,365 951
Investment growth 594 1,204
------- -------
Total FUM growth 1,958 2,155
Closing FUM 12,414 10,456
------- -------
Organic growth (net of markets)
% 13.1 11.5
Total growth % 18.7 25.9
Revenue
Total Group revenue grew by 14.4% (FY17: 12.7%), passing the
GBP100m threshold at GBP101.6m (FY17: GBP88.8m).
Portfolio management fees and associated transactional income
increased by 13.6% to GBP87.9m (FY17: GBP77.4m). Fee income
increased in line with FUM. However, the first half of the year saw
slower transactional volumes due to lower portfolio turnover rates
with activity stabilising in the second half of the financial
year.
Fund management fees increased 42.1% to GBP7.8m (FY17: GBP5.5m)
due to higher average FUM as the business continued to build
scale.
Advisory fees and financial services commission was flat at
GBP5.7m (FY17: GBP5.8m).
Underlying costs
Underlying costs increased by GBP11.8m (16.4%) to GBP83.7m
(FY17: GBP71.8m). These costs represent 82.4% (FY17: 80.8%) of
income and increased in the year due to our focus on enhancing and
embedding our risk management framework, strengthening the
leadership team and delivering key regulatory requirements (MiFiD
II and GDPR).
The largest driver of underlying costs are our permanent staff
and during the year we saw an increase in the average number of
employees from 452 (Restated to exclude employees of discontinued
operations) to 470 (4.0%) and we finished the year with 480
employees (full time equivalent). We continue to operate in an
increasingly regulated environment and in particular strengthened
our risk, compliance and change functions. The Group operates an
annual review cycle for salaries and benefits with annual
inflationary and performance based increases being effective from
August each year.
There was an increase in the number of temporary staff working
to assist in the successful delivery of our regulatory and
strategic change agenda. In addition to this we also saw higher
recruitment costs relating to the now complete build out of our
executive leadership team and the changing composition of the Board
with two additional Non-Executive directors joining the Board.
Variable staff costs continued to be tightly controlled at a Group
level with the majority of the increase in the year due to client
facing teams.
Non staff related costs include costs relating to information
technology, property, deprecation, custody and dealing, marketing
and the use of professional advisers and delivery partners. They
now also include the cost of software amortisation which was
historically reported outside of underlying performance measures.
Prior year comparatives have been restated for this change.
In order to accelerate the delivery of our risk management and
controls framework we saw higher costs relating to external
delivery partners in the year. We also had higher property costs as
we opened a new office Cardiff and absorbed above inflationary
increases in business rates. We further invested in the core IT
platform to enhance resilience and meet business and regulatory
requirements.
Underlying profit before tax
Underlying profit before tax excludes expenditure and income
falling into the categories explained below and a reconciliation
between underlying profit and the profit attributable to
shareholders is provided in the following table:
Table 2: Reconciliation of underlying profit before tax to
statutory profit before tax
2018 2017 restated*
GBPm GBPm
Underlying profit before tax 18.0 17.0
Exceptional costs of resolving legacy
matters (5.5) (6.5)
Software impairment (2.5) -
Amortisation of client relationship
contracts and contracts acquired with
fund managers (2.4) (2.5)
Changes in fair value of deferred consideration (1.2) 2.2
Finance cost of deferred consideration (0.2) (0.3)
Disposal costs (0.1) -
Impairment of carrying value of goodwill - (2.0)
Results of discontinued operations 0.5 0.1
Statutory profit before tax 6.7 8.0
====== ===============
* Underlying profit before tax for 2017 has been restated to
include software amortisation and exclude discontinued operations,
consistent with the treatment in the current period.
Note that rounded numbers are used above, see note 3 in the
financial statements for detailed amounts
Exceptional costs of resolving legacy matters
As detailed in note 22 to the consolidated financial statements
we have continued to deal with two legacy matters arising from the
former Spearpoint business in the Channel Islands which we acquired
in 2012. These matters relate to the investment management of a
number of discretionary client portfolios and a Dublin-based fund
and we have decided to make a further provision of GBP5.5m (FY17:
GBP6.5m) in order to resolve them. Progress has been made and two
thirds of the offer by value have now been accepted and the Group
continues to work with all stakeholders and the relevant regulators
to move matters forward. The Group also continues to be in dialogue
with the directors of the Dublin based fund. The Board consider
that this is an exceptional item relating to historic matters and
its impact on statutory profit does not give a true reflection of
the underlying performance of the Group.
Software impairment (note 12)
FY18 includes an impairment of GBP2.5m relating to software
intangible assets (FY17: GBPnil). As part of the year end process
we conducted a review of our software assets as at 30 June 2018 and
concluded that one component was now obsolete post implementation
of the Group common operating platform.
Amortisation of client relationship contracts and contracts
acquired with fund managers (note 12)
As explained in notes 2(d) and 2(m), client relationship
intangible assets and contracts acquired with fund managers are
created in the course of acquiring funds under management. The
total amortisation charge for the year of GBP2.4m (FY17: GBP2.5m)
associated with these intangible assets have been excluded from
underlying profit as the directors consider these costs can distort
the results of a particular period.
Finance cost and changes in fair value of deferred consideration
(note 19)
The Group acquired Levitas in 2014 which involved acquiring
funds under management and in order to continue to incentivise and
motivate the vendors, the sale proceeds included deferred payments
over a period of time based on the retention and growth in funds
under management. The initial estimated fair value of the deferred
payments were based on future projections of funds under management
and where the actual payment is different from the original
estimates then charges or credits are made in arriving at the
profit before tax. The directors consider that the effect of these
changes to the original projected payments can distort the results
of a particular period and have therefore excluded them from
underlying profit.
Initial estimates of the deferred cash payments are recognised
in the financial statements at their present value based on an
inherent rate of implied interest. The difference between the
discounted present value of deferred consideration and the
estimated future cash payment is recognised as a charge over the
duration of the deferral period in arriving at profit before tax.
The directors consider that this charge, which is a non-cash item,
can distort the results of a particular period and have therefore
excluded the charge from underlying profit.
Impairment in carrying value of goodwill (note 12)
Goodwill is reviewed annually for impairment based on the
carrying value of the asset compared to its expected recoverable
amount. The value in use of each of the three cash generating units
exceeds their expected recoverable amounts and therefore there was
no impairment loss recognised in the year. In the year ended 30
June 2017, an impairment charge of GBP2.0m was recognised in
relation to the goodwill associated with the Levitas acquisition.
Further details are provided in note 12 to the consolidated
financial statements.
In the event of an impairment loss, the directors consider that
this charge, which is a non-cash item, can distort the results of a
particular period and have therefore excluded the charge from
underlying profit.
Discontinued operations (note 9)
As explained in note 9 the Group disposed of two subsidiaries
during the year: Braemar Estates (Residential) Limited and Braemar
Facilities Management Limited ("discontinued operations"). As a
result, the loss of the discontinued operations and gain recognised
on disposal has been split out in the Group's financial statements
for both the years ended 30 June 2018 and 2017. The sale proceeds
included an element of contingent consideration receivable based on
certain performance criteria. Initial estimates of the contingent
consideration are recognised in the financial statements at their
discounted present value based on an inherent rate of implied
interest. As a result, the directors consider that the results of
discontinued operations are not part of the Group's underlying
business and therefore the Group's underlying profit excludes: the
loss from discontinued operations, gain on disposal, disposal
costs, finance income of contingent consideration and changes in
fair value of contingent consideration.
Segmental review
For the year ended 30 June 2018, the Group reported its results
in four key operating segments: Investment Management; Financial
Planning; Funds and International. From 1 July 2018 the Funds
business has been integrated into the Investment Management
segment.
Investment Management
The UK based Investment Management service continues to remain
the core part of the Group, contributing 73.7% (FY17: 71.7%) of the
Group revenue. Investment Management principally provides
discretionary investment management to private investors, pension
funds, charities and trusts through BPS and MPS. Despite
considerable changes within the industry and volatility within the
financial markets we have continued to grow FUM.
Financial Planning
The Financial Planning business continues to deliver both fee
based financial advice to high net-worth families, and employee
benefit consultancy to small and medium sized employers throughout
the UK. The division remains a major introducer of new investment
management funds to the Investment Management segment of the Group.
The segment broke even for the year (FY17: profit GBP0.3m).
Funds
The Funds business continues to grow in scale as total FUM
increased by 32.4% to GBP1,534m (FY17: GBP1,159m) at 30 June 2018.
This growth was achieved organically through net new investment
across the range of funds with the Defensive Capital Fund now over
GBP500m FUM and investment solutions successfully grew by 50.9% to
GBP587m.
International
The business saw an increase of FUM during the year of 10.7% to
GBP1,693m (FY17: GBP1,529m) with new business from a number of
sources and the first strategic alliance with an overseas
introducer in Dubai together with increased flows from South
Africa.
Revenue in the year increased by 12.6% which has driven an
increase in underlying profit to GBP1.4m (FY17: GBP0.4m).
We have continued to deal proactively with certain legacy
matters where the former Spearpoint business acted as investment
manager to a number of discretionary clients and to a Dublin based
fund. During the year it became apparent that the calculation of
the goodwill offers for the discretionary portfolio clients was
affected by quality issues with data derived from legacy systems.
To ensure that the calculation was fair to clients, we therefore
initiated a comprehensive review of the data sources, calculations
and methodology, requiring extensive use of third party expertise
to extract the data, and to provide advice and quality assurance.
As a result we have made an additional provision during the year of
GBP5.5m (FY17: GBP6.5m) in order to resolve these matters,
resulting in a statutory loss before tax for the year of GBP4.5m
(FY17: GBP6.6m loss).
Group and consolidation adjustments
The costs charged through this segment represent the costs of
running the Group's parent company, including the costs of the
Board members and other central costs which are not directly
related to the trading segments of the Group.
Consolidation adjustments, impairment of goodwill, amortisation
of client relationship intangible assets and changes in the fair
value of deferred consideration in respect of the Group's assets
are included within this segment.
Cash resources and regulatory capital
The Group's financial position remains strong with net assets
increasing to GBP88.0m (FY17: GBP85.7m) and tangible net assets
(net assets excluding intangibles) up to GBP27.4m (FY17: GBP23.1m).
Regulatory capital resources are GBP30.4m (FY17: GBP26.5m) after
taking into account deductions for current and non-current deferred
tax liabilities of GBP3.0m (FY17: GBP3.4m).
The Group had net cash outflows of GBP1.2m during the year. This
includes payments made in relation to the exceptional costs of
resolving legacy matters of GBP5.8m (FY17: GBPnil). Total cash
resources at the end of the year were GBP30.9m (FY17: GBP32.2m).
The Group had no borrowings at 30 June 2018 (FY17: GBPnil).
As required under Financial Conduct Authority ("FCA") rules and
those of both Jersey and Guernsey Financial Services Commissions we
perform a regular Internal Capital Adequacy Assessment Process
("ICAAP") and Adjusted Net Liquid Asset ("ANLA") calculation which
includes performing a range of stress tests to determine the
appropriate level of regulatory capital and liquidity that the
Group needs to hold. Surplus levels of capital are forecast taking
into account investment requirements and proposed dividends to
ensure that appropriate buffers are maintained. The Group's Pillar
3 disclosures are published annually on our website
(www.brooksmacdonald.com).
PRINCIPAL RISKS
The principal risks identified as having a potential material
impact on the Group are detailed below, together with the principal
means of mitigation.
Financial risks
The Group's principal financial risks relate to:
Liquidity risk
Liquidity risk is the risk that the Group is unable to meet its
payment obligations associated with its financial liabilities when
they fall due.
The primary objective of the Group's treasury policy is to
manage short-term liquidity requirements and to ensure that the
Group maintains a surplus of immediately realisable assets over its
liabilities, such that all known and potential cash obligations can
be met.
Market risk
Interest rate risk
The Group may elect to invest surplus cash balances in
short-term cash deposits with maturity dates not exceeding three
months. Consequently, the Group has a limited exposure to interest
rate risk due to fluctuations in the prevailing level of market
interest rates.
Foreign exchange risk
The Group does not have any material exposure to transactional
foreign currency risk and therefore no analysis of foreign exchange
risk is provided.
Price risk
Price risk is the risk that the fair value of the future cash
flows from financial instruments will fluctuate due to changes in
market prices (other than those arising from interest rate risk or
currency risk). The Group is exposed to price risk through its
holdings of equity securities and other financial assets, which are
measured at fair value in the Consolidated Statement of Financial
Position
Credit risk
The Group may elect to invest surplus cash balances in highly
liquid money market instruments with maturity dates not exceeding
three months. The difference between the fair value and the net
book value of these instruments is not material. To reduce the risk
of a counterparty default, the Group deposits the rest of its funds
in approved, high quality banks. At 30 June 2018 there was no
significant concentration of credit risk in any particular
counterparty (FY17: none).
Assets exposed to credit risk recognised on the Consolidated
Statement of Financial Position total GBP30,939,000 (FY17:
GBP32,183,000), being the Group's total cash and cash
equivalents.
Trade receivables with a carrying amount of GBP1,542,000 (FY17:
GBP1,723,000) are neither past due nor impaired. Trade receivables
have no external credit rating as they relate to individual
clients, although the value of investments held in each individual
client's portfolio is always in excess of the total value of the
receivable. All trade receivables fall due within three months
(FY17: three months).
Non-financial risks
The significant non-financial risks faced by the Group have been
reviewed by the Committee, which believes they remain broadly the
same as in previous years and are as follows:
Reputational risk
======================================= ===========================================
Impact Mitigation
The Group has a growing reputation This risk is minimised by ensuring
as a provider of high quality the Group maintains a culture
investment and wealth management of high ethical and professional
services. There is a risk that standards whilst focussing on
significant damage to reputation delivering a first class service
could lead to the loss of existing to all of our clients and intermediaries.
clients as well as impacting The Group maintains separate,
on the ability to attract new independent Risk and Compliance
clients, which would lead to departments which ensure conformity
a fall in financial income. Such with the regulations of the Group's
risk could arise from events regulators, as well as relevant
such as poor investment performance, statutes, in all of our dealings
poor client service or regulatory with our clients.
censure.
Regulatory risk
======================================= ===========================================
Impact Mitigation
The sector in which the Group The Group monitors compliance
operates is heavily regulated with existing law and regulations
and any breach of regulations and keeps abreast of future changes
could lead to fines or disciplinary to assess the likely business
action against the Group or its impact and to ensure that the
staff. There is also a risk of Group has sufficient resources
missing emerging regulations to implement any necessary changes.
and / or misinterpreting existing The Group continued to invest
ones in its Risk and Compliance functions
during the year and is committed
to further adding to the capabilities
of these functions, in order
to meet the challenges posed
by future regulatory changes.
People risk
======================================= ===========================================
Impact Mitigation
Our business is dependent on To minimise this risk, the Group
client relationships with our continues to invest in its employees
staff. Operating in a competitive and monitors developments in
market there is a risk of loss the marketplace in which it operates
of existing clients due to the to ensure that the Group continues
loss of key investment professionals. to offer a wide range of relevant
The retention of staff who are services. Recruitment policies
not investment professionals are designed to attract high
e.g. those in Group and central quality staff and the Group regularly
functions is also a risk for reviews and validates its remuneration
the organisation. packages and contractual arrangements
and motivation is measured through
a sentiment index. Structured
training is also provided by
the Group's Learning and Development
team.
Cyber and data security risk
--------------------------------------- -------------------------------------------
Impact Mitigation
The Group holds approximately The Group's employs firewalls
40,000 client records in its and other technological security
systems containing personal data features to prevent unauthorised
and financial data related to access. User identification and
these clients. The Group therefore password details are required
represents a target for hackers in order to access the Group's
and is at risk of attack. network and systems. Individual
user access is restricted to
specific areas of the network
relevant to the user's role profile.
As such, any access would be
limited to specific areas of
the network. Regular technological
security checks are undertaken
to validate the access rights
of existing users. The IT system
is duplicated in two remote data
centres and data is carried over
secure connections. Data records
are updated to provide a recovery
point and objective of one hour.
Outsourcing risk
======================================= ===========================================
Impact Mitigation
Where key systems are provided Due diligence takes place prior
by outsourced providers, there to the commencement of any outsourcing
is a risk of failure of the third or material supplier relationship,
party or external supplier. There to maintain a robust procurement
are further risks in the on-boarding process and good contract governance.
of outsourcing partners and ongoing The Group keeps key outsourcing
support from them. The Group's partners under review and has
most significant outsourcing in place procedures to regularly
risk relates to its IT network assess the performance of such
infrastructure, which is provided suppliers as well as identifying
by an outsourced service provider. suitable and viable alternatives.
The Group has required that its
outsourced IT service provider
agrees contracts with third-party
services providers that would
allow for contracts to be novated
immediately to Brooks Macdonald
in the event of a business failure
of the outsourced service provider.
Operational risk
--------------------------------------- -------------------------------------------
Impact Mitigation
There is a risk that the Group The Group's Risk Management Framework
suffers a loss resulting from comprises ongoing monitoring,
inadequate systems or controls, the application of detective
failed internal processes or and preventative controls and
human error. reporting of operational incidents
by both the first and second
line teams. The risk function
works with businesses to conduct
risk and control assessments
that identify operational risks
and auditors and third party
consultancies provide further
assurance.
Portfolio mandate risk
--------------------------------------- -------------------------------------------
Impact Mitigation
There is a risk that the Group The Group uses a centralised
breaches investment objectives investment proposition through
or client specified restrictions which asset allocation is determined
for its discretionary investment for a range of risk profiles.
management clients. Investment managers have some
flexibility within the asset
allocation model but are monitored
to ensure individual portfolios
do not fall outside the model.
Portfolios are also monitored
by a dedicated team using specialist
portfolio risk management tools.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the Group financial statements in accordance with
International Financial Reporting Standards ("IFRSs") as adopted by
the European Union and Company financial statements in accordance
with IFRSs as adopted by the European Union. Under company law the
directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of
affairs of the Group and Company and of the profit or loss of the
Group and Company for that period. In preparing the financial
statements, the directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- state whether applicable IFRSs as adopted by the European
Union have been followed for the Group financial statements and
IFRSs as adopted by the European Union have been followed for the
Company financial statements, subject to any material departures
disclosed and explained in the financial statements;
-- make judgements and accounting estimates that are reasonable and prudent; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and Company
will continue in business.
The directors are also responsible for safeguarding the assets
of the Group and Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Group and Company and enable
them to ensure that the financial statements comply with the
Companies Act 2006 and, as regards the Group financial statements,
Article 4 of the IAS Regulation.
The directors are responsible for the maintenance and integrity
of the Company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Directors' confirmations
In the case of each director in office at the date the
Directors' Report is approved:
-- so far as the director is aware, there is no relevant audit
information of which the Group and Company's auditors are unaware;
and
-- they have taken all the steps that they ought to have taken
as a director in order to make themselves aware of any relevant
audit information and to establish that the Group and Company's
auditors are aware of that information.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2018
Note 2018 2017 restated(*)
GBP'000 GBP'000
Revenue 2 101,556 88,794
Administrative costs (91,703) (80,878)
Realised gain on investments 3 - 4
Other gains and losses 4 (3,643) 266
Operating profit 5 6,210 8,186
Finance income 7 128 56
Finance costs 7 (152) (263)
Share of results of joint venture - (45)
Profit before tax 6,186 7,934
Taxation 8 (1,328) (2,230)
Profit for the period from continuing
operations 4,858 5,704
Profit from discontinued operations 9 536 110
--------- -------------------
Profit for the period attributable
to equity holders of the Company 5,394 5,814
Other comprehensive (expense) / income:
Items that may be reclassified subsequently
to profit or loss
Revaluation of available for sale
financial assets 14 (2) 3
Revaluation reserve recycled to profit
or loss 14 - 6
Total other comprehensive (expense)
/ income (2) 9
Total comprehensive income for the
year 5,392 5,823
--------- -------------------
Earnings per share
Basic 10 39.4p 43.0p
Diluted 10 39.3p 42.8p
========= ===================
The accompanying notes form an integral part of the consolidated
financial statements.
* Prior periods have been restated to separate the results of
discontinued operations, consistent with the presentation in the
current period. Refer to note 9 for details of the results of
discontinued operations.
Brooks Macdonald Funds Limited, a subsidiary of Brooks Macdonald
Group plc, held a 60% interest in North Row Capital LLP, a UK
Limited Liability Partnership. The investment was fully impaired in
the year ended 30 June 2017 and the partnership was dissolved in
April 2018.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June 2018
Note 2018 2017
GBP'000 GBP'000
Assets
Non-current assets
Intangible assets 12 60,556 62,648
Property, plant and equipment 13 3,996 3,203
Available for sale financial assets 14 1,578 658
Deferred tax assets 15 1,176 1,271
--------- ---------
Total non-current assets 67,306 67,780
Current assets
Trade and other receivables 16 26,019 22,693
Financial assets at fair value through
profit or loss 17 1,267 1,185
Cash and cash equivalents 18 30,939 32,183
--------- ---------
Total current assets 58,225 56,061
Total assets 125,531 123,841
--------- ---------
Liabilities
Non-current liabilities
Deferred consideration 19 (1,479) (1,720)
Deferred tax liabilities 15 (2,565) (3,415)
Other non-current liabilities 20 (157) (157)
--------- ---------
Total non-current liabilities (4,201) (5,292)
Current liabilities
Trade and other payables 21 (23,291) (21,169)
Current tax liabilities (1,325) (2,082)
Deferred tax liabilities 15 (425) -
Provisions 22 (8,332) (9,592)
--------- ---------
Total current liabilities (33,373) (32,843)
Net assets 87,957 85,706
--------- ---------
Equity
Share capital 24 138 138
Share premium account 24 38,404 37,101
Other reserves 25 3,114 6,480
Retained earnings 25 46,301 41,987
--------- ---------
Total equity 87,957 85,706
--------- ---------
The consolidated financial statements were approved by the Board
of directors and authorised for issue on 19 September 2018, signed
on their behalf by:
C M Connellan B L Thorpe
Chief Executive Finance Director
Company registration number: 4402058
The accompanying notes form an integral part of the consolidated
financial statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2018
Share
Share premium Other Retained Total
capital account reserves earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 July 2016 137 35,997 5,517 41,357 83,008
--------- --------- ---------- ---------- ---------
Comprehensive income
Profit for the year - - - 5,814 5,814
Other comprehensive
income:
Revaluation of available
for sale financial asset - - 3 - 3
Revaluation reserve
recycled - - 6 - 6
--------- --------- ---------- ---------- ---------
Total comprehensive
income - - 9 5,814 5,823
Transactions with owners
Issue of ordinary shares 1 1,104 - - 1,105
Share-based payments - - 1,237 - 1,237
Share-based payments
transfer - - (724) 724 -
Purchase of own shares
by employee benefit
trust - - - (786) (786)
Tax on share options - - 441 - 441
Dividends paid (note
11) - - - (5,122) (5,122)
--------- --------- ---------- ---------- ---------
Total transactions with
owners 1 1,104 954 (5,184) (3,125)
Balance at 30 June 2017 138 37,101 6,480 41,987 85,706
--------- --------- ---------- ---------- ---------
Comprehensive income
Profit for the year
from continuing operations - - - 4,858 4,858
Loss for the year from
discontinued operations - - - (326) (326)
Gain on disposal of
discontinued operations - - - 862 862
Other comprehensive
income:
Revaluation of available
for sale financial asset - - (2) - (2)
Total comprehensive
income - - (2) 5,394 5,392
Transactions with owners
Issue of ordinary shares - 1,303 - - 1,303
Share-based payments - - 1,669 - 1,669
Share-based payments
transfer - - (4,763) 4,763 -
Tax on share options - - (270) - (270)
Dividends paid (note
11) - - - (5,843) (5,843)
--------- --------- ---------- ---------- ---------
Total transactions with
owners - 1,303 (3,364) (1,080) (3,141)
Balance at 30 June 2018 138 38,404 3,114 46,301 87,957
--------- --------- ---------- ---------- ---------
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 June 2018
Note 2018 2017
GBP'000 GBP'000
Cash flow from operating activities
Cash generated from operations 23 13,610 24,521
Taxation paid (2,673) (3,186)
Net cash generated from operating
activities 10,937 21,335
Cash flows from investing activities
Purchase of property, plant and equipment 13 (1,829) (892)
Purchase of intangible assets 1 (5,069) (2,651)
Purchase of available for sale financial
assets 14 - (5)
Deferred consideration paid 19 (1,852) (1,580)
Proceeds from sale of subsidiaries 9 1,005 -
Finance income 7 102 56
Proceeds of sale of property, plant
and equipment - 13
Proceeds of sale of available for
sale asset 14 - 1,219
Investment in joint venture - (1)
Cash flows from investing activities
of discontinued operations 9 2 14
Net cash used in investing activities (7,641) (3,827)
Cash flows from financing activities
Proceeds of issue of shares 1,303 1,105
Purchase of own shares by employee
benefit trust - (786)
Dividends paid to shareholders 11 (5,843) (5,122)
-------- --------
Net cash used in financing activities (4,540) (4,803)
Net (decrease) / increase in cash
and cash equivalents (1,244) 12,705
Cash and cash equivalents at beginning
of year 32,183 19,478
-------- --------
Cash and cash equivalents at end
of year 18 30,939 32,183
-------- --------
The accompanying notes form an integral part of the consolidated
financial statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 30 June 2018
1. Segmental information
For management purposes the Group's activities are organised
into four operating divisions: Investment Management, Funds,
Financial Planning and International. The Group's other activity,
offering nominee and custody services to clients, is included
within Investment Management. These divisions are the basis on
which the Group reports its primary segmental information to the
Group board of directors, which is the Group's chief operating
decision maker. In accordance with IFRS 8 'Operating Segments',
disclosures are required to reflect the information which 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.
Revenues and expenses are allocated to the business segment that
originated the transaction. Revenues and expenses that are not
directly originated by a particular business segment are reported
as Group and consolidation adjustments. Sales between segments are
carried out at arm's length. Centrally incurred expenses are
allocated to business segments on an appropriate pro-rata basis.
Segmental assets and liabilities comprise operating assets and
liabilities, those being the majority of the Statement of Financial
Position.
Group &
Investment Financial consolidation
Management Funds Planning International adjustments Total
Year ended 30 June GBP'000 GBP'000
2018 GBP'000 GBP'000 GBP'000 GBP'000
Total segment revenue 75,746 7,824 4,962 14,170 - 102,702
Inter segment revenue (832) - (314) - - (1,146)
------------ -------- ---------- -------------- --------------- --------
External revenue 74,914 7,824 4,648 14,170 - 101,556
------------ -------- ---------- -------------- --------------- --------
Underlying profit
/ (loss) before
tax 17,790 3,141 (5) 1,448 (4,356) 18,018
Finance cost of
deferred consideration - - - - (152) (152)
Finance income
of contingent
consideration - 26 - - - 26
Changes in fair
value of deferred
consideration - - - - (1,191) (1,191)
Changes in fair
value of contingent
consideration - (16) - - - (16)
Amortisation of
client relationships
and contracts acquired
with fund managers (890) - - (420) (1,051) (2,361)
Software impairment (2,518) - - - - (2,518)
Disposal costs - - - - (89) (89)
Exceptional costs
of resolving legacy
matters - - - (5,531) - (5,531)
------------ -------- ---------- -------------- --------------- --------
Profit / (loss)
before tax 14,382 3,151 (5) (4,503) (6,839) 6,186
Taxation (1,328)
--------
Profit for the year from continuing operations 4,858
--------
Profit from discontinued operations 536
--------
Profit for the year attributable to equity holders of the
Company 5,394
--------
Group &
Investment Financial consolidation
Management Funds Planning International adjustments Total
Year ended 30 June GBP'000
2017 restated* GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Total segment revenue 66,038 5,505 5,211 12,583 - 89,337
Inter segment revenue (321) - (222) - - (543)
------------ -------- ---------- -------------- --------------- --------
External revenue 65,717 5,505 4,989 12,583 - 88,794
------------ -------- ---------- -------------- --------------- --------
Underlying profit
/ (loss) before
tax(1) 19,903 459 269 379 (4,022) 16,988
Finance cost of
deferred consideration - - - - (263) (263)
Changes in fair
value of deferred
consideration - - - - 2,230 2,230
Amortisation of
client relationships
and contracts acquired
with fund managers (1,004) - - (433) (1,098) (2,535)
Goodwill impairment - - - - (1,986) (1,986)
Exceptional costs
of resolving legacy
matters - - - (6,500) - (6,500)
Profit / (loss)
before tax 18,899 459 269 (6,554) (5,139) 7,934
Taxation (2,230)
--------
Profit for the year from continuing operations 5,704
--------
Profit from discontinued operations 110
--------
Profit for the period attributable to equity holders of the
Company 5,814
--------
*re-presented to show the restated segmental underlying profit before
tax and a reconciliation between underlying profit and statutory profit
by segment.
[1] Underlying profit before tax has been restated to include computer
software amortisation and exclude discontinued operations, consistent
with the treatment in the current period.
2. Revenue
2018 2017 restated*
GBP'000 GBP'000
Portfolio management fee income 87,908 77,352
Financial services commission 151 94
Advisory fees 5,673 5,843
Fund management fees 7,824 5,505
Total revenue 101,556 88,794
------------------- --------------------------
* Restated to exclude revenue from discontinued operations (note
9).
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.
2018 2017
GBP'000 GBP'000
United Kingdom 87,386 76,211
Channel Islands 14,170 12,583
Total revenue 101,556 88,794
-------- --------
b) Major clients
The Group is not reliant on any one client or group of connected
clients for the generation of revenues.
3. Realised gain on investments
During the year ended 30 June 2018, the Group had no realised
gains on investments. In the year ended 30 June 2017, the Group
realised a gain of GBP4,000 on the final disposal of its investment
in Sancus Holding Limited through the voluntary winding up of the
company.
4. Other gains and losses
Other gains and losses represent the net changes in the fair
value of the Group's financial instruments recognised in the
Consolidated Statement of Comprehensive Income.
2018 2017
GBP'000 GBP'000
Impairment of goodwill (note 12) - (1,986)
Impairment of investment in joint venture - (163)
Impairment of software (note 12) (2,518) -
Gain from changes in fair value of financial
assets at fair value through profit
or loss (note 17) 82 185
Loss from changes in fair value of contingent
consideration receivable (note 9) (16) -
(Loss) / gain from changes in fair value
of deferred consideration payable (note
19) (1,191) 2,230
Other (losses) / gains (3,643) 266
------------------- -------------------
5. Operating profit
Operating profit is stated after charging:
2018 2017
GBP'000 GBP'000
Staff costs (note 6) 48,490 45,679
Auditors' remuneration (see below) 842 420
Financial Services Compensation Scheme
Levy (see below) 664 459
Depreciation (note 13) 1,186 989
Amortisation of computer software (note
12) 1,518 1,328
Amortisation of client relationships
and contracts acquired with fund managers
(note 12) 2,362 2,535
Impairment of goodwill (note 12) - 1,986
Exceptional cost of resolving legacy
matters (note 22) 5,531 6,500
------------------- -------------------
A more detailed analysis of auditors' remuneration is provided
below:
2018 2017
GBP'000 GBP'000
Fees payable to the Company's auditors
for the audit of the consolidated Group
and parent company financial statements 257 102
Fees payable to the Company's auditors
and its associates for other services:
- Audit of the Company's subsidiaries
pursuant to legislation 143 138
- Audit-related assurance services 181 179
- Assurance services - 1
- Other non-audit services 261 -
Total auditors' remuneration 842 420
------------------- -------------------
Financial Services Compensation Scheme levies
Administrative costs for the year ended 30 June 2018 include a
charge of GBP664,000 (FY17: GBP459,000) in respect of the Financial
Services Compensation Scheme ("FSCS") levy. This comprises the
Group's estimated levy for the 2018/19 scheme year of GBP689,000
and a net rebate of GBP25,000 for the 2017/18 scheme year.
6. Employee information
a) Staff costs
2018 2017
GBP'000 GBP'000
Wages and salaries 40,861 38,912
Social security costs 4,652 4,197
Other pension costs 1,327 1,312
Share-based payments 1,650 1,258
-------- --------
Total staff costs 48,490 45,679
-------- --------
Pension costs relate entirely to a defined contribution
scheme.
b) Number of employees
The average monthly number of employees during the year,
including directors, was as follows:
2018 2017
Professional staff 170 165
Administrative staff 300 287
----- -----
Total staff from continuing operations 470 452
----- -----
Total staff from discontinued operations 20 48
Total staff 490 500
----- -----
c) Key management compensation
The compensation of the key management personnel of the Group,
defined as the Group board of directors including both the
Executives and Non-Executives, is set out below.
2018 2017
GBP'000 GBP'000
Short-term employee benefits 2,666 2,571
Post-employment benefits 55 33
Share-based payments 483 320
-------- --------
Total compensation 3,204 2,924
-------- --------
d) Directors' emoluments
Further details of directors' emoluments are included within the
Remuneration Committee.
2018 2017
GBP'000 GBP'000
Salaries and bonuses 2,279 2,262
Non-Executive directors' fees 372 282
Benefits in kind 15 27
-------- --------
2,666 2,571
Pension contributions 55 33
Amounts receivable under long term
incentive schemes 483 320
Total directors' remuneration 3,204 2,924
-------- --------
The aggregate amount of gains made by directors on the exercise
of share options during the year was GBP643,000 (FY17: GBP161,000).
Retirement benefits are accruing to two directors (FY17: two) under
a defined contribution pension scheme.
The remuneration of the highest paid director during the year
was as follows:
2018 2017
GBP'000 GBP'000
Remuneration and benefits in kind 807 368
Amounts receivable under long term
incentive schemes 83 68
-------- --------
Total remuneration 890 436
-------- --------
The amount of gains made by the highest paid director on the
exercise of share options during the year was GBP83,000 (FY17:
GBPnil).
7. Finance income and finance costs
2018 2017 restated*
GBP'000 GBP'000
Finance income
Dividend income 50 43
Finance income of contingent consideration 26 -
(note 9)
Bank interest on deposits 52 13
Total finance income 128 56
------------------- --------------------------
Finance costs
Finance cost of deferred consideration 152 263
------------------- --------------------------
Total finance costs 152 263
------------------- --------------------------
*Restated to exclude finance income from discontinued operations
(note 9).
8. Taxation
The tax charge on profit for the year was as follows:
2018 2017
GBP'000 GBP'000
UK Corporation Tax at 19.00% (FY17:
19.75%) 3,396 3,648
(Over) / under provision in prior years (613) 167
-------- --------
Total current tax 2,783 3,815
Deferred tax credits (600) (1,026)
Research and development tax credit (855) (433)
Effect of change in tax rate on deferred
tax - (126)
-------- --------
Income tax expense 1,328 2,230
-------- --------
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:
2018 2017
GBP'000 GBP'000
Profit before taxation from continued
operations 6,186 7,934
Profit before taxation from discontinued
operations 536 110
-------- --------
Profit before taxation 6,722 8,044
-------- --------
Profit multiplied by the standard rate
of tax in the UK of 19.00% (FY17: 19.75%) 1,277 1,590
Tax effect of:
- Overseas tax losses not available for
UK tax purposes 454 955
- Disallowable expenses 717 149
- Impairment charges 535 424
- Non-taxable income (187) (433)
- Losses utilised (no deferred tax thereon) - (63)
- Research and development tax credit (855) (433)
- Change in rate of Corporation Tax applicable
to deferred tax - (126)
- (Over) / under provision in prior years (613) 167
Tax charge for the year 1,328 2,230
-------- --------
Non-taxable income includes the gain from changes in fair value
of deferred consideration.
During the year, the Group made a claim for research and
development tax relief in relation to qualifying expenditure on
software development incurred in the years ended 30 June 2016 and
30 June 2017. This resulted in a reduction in the Corporation Tax
liabilities in the respective years, and a repayment of GBP855,000
(FY17: GBP433,000) due from HMRC. The Group will consider whether
claims can also be made for qualifying expenditure incurred in the
year ended 30 June 2018 and thereafter in due course.
The deferred tax credits for the year arise from:
2018 2017
GBP'000 GBP'000
Share option reserve 1 194
Accelerated capital allowances 8 84
Amortisation of acquired client relationship
contracts 425 409
Unused overseas trading losses 166 339
Deferred tax credits 600 1,026
======== ========
On 1 April 2017, the standard rate of Corporation Tax in the UK
was reduced to 19.00%. As a result the effective rate of
Corporation Tax applied to the taxable profit for the year ended 30
June 2018 is 19.00% (FY17: 19.75%).
In addition to the change in the rate of UK Corporation Tax
disclosed above, the Finance (No.2) Act 2015, which was
substantively enacted in October 2015, will further reduce the main
rate to 17% in 2020. Deferred tax assets and liabilities are
calculated at the rate that is expected to be in force when the
temporary differences unwind, but limited to the extent that such
rates have been substantively enacted. The tax rate used to
determine the deferred tax assets and liabilities is therefore 17%
(FY17: 17%) and will be reviewed in future years subject to new
legislation.
9. Discontinued operations
On 1 December 2017, the Group disposed of its Property
Management division, comprising the wholly owned subsidiaries
Braemar Estates (Residential) Limited and Braemar Facilities
Management Limited ('the disposal group'). Profit from discontinued
operations is disclosed separately in the Consolidated Statement of
Comprehensive Income, being the results of the disposal group to 1
December 2017 and the gain on disposal.
2018 2017
GBP'000 GBP'000
(Loss) / profit of discontinued operations (326) 110
Gain on disposal of discontinued operations 862 -
Profit from discontinued operations 536 110
======== ========
a) Profit or loss of discontinued operations
The results of discontinued operations for the period prior to
disposal on 1 December 2017 are shown below.
2018 2017
GBP'000 GBP'000
Revenue 1,195 2,922
Administrative costs (1,523) (2,826)
Operating (loss) / profit (328) 96
Finance income 2 14
-------- --------
(Loss) / profit before tax (326) 110
Taxation - -
-------- --------
(Loss) / profit of discontinued operations (326) 110
b) Gain on disposal of discontinued operations
The gain on disposal of discontinued operations is the total
consideration received or receivable less the fair value of the net
assets of the disposal group. The gain is recognised in the
Consolidated Statement of Comprehensive Income during the year
ended 30 June 2018.
GBP'000 GBP'000
Consideration received or receivable
Initial consideration received 966
Additional consideration received 39
Fair value of contingent consideration
(note 14) 913
Total disposal consideration 1,918
Fair value of net assets (459)
Fair value of goodwill (see note
12) (230)
Fair value of acquired client
relationship contracts (367)
--------
Total net assets on disposal (1,056)
Gain on disposal of discontinued
operations 862
--------
Initial cash consideration of GBP966,000 was received on
completion, and a further GBP39,000 was received post completion.
Additional cash consideration will also be receivable, contingent
on the disposal group generating revenue equal to or in excess of a
'target' revenue amount during the period 1 July 2017 to 30 June
2019. On disposal, all conditions were expected to be met.
Therefore the maximum contingent consideration of GBP966,000 was
recognised at its fair value of GBP913,000 based on the discounted
forecast cash flows in the half yearly financial report for the six
months ended 31 December 2017. This gain is presented within profit
from discontinued operations in the Consolidated Statement of
Comprehensive Income for the year ended 30 June 2018.
There was a reduction of GBP16,000 in the fair value of
contingent consideration since the disposal date as a result of a
downward revision to the forecast revenue provided by management of
the buyer. Finance income of GBP26,000 was recognised in the year
ended 30 June 2018 in relation to the discounting of the contingent
consideration receivable (note 7). The performance criteria for the
year ended 30 June 2018 were met and full receipt of the first
contingent consideration receivable of GBP483,000 was received in
September 2018.
Disposal costs of GBP89,000 were incurred during the year ended
30 June 2018 in relation to the sale.
10. Earnings per share
The directors believe that underlying earnings per share provide
a truer reflection of the Group's performance in the year.
Underlying earnings per share are calculated based on 'underlying
earnings', which is defined as earnings before finance costs of
deferred consideration, changes in the fair value of deferred
consideration, goodwill impairment, amortisation of client
relationships and contracts acquired with fund managers, finance
income from contingent consideration, exceptional costs of
resolving legacy matters, business disposal costs and profit or
loss from discontinued operations. The tax effect of these
adjustments has also been considered.
Earnings for the year used to calculate earnings per share as
reported in these consolidated financial statements were as
follows:
2018 2017 restated
GBP'000 GBP'000
Earnings from continued operations 4,858 5,704
Profit from discontinued operations 536 110
-------- --------------
Earnings attributable to ordinary shareholders 5,394 5,814
Goodwill impairment (note 12) - 1,986
Software impairment (note 12) 2,518
Disposal costs (note 9) 89 -
Finance cost of deferred consideration
(note 19) 152 263
Finance income of contingent consideration
(note 9) (26) -
Changes in fair value of deferred consideration
(note 19) 1,191 (2,230)
Changes in fair value of contingent
consideration (note 9) 16 -
Amortisation of acquired client relationship
contracts (note 12) 2,156 2,200
Amortisation of contracts acquired with
fund managers (note 12) 206 335
Exceptional costs of resolving legacy
matters (note 22) 5,531 6,500
Tax impact of adjustments (588) (525)
Underlying profit from discontinued
operations (note 9) (536) (110)
-------- --------------
Underlying earnings attributable to
ordinary shareholders(1) 16,103 14,233
-------- --------------
(1) Underlying earnings for comparative periods have been
restated to include software amortisation and exclude discontinued
operations, consistent with the treatment in the current
period.
Basic earnings per share is calculated by dividing earnings
attributable to ordinary shareholders by the weighted average
number of shares in issue throughout the year. 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 year
was as follows:
2018 2017
Number of Number of
shares shares
Weighted average number of shares in
issue 13,677,910 13,537,222
Effect of dilutive potential shares
issuable on exercise of employee share
options 28,318 59,872
----------- -----------
Diluted weighted average number of shares
in issue 13,706,228 13,597,094
----------- -----------
Earnings per share for the year attributable to equity holders
of the Company were:
2018 2017
p p
Based on reported earnings:
Basic earnings per share from:
- Continuing operations 35.5 42.1
- Discontinued operations 3.9 0.9
------ -------
Total basic earnings per share 39.4 43.0
Diluted earnings per share from:
- Continuing operations 35.4 42.0
- Discontinued operations 3.9 0.8
------ -------
Total Diluted earnings per share 39.3 42.8
Based on underlying earnings(1) :
Basic earnings per share 117.7 105.1
Diluted earnings per share 117.5 104.7
------ -------
(1) Underlying earnings for comparative periods have been
restated to include software amortisation and exclude discontinued
operations, consistent with the treatment in the current
period.
11. Dividends
Amounts recognised as distributions to equity holders of the
Company in the year were as follows:
2018 2017
GBP'000 GBP'000
Final dividend paid for the year ended
30 June 2017 of 26.0p
(FY16: 23.0p) per share 3,524 3,101
Interim dividend paid for the year ended
30 June 2018 of 17.0p
(FY17: 15.0p) per share 2,319 2,021
------------------- -------------------
Total dividends 5,843 5,122
------------------- -------------------
Final dividend proposed for the year ended
30 June 2018 of 30.0p (FY17: 26.0p) per
share 4,116 3,524
The interim dividend of 17.0p (FY17: 15.0p) per share was paid
on 19 April 2018.
A final dividend for the year ended 30 June 2018 of 30.0p (FY17:
26.0p) per share was declared by the Board of directors on 19
September 2018 and is subject to approval by the shareholders at
the Company's annual general meeting. It will be paid on 2 November
2018 to shareholders who are on the register at the close of
business on 28 September 2018. In accordance with IAS 10 'Events
After the Reporting Period', the aggregate amount of the proposed
dividend expected to be paid out of retained earnings is not
recognised as a liability in these financial statements.
12. Intangible assets
Contracts
Acquired acquired
client with
Computer relationship fund
Goodwill software contracts managers Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 July 2016 36,006 5,081 32,747 3,522 77,356
Additions - 2,651 - - 2,651
Adjustment in
respect of prior
periods - - (2) (1) (3)
At 30 June 2017 36,006 7,732 32,745 3,521 80,004
Additions - 5,069 - - 5,069
Disposals (230) (77) (584) - (891)
Reclassification
to Property, Plant
and Equipment - (943) - - (943)
Impairment - (4,013) - - (4,013)
At 30 June 2018 35,776 7,768 32,161 3,521 79,226
--------- ---------- -------------- ---------- --------
Accumulated amortisation
and impairment
At 1 July 2016 - 530 8,115 2,862 11,507
Amortisation charge - 1,328 2,200 335 3,863
Impairment 1,986 - - - 1,986
At 30 June 2017 1,986 1,858 10,315 3,197 17,356
Amortisation charge - 1,518 2,156 206 3,880
Disposals - (63) (217) - (280)
Reclassification
to Property, Plant
and Equipment - (791) - - (791)
Impairment - (1,495) - - (1,495)
At 30 June 2018 1,986 1,027 12,254 3,403 18,670
--------- ---------- -------------- ---------- --------
Net book value
At 1 July 2016 36,006 4,551 24,632 660 65,849
At 30 June 2017 34,020 5,874 22,430 324 62,648
--------- ---------- -------------- ---------- --------
At 30 June 2018 33,790 6,741 19,907 118 60,556
--------- ---------- -------------- ---------- --------
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 at 30 June 2018 comprises GBP3,320,000 (FY17:
GBP3,550,000) in respect of the Braemar Group Limited ("Braemar")
CGU, GBP21,243,000 (FY17: GBP21,243,000) in respect of the Brooks
Macdonald Asset Management (International) Limited, Brooks
Macdonald Retirement Services (International) Limited and DPZ
(collectively "Brooks Macdonald International") CGU and
GBP9,227,000 (FY17: GBP9,227,000) in respect of the Levitas
Investment Management Services Limited ("Levitas") CGU.
Goodwill is reviewed annually for impairment and its
recoverability has been assessed at 30 June 2018 by comparing the
carrying amount of the CGUs to their expected recoverable amount,
estimated on a value-in-use basis. The value-in-use of each CGU has
been calculated using pre-tax discounted cash flow projections
based on the most recent budgets approved by the relevant
subsidiary company boards of directors, covering a period of five
years. Cash flows are then extrapolated beyond the forecast period
using an expected long-term growth rate.
Based on a value-in-use calculation, the recoverable amount of
the Brooks Macdonald International CGU at 30 June 2018 was
GBP29,676,000, indicating that there is no impairment. The key
underlying assumptions of the calculation are the discount rate,
the short-term growth in earnings and the long-term growth rate of
the business. A pre-tax discount rate of 10% has been used, based
on the Group's assessment of the risk-free rate of interest and
specific risks relating to Brooks Macdonald International. Annual
earnings growth rates of up to 13% are forecast over the next five
financial years, the period covered by the most recent forecasts,
which reflect historic actual growth and planned management actions
and are considered to be achievable given current market and
industry trends. The 2% long-term growth rate applied is considered
prudent in the context of the long-term average growth rate for the
Funds, Investment Management and Financial Planning industries in
which the CGU operates.
In relation to the Levitas CGU, based on the value-in-use
calculation the calculated recoverable amount at 30 June 2018 was
GBP12,659,000, indicating that there is no impairment. The key
underlying assumptions of the calculation are the discount rate,
the growth in funds under management of the Levitas funds and the
long-term growth rate of the business. A pre-tax discount rate of
11% has been used, based on the group's assessment of the risk-free
rate of interest and specific risks relating to Levitas. Annual
funds under management growth rates of between 9% and 15% are
forecast in the next five financial years, the period covered by
the most recent forecasts, which reflect historic actual growth and
planned management activities and are considered to be achievable
given current market and industry trends. The 2% long-term growth
rate applied is considered prudent in the context of the long-term
average growth rate for the funds industry in which the CGU
operates. At 30 June 2017, the recoverable amount of the Levitas
CGU was GBP9,319,000, which was lower than the carrying amount of
the CGU being GBP11,305,000 indicating that it should be impaired.
An impairment loss of GBP1,986,000 was recognised against the
goodwill attributable to the Levitas CGU in the year ended 30 June
2017. For further details on the impairment, please see note 13 in
the Brooks Macdonald Group plc Annual Report & Accounts for the
year ended 30 June 2017.
Based on a value-in-use calculation, the recoverable amount of
the Braemar CGU at 30 June 2018 was GBP38,667,000, indicating that
there is no impairment. The key underlying assumptions of the
calculation are the discount rate, the growth in funds under
management of the funds business and the long-term growth rate.
Annual funds under management growth rates of between 3% and 38%
for the various funds are forecast in the next five financial
years, the period covered by the most recent forecasts, which
reflect historic actual growth and planned management activities
and are considered to be achievable given current market and
industry trends. The 2% long-term growth rate applied is considered
prudent in the context of the long-term average growth rate for the
funds industry in which the CGU operates.
Headroom exists in the calculations of the respective
recoverable amounts of these CGUs over the carrying amounts of the
goodwill allocated to them. On this basis, the directors have
concluded that there is no impairment. The directors consider that
no reasonably foreseeable change in any of the key assumptions
would result in an impairment of goodwill, given the margin by
which the estimated recoverable amounts of the CGUs exceed the
carrying amounts of the goodwill allocated to each.
During the year ended 30 June 2018, GBP230,000 of goodwill
attributable to the Braemar CGU was disposed of. This reflects the
amount of goodwill within the Braemar CGU that is attributable to
the disposal group, which was previously included within this CGU.
Refer to note 9 for details of the disposal.
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.
During the year, the Group impaired an item of computer software
with a net book value of GBP2,518,000 that is no longer in use and
does not provide any further economic benefit to the Group.
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 Consolidated
Statement of Comprehensive Income on a straight line basis over
their estimated useful lives (15 to 20 years).
d) Contracts acquired with fund managers
This asset represents the fair value of the future benefits
accruing to the Group from contracts acquired with fund managers.
Payments made to acquire such contracts are stated at cost and
amortised on a straight line basis over an estimated useful life of
five years.
13. Property, plant and equipment
Equipment
Fixtures and leasehold
Motor vehicles and fittings improvements Total
GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 July 2016 33 2,111 8,074 10,218
Additions - 52 840 892
Disposals (25) - - (25)
At 30 June 2017 8 2,163 8,914 11,085
Additions - 43 1,786 1,829
Disposals (8) (53) (3) (64)
Reclassification from
intangible assets - - 943 943
At 30 June 2018 - 2,153 11,640 13,793
--------------- -------------- --------------- --------
Accumulated depreciation
At 1 July 2016 22 1,498 5,389 6,909
Disposals (16) - - (16)
Depreciation charge 2 196 791 989
At 30 June 2017 8 1,694 6,180 7,882
Disposals (8) (53) (1) (62)
Depreciation charge - 178 1,008 1,186
Reclassification from
intangible assets - - 791 791
At 30 June 2018 - 1,819 7,978 9,797
--------------- -------------- --------------- --------
Net book value
At 1 July 2016 11 613 2,685 3,309
At 30 June 2017 - 469 2,734 3,203
--------------- -------------- --------------- --------
At 30 June 2018 - 334 3,662 3,996
--------------- -------------- --------------- --------
14. Available for sale financial assets
2018 2017
GBP'000 GBP'000
At beginning of year 658 1,715
Additions 913 5
Finance income of contingent consideration 26 -
Reclassification of loan (non-cash transfer) - 150
Net (loss) / gain from changes in fair
value (19) 1
Accumulated profit on revaluation reserve
recycled - 6
Disposals - (1,219)
At end of year 1,578 658
-------- --------
At 1 July 2017, the Group held an investment of 500,000
redeemable GBP1 preference shares in an unlisted company
incorporated in the UK, GBP150,000 preference share capital in an
unlisted company incorporated in the Channel Islands and an
offshore bond with market value at that date of GBP8,000. The
preference shares carry an entitlement to a fixed preferential
dividend at a rate of eight per cent per annum.
During the year ended 30 June 2018, the Group disposed of two
subsidiary companies, Braemar Estates (Residential) Limited and
Braemar Facilities Management Limited. The Group recognised a
corresponding contingent consideration receivable in respect of
deferred consideration receivable by the Group from the purchaser
at its fair value of GBP923,000, including finance income from
deferred consideration of GBP26,000 and reduction in fair value of
GBP16,000. Full details of the disposal are set out in note 9.
At 30 June 2018, the offshore bond had a market value of
GBP5,000 (FY17: GBP8,000), with the loss from changes in fair value
of GBP2,000 for the year ended 30 June 2018 being recognised in
other comprehensive income (FY17: GBP3,000 gain).
The table below provides an analysis of the financial
instruments 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
At 1 July 2017 - - 658 658
Additions - - 913 913
Finance income of contingent
consideration - - 26 26
Reclassification of loan
(non cash transfer) - - - -
Net loss from changes
in fair value - - (19) (19)
Revaluation reserve recycled - - - -
Disposals - - - -
At 30 June 2018 - - 1,578 1,578
--------- --------- -------- --------
Comprising:
Offshore bond - - 5 5
Unlisted redeemable preference
shares - - 650 650
Contingent consideration
receivable - - 923 923
Total - - 1,578 1,578
--------- --------- -------- --------
Unlisted preference shares are valued using a perpetuity income
model which is based upon the preference dividend cash flows.
Offshore bonds are valued using the value of the underlying
securities, some of which are illiquid and therefore prices are not
readily available in the market. Contingent consideration
receivable is valued using the net present value of the expected
amount receivable based off management revenue forecasts for
Braemar Estates (Residential) Limited and Braemar Facilities
Management Limited (see note 9).
A 1% reduction in the value of available for sale financial
assets would result in a GBP16,000 reduction to total comprehensive
income.
15. Deferred income tax
Deferred income tax assets are only recognised to the extent
that it is probable that future taxable profit will be available
against which the temporary differences can be utilised. An
analysis of the Group's deferred assets and deferred tax
liabilities is shown below.
2018 2017
GBP'000 GBP'000
Deferred tax assets
Deferred tax assets to be settled after
more than 12 months 444 688
Deferred tax assets to be settled within
12 months 732 583
-------- --------
Total deferred tax assets 1,176 1,271
-------- --------
Deferred tax liabilities
Deferred tax liabilities to be settled
after more than 12 months (2,565) (3,415)
Deferred tax liabilities to be settled
within 12 months (425) -
Total deferred tax liabilities (2,990) (3,415)
-------- --------
The gross movement on the deferred income tax account during the
year was as follows:
2018 2017
GBP'000 GBP'000
At 1 July (2,144) (3,484)
Credit to the Statement of Comprehensive
Income 600 1,152
(Charge) / credit recognised in equity (270) 188
At 30 June (1,814) (2,144)
-------- --------
The change in deferred income tax assets and liabilities during
the year was as follows:
Trading
losses Accelerated
Share-based carried capital
payments forward allowances Total
GBP'000 GBP'000 GBP'000 GBP'000
Deferred tax assets
At 1 July 2016 551 - - 551
Credit to the Statement of
Comprehensive Income 193 339 - 532
Credit to equity 188 - - 188
------------ ========= ============ ========
At 30 June 2017 932 339 - 1,271
Credit to the Statement of
Comprehensive Income 1 166 8 175
Charge to equity (270) - - (270)
------------ ========= ============ ========
At 30 June 2018 663 505 8 1,176
------------ ========= ============ ========
The carrying amount of the deferred tax asset is reviewed at
each reporting date and is only recognised to the extent that it is
probable that future taxable profits of the Group will allow the
asset to be recovered.
Accelerated
capital Intangible
allowances asset amortisation Total
GBP'000 GBP'000 GBP'000
Deferred tax liabilities
At 1 July 2016 84 3,951 4,035
Credit to the Statement of Comprehensive
Income (84) (536) (620)
============ ==================== ===========
At 30 June 2017 - 3,415 3,415
Credit to the Statement of Comprehensive
Income - (425) (425)
At 30 June 2018 - 2,990 2,990
------------ -------------------- -----------
16. Trade and other receivables
2018 2017
GBP'000 GBP'000
Trade receivables 1,542 1,723
Other receivables 1,481 1,187
Prepayments and accrued income 22,996 19,783
-------- --------
Total current trade and other receivables 26,019 22,693
-------- --------
17. Financial assets at fair value through profit or loss
2018 2017
GBP'000 GBP'000
At beginning of year 1,185 1,000
Gain from change in fair value 82 185
At end of year 1,267 1,185
-------- --------
These investments are classified as Level 1 as defined in note
14.
18. Cash and cash equivalents
2018 2017
GBP'000 GBP'000
Cash at bank 30,884 32,128
Cash held in employee benefit trust 55 55
-------- --------
Total cash and cash equivalents 30,939 32,183
-------- --------
Cash and cash equivalents are distributed across a range of
financial institutions with high credit ratings in accordance with
the Group's treasury policy. Cash at bank comprises current
accounts and immediately accessible deposit accounts.
19. Deferred consideration
Deferred consideration payable is split between non-current
liabilities (see below) and provisions within current liabilities
(note 22) to the extent that it is due for payment 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 year were as
follows:
2018 2017
GBP'000 GBP'000
At 1 July 3,384 6,931
Finance cost of deferred consideration 152 263
Fair value adjustments 1,191 (2,230)
Payments made during the year (1,852) (1,580)
At 30 June 2,875 3,384
-------- --------
Analysed as:
Amounts falling due within one year 1,396 1,664
Amounts falling due after more than
one year 1,479 1,720
-------- --------
Total deferred consideration 2,875 3,384
-------- --------
No additions to deferred consideration payable were recognised
in the year. Payments totalling GBP1,852,000 (FY17: GBP1,580,000)
were made during the year to the vendors of Levitas. Full details
of the Levitas acquisition are disclosed in note 13 of the 2015
Annual Report and Accounts.
A total increase in the fair value of deferred consideration of
GBP1,191,000 (FY17: reduction of GBP2,230,000) was recognised
during the year in respect of Levitas, with a corresponding gain
recognised within other gains and losses in the Consolidated
Statement of Comprehensive Income. The amount payable is based on
the incremental growth in FUM of the TM Levitas funds, measured at
annual intervals. The actual growth in FUM for the current year
exceeded the expectations and the FUM forecast was subsequently
revised and the estimated future deferred consideration payments
increased accordingly.
Deferred consideration is classified as Level 3 within the fair
value hierarchy, as defined in note 14.
Amounts falling due after more than one year from the reporting
date are presented in non-current liabilities as shown below:
2018 2017
GBP'000 GBP'000
At 1 July 1,720 5,290
Finance cost of deferred consideration 152 263
Fair value adjustments 1,191 (2,230)
Transfer to current liabilities (1,584) (1,603)
-------- --------
At 30 June 1,479 1,720
-------- --------
An amount of GBP1,584,000 (FY17: GBP1,603,000), representing
deferred consideration payable in respect of the acquisition of
Levitas, was transferred to provisions within current liabilities.
A range of final outcomes for the expected total deferred
consideration payable cannot be estimated as the future value of
the funds under management is dependent on several unpredictable
variables, including client retention and market movements.
20. Other non-current liabilities
Other non-current liabilities relate to employer's National
Insurance contributions arising from share option awards under the
LTIS scheme.
2018 2017
GBP'000 GBP'000
At 1 July 157 114
Additional liability in respect of LTIS
awards 63 51
Transfer to current liabilities (63) (8)
-------- --------
At 30 June 157 157
-------- --------
The additional liability was recognised during the year of
GBP63,000 (FY17: GBP51,000) in respect of existing LTIS awards,
granted in previous years, that are expected to vest in the future.
During the year, an amount of GBP63,000 (FY17: GBP8,000) was
transferred to current liabilities, reflecting awards that are
expected to vest within the next 12 months.
21. Trade and other payables
2018 2017
GBP'000 GBP'000
Trade payables 4,762 3,025
Other taxes and social security 2,501 2,345
Other payables 531 361
Accruals and deferred income 15,497 15,438
-------- --------
Total trade and other payables 23,291 21,169
-------- --------
Included within accruals and deferred income in 2018 is an
accrual of GBP255,000 (FY17: GBP366,000) in respect of employer's
National Insurance contributions arising from share option awards
under the LTIS. Accruals and deferred income in 2017 included an
accrual of GBP307,000 in respect of redundancy costs relating to
the closure of the Guernsey back office in September 2018.
The options have been valued using a Black Scholes model based
on the market price of the Company's shares at the grant date. The
total charge to the Consolidated Statement of Comprehensive Income
for the year for employer's National Insurance contributions
arising from share option awards under the LTIS was nil (FY17:
GBP228,000).
22. Provisions
Exceptional
costs of
resolving Deferred
Client compensation legacy matters consideration FSCS levy Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2016 673 - 1,641 470 2,784
Charge to the
Statement of
Comprehensive
Income 208 6,500 - 621 7,329
Transfer from
non-current
liabilities - - 1,603 - 1,603
Utilised during
the year (74) - (1,580) (470) (2,124)
-------------------- ---------------- --------------- ---------- --------
At 30 June 2017 807 6,500 1,664 621 9,592
Charge to the
Statement of
Comprehensive
Income (407) 5,531 - 627 5,816
Transfer from
non-current
liabilities - - 1,584 - 1,584
Utilised during
the year (378) (5,806) (1,852) (559) (8,660)
-------------------- ---------------- --------------- ---------- --------
At 30 June 2018 22 6,225 1,396 689 8,332
-------------------- ---------------- --------------- ---------- --------
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 of GBP5,531,000 (FY17: GBP6,500,000) was recognised for
costs of resolving these including associated expenses. 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.
c) Deferred consideration
Deferred consideration has been included within provisions as a
current liability to the extent that it is due for payment within
one year of the reporting date. The amount outstanding at 30 June
2018 was GBP1,396,000 (FY17: GBP1,664,000) and relates entirely to
the Levitas acquisition. The amount of deferred consideration
included within provisions is due to be settled in November 2018.
Subsequent annual payments will be made in November of each year
until the final payment in November 2020, with the final amount
being calculated in November 2018.
An amount of GBP1,584,000 (FY17: GBP1,603,000) was transferred
from non-current liabilities, representing payments made during the
year and provisions for amounts falling due within one year of the
reporting date. Provisions of GBP1,852,000 (FY17: GBP1,580,000)
were utilised during the year on payment to the vendors of
Levitas.
d) FSCS levy
Following confirmation by the FSCS in April 2018 of its final
industry levy for 2018/19, the Group has made a provision of
GBP689,000 (FY17: GBP621,000) for its estimated share. This
includes a supplementary levy of GBP132,000 (FY17: GBP100,000) that
is expected to be raised in early 2019.
23. Reconciliation of operating profit to net cash inflow from
operating activities
2018 2017
GBP'000 GBP'000
Operating profit
- Continuing operations 6,210 8,186
- Discontinued operations (note 9) (328) 96
-------- --------
Operating profit 5,882 8,282
Adjustments for:
Depreciation of property, plant and
equipment 1,186 989
Loss / (Gain) on sale of fixed assets - (4)
Gain on sale of available for sale financial
assets - (4)
Available for sale reserve recycled - 6
Amortisation of intangible assets 3,880 3,863
Other gains and losses 3,643 (266)
(Increase) / decrease in receivables (3,323) 1,265
Increase in payables 2,122 2,325
(Decrease) / increase in provisions (992) 6,785
Increase in non-current liabilities - 43
Discontinued operations (457) -
Share-based payments 1,669 1,237
-------- --------
Net cash inflow from operating activities 13,610 24,521
-------- --------
24. Share capital and share premium account
The movements in share capital and share premium during the year
were as follows:
Share
Number Exercise Share premium
of shares price capital account Total
p GBP'000 GBP'000 GBP'000
At 1 July 2016 13,709,170 137 35,997 36,134
Shares issued:
- on exercise of
options 11,857 290.5 - 1,452.0 - 103 103
- to Sharesave 1,172.0 -
Scheme 72,373 1,400.0 1 1,001 1,002
At 30 June 2017 13,793,400 138 37,101 37,239
Shares issued:
- on exercise of
options 27,838 290.5 - 1,452.0 - 210 210
- to Sharesave 1,237.0 -
Scheme 81,795 1,738.0 - 1,093 1,093
At 30 June 2018 13,903,033 138 38,404 38,542
----------- --------- --------- --------
The total number of ordinary shares issued and fully paid at 30
June 2018 was 13,903,033 (FY17: 13,793,400) with a par value of 1p
per share.
There were no shares issued on exercise of options and to
Sharesave Scheme members in share capital in the year ended 30 June
2018 (FY17: GBP1,000).
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. At 30 June
2018, the EBT held 164,582 (FY17: 243,465) 1p ordinary shares in
the Company, acquired for a total consideration of GBP2,699,000
(FY17: GBP3,816,000) with a market value of GBP3,263,000 (FY17:
GBP5,820,000). They are classified as treasury shares in the
Consolidated Statement of Financial Position, their cost being
deducted from retained earnings within shareholders' equity.
25. Other reserves and retained earnings
Other reserves are comprised of the following balances:
2018 2017
GBP'000 GBP'000
Share option reserve 2,921 6,285
Merger reserve 192 192
Available for sale reserve 1 3
Total other reserves 3,114 6,480
-------- --------
a) Share option reserve
The share option reserve represents the cumulative charge to the
Consolidated Statement of Comprehensive Income for the Group's
equity settled share-based payment schemes
b) Merger reserve
The merger reserve arises when the consideration and nominal
value of the shares issued during a merger and the fair value of
assets transferred during the business combination differ.
c) Available for sale reserve
The available for sale reserve reflects the changes in fair
value of available for sale assets. Upon sale of the corresponding
asset, the accumulated gain or loss is recycled through the
Consolidated Statement of Comprehensive Income as a gain or loss on
disposal.
The movements in other reserves during the year were as
follows:
2018 2017
GBP'000 GBP'000
Share option reserve
At beginning of the year 6,285 5,331
Share-based payments 1,669 1,237
Transfer to retained earnings (4,763) (724)
Tax on share-based payments (270) 441
-------- --------
At end of the year 2,921 6,285
-------- --------
Available for sale reserve
At beginning of the year 3 (6)
Revaluation of available for sale financial
assets (2) 3
Recycling of reserve due to impairment - 6
At end of the year 1 3
-------- --------
The movements in retained earnings during the year were as
follows:
2018 2017
GBP'000 GBP'000
At beginning of the year 41,987 41,357
Profit for the financial year 4,858 5,704
Profit from discontinued operations 536 110
Purchase of own shares by Employee Benefit
Trust - (786)
Transfer from share option reserve 4,763 724
Dividends paid (5,843) (5,122)
At end of the year 46,301 41,987
-------- --------
26. Events since the end of the year
No material events have occurred between the reporting date and
the date of signing the financial statements.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR FMGZLMGFGRZM
(END) Dow Jones Newswires
September 20, 2018 07:43 ET (11:43 GMT)
Brooks Macdonald (LSE:BRK)
Historical Stock Chart
From Apr 2024 to May 2024
Brooks Macdonald (LSE:BRK)
Historical Stock Chart
From May 2023 to May 2024