TIDMBRK

RNS Number : 8706R

Brooks Macdonald Group PLC

11 March 2021

11 March 2021

BROOKS MACDONALD GROUP PLC

HALF-YEAR RESULTS FOR THE SIX MONTHSED 31 DECEMBER 2020

"Record FUM of GBP15.5bn and profit margin of 25%, underpinned by continued strategic momentum."

Brooks Macdonald Group plc ("Brooks Macdonald" or the "Group") today announces its half-year results for the six months ended 31 December 2020.

Strong financial performance

-- Total Funds under Management ("FUM") reached a record level of GBP15.5 billion at 31 December 2020 (30 June 2020: GBP13.7 billion, 31 December 2019: GBP13.1 billion), representing an increase of 13.3% in the period, driven by:

- Robust investment performance of 9.5% despite volatile markets, compared to an increase of 6.5% in the MSCI PIMFA Private Investor Balanced Index

- Net flows of GBP(367) million (H1 FY20: GBP(506) million), with Q2 stronger than Q1, evidencing early signs of an improving trend

- Completion of the acquisition of Lloyds Banking Group's Channel Islands funds and wealth management business in November.

-- Revenue increased by 1.8% to GBP55.9 million (H1 FY20: GBP54.9 million) with the positive impact on average FUM of strong investment performance and two acquisitions partly offset by weaker net flows, particularly in Q1.

-- Underlying profit before tax up 21.7% to GBP14.0 million (H1 FY20: GBP11.5 million) with a significantly increased underlying profit margin of 25.1% (H1 FY20: 20.9%), driven by higher revenue and strong cost discipline.

-- Statutory profit before tax increased 84.1% to GBP14.1 million (H1 FY20: GBP7.7 million), due to the improved underlying performance and an exceptional gain related to the Lloyds Channel Islands acquisition.

-- Underlying diluted earnings per share rose by 8.3% to 73.2p (H1 FY20: 67.6p), reflecting higher total underlying earnings partly offset by the issue of new shares in relation to the acquisition of Cornelian Asset Managers Group Limited.

-- Group net flows have been marginally positive in the calendar year to end February, excluding the Defensive Capital Fund ("DCF") which continues to experience outflows in line with trends in the Targeted Absolute Return sector. Net flows at the Group level are expected to be modestly positive for H2.

-- Interim dividend raised by 9.5% to 23.0p (H1 FY20: 21.0p) in line with the Group's progressive dividend policy and underlining the Board's confidence in Brooks Macdonald's strong balance sheet and future prospects.

Entering the next phase of the strategy

-- The Group entered the next phase of its strategy during the period, based on its vision for Brooks Macdonald as the leading investment managers for intermediaries. The strategy is focused on accelerating growth and value creation, grounded in the Group's purpose of realising ambitions and securing futures.

Building momentum in organic growth

-- Focus on delivering for advisers and clients throughout the pandemic generated growth momentum:

- Continued rapid growth for the Group's Responsible Investment Service ("RIS") with FUM up c.50%

- Increasing traction, with a strong pipeline, for the BM Investment Solutions offering, providing a white-labelled bespoke proposition to advisers and their clients

- Strong growth in the Group's other specialist services - Court of Protection, Decumulation, and the AIM Portfolio Service - reflecting the benefit of service innovation to meet clients' changing needs

- Bringing together the private client teams across UKIM and Financial Planning, continuing to deliver the same high level of service to those clients (representing c.GBP2.5bn FUM) as to our intermediated clients.

Investment to deliver best-in-class adviser experience and client service

-- Commenced a strategic partnership with SS&C Technologies ("SS&C"), a global provider of software and technology services, to deliver a best-in-class digital experience for advisers and clients.

   --    Expect to complete the transition on to the SS&C platform by the end of this calendar year. 

Successful integration of high-quality, accretive acquisitions

-- Completed the acquisition of Lloyds Banking Group's Channel Islands funds and wealth management business, increasing International's FUM by almost 60% with immediate earnings enhancement.

-- Successfully integrated Cornelian Asset Managers Limited (acquisition completed February 2020), delivering the planned synergies despite the pandemic.

   --    Both on track to deliver planned earnings accretion. 

Developing and supporting our people, attracting new talent

-- Ongoing focus on safeguarding the wellbeing of employees while continuing to deliver for advisers and clients, including being flexible for staff with home schooling commitments.

-- Employee engagement continuing to improve, with latest survey showing 14 point improvement in employee engagement score relative to the first survey in 2019, 2 points up on the most recent survey in May 2020.

-- Continued to invest in new talent bringing fresh ideas and relationships to complement the experience in the business.

Caroline Connellan, CEO, commented:

"We continued to make good progress in the first half of the year, delivering strong financial performance as we moved into the next phase of our strategy, focused on accelerating growth and value creation. Our ongoing robust investment performance, coupled with high-quality acquisitions, brought FUM to record levels and, alongside strong cost discipline, resulted in record underlying profit margin. This shows that the investment we have made and the actions we have taken are delivering financial and strategic benefits for the business now and positioning us well for the future.

"I am particularly proud of how our people have delivered for advisers and clients through the pandemic and I am grateful to them for their efforts. The blend of experience and expertise that our people have, from those already deeply embedded in the Brooks Macdonald client-centred culture to those bringing new external insights, is a great strength.

"Looking ahead, client sentiment has held up well and, although the timescale for easing of lockdown restrictions remains uncertain, we continue to have a positive outlook. Momentum is building in the business and we are on track to meet full year profit expectations."

 
Financial highlights:                      H1 FY21  H1 FY20(2)  FY 2020 
 
Underlying(1) profit before tax (GBPm)        14.0        11.5     23.0 
Underlying(1) profit margin before tax 
 (%)                                          25.1        20.9     21.2 
Statutory profit before tax (GBPm)            14.1         7.7     10.0 
Statutory profit margin before tax (%)        25.2        14.0      9.2 
Underlying(1) diluted earnings per share 
 (p)                                          73.2        67.6    123.7 
Statutory diluted earnings per share 
 (p)                                          77.2        44.1     43.1 
Interim dividend per share (p)                23.0        21.0     53.0 
-----------------------------------------  -------  ----------  ------- 
 
 
Business highlights:       H1 FY21  H1 FY20(2)  FY 2020 
 
FUM (GBPbn)                   15.5        13.1     13.7 
Revenue (GBPm)                55.9        54.9    108.6 
Total net assets (GBPm)      129.0       118.9    123.5 
Cash balances (3) (GBPm)      38.6        33.2     50.2 
-------------------------  -------  ----------  ------- 
 
 
Revenue by segment:               H1 FY21  H1 FY20(2)  FY 2020 
 
UK Investment Management (GBPm)      46.9        45.9     91.4 
International (GBPm)                  7.1         7.0     13.4 
Financial Planning (GBPm)             1.9         2.0      3.8 
--------------------------------  -------  ----------  ------- 
 
 
Financial calendar: 
 
Results announcement                   11 March 2021 
Ex-dividend date for interim dividend  18 March 2021 
Record date for interim dividend       19 March 2021 
Interim dividend payment date          16 April 2021 
-------------------------------------  ------------- 
 

(1) The underlying figures represent the results for the Group's continuing activities excluding underlying adjustments as listed in the Interim Management Report. The Board considers the underlying profit to be a more appropriate reflection of the Group's performance compared to statutory profit. A reconciliation between the Group's statutory and underlying profit before tax is also included in the Interim Management Report.

(2) Comparative figures have been restated to reflect the correct recognition of the Authorised Corporate Director fees and associated costs in respect of one of the Group's managed OEICs and the correct VAT treatment on the fees recognised on the Managed Portfolio Service offered through third party models. Refer to Note 2a of the Condensed consolidated financial statements for details on the restatement.

(3) Cash balances for H1 FY20 excludes the proceeds from the share placing held in November 2019 re the Cornelian acquisition to ensure a more like-for-like comparison.

An analyst meeting will be held at 9.30am on Thursday 11 March. Please contact Katherine Bell at FTI Consulting on 07976 870961 or e-mail brooksmacdonald@fticonsulting.com for further details.

LEI: 213800WRDF8LB8MIEX37

Enquiries to:

 
 Brooks Macdonald Group plc                        www.brooksmacdonald.com 
  Caroline Connellan, CEO                                    020 7659 3492 
  Ben Thorpe, Group Finance Director 
 Peel Hunt LLP (Nominated Adviser and 
  Broker) 
  Rishi Shah / John Welch                                    020 7418 8900 
 FTI Consulting                          brooksmacdonald@fticonsulting.com 
  Ed Berry / Katherine Bell                                 07703 330199 / 
                                                              07976 870961 
 

Notes to editors

Brooks Macdonald Group plc, through its various subsidiaries, provides leading investment management services in the UK and internationally. The Group, which was founded in 1991 and began trading on AIM in 2005, had discretionary Funds under Management of GBP15.5 billion as at 31 December 2020.

Brooks Macdonald offers a range of investment management services to private high net worth individuals, pension funds, institutions, charities and trusts. The Group also provides financial planning as well as international investment management, and acts as fund manager to a range of onshore and international funds.

The Group has twelve offices across the UK and the Channel Islands including London, East Anglia, Hampshire, Leamington Spa, Leeds, Manchester, Taunton, Tunbridge Wells, Scotland, Wales, Jersey and Guernsey.

Interim management report

A strong six months

Brooks Macdonald has had a strong half year, with record FUM at the end of the period of GBP15.5 billion, excellent financial results, robust investment performance and continued progress on our strategy.

Against the unprecedented background of the COVID-19 pandemic, the Group continued to improve its financial performance during the first half of the financial year. Revenues were up 1.8% to GBP55.9 million (H1 FY20 Restated: GBP54.9 million) with the positive impact of strong investment performance and two acquisitions partly offset by weaker net flows, particularly in Q1 (three months to 30 September 2020). Underlying costs decreased by 3.5% to GBP41.9 million (H1 FY20 Restated: GBP43.4 million) as we continued to enforce strong cost discipline. This resulted in an underlying profit before tax of GBP14.0 million, a 21.7% increase on the prior period (H1 FY20 Restated: GBP11.5 million).

We delivered further progress on our stated medium-term target of increasing margins, with underlying profit margin rising to a record 25.1% (H1 FY20 Restated: 20.9%) and underlying diluted EPS increasing by 8.3% to 73.2p (H1 FY20 Restated: 67.6p).

Statutory profits increased materially on the prior period from GBP7.7 million to GBP14.1 million driven by improvements in underlying performance and a gain arising on the Lloyds Channel Islands acquisition. In keeping with our stated progressive dividend policy and the improved results for the period, the Group is declaring an interim dividend of 23.0 pence per share, a 9.5% uplift on the interim dividend paid last year.

Despite a backdrop of volatile markets driven by the pandemic, our Centralised Investment Process achieved robust risk adjusted returns for clients in the period and is ahead of the relevant ARC benchmarks across all risk profiles over three, five and ten years. We maintained our focus on advisers and clients, announcing a partnership with SS&C to deliver best-in-class adviser experience and client service.

The Group continued to invest in talent, with selective hires across all areas and levels. Our talent focus in the period was on identifying and implementing remote training and people development approaches. Throughout the pandemic, our focus has been on the wellbeing of our people, while continuing to deliver for clients and advisers.

On 30 November 2020, we completed the acquisition of Lloyds Banking Group's Channel Islands wealth management and funds business, bringing in nearly GBP900m of FUM and augmenting our International business's proposition to clients, advisers and trustees.

Moving into the next phase of our strategy

Our client and adviser relationships, coupled with our culture and Centralised Investment Process, are key strengths of the organisation and position us well for the future.

We entered the next phase of our strategy in the period focused on accelerating growth and value creation, based on three key value drivers:

   --    Market-leading organic growth 
   --    Service and operational excellence 
   --    Selective high-quality acquisitions 

We completed the strategy that we laid out in November 2017 to deliver improved returns from a sustainable and scalable business. Through each phase, we did what we said we would do - reinforcing the foundations of the business, improving our proposition for advisers and clients, increasing efficiency and effectiveness, and investing in our people and our infrastructure.

We delivered improving underlying profit and profit margins year-on-year and, in 2020, we complemented our organic growth strategy with two high-quality, value-enhancing acquisitions: first Cornelian Asset Managers, completed at the end of February, and then the Lloyds Channel Islands acquisition, completed at the end of November.

The Group's purpose, for all our stakeholders - clients, intermediaries, staff, shareholders and the wider society - is to help them realise their ambitions and secure their futures. Our mission is to protect and enhance our clients' wealth through the provision of investment management and advice underpinned by excellent client services.

Our vision for Brooks Macdonald is as the leading investment manager for intermediaries - we are an investment manager focused on working with intermediaries to support their clients and to help them build successful businesses. We also have complementary private client and financial planning businesses.

Improvements across the Group

During the period, we made good progress across the business, continuing to deliver high standards of service for advisers and clients through the pandemic while maintaining our focus on the wellbeing of staff.

The increases in revenue and underlying profit were predominantly in UK Investment Management reflecting the full period contribution from the Cornelian acquisition, whereas the results in International and Financial Planning were broadly in line with H1 FY20.

Our Centralised Investment Process has continued to perform well, giving returns ahead of the relevant ARC Private Client Index across all risk profiles for three and five years; continued good performance is critical to medium-term client retention and an important element of our proposition to advisers.

Partnership announced with SS&C Technologies

In October, we announced a strategic partnership with SS&C Technologies ("SS&C"), a global provider of software and technology services to the financial services industry, to deliver best-in-class adviser experience and client service through technology and innovation. The collaboration will provide a market-leading digital experience for the Group's intermediaries and clients. A number of Brooks Macdonald staff transferred to SS&C as part of the partnership and, since the period end, the first business migrations have been completed successfully. We expect to complete the transition on to the SS&C platform this calendar year.

Continued growth in our ESG proposition

The Group's ESG offering, the Responsible Investment Service ("RIS"), continued to show rapid growth since its launch in October 2018, with UKIM RIS FUM up almost 50% in the period. We launched the ESG Suitability Discussion guide in September to support advisers discussing ESG issues with clients, and rolled RIS out to our International business.

Adviser and client focus in UKIM

During the first half of the financial year, our external focus has had two elements: supporting our existing advisers and clients through the stresses of the pandemic, protecting their wealth and helping secure their future; and working to ensure that net flows returned to positive territory in the new year as per prior guidance.

From the early days of the pandemic, our teams have proactively reached out to advisers and clients to support them as they considered the impact of the economic consequences of lockdown on their investment portfolios.

In most cases, our view has been that the right approach is to stay invested and in general that has proved a sound course of action, as can be seen in our investment performance. We have received strong positive feedback from many advisers and clients, saying how much they appreciated our support.

Flows have been improving through the period, with UKIM gross inflows almost 40% higher in Q2 (three months to 31 December 2020) than the prior quarter, and gross outflows declining. Encouragingly, the quarter-on-quarter comparison is positive across BPS, MPS and Funds.

Within the BPS umbrella, our specialist services - Responsible Investment Service, Decumulation, and Court of Protection - have all been performing well, recording positive net flows during the period.

Funds FUM declined in the period, driven by the Defensive Capital Fund, which had net outflows of 23.8%, reflecting trends in the Targeted Absolute Return sector.

Continued reinvigoration of International

Our International business delivered encouraging progress with the leadership of Andrew Shepherd continuing to reinvigorate the business, focusing on delivering for clients, advisers and trustees.

The highlight of the period was the completion of the Lloyds Channel Islands acquisition. This brought a near 60% increase in FUM, added multi-asset and fixed income fund capability which augments International's proposition to clients, advisers and trustees, and extended the Group's international intermediary distribution reach. Since we are running the business on a different operating model to Lloyds, certain changes had to be made before completion and the earnings accretion is therefore close to full run-rate from Day 1.

The team is working both to integrate the former Lloyds employees who transferred to International and focus the business on its core opportunities. We expect this, along with steps to make the organisation more efficient, to continue to drive improved profitability in the medium term. We continue to see potential for material value creation in International as the reinvigoration continues.

Private client teams to be brought together

Our vision for Brooks Macdonald is as the leading investment manager for intermediaries. Complementing this, we have circa GBP2.5 billion FUM in direct private client relationships, and we continue taking steps to deliver the same high level of service and experience for those clients as we do for our intermediated clients. As part of those steps, we are bringing together the private client teams across UKIM and Financial Planning, with Adrian Keane-Munday becoming Head of Advice, reporting to the Head of UKIM, Robin Eggar.

Positive medium-term outlook, short-term uncertainty

The broader context for the first half of our financial year has been unprecedented with a global pandemic, a series of lockdowns and the biggest calendar year decline in UK GDP for over 300 years. Nonetheless, we have been able to deliver strong financial results underpinned by robust investment performance. We have successfully integrated Cornelian and completed the Lloyds Channel Islands acquisition, with the bulk of the operating model changes made ahead of completion so earnings accretion is close to full run rate from Day 1.

We continue to see improvement in FUM flows and expect net flows to be modestly positive in the second half. UKIM pipeline is strong, particularly in BM Investment Solutions, and momentum is building. BPS conversion times have been impacted by a third lockdown. Underlying momentum in International is boosted by the Lloyds Channel Islands acquisition, however net flows in H2, excluding the acquisition, are expected to be negative due to the loss of a lower yielding institutional mandate.

Overall, client sentiment has held up well and we continue to have a positive outlook over the medium term, with the fundamental opportunity for the Group as strong as it has ever been, although in the short term the outlook remains uncertain, affected by the impact of lockdown on the time taken to convert new business opportunities to funds under management. We are confident in our vision for Brooks Macdonald as the leading investment manager for intermediaries, supported by our three strategic value drivers of strong organic growth, market-leading adviser experience and client service, and selective high-quality acquisitions.

Group financial results summary

 
                                          Six months       Six months     12 months 
                                                  to               to            to 
                                         31 Dec 2020   31 Dec 2019(1)   30 Jun 2020 
                                                GBPm             GBPm          GBPm 
--------------------------------------  ------------  ---------------  ------------ 
Revenue                                         55.9             54.9         108.6 
Fixed staff costs                             (20.0)           (18.8)        (39.8) 
Variable staff costs                           (7.4)            (7.6)        (10.8) 
--------------------------------------  ------------  ---------------  ------------ 
Total staff costs                             (27.4)           (26.4)        (50.6) 
FSCS levy                                          -            (0.2)         (2.2) 
Non-staff costs                               (14.5)           (16.8)        (32.8) 
--------------------------------------  ------------  ---------------  ------------ 
Total non-staff costs                         (14.5)           (17.0)        (35.0) 
--------------------------------------  ------------  ---------------  ------------ 
Total underlying costs                        (41.9)           (43.4)        (85.6) 
--------------------------------------  ------------  ---------------  ------------ 
Underlying profit before tax                    14.0             11.5          23.0 
Underlying adjustments                           0.1            (3.8)        (13.0) 
--------------------------------------  ------------  ---------------  ------------ 
Statutory profit before tax                     14.1              7.7          10.0 
Taxation                                       (2.0)            (1.5)         (3.6) 
--------------------------------------  ------------  ---------------  ------------ 
Statutory profit after tax                      12.1              6.2           6.4 
--------------------------------------  ------------  ---------------  ------------ 
 
Underlying profit margin before tax            25.1%            20.9%         21.2% 
Underlying diluted earnings per share          73.2p            67.6p        123.7p 
Statutory profit margin before tax             25.2%            14.0%          9.2% 
Statutory diluted earnings per share           77.2p            44.1p         43.1p 
Dividends per share                            23.0p            21.0p         53.0p 
--------------------------------------  ------------  ---------------  ------------ 
 

1. Comparative figures have been restated to reflect the correct recognition of the Authorised Corporate Director fees and associated costs in respect of one of the Group's managed OEICs and the correct VAT treatment on the fees recognised on the Managed Portfolio Service offered through third-party models. Refer to Note 2a of the Condensed consolidated financial statements for details on the restatement.

The Group saw strong financial performance in the six months to 31 December 2020 ("H1 FY21") driven by the contribution from the Cornelian and the Lloyds Channel Islands acquisitions and continued cost discipline resulting in a record underlying profit before tax of GBP14.0 million (H1 FY20 Restated: GBP11.5 million) and an underlying profit margin of 25.1% (H1 FY20 Restated: 20.9%).

Revenue

The Group's total revenue for the first half of the financial grew by 1.8% to GBP55.9 million. This increase was due to higher average FUM levels driven by strong investment performance and the acquisition of Cornelian and the Lloyds Channel Islands businesses which combined, contributed GBP5.5 million to the headline figure. The rise in revenue was offset by a reduction in FUM related income of GBP1.8 million in the Brooks Macdonald core business driven by net outflows recorded in FY20 and during the first quarter of this financial year, and by a decrease in non-FUM related income (GBP2.7 million), in the main due to lower interest income, and a slight drop in Financial Planning income (GBP0.1 million).

As noted in the following table, the yield on BPS fees for UKIM remained stable during the first half at 67.8 bps, whilst non-fee income declined by 3.2 bps to 18.4 bps largely due to a reduction in interest and other income as noted above.

MPS saw a decline in fee yield by 5.3 bps compared to the prior period. This was primarily driven by a change in mix with Platform MPS growing more rapidly than custody MPS. The impact of last year's reduction in the Platform MPS headline rates and the introduction of lower tiered rates for larger mandates also had an impact, although these were in part, offset by higher levels of net new business. As announced to the market on 7 January 2021, the standard fee rate for MPS fees will reduce going forward in view of the removal of the application of VAT to this service.

The decline in Funds fee yields by 2.6 bps is also due to a change in mix reflecting the outflows seen during the period in the Defensive Capital Fund, which attracts relatively higher rates.

Similarly to UKIM, International saw a dip in non-fee income yields of 10.0 bps driven by a decrease in interest and transactional income, including impact of FX movement, during the period.

Revenue, yields and average FUM

 
                                 Revenue                    Yields                 Average FUM 
                         H1 FY21  H1 FY20  Change  H1 FY21  H1 FY20  Change  H1 FY21  H1 FY20  Change 
                            GBPm     GBPm       %      bps      bps     bps     GBPm     GBPm       % 
-----------------------  -------  -------  ------  -------  -------  ------  -------  -------  ------ 
BPS fees                    27.6     28.3   (2.5)     67.8     67.8       -    8,077    8,304   (2.7) 
BPS non-fees                 7.5      9.0  (16.7)     18.4     21.6   (3.2)        -        -       - 
-----------------------  -------  -------  ------  -------  -------  ------  -------  -------  ------ 
Total BPS                   35.1     37.3   (5.9)     86.2     89.4   (3.2)    8,077    8,304   (2.7) 
MPS                          4.0      4.2   (4.8)     42.5     47.8   (5.3)    1,867    1,746     6.9 
-----------------------  -------  -------  ------  -------  -------  ------  -------  -------  ------ 
UKIM discretionary          39.1     41.5   (5.8)     78.0     82.1   (4.1)    9,944   10,050   (1.1) 
Funds                        2.6      3.5  (25.7)     43.8     46.4   (2.6)    1,177    1,500  (21.5) 
-----------------------  -------  -------  ------  -------  -------  ------  -------  -------  ------ 
Total UKIM excluding 
 CAM                        41.7     45.0   (7.3)     74.4     77.5   (3.1)   11,121   11,550   (3.7) 
CAM                          4.7        -     n/a     70.0        -     n/a    1,332        -     n/a 
-----------------------  -------  -------  ------  -------  -------  ------  -------  -------  ------ 
Total UKIM including 
 CAM                        46.4     45.0     3.1     73.9     77.5   (3.6)   12,453   11,550     7.8 
International fees           4.5      4.4     2.3     53.8     53.5     0.3    1,659    1,637     1.3 
International non-fees       1.3      2.1  (38.1)     15.5     25.5  (10.0)        -        -       - 
Lloyds CI                    0.8        -     n/a     99.6        -     n/a      153        -     n/a 
-----------------------  -------  -------  ------  -------  -------  ------  -------  -------  ------ 
Total International          6.6      6.5     1.5     72.3     79.3   (7.0)    1,812    1,637    10.7 
-----------------------  -------  -------  ------  -------  -------  ------  -------  -------  ------ 
Total FUM related 
 revenue                    53.0     51.5     2.9     73.7     77.7   (4.0)   14,265   13,187     8.2 
Financial Planning 
 - UK                        1.9      2.0   (5.0) 
Financial Planning 
 - International             0.5      0.5       - 
Other income                 0.5      0.9  (44.4) 
-----------------------  -------  -------  ------  -------  -------  ------  -------  -------  ------ 
Total non-FUM 
 related revenue             2.9      3.4  (14.7) 
-----------------------  -------  -------  ------  -------  -------  ------  -------  -------  ------ 
Total Group revenue         55.9     54.9     1.8 
-----------------------  -------  -------  ------  -------  -------  ------  -------  -------  ------ 
 

Underlying costs

Total underlying costs for the Group fell by 3.5% from GBP43.4 million (restated) to GBP41.9 million, demonstrating the Group's continued focus on cost discipline and the full delivery of the cost synergies set out at the time of acquisition for both the Cornelian and Lloyds Channel Islands businesses. Excluding acquisitions, costs were down from GBP43.4 million to GBP39.5 million, a reduction of 9.0%.

Staff costs

Total staff costs increased by 3.8% to GBP27.4 million. Fixed staff costs increased from GBP18.8 million to GBP20.0 million with GBP0.9 million comprising the incremental costs of the 30 heads onboarded as part of the Cornelian and Lloyds Channel Islands acquisitions. The remainder reflects the Group's continued investment in talent, principally in the client facing roles as we continue to grow the business.

Variable staff costs reduced by 7.9% to GBP7.0 million excluding the Cornelian and Lloyds incremental variable staff costs. This decrease includes a credit of GBP0.6 million recognised in the period following the lapsing of share options granted under an LTIS award in 2017, which did not meet the performance conditions at the vesting date. The bonus pool accrual for the half year is in line with last year, however, given the majority of last year's bonus pool was accrued in H1 FY20, we would expect this year's bonus pool to be up on last year if performance continues at current levels.

Non-staff costs

Non-staff costs amounted to GBP14.5 million, a decrease of 14.7% on the prior period, even with the additional costs arising from the Cornelian and Lloyds Channel Islands acquisitions of GBP1.1 million. The bulk of the cost reduction was seen in Change costs (GBP1.6 million) as the Group completed business remediation in FY20 and is now focused on growth and ongoing client and adviser focused technology enhancements. Property and office costs decreased by GBP0.8 million, partly driven by the saving achieved from the Group moving to a single office in London in March 2020. Travel and entertaining spend was also down on last year (GBP0.5 million) as a result of reduced travel and client-facing activities caused by the COVID-19 pandemic.

Combining the above gave rise to an underlying profit before taxation for the half year of GBP14.0 million, an increase of 21.7% on the prior year (H1 FY20 Restated: GBP11.5 million) resulting in a profit margin of 25.1%, up by 4.2 points on last year (H1 FY20 Restated: 20.9%).

On a statutory basis, the profit before tax nearly doubled on the prior year at GBP14.1 million (H1 FY20 Restated: GBP7.7 million) largely due to a GBP5.0 million gain recognised on the Lloyds Channel Islands acquisition. The other one-off underlying adjustments for the period are similar in quantum to the prior year, with acquisition and integration-related costs broadly in line, however, the amortisation of client-relationship intangible assets has doubled from GBP1.1 million to GBP2.3 million due to the recognition of intangible assets arising on the Cornelian and Lloyds Channel Islands acquisitions. A breakdown of the underling adjustments together with an explanation of each is included in the Reconciliation between underlying and statutory profits section.

Funds under management

 
                                               Six months    Six months     12 months 
                                                       to            to            to 
                                              31 Dec 2020   31 Dec 2019   30 Jun 2020 
                                                     GBPm          GBPm          GBPm 
-------------------------------------------  ------------  ------------  ------------ 
Opening FUM                                        13,685        13,147        13,147 
Organic net new business                            (367)         (506)         (774) 
FUM acquired in the period                            882             -         1,181 
Investment performance                              1,303           448           131 
-------------------------------------------  ------------  ------------  ------------ 
Total FUM growth                                    1,818          (58)           538 
-------------------------------------------  ------------  ------------  ------------ 
Closing FUM                                        15,503        13,089        13,685 
-------------------------------------------  ------------  ------------  ------------ 
Organic net new business                           (2.7%)        (3.8%)        (5.9%) 
Total FUM movement                                  13.3%        (0.4%)          4.1% 
-------------------------------------------  ------------  ------------  ------------ 
 
Investment performance in the period                 9.5%          3.4%          1.0% 
MSCI PIMFA Private Investor Balanced Index           6.5%          2.9%        (3.5%) 
-------------------------------------------  ------------  ------------  ------------ 
 

Total FUM at 31 December 2020 reached a record high of GBP15.5 billion (H1 FY20: GBP13.1 billion; FY20: GBP13.7 billion), representing an increase of 18.4% and 13.3% on the FUM levels at H1 FY20 and FY20 respectively. The increase for the first half of the financial year was driven by strong investment performance (GBP1.3 billion) and the completion of the Lloyds Channel Islands acquisition in November 2020 (GBP0.9 billion), partially off-set by net outflows of GBP0.4 billion.

Net outflows are on an improving trend, with the outflows largely driven by redemptions in our Defensive Capital Fund (GBP0.2 billion) reflecting trends in the Targeted Absolute Return sector and the exit of a single mandate in MPS platforms (GBP0.1 billion) as it moved from discretionary to advisory.

Investment performance continued to be strong, up 9.5% in the period, compared to an increase of 6.5% in the MSCI PIMFA Private Investor Balanced Index.

Closing FUM by service and segment

The table below shows the closing FUM broken down by segment and by our key services within UKIM at 31 December 2020 and comparative periods.

 
                                H1 FY21 
                31 Dec  31 Dec   vs. H1  30 Jun 
                  2020    2019     FY20    2020 
                  GBPm    GBPm        %    GBPm 
--------------  ------  ------  -------  ------ 
BPS              8,910   8,332      6.9   8,247 
MPS              1,962   1,755     11.8   1,809 
Funds            2,045   1,369     49.4   2,051 
--------------  ------  ------  -------  ------ 
UKIM total      12,917  11,456     12.8  12,107 
International    2,586   1,633     58.4   1,578 
--------------  ------  ------  -------  ------ 
Total FUM       15,503  13,089     18.4  13,685 
--------------  ------  ------  -------  ------ 
 

Segmental analysis

The Group reports its results across three key operating segments, UK Investment Management, International and Financial Planning. The tables below provide a breakdown of the half year performance broken down by these segments, with comparatives.

 
                                  UK Investment                 Financial       Group and 
H1 FY21 (GBPm)                       Management  International   Planning   consolidation   Total 
--------------------------------  -------------  -------------  ---------  --------------  ------ 
Revenue                                    46.9            7.1        1.9               -    55.9 
Direct costs                             (19.9)          (4.3)      (1.4)          (16.3)  (41.9) 
--------------------------------  -------------  -------------  ---------  --------------  ------ 
Operating contribution                     27.0            2.8        0.5          (16.3)    14.0 
Internal cost recharges                  (12.3)          (1.4)      (0.9)            14.6       - 
--------------------------------  -------------  -------------  ---------  --------------  ------ 
Underlying profit/(loss) before 
 tax                                       14.7            1.4      (0.4)           (1.7)    14.0 
Underlying profit/(loss) margin 
 before tax                               31.3%          19.7%    (21.1%)             n/a   25.1% 
--------------------------------  -------------  -------------  ---------  --------------  ------ 
 
 
                                  UK Investment                 Financial       Group and 
H1 FY20(1) (GBPm)                    Management  International   Planning   consolidation   Total 
--------------------------------  -------------  -------------  ---------  --------------  ------ 
Revenue                                    45.9            7.0        2.0               -    54.9 
Direct costs                             (20.5)          (4.0)      (1.5)          (17.4)  (43.4) 
--------------------------------  -------------  -------------  ---------  --------------  ------ 
Operating contribution                     25.4            3.0        0.5          (17.4)    11.5 
Internal cost recharges                  (12.3)          (1.6)      (1.1)            15.0       - 
--------------------------------  -------------  -------------  ---------  --------------  ------ 
Underlying profit/(loss) before 
 tax                                       13.1            1.4      (0.6)           (2.4)    11.5 
Underlying profit/(loss) margin 
 before tax                               28.5%          20.0%    (30.0%)             n/a   20.9% 
--------------------------------  -------------  -------------  ---------  --------------  ------ 
 

1. Comparative figures have been restated to reflect the correct recognition of the Authorised Corporate Director fees and associated costs in respect of one of the Group's managed OEICs and the correct VAT treatment on the fees recognised on the Managed Portfolio Service offered through third-party models. Refer to Note 2a of the Condensed consolidated financial statements for details on the restatement.

The UKIM and Financial Planning business segments reported an improvement in performance during the first half of the financial year. International reported a stable underlying profit margin at 20% with further improvement expected in the second half of the year driven by the Lloyds Channel Islands acquisition.

UKIM and International recognised an increase in revenues during the period, up by 2.2% and 1.4% respectively, largely as a result of the Cornelian and Lloyds Channel Islands acquisitions. The decrease in direct costs within UKIM led to a higher underlying profit margin of 31%. International's total costs increased marginally in line with revenues resulting in a stable profit margin on the prior period.

Financial Planning reported a slight decline in revenues by 5.0%, however, the reduction in both its direct and indirect costs meant its margin improved from -30.0% to -21.1% over the period. As announced in December 2020, Financial Planning will be integrated within the UKIM business segment in the second half of the financial year to ensure the Group is best placed to deliver the best possible service and experience for both our private clients and our intermediaries.

Reconciliation between underlying and statutory profits

Underlying profit before tax is considered by the Board to be a more accurate reflection of the Group's performance when compared to the statutory results as this excludes income and expense categories, which are deemed of a non-recurring nature or a non-cash operating item. Reporting at an underlying basis is also considered more appropriate for external analyst coverage and peer group benchmarking, allowing a more accurate like-for-like comparison. A reconciliation between underlying and statutory profit before tax for the six months ended 31 December 2020, with comparatives is shown in the following table:

 
                                                       Six months       Six months     12 months 
                                                               to               to            to 
                                                      31 Dec 2020   31 Dec 2019(1)   30 Jun 2020 
                                                             GBPm             GBPm          GBPm 
---------------------------------------------------  ------------  ---------------  ------------ 
Underlying profit before tax                                 14.0             11.5          23.0 
Acquisition-related costs: 
 
      *    Gain arising on acquisition                        5.0                -             - 
 
      *    Deal structuring and legal costs                     -            (2.0)         (2.8) 
 
      *    Integration and staff retention costs            (2.4)                -         (1.4) 
Amortisation of client relationships and contracts 
 acquired with fund managers                                (2.3)            (1.1)         (2.9) 
Changes in fair value of consideration and related 
 disposals                                                  (0.2)            (0.1)         (0.2) 
Head office relocation costs                                    -            (0.6)         (1.2) 
Goodwill impairment                                             -                -         (4.5) 
---------------------------------------------------  ------------  ---------------  ------------ 
Statutory profit before tax                                  14.1              7.7          10.0 
---------------------------------------------------  ------------  ---------------  ------------ 
 

1. Comparative figures have been restated to reflect the correct recognition of the Authorised Corporate Director fees and associated costs in respect of one of the Group's managed OEICs and the correct VAT treatment on the fees recognised on the Managed Portfolio Service offered through third-party models. Refer to Note 2a of the Condensed consolidated financial statements for details on the restatement.

Acquisition-related costs (GBP2.6 million net credit)

   i.   Gain arising on acquisition (GBP5.0 million gain) 

A gain on purchase was recognised in respect of the Lloyds Channel Islands acquisition as the net identifiable assets acquired were greater than the total purchase consideration paid. Refer to Note 7 of the Condensed consolidated financial statements for details on the acquisition accounting.

ii. H1 FY20 - Deal structuring and legal costs (GBP2.0 million charge)

These represent costs incurred in relation to the acquisition of Cornelian Asset Managers Group Limited announced on 22 November 2019. The costs incurred include corporate finance services, legal fees and due diligence fees.

   iii.          Integration and staff retention costs (GBP2.4 million charge) 

These comprise the costs incurred in integrating the Cornelian acquisition, which completed on 28 February 2020, and the Lloyds Channel Islands acquisition, which completed on 30 November 2020. It also includes payments made to key employees who were retained by the Group for a short period of time to assist with the integration of the businesses.

The above items are being excluded from the Group's underlying performance as they were one-off in nature.

Amortisation of client relationships and contracts acquired with fund managers (GBP2.3 million charge)

These intangible assets are created in the course of acquiring funds under management and are amortised over their useful life, which has been assessed to range between 5 and 20 years. The charge for the period includes the newly acquired investment management contracts arising on the Cornelian and Lloyds Channel Islands acquisitions. The amortisation charge has been excluded from the underlying profit since it is a significant non-cash item. Refer to Note 10 to the Condensed consolidated financial statements for more details.

Changes in fair value of consideration and related disposals (GBP0.2 million charge)

This comprises the fair value measurement arising on deferred payments and receipts from acquisitions and disposals carried out by the Group, together with their associated net finance costs.

H1 FY20 Head office relocation costs (GBP0.6 million charge)

The Group's previous London offices based in Welbeck Street and Bevis Marks were relocated to a single site at 21 Lombard Street in the City of London. As a result of the move, dual running costs were incurred on the three locations until the office leases at Bevis Marks and Welbeck Street expired in March 2020. The dual running costs and other costs associated with the move have been excluded from underlying profit in view of their one-off nature.

FY20 Goodwill impairment

In FY20, the Group recognised an impairment charge in respect of the Levitas business as the anticipated future cash flows arising from the recently entered partnership agreement with the distributor of the Levitas fund fell below expectations and no longer supported the associated goodwill carrying value. This partnership is still active and FUM flows could improve in due course.

Taxation

The Group's Corporation Tax charge on underlying profits for the period was GBP2.5 million (H1 FY20 Restated: GBP2.0 million) representing an effective tax rate of 17.9% (H1 FY20: 17.4%). The effective tax charge for the current period includes the recognition of deferred tax on the acquired client relationship intangible assets as part of the Cornellian and Lloyds Channel Islands acquisitions. Refer to Note 6 to the Condensed consolidated financial statements for more details.

Earnings per share

The Group's basic statutory earnings per share for the six months ended 31 December 2020 was 77.3p (H1 FY20 Restated: 44.1p). On an underlying basis, diluted earnings per share increased by 8.3% to 73.2p (H1 FY20 Restated: 67.6p). Details on the basic and diluted earnings per share are provided in Note 8 of the Condensed consolidated financial statements.

Dividend

The Group has a progressive dividend policy, growing dividends in line with the Group's underlying earnings. The Board recognises the importance of dividends to shareholders and the benefit of providing sustainable shareholder returns. In determining the level of dividend in any year, the Board considers a number of factors such as the level of retained earnings, future cash commitments, statutory profit cover, capital and liquidity requirements and the level of profit retention required to sustain the growth of the Group. The Board has declared an interim dividend of 23.0p (H1 FY20: 21.0p). This represents an increase of 9.5% compared to the previous period. The interim dividend will be paid on 16 April 2021 to shareholders on the register as at 19 March 2021. Refer to Note 9 of the Condensed consolidated financial statements for more details.

Financial position and regulatory capital

The Group's financial position remains strong with net assets of GBP129.0 million at 31 December 2020 (H1 FY20 Restated: GBP118.9 million). As at 31 December 2020, the Group had a total capital ratio of 17.2% (H1 FY20 Restated: 18.5%). Total capital ratio is defined as the Group's own funds as a proportion of the total fixed overhead exposure amount (being 12.5 times the Pillar I requirement).

The total net assets and the total capital ratio calculation take into account the respective period's interim profits (net of the declared interim dividends) as these are deemed to be verified at the date of publication of the half year results. The comparative figures strip out the impact of the share placing carried out in November 2019 to fund the acquisition of Cornelian for a more like-for-like comparison. The slight year-on-year decline was driven by the acquisition of the Lloyds Channels Islands business, which was funded from the firm's own resources.

Brooks Macdonald Asset Management Limited, the Group's main operating subsidiary, is an IFPRU 125k Limited Licence Firm regulated by the Financial Conduct Authority ("FCA"). In view of this, the Group is classified as a regulated group and subject to the same regime. As required under FCA rules, and those of both the Jersey and Guernsey Financial Services Commission, the Group assesses its regulatory capital and liquidity on an ongoing basis through the Internal Capital Adequacy Assessment Process ("ICAAP") and Adjusted Net Liquid Asset ("ANLA") assessments, which include performing a range of stress tests and scenario analysis to determine the appropriate level of regulatory capital and liquidity that the Group needs to hold. Surplus levels of capital and liquidity are forecast, taking into account known outflows and proposed dividends to ensure that the Group maintains sufficient capital and liquidity at all times.

The FY20 ICAAP review was conducted for the period ended 30 June 2020 and signed off by the Board in December 2020. Regulatory capital forecasts are performed monthly and take into account expected dividends and intangible asset acquisitions and disposals as well as budgeted and forecast trading results.

The Group's Pillar III disclosures are published annually on the Group's website ( www.brooksmacdonald.com ) and provide further details about the Group's regulatory capital resources and requirements. The Group monitors a range of capital and liquidity statistics on a daily and monthly basis.

Spearpoint legacy matters

During the period, we continued to make progress in dealing proactively with the previously announced legacy matters arising from the former Spearpoint business, which we acquired in 2012. These matters relate both to a number of discretionary portfolios formerly managed by Spearpoint, now managed by our Jersey office, and to a Dublin-based fund, for which Spearpoint acted as investment manager. While we accept no legal liability in these matters, we have a deep commitment to treating customers fairly and seeking to protect our clients' best interests.

In October 2020, the Jersey Financial Services Commission ("JFSC"; "Commission") announced that it had resolved its investigation into International's compliance with the Code of Practice for Investment Business ("the IB Code") in relation to certain historic investments. The announcement stated that the Commission had found certain breaches of the IB Code and that it had concluded its investigation. We were pleased to note both that the investigation had concluded and that the statement acknowledged that International had engaged openly and co-operatively with the JFSC in respect of the investigation.

We continue to be in discussions with relevant stakeholders as we seek to bring these matters to a conclusion.

Cash flow and capital expenditure

The Group continues to have strong levels of cash generation from operations. Total cash resources at the end of December 2020 were GBP38.6 million (H1 FY20: GBP33.2 million, excluding the proceeds from the share placing ran in November 2019 to finance the Cornelian acquisition). The Group had no borrowings at 31 December 2020 (H1 FY20: GBPnil).

During the period to 31 December 2020, the Group incurred capital expenditure of GBP2.6 million. This comprised technology related development of GBP2.0 million, property related costs of GBP0.4 million and IT and office equipment of GBP0.2 million. The technology related spend was primarily incurred in connection with our strategic partnership with SS&C where the collaboration will provide a market-leading digital experience for the Group's intermediaries and clients. The capital expenditure incurred in the first half includes legal fees in relation to the master agreement, planning and scoping the implementation programme and software costs to re-platform. These will be amortised over a ten-year period from the point at which the new platform goes live in H2 FY22.

Condensed consolidated financial statements

Condensed consolidated statement of comprehensive income

for the six months ended 31 December 2020

 
                                                     Six months 
                                                          ended                     Year ended 
                                                                      Six months 
                                                    31 Dec 2020            ended   30 Jun 2020 
                                                                  31 Dec 2019(1) 
                                                    (unaudited)      (unaudited)     (audited) 
                                            ---- 
                                            Note        GBP'000          GBP'000       GBP'000 
------------------------------------------  ----  -------------  ---------------  ------------ 
Revenue                                        4         55,855           54,896       108,558 
Administrative costs                                   (46,371)         (47,127)      (93,794) 
Other gains/(losses) - net                     5           (18)             (55)       (4,519) 
------------------------------------------  ----  -------------  ---------------  ------------ 
Operating profit                                          9,466            7,714        10,245 
Gain on bargain purchase                       7          4,966                -             - 
Finance income                                               31              132           261 
Finance costs                                             (317)            (151)         (454) 
------------------------------------------  ----  -------------  ---------------  ------------ 
Profit before tax                                        14,146            7,695        10,052 
Taxation                                       6        (2,003)          (1,491)       (3,626) 
------------------------------------------  ----  -------------  ---------------  ------------ 
Profit for the period attributable to 
 equity holders of the Company                           12,143            6,204         6,426 
Other comprehensive income                                    -                -             - 
------------------------------------------  ----  -------------  ---------------  ------------ 
Total comprehensive income for the period                12,143            6,204         6,426 
------------------------------------------  ----  -------------  ---------------  ------------ 
 
Earnings per share 
Basic                                          8          77.3p            44.1p         43.2p 
Diluted                                        8          77.2p            44.1p         43.1p 
------------------------------------------  ----  -------------  ---------------  ------------ 
 

1. See Note 2a for details regarding the restatement as a result of the Authorised Corporate Director ("ACD") fees and associated costs and also the output VAT on Platform MPS.

The accompanying notes form an integral part of these Condensed consolidated financial statements.

Condensed consolidated statement of financial position

as at 31 December 2020

 
                                                31 Dec 2020  31 Dec 2019(1,2)  30 Jun 2020 
                                                (unaudited)       (unaudited)    (audited) 
                                         Note       GBP'000           GBP'000      GBP'000 
---------------------------------------  ----  ------------  ----------------  ----------- 
Assets 
Non-current assets 
Intangible assets                          10        94,371            48,403       83,804 
Property, plant and equipment              11         3,295             2,385        3,181 
Right of use assets                        12         6,646             7,434        6,991 
Financial assets at fair value through 
 other comprehensive income                13           500               500          500 
Other non-current receivables              13             -                94            - 
Deferred tax assets                                   1,784             1,917        1,524 
---------------------------------------  ----  ------------  ----------------  ----------- 
Total non-current assets                            106,596            60,733       96,000 
Current assets 
Trade and other receivables                13        27,525            27,301       26,081 
Financial assets at fair value through 
 profit or loss                            13           608               175          549 
Cash and cash equivalents                  13        38,600            62,639       50,168 
---------------------------------------  ----  ------------  ----------------  ----------- 
Total current assets                                 66,733            90,115       76,798 
---------------------------------------  ----  ------------  ----------------  ----------- 
Total assets                                        173,329           150,848      172,798 
---------------------------------------  ----  ------------  ----------------  ----------- 
Liabilities 
Non-current liabilities 
Lease liabilities                          14       (6,162)           (7,278)      (6,659) 
Deferred consideration                     15         (298)                 -      (6,300) 
Provisions                                 16         (237)             (131)        (219) 
Other non-current liabilities              13         (560)             (570)        (330) 
Deferred tax liabilities                            (7,987)           (2,119)      (7,230) 
---------------------------------------  ----  ------------  ----------------  ----------- 
Total non-current liabilities                      (15,244)          (10,098)     (20,738) 
Current liabilities 
Trade and other payables                   13      (19,041)          (18,333)     (22,765) 
Current tax liabilities                    13         (118)             (125)        (480) 
Lease liabilities                          14       (1,355)           (1,592)      (1,275) 
Deferred consideration                     15       (7,799)             (405)      (1,691) 
Provisions                                 16         (739)           (1,370)      (2,308) 
---------------------------------------  ----  ------------  ----------------  ----------- 
Total current liabilities                          (29,052)          (21,825)     (28,519) 
---------------------------------------  ----  ------------  ----------------  ----------- 
Net assets                                          129,033           118,925      123,541 
---------------------------------------  ----  ------------  ----------------  ----------- 
Equity 
Share capital                              18           161               157          161 
Share premium                              18        78,071            68,817       77,982 
Other reserves                                        7,042             6,087        6,398 
Retained earnings                                    43,759            43,864       39,000 
---------------------------------------  ----  ------------  ----------------  ----------- 
Total equity                                        129,033           118,925      123,541 
---------------------------------------  ----  ------------  ----------------  ----------- 
 

1. See Note 2a for details regarding the restatement as a result of the output VAT on Platform MPS.

2. See Note 2a for details regarding the reclassification of current deferred consideration and current provisions for the comparative periods.

The Condensed consolidated financial statements were approved by the Board of Directors and authorised for issue on 10 March 2021, signed on their behalf by:

   C M Connellan                                                                          B L Thorpe 

CEO Group Finance Director

Company registration number: 4402058

The accompanying notes form an integral part of these Condensed consolidated financial statements.

Condensed consolidated statement of changes in equity

for the six months ended 31 December 2020

 
                                                                                      Retained 
                                       Share capital  Share premium  Other reserves   earnings    Total 
                                 Note        GBP'000        GBP'000         GBP'000    GBP'000  GBP'000 
-------------------------------  ----  -------------  -------------  --------------  ---------  ------- 
Balance at 30 June 2019                          139         39,068           4,575     43,091   86,873 
-------------------------------  ----  -------------  -------------  --------------  ---------  ------- 
Comprehensive income 
Profit for the period                              -              -               -      6,361    6,361 
Adjustment on restatement(1)                       -              -               -      (157)    (157) 
Other comprehensive income                         -              -               -          -        - 
-------------------------------  ----  -------------  -------------  --------------  ---------  ------- 
Total comprehensive expense                        -              -               -      6,204    6,204 
Transactions with owners 
Issue of ordinary shares           18             18         29,749               -          -   29,767 
Share-based payments                               -              -           2,492          -    2,492 
Share-based payments exercised                     -              -         (1,031)      1,031        - 
Purchase of own shares by 
 employee benefit trust                            -              -               -    (2,080)  (2,080) 
Tax on share options                               -              -              51          -       51 
Dividends paid                      9              -              -               -    (4,382)  (4,382) 
-------------------------------  ----  -------------  -------------  --------------  ---------  ------- 
Total transactions with owners                    18         29,749           1,512    (5,431)   25,848 
-------------------------------  ----  -------------  -------------  --------------  ---------  ------- 
Balance at 31 December 2019                      157         68,817           6,087     43,864  118,925 
-------------------------------  ----  -------------  -------------  --------------  ---------  ------- 
Comprehensive income 
Profit for the period                              -              -               -        222      222 
Other comprehensive income                         -              -               -          -        - 
-------------------------------  ----  -------------  -------------  --------------  ---------  ------- 
Total comprehensive income                         -              -               -        222      222 
Transactions with owners 
Issue of ordinary shares           18              4          9,165               -          -    9,169 
Share-based payments                               -              -           1,079          -    1,079 
Share-based payments exercised                     -              -           (739)        739        - 
Purchase of own shares by 
 employee benefit trust                            -              -               -    (2,527)  (2,527) 
Tax on share options                               -              -            (29)          -     (29) 
Dividends paid                      9              -              -               -    (3,298)  (3,298) 
-------------------------------  ----  -------------  -------------  --------------  ---------  ------- 
Total transactions with owners                     4          9,165             311    (5,086)  (4,394) 
-------------------------------  ----  -------------  -------------  --------------  ---------  ------- 
Balance at 30 June 2020                          161         77,982           6,398     39,000  123,541 
-------------------------------  ----  -------------  -------------  --------------  ---------  ------- 
Comprehensive income 
Profit for the period                              -              -               -     12,143   12,143 
Other comprehensive income                         -              -               -          -        - 
-------------------------------  ----  -------------  -------------  --------------  ---------  ------- 
Total comprehensive income                         -              -               -     12,143   12,143 
Transactions with owners 
Issue of ordinary shares           18              -             89               -          -       89 
Share-based payments                               -              -           1,560          -    1,560 
Share-based payments exercised                     -              -         (1,065)      1,065        - 
Purchase of own shares by 
 employee benefit trust                            -              -               -    (3,450)  (3,450) 
Tax on share options                               -              -             149          -      149 
Dividends paid                      9              -              -               -    (4,999)  (4,999) 
-------------------------------  ----  -------------  -------------  --------------  ---------  ------- 
Total transactions with owners                     -             89             644    (7,384)  (6,651) 
-------------------------------  ----  -------------  -------------  --------------  ---------  ------- 
Balance at 31 December 2020                      161         78,071           7,042     43,759  129,033 
-------------------------------  ----  -------------  -------------  --------------  ---------  ------- 
 

1. See Note 2a for details regarding the restatement as a result of the output VAT on Platform MPS.

The accompanying notes form an integral part of these Condensed consolidated financial statements.

Condensed consolidated statement of cash flows

for the six months ended 31 December 2020

 
                                                        Six months    Six months 
                                                             ended         ended       Year ended 
                                                       31 Dec 2020   31 Dec 2019   30 Jun 2020(1) 
                                                       (unaudited)   (unaudited)        (audited) 
                                                Note       GBP'000       GBP'000          GBP'000 
----------------------------------------------  ----  ------------  ------------  --------------- 
Cash flow from operating activities 
Cash generated from operations                    17         8,994         9,927           29,433 
Taxation paid                                              (2,963)       (4,464)          (5,865) 
----------------------------------------------  ----  ------------  ------------  --------------- 
Net cash generated from operating activities                 6,031         5,463           23,568 
Cash flows from investing activities 
Purchase of intangible assets                     10       (1,999)         (427)          (1,614) 
Purchase of property, plant and equipment         11         (577)         (430)          (1,958) 
Deferred consideration paid                       15         (421)         (919)            (919) 
Acquisition of subsidiary, net of cash 
 acquired                                          7       (5,287)             -         (21,102) 
Proceeds from sale of discontinued operations                    -           390              568 
Interest received                                               31           125              252 
Finance costs paid                                               -             -              (5) 
----------------------------------------------  ----  ------------  ------------  --------------- 
Net cash used in investing activities                      (8,253)       (1,261)         (24,778) 
Cash flows from financing activities 
Payment of lease liabilities and initial 
 direct costs                                     14         (986)         (708)          (2,111) 
Proceeds of lease reverse premium                                -         1,250            1,250 
Dividends paid to shareholders                     9       (4,999)       (4,382)          (7,680) 
Purchase of own shares by employee benefit 
 trust                                                     (3,450)       (2,080)          (4,607) 
Proceeds of issue of shares                       18            89        29,767           38,936 
Shares issued as consideration                                   -             -          (9,000) 
----------------------------------------------  ----  ------------  ------------  --------------- 
Net cash generated (used in)/from financing 
 activities                                                (9,346)        22,847           16,788 
----------------------------------------------  ----  ------------  ------------  --------------- 
Net increase in cash and cash equivalents                 (11,568)        28,049           15,578 
Cash and cash equivalents at beginning 
 of period                                                  50,168        34,590           34,590 
----------------------------------------------  ----  ------------  ------------  --------------- 
Cash and cash equivalents at end of period                  38,600        62,639           50,168 
----------------------------------------------  ----  ------------  ------------  --------------- 
 

1. See Note 17 for details regarding changes to the prior period classification of cash flows from operating activities and cash flows from investing activities.

The accompanying notes form an integral part of these Condensed consolidated financial statements.

Notes to the condensed consolidated financial statements

for the six months ended 31 December 2020

1. General information

Brooks Macdonald Group plc ("the Company") is the Parent Company of a group of companies ("the Group"), which offers a range of investment management services to private high net worth individuals, pension funds, institutions, charities and trusts. The Group also provides financial planning as well as international investment management, and acts as fund manager to a range of onshore and international funds. The Group's primary activities are set out in its Annual Report and Accounts for the year ended 30 June 2020.

The Company is a public limited company, incorporated and domiciled in the United Kingdom under the Companies Act 2006 and is listed on AIM. The address of its registered office is 21 Lombard Street, London, EC3V 9AH.

The Interim Report and Accounts were approved for issue on 10 March 2021. The Condensed consolidated financial statements have been independently reviewed but are not audited.

2. Accounting policies

a) Basis of preparation

The Group's Condensed consolidated financial statements are prepared and presented in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union. They have been prepared on a going concern basis with reference to the accounting policies and methods of computation and presentation set out in the Group's Consolidated financial statements for the year ended 30 June 2020, except as stated below. The Condensed consolidated financial statements should be read in conjunction with the Group's audited financial statements for the year ended 30 June 2020, which have been prepared in accordance with International Financial Reporting Standards ("IFRS") and IFRS Interpretations Committee ("IFRS IC") interpretations, as adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRS.

The information in the Interim Report and Accounts does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. The Group's Consolidated financial statements for the year ended 30 June 2020 have been reported on by the Group's auditor and delivered to the Registrar of Companies. The report of the auditor was unqualified and did not draw attention to any matters by way of emphasis. It contained no statement under Section 498(2) or (3) of the Companies Act 2006.

At the time of approving the Condensed consolidated financial statements, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing these Condensed consolidated financial statements.

Comparative period restatement

ACD fees and associated costs

As reported in the Annual Report and Accounts for the year ended 30 June 2020, the Group noted that the recognition of the Authorised Corporate Director ("ACD") fees and associated costs in respect of the IFSL Brooks Macdonald Funds, one of the regulated OEICs managed by the Group, were not in line with the investment management agreement between the Group and the ACD. The revenue recognised in the Group was grossed up whereby the Annual Management Charge and other associated fees levied by the ACD to the OEICs were recognised as revenue, and the fees that are subsequently paid out from this fee recognised as expenses. The Group has no legal obligation to pay the ACD fees and other fund associated costs; therefore, only the investment management fee paid to the Group for acting as the OEIC's Investment Manager should have been recognised in the Group's books as a revenue item. As a result, for the six months ended 31 December 2019, reported revenue and costs were overstated by GBP656,000. Accordingly, the Condensed consolidated statement of comprehensive income has been restated by this amount to reflect the correct accounting treatment. There was no impact to total comprehensive income and retained earnings. The restatement has impacted the UK Investment Management segment in Note 3, the Portfolio management fee income in the revenue table in Note 4 and the revenue generated in the United Kingdom per Note 4a.

VAT on Platform MPS

As reported in the Annual Report and Accounts for the year ended 30 June 2020, the Group begun a review of its Managed Portfolio Service ("MPS"). When conducting this review, it was noted that the fees received on MPS offered through third-party platforms ("Platform MPS") were not being correctly accounted for and historically treated as exempt from VAT. As a result, income derived from this service was overstated, the VAT liability arising on the fees collected was understated and consequently the Group has under-recovered its entitlement to input VAT credit. Since previously reported revenue from Platform MPS was overstated, the Directors concluded it prudent to rectify the error.

Accordingly, the Group recognised a prior period adjustment to reduce revenue by GBP239,000 for the output VAT on Platform MPS and reduce administrative costs by GBP44,000 for the entitlement to input VAT credit for the six months ended 31 December 2019. The decrease to profit before tax as a result of this restatement for the six months ended 31 December 2019 was GBP194,000. This reduction in profit before tax has resulted in the income tax expense to be reduced by GBP37,000. The total reduction to total comprehensive income for the six months ended 31 December 2019 was GBP157,000. The restatement has impacted the UK Investment Management segment in Note 3, the Portfolio management fee income in the revenue table in Note 4 and the revenue generated in the United Kingdom per Note 4a. The Condensed consolidated statement of financial position at 31 December 2019 was restated to reflect this increase in trade and other payables to recognise the additional VAT liability due to HMRC of GBP194,000 and reduce current tax liabilities by the reduced income tax expense of GBP37,000. The opening balances to the comparative information at 1 July 2019 were also restated to reflect the reduction in retained earnings of GBP431,000 and an increase in trade and other payables of GBP431,000.

Comparative period reclassification

Current deferred consideration has been recognised on the face of the Condensed consolidated statement of financial position in the current period. In previous periods, current deferred consideration was recognised within current provisions. The comparative information has therefore been reclassified by moving GBP1,691,000 from current provisions to current deferred consideration at 30 June 2020, and moving GBP405,000 from current provisions to current deferred consideration at 31 December 2019, to be consistent with the current period.

b) Changes in accounting policies

The Group's accounting policies that have been applied in preparing these Condensed consolidated financial statements are consistent with those disclosed in the Annual Report and Accounts for the year ended 30 June 2020.

In the six months ended 31 December 2020, the Group did not adopt any new standards or amendments issued by the IASB or interpretations issued by the IFRS IC that have had a material impact on the Condensed consolidated financial statements.

New standards, amendments and interpretations listed in the table below were newly adopted by the Group but have not had a material impact on the amounts reported in these Financial statements. They may, however, impact the accounting for future transactions and arrangements.

 
Standard, amendment or interpretation                     Effective date 
--------------------------------------------------------  -------------- 
Definition of a Business (Amendments to IFRS 3)           1 January 2020 
Definition of Material (Amendments to IAS 1 and IAS 8)    1 January 2020 
Interest Rate Benchmark Reform (Amendments to IFRS 9, 
 IAS 39 and IFRS 7)                                       1 January 2020 
COVID-19-related Rent Concessions (Amendment to IFRS 16)  1 January 2020 
--------------------------------------------------------  -------------- 
 

Future new standards and interpretations

These Financial statements have been prepared in accordance with IFRS and IFRS IC interpretations, as adopted by the European Union and the Companies Act 2006. As a result of the UK leaving the European Union on 31 December 2020, the Group's Consolidated financial statements for the year ending 30 June 2021 will be prepared under international accounting standards in conformity with the Companies Act 2006. It should be noted that this will not have any impact on the recognition, measurement or disclosure in the Group's Consolidated financial statements.

A number of new standards are effective for annual periods beginning after 1 July 2020 and earlier application is permitted; however, the Group has not early adopted any new or amended standards in preparing these Condensed consolidated financial statements. None of the standards not yet effective are expected to have a material impact on the Group's Financial statements.

3. Segmental information

For management purposes the Group's activities are organised into three operating divisions: UK Investment Management, International and Financial Planning. The Group's other activity, offering nominee and custody services to clients, is included within UK Investment Management. These divisions are the basis on which the Group reports its primary segmental information to the Executive Committee, which is the Group's chief operating decision-maker. In accordance with IFRS 8 'Operating Segments', disclosures are required to reflect the information that the Board of Directors uses internally for evaluating the performance of its operating segments and allocating resources to those segments. The information presented in this note is consistent with the presentation for internal reporting.

The UK Investment Management segment offers a range of investment management services to private high net worth individuals, pension funds, institutions, charities and trusts. The International segment is based in the Channel Islands and offers a similar range of investment management and financial planning services as the UK Investment Management segment and the Financial Planning segment. Financial Planning offers wealth management services to high net worth individuals and families, giving independent "whole of market" financial advice enabling clients to build, manage and protect their wealth. The Group segment principally comprises the Group Board's management and associated costs, along with the consolidation adjustments.

Following the Cornelian and Lloyds Channel Islands (Note 7) acquisitions, the activities since acquisition have been included in the UK Investment Management segment and International segment respectively.

Revenues and expenses are allocated to the business segment that originated the transaction. Sales between segments are carried out at arm's length. Centrally incurred expenses are allocated to business segments on an appropriate pro rata basis.

 
                                         UK Investment                 Financial  Group and consolidation 
Six months ended 31 Dec 2020                Management  International   Planning              adjustments      Total 
(unaudited)                                    GBP'000        GBP'000    GBP'000                  GBP'000    GBP'000 
---------------------------------------  -------------  -------------  ---------  -----------------------  --------- 
Total segment revenue                           49,833          7,058      1,846                        -     58,737 
Inter segment revenue                          (2,882)              -          -                        -    (2,882) 
---------------------------------------  -------------  -------------  ---------  -----------------------  --------- 
External revenues                               46,951          7,058      1,846                        -     55,855 
Underlying administrative costs               (19,772)        (4,289)    (1,342)                 (16,360)   (41,763) 
---------------------------------------  -------------  -------------  ---------  -----------------------  --------- 
Operating contribution                          27,179          2,769        504                 (16,360)     14,092 
Allocated costs                               (12,301)        (1,468)      (859)                   14,628          - 
Underlying other gains/(losses) 
 - net, finance income and finance 
 costs                                            (92)              2       (16)                       20       (86) 
---------------------------------------  -------------  -------------  ---------  -----------------------  --------- 
Underlying profit/(loss) before 
 tax                                            14,786          1,303      (371)                  (1,712)     14,006 
Gain on bargain purchase                             -              -          -                    4,966      4,966 
Acquisition-related costs                        (435)        (1,961)          -                       40    (2,356) 
Amortisation of client relationships             (343)          (260)          -                  (1,648)    (2,251) 
Finance cost of deferred consideration               -            (1)          -                    (158)      (159) 
Changes in fair value of deferred 
 consideration                                       -              -          -                     (60)       (60) 
Profit mark-up on Group allocated 
 costs                                              89           (43)       (49)                        3          - 
---------------------------------------  -------------  -------------  ---------  -----------------------  --------- 
Profit/(loss) before tax                        14,097          (962)      (420)                    1,431     14,146 
Taxation                                                                                                     (2,003) 
---------------------------------------  -------------  -------------  ---------  -----------------------  --------- 
Profit for the period attributable 
 to equity holders of the Company                                                                             12,143 
---------------------------------------  -------------  -------------  ---------  -----------------------  --------- 
 
Six months ended 31 Dec 2019             UK Investment                 Financial  Group and consolidation 
 (1)                                        Management  International   Planning              adjustments      Total 
(unaudited)                                    GBP'000        GBP'000    GBP'000                  GBP'000    GBP'000 
---------------------------------------  -------------  -------------  ---------  -----------------------  --------- 
Total segment revenue                           46,337          7,023      1,962                        8     55,330 
Inter segment revenue                            (434)              -          -                        -      (434) 
---------------------------------------  -------------  -------------  ---------  -----------------------  --------- 
External revenues                               45,903          7,023      1,962                        8     54,896 
Underlying administrative costs               (20,567)        (4,085)    (1,464)                 (17,354)   (43,470) 
---------------------------------------  -------------  -------------  ---------  -----------------------  --------- 
Operating contribution                          25,336          2,938        498                 (17,346)     11,426 
Allocated costs                               (12,235)        (1,599)    (1,075)                   14,909          - 
Underlying other gains - net, 
 finance income and finance costs                   49             32          -                        2         83 
---------------------------------------  -------------  -------------  ---------  -----------------------  --------- 
Underlying profit/(loss) before 
 tax                                            13,150          1,371      (577)                  (2,435)     11,509 
Acquisition-related costs                            -              -          -                  (2,080)    (2,080) 
Amortisation of client relationships 
 and contracts acquired with 
 fund managers                                   (358)          (210)          -                    (520)    (1,088) 
Head office relocation costs                     (444)           (91)       (38)                        -      (573) 
Changes in fair value of contingent 
 consideration                                       -              -       (55)                        -       (55) 
Finance cost of deferred consideration               -              -          -                     (25)       (25) 
Finance income from contingent 
 consideration                                       -              -          6                        1          7 
---------------------------------------  -------------  -------------  ---------  -----------------------  --------- 
Profit/(loss) before tax                        12,348          1,070      (664)                  (5,059)      7,695 
Taxation                                                                                                     (1,491) 
---------------------------------------  -------------  -------------  ---------  -----------------------  --------- 
Profit for the period attributable 
 to equity holders of the Company                                                                              6,204 
---------------------------------------  -------------  -------------  ---------  -----------------------  --------- 
 

1. See Note 2a for details regarding the restatement to the UK Investment Management segment as a result of the ACD fees and associated costs and also the output VAT on Platform MPS.

 
                                         UK Investment                 Financial  Group and consolidation 
                                            Management  International   Planning              adjustments     Total 
Year ended 30 Jun 2020 (audited)               GBP'000        GBP'000    GBP'000                  GBP'000   GBP'000 
---------------------------------------  -------------  -------------  ---------  -----------------------  -------- 
Total segment revenue                           95,950         13,335      3,831                      (6)   113,110 
Inter segment revenue                          (4,552)              -          -                        -   (4,552) 
---------------------------------------  -------------  -------------  ---------  -----------------------  -------- 
External revenues                               91,398         13,335      3,831                      (6)   108,558 
Underlying administrative costs               (42,004)        (8,026)    (3,161)                 (32,424)  (85,615) 
---------------------------------------  -------------  -------------  ---------  -----------------------  -------- 
Operating contribution                          49,394          5,309        670                 (32,430)    22,943 
Allocated costs                               (24,143)        (2,890)    (1,926)                   28,959         - 
Net finance income                                   1             50          -                       29        80 
---------------------------------------  -------------  -------------  ---------  -----------------------  -------- 
Underlying profit/(loss) before 
 tax                                            25,252          2,469    (1,256)                  (3,442)    23,023 
Goodwill impairment                                  -              -          -                  (4,471)   (4,471) 
Acquisition-related costs                      (1,085)          (606)          -                  (2,570)   (4,261) 
Amortisation of client relationships 
 and contracts acquired with 
 fund managers                                   (701)          (420)          -                  (1,762)   (2,883) 
Head office relocation costs                   (1,166)              -          -                        -   (1,166) 
Finance cost of deferred consideration               -              -          -                    (145)     (145) 
Changes in fair value of contingent 
 consideration                                       -              -       (54)                        -      (54) 
Finance income from contingent 
 consideration                                       -              -          7                        2         9 
Profit mark-up on Group allocated 
 costs                                             221          (136)       (85)                        -         - 
---------------------------------------  -------------  -------------  ---------  -----------------------  -------- 
Profit/(loss) before tax                        22,521          1,307    (1,388)                 (12,388)    10,052 
Taxation                                                                                                    (3,626) 
---------------------------------------  -------------  -------------  ---------  -----------------------  -------- 
Profit for the period attributable 
 to equity holders of the Company                                                                             6,426 
---------------------------------------  -------------  -------------  ---------  -----------------------  -------- 
 

4. Revenue

 
                                    Six months 
                                         ended                     Year ended 
                                                     Six months 
                                   31 Dec 2020            ended   30 Jun 2020 
                                                 31 Dec 2019(1) 
                                   (unaudited)      (unaudited)     (audited) 
                                       GBP'000          GBP'000       GBP'000 
--------------------------------  ------------  ---------------  ------------ 
Portfolio management fee income         46,893           48,359        95,108 
Financial services commission              166               66           481 
Advisory fees                            2,167            2,380         4,325 
Fund management fees                     6,629            4,091         8,644 
--------------------------------  ------------  ---------------  ------------ 
Total revenue                           55,855           54,896       108,558 
--------------------------------  ------------  ---------------  ------------ 
 

1. See Note 2a for details regarding the restatement as a result of the ACD fees and associated costs and also the output VAT on Platform MPS.

a) Geographic analysis

The Group's operations are located in the United Kingdom and the Channel Islands. The following table presents external revenue analysed by the geographical location of the Group entity providing the service.

 
                    Six months 
                         ended                     Year ended 
                                     Six months 
                   31 Dec 2020            ended   30 Jun 2020 
                                 31 Dec 2019(1) 
                   (unaudited)      (unaudited)     (audited) 
                       GBP'000          GBP'000       GBP'000 
----------------  ------------  ---------------  ------------ 
United Kingdom          48,797           47,873        95,223 
Channel Islands          7,058            7,023        13,335 
----------------  ------------  ---------------  ------------ 
Total revenue           55,855           54,896       108,558 
----------------  ------------  ---------------  ------------ 
 

1. See Note 2a for details regarding the restatement as a result of the ACD fees and associated costs and also the output VAT on Platform MPS.

b) Major clients

The Group is not reliant on any one client or group of connected clients for the generation of revenues.

5. Other gains/(losses) - net

Other gains/(losses) - net represent the net changes in the fair value of the Group's financial instruments and intangible assets recognised in the Condensed consolidated statement of comprehensive income.

 
                                                              Six months    Six months 
                                                                   ended         ended 
                                                             31 Dec 2020   31 Dec 2019    Year ended 
                                                                                         30 Jun 2020 
                                                             (unaudited)   (unaudited)     (audited) 
                                                                 GBP'000       GBP'000       GBP'000 
----------------------------------------------------------  ------------  ------------  ------------ 
Loss from changes in fair value of deferred consideration 
 payable (Note 15)                                                  (60)             -             - 
Gain from changes in fair value of financial assets 
 at fair value through profit or loss (Note 13)                       42             -             6 
Loss from changes in fair value of contingent 
 consideration receivable (Note 13)                                    -          (55)          (54) 
Goodwill impairment (Note 10)                                          -             -       (4,471) 
----------------------------------------------------------  ------------  ------------  ------------ 
Total other gains/(losses) - net                                    (18)          (55)       (4,519) 
----------------------------------------------------------  ------------  ------------  ------------ 
 

6. Taxation

The current tax expense for the six months ended 31 December 2020 was calculated based on the Corporation Tax rate of 19%, applied to the taxable profit for the six months ended 31 December 2020 (H1 FY20: 19%; FY20: 19%).

 
                                                    Six months       Six months 
                                                         ended            ended    Year ended 
                                                   31 Dec 2020   31 Dec 2019(1)   30 Jun 2020 
                                                   (unaudited)      (unaudited)     (audited) 
                                                       GBP'000          GBP'000       GBP'000 
------------------------------------------------  ------------  ---------------  ------------ 
UK Corporation Tax                                       2,582            2,293         3,991 
Over provision in prior years                                -                -          (66) 
------------------------------------------------  ------------  ---------------  ------------ 
Total current taxation                                   2,582            2,293         3,925 
Deferred tax credits                                     (510)            (802)         (674) 
(Over)/under provision of deferred tax in prior 
 years                                                    (69)                -           462 
Research and development tax credit                          -                -          (87) 
------------------------------------------------  ------------  ---------------  ------------ 
Total income tax expense                                 2,003            1,491         3,626 
------------------------------------------------  ------------  ---------------  ------------ 
 

1. See Note 2a for details regarding the restatement as a result of the output VAT on Platform MPS.

Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the time apportioned tax rate applicable to profits of the consolidated entities in the UK as follows:

 
                                                                     Six months       Six months 
                                                                          ended            ended    Year ended 
                                                                    31 Dec 2020   31 Dec 2019(1)   30 Jun 2020 
                                                                    (unaudited)      (unaudited)     (audited) 
-----------------------------------------------------------------  ------------  ---------------  ------------ 
Profit before taxation                                                   14,146            7,695        10,052 
Profit multiplied by the standard rate of tax 
 in the UK of 19% (H1 FY20: 19%; 
 FY20: 19%)                                                               2,688            1,462         1,910 
Tax effect of amounts that are not deductible 
 (taxable) in calculating taxable income: 
 
      *    Overseas tax losses not available for UK tax purposes              4             (24)          (24) 
 
      *    Disallowable expenses                                            258              206           394 
 
      *    Share-based payments                                              33            (396)         (139) 
 
      *    Depreciation and amortisation                                     37              248           336 
 
      *    Gain on bargain purchase                                       (943)                -             - 
 
      *    Non-taxable income                                               (5)              (5)          (10) 
 
      *    (Over)/under provision of deferred tax in prior years           (69)                -           396 
 
      *    Research and development tax credit                                -                -          (87) 
 
      *    Impairment charges                                                 -                -           850 
-----------------------------------------------------------------  ------------  ---------------  ------------ 
Income tax expense                                                        2,003            1,491         3,626 
-----------------------------------------------------------------  ------------  ---------------  ------------ 
 

Following a change by HMRC on the Corporation Tax payments on account, the Group made six payments on account during the year ended 30 June 2020, with the financial year ending 30 June 2021 reverting back to four payments during the year.

Deferred tax assets and liabilities are calculated at 19% (H1 FY20: 17%; FY20: 19%) being the rate that is expected to be in force when the temporary differences unwind. The UK Government announced in its 2021 budget on 3 March 2021 that there is a planned increase in the rate of Corporation Tax from 19% to 25% with effect from 1 April 2023. As a result, the relevant deferred tax balances will have to be remeasured once the increase in the Corporation Tax rate is substantively enacted. The planned increase has not had an impact on the Group for the six months ended 31 December 2020. This increase in the Corporation Tax rate will have an estimated impact of GBP1,500,000 increase on the deferred tax liability from 1 April 2023.

During the year ended 30 June 2020, the Group made a claim for research and development tax relief in relation to qualifying expenditure on software development incurred in the year ended 30 June 2019. This resulted in a reduction in the Corporation Tax liability in the respective year of GBP87,000.

7. Business combinations

On 30 November 2020, the Group acquired Lloyds Bank International's Channel Islands wealth management and funds business ("Lloyds Channel Islands acquisition"). The acquisition brings a high-quality discretionary client base, adds a multi-asset and fixed income fund range to the Group's offering, and increases distribution reach through well-established intermediary relationships. The acquisition consisted of the entire share capital of Lloyds Investment Fund Managers Limited (renamed Brooks Macdonald International Fund Managers Limited following acquisition), and a portfolio of discretionary management private clients.

The acquisition has been accounted for using the acquisition method and details of the purchase consideration are as follows:

 
                                                   Note  GBP'000  GBP'000 
------------------------------------------------  -----  -------  ------- 
Business consideration                                     4,650 
Business consideration adjustment                     i  (1,070) 
------------------------------------------------  -----  -------  ------- 
Initial business consideration - Discretionary 
 business                                                           3,580 
Shares consideration                                       4,650 
Excess for net assets                                ii       95 
------------------------------------------------  -----  -------  ------- 
Initial shares consideration - Funds business                       4,745 
-------------------------------------------------------  -------  ------- 
Initial cash paid                                                   8,325 
Deferred contingent consideration at fair value     iii               308 
------------------------------------------------  -----  -------  ------- 
Total purchase consideration                                        8,633 
-------------------------------------------------------  -------  ------- 
 

i. Following completion, an adjustment was made to the business consideration in relation to the revenue that has transferred to the Group. The adjustment reflects the fall in revenue acquired by the Group compared to the expected revenue that would transfer to the Group in the Sale and Purchase Agreement ("SPA").

ii. Per the SPA, the completion balance sheet was to contain net assets of GBP2,500,000 to be acquired by the Group. Any excess or deficit of the actual net assets acquired would be paid or recouped by the Group. The actual net assets acquired by the Group were GBP2,595,000 resulting in the Group paying additional consideration of GBP95,000.

iii. The total cash deferred contingent consideration is GBP334,000, payable in two years following completion, based on the client attrition of the funds under management acquired over the two-year period.

The fair value of the deferred consideration liability has been remeasured at 31 December 2020, and remains unchanged, which assumes the deferred consideration criteria will be met resulting in the full GBP334,000 to be paid in two years. The client attrition has been forecast using a similar outflows pattern to that experienced by the rest of the Group. The client attrition is dependent on several unpredictable variables including client sentiment and market conditions.

Client relationship intangible assets of GBP9,080,000 and GBP3,147,000 were recognised on acquisition in respect of the expected cash inflows and economic benefit from the discretionary and fund management contracts acquired respectively. A gain on bargain purchase of GBP4,284,000 was recognised on acquisition in relation to the discretionary business and a gain on bargain purchase of GBP682,000 was recognised on acquisition in relation to the funds business as the net identifiable assets acquired were greater than the total purchase consideration, which has been recognised in the Condensed consolidated statement of comprehensive income. The fair value of the assets acquired are the gross contractual amounts and all are considered to be fully recoverable. The fair value of the identifiable assets and liabilities acquired, at the date of acquisition, are detailed in (a) below.

Directly attributable acquisition costs of GBP19,000 (H1 FY20: GBPnil; FY20: GBP606,000) and integration costs of GBP1,942,000 (H1 FY20: GBPnil; FY20: GBPnil) were incurred in the acquisition and integration of the Lloyds Channel Islands acquisition, which have been charged to administrative costs in the Condensed consolidated statement of comprehensive income but excluded from underlying profit.

a) Net assets acquired through business combination

 
                                                           GBP'000 
---------------------------------------------------------  ------- 
Trade and other receivables                                     31 
Financial assets at fair value through profit and loss           4 
Cash at bank                                                 3,038 
Trade and other payables                                     (363) 
Corporation tax payable                                      (115) 
---------------------------------------------------------  ------- 
Total net assets recognised by acquired companies            2,595 
Fair value adjustments: 
Client relationship contracts - discretionary business       9,080 
Client relationship contracts - fund-management business     3,147 
Deferred tax liabilities                                   (1,223) 
---------------------------------------------------------  ------- 
Net identifiable assets                                     13,599 
Gain on bargain purchase                                   (4,966) 
---------------------------------------------------------  ------- 
Total purchase consideration                                 8,633 
---------------------------------------------------------  ------- 
 

The trade and other receivables were recognised at their fair value, being the gross contractual amounts.

b) Impact on reported results from date of acquisition

In the period from acquisition to 31 December 2020, the Lloyds Channel Islands acquisition earned revenue of GBP767,000 and statutory profit before tax of GBP392,000.

c) Net cash outflow resulting from business combinations

 
                                              GBP'000 
--------------------------------------------  ------- 
Total purchase consideration                    8,633 
Less: 
Deferred cash consideration at fair value       (308) 
--------------------------------------------  ------- 
Cash paid to acquire Lloyds Channel Islands     8,325 
Less cash held by Lloyds Channel Islands      (3,038) 
--------------------------------------------  ------- 
Net cash outflow - investing activities         5,287 
--------------------------------------------  ------- 
 

8. Earnings per share

The Board of Directors considers that underlying earnings per share provides a more appropriate reflection of the Group's performance in the period. Underlying earnings per share, which is an alternative performance measure, are calculated based on 'underlying earnings', which is also an alternative performance measure and is defined as earnings before underlying adjustments listed below. The tax effect of these adjustments has also been considered.

Earnings for the period used to calculate earnings per share as reported in these Condensed consolidated financial statements were as follows:

 
                                                              Six months 
                                                                   ended 
                                                                               Six months 
                                                             31 Dec 2020            ended    Year ended 
                                                                           31 Dec 2019(1)   30 Jun 2020 
                                                             (unaudited)      (unaudited)     (audited) 
                                                                 GBP'000          GBP'000       GBP'000 
----------------------------------------------------------  ------------  ---------------  ------------ 
Earnings attributable to ordinary shareholders                    12,143            6,204         6,426 
Underlying adjustments 
Gain on bargain purchase (Note 7)                                (4,966)                -             - 
Acquisition-related costs                                          2,356            2,080         4,261 
Amortisation of acquired client relationship contracts 
 (Note 10)                                                         2,251            1,072         2,867 
Finance cost of deferred consideration (Note 15)                     159               25           145 
Changes in fair value of deferred consideration 
 (Note 15)                                                            60                -             - 
Changes in fair value of contingent consideration 
 (Note 13)                                                             -               55            54 
Head office relocation costs                                           -              573         1,166 
Amortisation of contracts acquired with fund managers 
 (Note 10)                                                             -               16            16 
Finance income of contingent consideration (Note 
 13)                                                                   -              (7)           (9) 
Goodwill impairment (Note 10)                                          -                -         4,471 
Tax impact of adjustments                                          (479)            (495)         (939) 
----------------------------------------------------------  ------------  ---------------  ------------ 
Underlying earnings attributable to ordinary shareholders         11,524            9,523        18,458 
----------------------------------------------------------  ------------  ---------------  ------------ 
 

1. See Note 2a for details regarding the restatement as a result of the output VAT on Platform MPS.

Basic earnings per share is calculated by dividing earnings attributable to ordinary shareholders by the weighted average number of shares in issue throughout the period. Diluted earnings per share represents the basic earnings per share adjusted for the effect of dilutive potential shares issuable on exercise of employee share options under the Group's share-based payment schemes, weighted for the relevant period. The weighted average number of shares in issue during the six months ended 31 December 2020 was as follows:

 
                                                       Six months    Six months 
                                                            ended         ended 
                                                      31 Dec 2020   31 Dec 2019    Year ended 
                                                                                  30 Jun 2020 
                                                      (unaudited)   (unaudited)     (audited) 
                                                        Number of     Number of     Number of 
                                                           shares        shares        shares 
---------------------------------------------------  ------------  ------------  ------------ 
Weighted average number of shares in issue             15,710,199    14,075,329    14,870,729 
Effect of dilutive potential shares issuable on 
 exercise of employee share options                        26,391        18,383        46,052 
---------------------------------------------------  ------------  ------------  ------------ 
Diluted weighted average number of shares in issue     15,736,590    14,093,712    14,916,781 
---------------------------------------------------  ------------  ------------  ------------ 
 
 
                                  Six months 
                                       ended                     Year ended 
                                                   Six months 
                                 31 Dec 2020            ended   30 Jun 2020 
                                               31 Dec 2019(1) 
                                 (unaudited)      (unaudited)     (audited) 
                                           p                p             p 
------------------------------  ------------  ---------------  ------------ 
Based on reported earnings: 
Basic earnings per share                77.3             44.1          43.2 
Diluted earnings per share              77.2             44.1          43.1 
Based on underlying earnings: 
Basic earnings per share                73.4             67.7         124.1 
Diluted earnings per share              73.2             67.6         123.7 
------------------------------  ------------  ---------------  ------------ 
 

1. See Note 2a for details regarding the restatement as a result of the output VAT on Platform MPS.

9. Dividends

 
                                             Six months 
                                                  ended 
                                                            Six months 
                                            31 Dec 2020          ended    Year ended 
                                                           31 Dec 2019   30 Jun 2020 
                                            (unaudited)    (unaudited)     (audited) 
                                                GBP'000        GBP'000       GBP'000 
-----------------------------------------  ------------  -------------  ------------ 
Final dividend paid on ordinary shares            4,999          4,382         4,382 
Interim dividend paid on ordinary shares              -              -         3,298 
-----------------------------------------  ------------  -------------  ------------ 
Total dividends                                   4,999          4,382         7,680 
-----------------------------------------  ------------  -------------  ------------ 
 

An interim dividend of 23.0p (six months ended 31 December 2019: 21.0p) per share was declared by the Board of Directors on 10 March 2021. It will be paid on 16 April 2021 to shareholders who are on the register at the close of business on 19 March 2021. In accordance with IAS 10, this dividend has not been included as a liability in the Condensed consolidated financial statements at 31 December 2020.

A final dividend for the year ended 30 June 2020 of 32.0p (year ended 30 June 2019: 32.0p) per share was paid to shareholders on 6 November 2020.

10. Intangible assets

 
                                                                     Acquired   Contracts 
                                                                       client    acquired 
                                                      Computer   relationship   with fund 
                                           Goodwill   software      contracts    managers    Total 
                                            GBP'000    GBP'000        GBP'000     GBP'000  GBP'000 
-----------------------------------------  --------  ---------  -------------  ----------  ------- 
Cost 
At 1 July 2019                               35,776      8,874         32,161       3,521   80,332 
Additions                                         -        427              -           -      427 
-----------------------------------------  --------  ---------  -------------  ----------  ------- 
At 31 December 2019                          35,776      9,301         32,161       3,521   80,759 
Additions                                    16,111      1,187         25,623           -   42,921 
Cost of intangible assets on acquisition 
 of subsidiary                                    -      1,006              -           -    1,006 
Disposals                                         -      (991)              -           -    (991) 
-----------------------------------------  --------  ---------  -------------  ----------  ------- 
At 30 June 2020                              51,887     10,503         57,784       3,521  123,695 
Additions                                         -      1,999         12,227           -   14,226 
-----------------------------------------  --------  ---------  -------------  ----------  ------- 
At 31 December 2020                          51,887     12,502         70,011       3,521  137,921 
-----------------------------------------  --------  ---------  -------------  ----------  ------- 
Accumulated amortisation and impairment 
At 1 July 2019                                6,742      3,192         16,726       3,505   30,165 
Amortisation charge                               -      1,103          1,072          16    2,191 
-----------------------------------------  --------  ---------  -------------  ----------  ------- 
At 31 December 2019                           6,742      4,295         17,798       3,521   32,356 
Amortisation charge                               -      1,341          1,795           -    3,136 
Accumulated amortisation of intangible 
 assets on acquisition of subsidiary              -        919              -           -      919 
Accumulated amortisation on disposals             -      (991)              -           -    (991) 
Impairment                                    4,471          -              -           -    4,471 
-----------------------------------------  --------  ---------  -------------  ----------  ------- 
At 30 June 2020                              11,213      5,564         19,593       3,521   39,891 
Amortisation charge                               -      1,408          2,251           -    3,659 
-----------------------------------------  --------  ---------  -------------  ----------  ------- 
At 31 December 2020                          11,213      6,972         21,844       3,521   43,550 
-----------------------------------------  --------  ---------  -------------  ----------  ------- 
Net book value 
At 1 July 2019                               29,034      5,682         15,435          16   50,167 
At 31 December 2019                          29,034      5,006         14,363           -   48,403 
At 30 June 2020                              40,674      4,939         38,191           -   83,804 
-----------------------------------------  --------  ---------  -------------  ----------  ------- 
At 31 December 2020                          40,674      5,530         48,167           -   94,371 
-----------------------------------------  --------  ---------  -------------  ----------  ------- 
 

a) Goodwill

Goodwill acquired in a business combination is allocated at acquisition to the cash generating units ("CGUs") that are expected to benefit from that business combination. The carrying amount of goodwill in respect of these CGUs within the operating segments of the Group comprises:

 
                                                         31 Dec 2020 
                                                                       31 Dec 2019  30 Jun 2020 
                                                         (unaudited)   (unaudited)    (audited) 
                                                             GBP'000       GBP'000      GBP'000 
------------------------------------------------------  ------------  ------------  ----------- 
Funds 
Braemar Group Limited ("Braemar")                              3,320         3,320        3,320 
Levitas Investment Management Services Limited 
 ("Levitas")                                                       -         4,471            - 
------------------------------------------------------  ------------  ------------  ----------- 
                                                               3,320         7,791        3,320 
International 
Brooks Macdonald Asset Management (International) 
 Limited and Brooks 
 Macdonald Retirement Services (International) 
 Limited (collectively "Brooks 
 Macdonald International")                                    21,243        21,243       21,243 
 
Cornelian 
 Cornelian Asset Managers Group Limited ("Cornelian")         16,111             -       16,111 
 
Total goodwill                                                40,674        29,034       40,674 
------------------------------------------------------  ------------  ------------  ----------- 
 

At the reporting date, there were no indicators that the carrying amount of goodwill in relation to any of the CGUs should be impaired, therefore, the recoverable amount calculations have not been performed.

b) Computer software

Computer software costs are amortised on a straight-line basis over an estimated useful life of four years. Costs incurred on internally developed computer software are initially recognised at cost and when the software is available for use the costs are amortised on a straight-line basis over an estimated useful life of four years.

c) Acquired client relationship contracts

This asset represents the fair value of future benefits accruing to the Group from acquired client relationship contracts. The amortisation of client relationships is charged to the Condensed consolidated statement of comprehensive income on a straight-line basis over their estimated useful lives (15 to 20 years).

During the six months ended 31 December 2020, the Group acquired client relationship contracts totalling GBP12,227,000, as part of the Lloyds Channel Islands acquisitions (Note 7), which were recognised as separately identifiable intangible assets in the Consolidated statement of financial position. The additions included contracts related to the discretionary business of GBP9,080,000, with a useful economic life of 15 years, and GBP3,147,000 related to the fund-management business, with a useful economic life of six years.

d) Contracts acquired with fund managers

This asset represented the fair value of the future benefits accruing to the Group from contracts acquired with fund managers. Payments made to acquire such contracts are initially recognised at cost and amortised on a straight-line basis over an estimated useful life of five years.

11. Property, plant and equipment

 
                                                          Fixtures, 
                                                           fittings 
                                             Leasehold   and office 
                                          improvements    equipment  IT equipment    Total 
                                               GBP'000      GBP'000       GBP'000  GBP'000 
---------------------------------------  -------------  -----------  ------------  ------- 
Cost 
At 1 July 2019                                   3,150        8,305         3,334   14,789 
Additions                                          273          137            20      430 
---------------------------------------  -------------  -----------  ------------  ------- 
At 31 December 2019                              3,423        8,442         3,354   15,219 
Additions                                          968          191           369    1,528 
Cost of property, plant and equipment 
 on acquisition of subsidiary                       19          104           195      318 
Disposals                                        (466)      (7,720)       (1,436)  (9,622) 
---------------------------------------  -------------  -----------  ------------  ------- 
At 30 June 2020                                  3,944        1,017         2,482    7,443 
Additions                                          414           21           142      577 
---------------------------------------  -------------  -----------  ------------  ------- 
At 31 December 2020                              4,358        1,038         2,624    8,020 
---------------------------------------  -------------  -----------  ------------  ------- 
Accumulated depreciation 
At 1 July 2019                                   1,420        7,942         2,250   11,612 
Depreciation charge                                719          223           280    1,222 
---------------------------------------  -------------  -----------  ------------  ------- 
At 31 December 2019                              2,139        8,165         2,530   12,834 
---------------------------------------  -------------  -----------  ------------  ------- 
Depreciation charge                                353           94           359      806 
Accumulated depreciation of property, 
 plant and equipment on acquisition of 
 subsidiary                                         19          102           123      244 
Depreciation charge                              (466)      (7,720)       (1,436)  (9,622) 
---------------------------------------  -------------  -----------  ------------  ------- 
At 30 June 2020                                  2,045          641         1,576    4,262 
Depreciation charge                                180           46           237      463 
---------------------------------------  -------------  -----------  ------------  ------- 
At 31 December 2020                              2,225          687         1,813    4,725 
---------------------------------------  -------------  -----------  ------------  ------- 
Net book value 
At 1 July 2019                                   1,730          363         1,084    3,177 
At 31 December 2019                              1,284          277           824    2,385 
At 30 June 2020                                  1,899          376           906    3,181 
---------------------------------------  -------------  -----------  ------------  ------- 
At 31 December 2020                              2,133          351           811    3,295 
---------------------------------------  -------------  -----------  ------------  ------- 
 

12. Right of use assets

 
                      Property 
                       GBP'000 
--------------------  -------- 
Cost 
At 30 June 2020          8,491 
Additions                  414 
--------------------  -------- 
At 31 December 2020      8,905 
--------------------  -------- 
Depreciation 
At 30 June 2020          1,500 
Depreciation charge        759 
--------------------  -------- 
At 31 December 2020      2,259 
--------------------  -------- 
Right of use assets 
At 30 June 2020          6,991 
--------------------  -------- 
At 31 December 2020      6,646 
--------------------  -------- 
 

The additions relate to additional property leases that commenced during the six months ended 31 December 2020.

13. Financial instruments

The analysis of financial assets and liabilities into their categories as defined in IFRS 9 Financial Instruments is set out in the following table.

 
                                                              31 Dec 2020  31 Dec 2019(1)  30 Jun 2020 
                                                              (unaudited)     (unaudited)    (audited) 
                                                                  GBP'000         GBP'000      GBP'000 
-----------------------------------------------------------  ------------  --------------  ----------- 
Financial assets 
Financial assets at fair value through profit 
 or loss: 
Investment in regulated OEIC                                          591               -          549 
Investment in recognised funds                                         17               -            - 
Contingent consideration receivable                                     -             175            - 
Financial assets at fair value through other comprehensive 
 income: 
Unlisted redeemable preference shares                                 500             500          500 
Financial assets at amortised cost: 
Trade and other receivables                                        27,525          27,301       26,081 
Cash and cash equivalents                                          38,600          62,639       50,168 
Other receivables                                                       -              94            - 
-----------------------------------------------------------  ------------  --------------  ----------- 
Total financial assets                                             67,233          90,709       77,298 
-----------------------------------------------------------  ------------  --------------  ----------- 
Financial liabilities 
Financial liabilities at fair value through profit 
 or loss: 
Deferred consideration (Note 15)                                    8,097             405        7,991 
Financial liabilities at amortised cost: 
Trade and other payables                                           19,041          18,333       22,765 
Current tax liabilities                                               118             125          480 
Lease liabilities (Note 14)                                         7,517           8,870        7,934 
Provisions (Note 16)                                                  976           1,501        2,526 
Other non-current liabilities                                         560             570          330 
-----------------------------------------------------------  ------------  --------------  ----------- 
Total financial liabilities                                        36,309          29,804       42,026 
-----------------------------------------------------------  ------------  --------------  ----------- 
 

1. See Note 2a for details regarding the restatement as a result of the output VAT on Platform MPS.

The following table provides an analysis of the financial assets and liabilities that, subsequent to initial recognition, are measured at fair value. These are grouped into the following levels within the fair value hierarchy, based on the degree to which the inputs used to determine the fair value are observable:

-- Level 1 - derived from quoted prices in active markets for identical assets or liabilities at the measurement date;

-- Level 2 - derived from inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly; and

   --    Level 3 - derived from inputs that are not based on observable market data. 
 
                                                      Level 1   Level 2   Level 3     Total 
                                                      GBP'000   GBP'000   GBP'000   GBP'000 
---------------------------------------------------  --------  --------  --------  -------- 
Financial assets 
At 1 July 2019                                              -         -     1,113     1,113 
Net changes in fair value charged to the Condensed 
 consolidated statement of comprehensive income             -         -      (55)      (55) 
Finance income of contingent consideration                  -         -         7         7 
Payments received during the period                         -         -     (390)     (390) 
---------------------------------------------------  --------  --------  --------  -------- 
At 31 December 2019                                         -         -       675       675 
---------------------------------------------------  --------  --------  --------  -------- 
Additions                                                 543         -         -       543 
Net changes in fair value charged to the Condensed 
 consolidated statement of comprehensive income             6         -         -         6 
Finance income of contingent consideration                  -         -         3         3 
Payment received during the period                          -         -     (178)     (178) 
---------------------------------------------------  --------  --------  --------  -------- 
At 30 June 2020                                           549         -       500     1,049 
Additions                                                   4         -         -         4 
Net changes in fair value charged to the Condensed 
 consolidated statement of comprehensive income            42         -         -        42 
Net changes in fair value charged to the Condensed 
 consolidated statement of financial position              13         -         -        13 
---------------------------------------------------  --------  --------  --------  -------- 
At 31 December 2020                                       608         -       500     1,108 
---------------------------------------------------  --------  --------  --------  -------- 
Comprising: 
Financial assets at fair value through other 
 comprehensive income                                       -         -       500       500 
Financial assets at fair value through profit 
 and loss                                                 608         -         -       608 
---------------------------------------------------  --------  --------  --------  -------- 
Total financial assets                                    608         -       500     1,108 
---------------------------------------------------  --------  --------  --------  -------- 
 

At 31 December 2020, the Group held an investment of 500,000 redeemable GBP1 preference shares in an unlisted company incorporated in the UK. The preference shares carry an entitlement to a fixed preferential dividend at a rate of 8% per annum, reducing to 4% per annum from April 2021. Unlisted preference shares are classified as financial assets at fair value through other comprehensive income. They have been valued using a perpetuity income model, which is based upon the preference dividend cash flows.

During the six months ended 31 December 2020, the Group completed the Lloyds Channel Islands acquisition (Note 7). On acquisition, Lloyds Investment Fund Managers Limited (renamed Brooks Macdonald International Fund Managers Limited following acquisition), held investment positions in the underlying recognised funds, totalling GBP4,000. Investment positions in recognised funds are a standard amount of shares per fund that Brooks Macdonald International Fund Managers Limited holds to facilitate daily shares and redemptions by the unit holders. The requirement to advise the custodian of shares to be created or cancelled within two hours of the valuation point, which is generally before the dealing prices for the day have been released, results in Brooks Macdonald International Fund Managers Limited holding shares. The value of the investment positions in the recognised funds at 31 December 2020 was GBP17,000.

During the year ended 30 June 2020, the Group acquired Cornelian Asset Managers Group Limited. On acquisition, Cornelian Asset Managers Group Limited held 500,000 shares in five of the SVS Cornelian Risk Managed Passive Funds, totalling GBP543,000. During the six months ended 31 December 2020, the Group recognised a gain on these investments of GBP42,000. The Group's holding in the SVS Cornelian Risk Managed Passive Funds at 31 December 2020 was GBP591,000.

 
                                          Level 1   Level 2   Level 3     Total 
                                          GBP'000   GBP'000   GBP'000   GBP'000 
---------------------------------------  --------  --------  --------  -------- 
Financial liabilities 
At 1 July 2019                                  -         -     1,299     1,299 
Finance cost of deferred consideration          -         -        25        25 
Payments made during the period                 -         -     (919)     (919) 
---------------------------------------  --------  --------  --------  -------- 
At 31 December 2019                             -         -       405       405 
---------------------------------------  --------  --------  --------  -------- 
Additions                                       -         -     7,466     7,466 
Finance cost of deferred consideration          -         -       120       120 
---------------------------------------  --------  --------  --------  -------- 
At 30 June 2020                                 -         -     7,991     7,991 
---------------------------------------  --------  --------  --------  -------- 
Additions                                       -         -       308       308 
Change in fair value                            -         -        60        60 
Finance cost of deferred consideration          -         -       159       159 
Payments made during the period                 -         -     (421)     (421) 
---------------------------------------  --------  --------  --------  -------- 
At 31 December 2020                             -         -     8,097     8,097 
---------------------------------------  --------  --------  --------  -------- 
Comprising: 
Deferred consideration (Note 15)                -         -     8,097     8,097 
---------------------------------------  --------  --------  --------  -------- 
Total financial liabilities                     -         -     8,097     8,097 
---------------------------------------  --------  --------  --------  -------- 
 

Deferred consideration is recognised at fair value through profit or loss and is valued using the net present value of the expected amounts payable based on management's forecasts and expectations. For more details see Note 15.

14. Lease liabilities

 
                                               GBP'000 
---------------------------------------------  ------- 
At 30 June 2020                                  7,934 
Additions                                          396 
Payments made against lease liabilities          (986) 
Finance cost of lease liabilities                  173 
---------------------------------------------  ------- 
At 31 December 2020                              7,517 
---------------------------------------------  ------- 
Analysed as: 
Amounts falling due within one year              1,355 
Amounts falling due after more than one year     6,162 
---------------------------------------------  ------- 
At 31 December 2020                              7,517 
---------------------------------------------  ------- 
 

The additions relate to additional property leases that commenced during the six months ended 31 December 2020.

15. Deferred consideration

Deferred consideration is split between non-current liabilities and current liabilities to the extent that it is due to be paid within one year of the reporting date. It reflects the Directors' best estimate of amounts payable in the future in respect of certain client relationships and subsidiary undertakings that were acquired by the Group. Deferred consideration is measured at its fair value based on discounted expected future cash flows. The movements in the total deferred consideration balance during the period were as follows:

 
                                                 Six months 
                                                      ended 
                                                                Six months 
                                                31 Dec 2020          ended    Year ended 
                                                               31 Dec 2019   30 Jun 2020 
                                                (unaudited)    (unaudited)     (audited) 
                                                    GBP'000        GBP'000       GBP'000 
---------------------------------------------  ------------  -------------  ------------ 
At beginning of period                                7,991          1,299         1,299 
Additions                                               308              -         7,466 
Finance cost of deferred consideration                  159             25           145 
Change in fair value                                     60              -             - 
Payments made during the period                       (421)          (919)         (919) 
---------------------------------------------  ------------  -------------  ------------ 
At end of period                                      8,097            405         7,991 
---------------------------------------------  ------------  -------------  ------------ 
Analysed as: 
Amounts falling due within one year                   7,799            405         1,691 
Amounts falling due after more than one year            298              -         6,300 
---------------------------------------------  ------------  -------------  ------------ 
At end of period                                      8,097            405         7,991 
---------------------------------------------  ------------  -------------  ------------ 
 

During the six months ended 31 December 2020, the Group completed the Lloyds Channel Islands acquisition (Note 7) and part of the consideration is to be deferred over a period of two years. The total cash deferred consideration of GBP334,000 was recognised at its fair value of GBP308,000 on acquisition. The deferred consideration is payable in December 2022 based on the future revenue generated by the discretionary business acquired. During the six months ended 31 December 2020, the Group recognised a finance cost of GBP1,000 on the Lloyds Channel Islands acquisition deferred consideration. The fair value of the Lloyds Channel Islands acquisition deferred consideration at 31 December 2020 was GBP309,000.

During the six months ended 31 December 2020, the fair value of the estimated deferred consideration for Cornelian Asset Managers Group Limited was revalued by GBP60,000 due to a change in the estimated timing of when the consideration will be payable. Full details of the Cornelian acquisition are disclosed in Note 10 of the 2020 Annual Report and Accounts. During the six months ended 31 December 2020, the Group recognised a finance cost of GBP151,000 on the Cornelian deferred consideration. The fair value of the Cornelian deferred consideration at 31 December 2020 was GBP7,788,000, with the full balance payable within one year, recognised in current liabilities.

During the six months ended 31 December 2020, the final payment was made in relation to the acquisition of Levitas totalling GBP421,000 (H1 FY20: GBP919,000; FY20: GBP919,000). Full details of the Levitas acquisition are disclosed in Note 13 of the 2015 Annual Report and Accounts. The fair value of the Levitas deferred consideration at 30 June 2020 was GBPnil.

Deferred consideration is classified as Level 3 within the fair value hierarchy, as defined in Note 13.

16. Provisions

 
                                                                Exceptional 
                                                                   costs of 
                                                                  resolving  Regulatory        Leasehold 
                                       Client compensation   legacy matters      levies    dilapidations  Total(1) 
                                                   GBP'000          GBP'000     GBP'000          GBP'000   GBP'000 
-------------------------------------  -------------------  ---------------  ----------  ---------------  -------- 
At 1 July 2019                                         100              701         928              366     2,095 
Charge to the Condensed consolidated 
 statement of comprehensive income                     172                -         162              279       613 
Utilised during the period                           (119)             (39)       (949)            (100)   (1,207) 
-------------------------------------  -------------------  ---------------  ----------  ---------------  -------- 
At 31 December 2019                                    153              662         141              545     1,501 
Charge to the Condensed consolidated 
 statement of comprehensive income                      94                -       2,009              102     2,205 
Additions on acquisition of 
 subsidiary                                              -                -           -              103       103 
Utilised during the period                           (209)             (54)       (649)            (370)   (1,282) 
-------------------------------------  -------------------  ---------------  ----------  ---------------  -------- 
At 30 June 2020                                         38              608       1,501              380     2,527 
Charge to the Condensed consolidated 
 statement of comprehensive income                     208                -          16               23       231 
Utilised during the period                           (169)              (8)     (1,517)            (104)   (1,782) 
-------------------------------------  -------------------  ---------------  ----------  ---------------  -------- 
At 31 December 2020                                     77              600           -              299       976 
-------------------------------------  -------------------  ---------------  ----------  ---------------  -------- 
Analysed as: 
Amounts falling due within one 
 year                                                   77              600           -               62       739 
Amounts falling due after more 
 than one year                                           -                -           -              237       237 
-------------------------------------  -------------------  ---------------  ----------  ---------------  -------- 
Total provisions                                        77              600           -              299       976 
-------------------------------------  -------------------  ---------------  ----------  ---------------  -------- 
 

1. See Note 2a details on the reclassification of current deferred consideration and current provisions for the comparative periods.

a) Client compensation

Client compensation provisions relate to the potential liability arising from client complaints against the Group. Complaints are assessed on a case-by-case basis and provisions for compensation are made where judged necessary. The amount recognised within provisions for client compensation represents management's best estimate of the potential liability. The timing of the corresponding outflows is uncertain as these are made as and when claims arise.

b) Exceptional costs of resolving legacy matters

Following a review into legacy matters arising from the former Spearpoint business, which was acquired by the Group in 2012, a provision was recognised for costs of resolving these including associated expenses in the years ended 30 June 2017 and 30 June 2018. These matters relate to a number of discretionary portfolios formerly managed by Spearpoint, now managed by Brooks Macdonald Asset Management (International) Limited, and a Dublin-based fund, for which Spearpoint acted as investment manager. During the six months ended 31 December 2020, no further provisions were made (H1 FY20: GBPnil; FY20: GBPnil). The amount utilised during the six months ended 31 December 2020 of GBP8,000 represented goodwill payments made to clients.

c) Regulatory levies

The amount utilised during the period relates to the Financial Services Compensation Scheme levy for the 2020/21 scheme year (accrued in FY20). The expected levy for the 2021/22 scheme year has been announced by the FSCS but does not yet meet the recognition criteria for a provision. This will be recognised in June 2021 as part of the FY21 results.

d) Leasehold dilapidations

Leasehold dilapidations relate to dilapidation provisions expected to arise on leasehold premises held by the Group, and monies due under the contract with the assignee of leases on the Group's leased properties. During the six months ended 31 December 2020, the Group settled dilapidations on the cessation of a lease for GBP104,000.

17. Reconciliation of operating profit to net cash inflow from operating activities

 
                                                         Six months       Six months 
                                                              ended            ended       Year ended 
                                                        31 Dec 2020   31 Dec 2019(1)   30 Jun 2020(2) 
                                                        (unaudited)      (unaudited)        (audited) 
                                                            GBP'000          GBP'000          GBP'000 
-----------------------------------------------------  ------------  ---------------  --------------- 
Operating profit before tax                                   9,466            7,714           10,245 
Depreciation of property, plant and equipment                   463            1,222            2,028 
Depreciation of right of use assets                             759              533            1,256 
Amortisation of intangible assets                             3,659            2,191            5,327 
Other gains/(losses) - net                                       18               55            4,519 
(Increase)/decrease in receivables                          (1,408)            (619)            2,642 
Decrease in payables                                        (4,203)          (2,923)            (202) 
(Decrease)/increase in provisions                           (1,550)            (594)              431 
Increase/(decrease) in other non-current liabilities            230            (144)            (384) 
Share-based payments charge                                   1,560            2,492            3,571 
-----------------------------------------------------  ------------  ---------------  --------------- 
Net cash inflow from operating activities                     8,994            9,927           29,433 
-----------------------------------------------------  ------------  ---------------  --------------- 
 

1. See Note 2a for details regarding the restatement as a result of the output VAT on Platform MPS.

2. The cash held by subsidiary entities acquired has been recognised in cash flows from investing activities on the Condensed consolidated statement of cash flows. In the prior period this had been classified as cash generated from operations and therefore has been changed to reflect the correct classification. The changes made to the prior period numbers are that acquisition of subsidiaries, net of cash acquired has been increased by GBP6,655,000, working capital movement in receivables has been increased by GBP1,948,000, working capital movement in payables has been reduced by GBP1,246,000 and net assets acquired in business combination has been decreased by GBP7,357,000.

18. Share capital and share premium

The movements in share capital and share premium during the period were as follows:

 
                                                                  Share 
                                 Number of     Exercise price   capital  Share premium     Total 
                                    shares                  p   GBP'000        GBP'000   GBP'000 
------------------------------  ----------  -----------------  --------  -------------  -------- 
At 1 July 2019                  13,950,071                          139         39,068    39,207 
Shares issued: 
 
  *    on placing                1,690,141                  -        17         29,383    29,400 
 
  *    on exercise of options       15,876  1,381.0 - 1,725.0         1            255       256 
 
  *    to Sharesave Scheme           9,710  1,400.0 - 1,738.0         -            111       111 
------------------------------  ----------  -----------------  --------  -------------  -------- 
At 31 December 2019             15,665,798                          157         68,817    68,974 
Shares issued: 
 
  *    as consideration            453,172                  -         4          8,996     9,000 
 
  *    on exercise of options        9,986  1,381.0 - 1,719.0         -            172       172 
 
  *    to Sharesave Scheme         (1,854)  1,237.0 - 1,738.0         -            (3)       (3) 
------------------------------  ----------  -----------------  --------  -------------  -------- 
At 30 June 2020                 16,127,102                          161         77,982    78,143 
Shares issued: 
 
  *    on exercise of options        4,134            1,452.0         -             60        60 
 
  *    to Sharesave Scheme           1,700  1,400.0 - 1,738.0         -             29        29 
------------------------------  ----------  -----------------  --------  -------------  -------- 
At 31 December 2020             16,132,936                          161         78,071    78,232 
------------------------------  ----------  -----------------  --------  -------------  -------- 
 

The total number of ordinary shares issued and fully paid at 31 December 2020 was 16,132,936 (at 31 December 2019: 15,665,798; at 30 June 2020: 16,127,102).

On 27 November 2019, the Group issued 1,690,141 ordinary shares by way of a non-pre-emptive placing for non-cash consideration. The shares were placed at an equivalent of 1,775p per share, which raised GBP29,400,000, net of GBP600,000 share issue costs, offset against share premium arising on the issue. The shares were issued to fund the acquisition of Cornelian.

The was total value of share capital issued on exercise of options and to Sharesave Scheme members in the six months ended 31 December 2020 was GBPnil (H1 FY20: GBP1,000; FY20: GBPnil).

Employee Benefit Trust

The Group established an Employee Benefit Trust ("EBT") on 3 December 2010 to acquire ordinary shares in the Company to satisfy awards under the Group's Long-Term Incentive Scheme and Long-Term Incentive Plan. At 31 December 2020, the EBT held 548,548 (at 31 December 2019: 274,157; at 30 June 2020: 409,163) 1p ordinary shares in the Company, acquired for a total consideration of GBP9,809,000 (at 31 December 2019: GBP4,915,000; at 30 June 2019: GBP7,519,000) with a market value of GBP9,013,000 (at 31 December 2019: GBP5,867,000; at 30 June 2020: GBP6,800,000). They are classified as treasury shares in the Condensed consolidated statement of financial position, their cost being deducted from retained earnings within shareholders' equity.

19. Equity-settled share-based payments

Share options granted during the six months ended 31 December 2020 under the Group's equity-settled share-based payment schemes were as follows:

 
                            Exercise 
                               price     Fair value  Number of 
                                   p              p    options 
-------------------------  ---------  -------------  --------- 
Long-Term Incentive Plan         nil  1,447 - 1,577    192,471 
-------------------------  ---------  -------------  --------- 
 

No options were granted in respect of the Company's other equity-settled share-based payment schemes during the six months ended 31 December 2020. The charge to the Condensed consolidated statement of comprehensive income for the six months ended 31 December 2020 in respect of all equity-settled share-based payment schemes was GBP1,075,000 (H1 FY20: GBP1,980,000; FY20: GBP3,952,000).

The total amount recognised in the Condensed consolidated statement of comprehensive income of GBP1,075,000 (H1 FY20: GBP1,980,000) in relation to the share-based payments comprises GBP1,560,000 (H1 FY20: GBP2,492,000) of the equity reserve charge netted off by the release of the prior year accrual of GBP485,000 (H1 FY20: GBP512,000) pertaining to the respective discretionary compensation.

20. Related party transactions

There were no related party transactions during the six months ended 31 December 2020 and no balances outstanding at 31 December 2020 owed to or from related parties.

21. Guarantees and contingent liabilities

The Group could, in the course of its business, be subject to legal proceedings and/or regulatory activity. Should such an event arise, the Directors would consider its best estimate of the amount required to settle the obligation and, where appropriate and material, establish a provision. While there can be no assurances that circumstances will not change, based upon information currently available to them, the Directors do not believe there is any possible activity or event that could have a material adverse effect on the Group's financial position.

A claim has been made against Brooks Macdonald Financial Consulting Limited, a subsidiary of the Group, for unspecified losses. The claimant has not determined the quantum of the claim so it is not possible to reliably estimate the potential impact should the claim succeed. There remains significant uncertainty surrounding the claim, and it is not possible to forecast the timing, likelihood or quantum of any economic outflow. Accordingly, no provision for any liability has been recognised at this stage.

Brooks Macdonald Asset Management Limited, a subsidiary company of the Group, has an agreement with the Royal Bank of Scotland plc to guarantee settlement for trading with CREST stock on behalf of clients. The Group holds client assets to fund such trading activity. Additional levies by the Financial Services Compensation Scheme may give rise to further obligations based on the Group's income in the current or previous years. Nevertheless, the ultimate cost to the Group of these levies remains uncertain and is dependent upon future claims resulting from institutional failures.

During the year ended 30 June 2020, a small number of clients rejected goodwill offers made by Brooks Macdonald Asset Management (International) Limited in connection with the exceptional costs of resolving legacy matters (Note 16b), which were released from the provision. It is possible that one or more complainants might issue claims against Brooks Macdonald Asset Management (International) Limited, but no such claims have been issued as at 31 December 2020. As a result, it is not possible to estimate the potential outcome of claims or to assess the quantum of any liability with any certainty at this stage.

22. Principal risks and uncertainties

The principal risks and uncertainties facing the Group are in line with those disclosed and included within the Group's 2020 Annual Report and Accounts for the year ended 30 June 2020.

23. Events since the end of the period

No material events have occurred between the reporting date and the date of signing the Condensed consolidated financial statements.

Statement of Directors' responsibilities

The Directors confirm that the Interim Report and Accounts have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

-- an indication of important events that have occurred during the first six months and their impact on the Condensed consolidated financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

-- material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report.

The Directors of Brooks Macdonald Group plc are listed below.

By order of the Board of Directors

B L Thorpe

Group Finance Director

10 March 2021

Independent review report of Brooks Macdonald Group plc

Report on the Condensed consolidated interim financial statements

Our conclusion

We have reviewed Brooks Macdonald Group Plc's consolidated interim financial statements (the "interim financial statements") in the Interim Report and Accounts of Brooks Macdonald Group Plc for the period from 1 July 2020 to 31 December 2020 (the "period").

Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the AIM Rules for Companies.

What we have reviewed

The Interim financial statements comprise:

   --    the condensed consolidated statement of financial position as at 31 December 2020; 
   --    the condensed consolidated statement of comprehensive income for the period then ended; 
   --    the condensed consolidated statement of cash flows for the period then ended; 
   --    the condensed consolidated statement of changes in equity for the period then ended; and 
   --    the explanatory notes to the interim financial statements. 

The Interim financial statements included in the Interim Report and Accounts of Brooks Macdonald Group Plc have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the AIM Rules for Companies.

As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the group is applicable law and International Financial Reporting Standards ("IFRSs") as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the Directors

The Interim Report and Accounts, including the Interim financial statements, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the Interim Report and Accounts in accordance with the AIM Rules for Companies, which require that the financial information must be presented and prepared in a form consistent with that which will be adopted in the company's annual financial statements.

Our responsibility is to express a conclusion on the interim financial statements in the Interim Report and Accounts based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the AIM Rules for Companies and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Interim Report and Accounts and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

10 March 2021

Further information

Directors

 
Alan Carruthers         Chairman 
Caroline Connellan      CEO 
Ben Thorpe              Group Finance Director 
Robert Burgess          Non-Executive Director (appointed 1 August 
                         2020) 
Dagmar Kershaw          Non-Executive Director (appointed 1 July 
                         2020) 
John Linwood            Non-Executive Director 
Richard Price           Non-Executive Director 
Diane Seymour-Williams  Non-Executive Director (resigned 27 October 
                         2020) 
David Stewart           Non-Executive Director (resigned 31 July 
                         2020) 
 

Financial calendar

 
Interim results announced         11 March 2021 
Ex-dividend date for interim      18 March 2021 
 dividend 
Record date for interim dividend  19 March 2021 
Payment date of interim dividend  16 April 2021 
 

Company information

 
Company Secretary             Phil Naylor 
Company registration number   4402058 
Registered office             21 Lombard Street, London, EC3V 9AH 
Website                       www.brooksmacdonald.com 
 

Cautionary statement

The Interim Report and Accounts for the six months ended 31 December 2020 has been prepared to provide information to shareholders to assess the current position and future potential of the Group. The Interim Report and Accounts contains certain forward-looking statements concerning the Group's financial condition, operations and business opportunities. These forward-looking statements involve risks and uncertainties that could impact the actual results of operations, financial condition, liquidity, dividend policy and the development of the industry in which the Group operates and differ materially from the impression created by the forward-looking statements. Any forward-looking statement is made using the best information available to the Directors at the time of their approval of this report. Past performance cannot be relied on as a guide to future performance.

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March 11, 2021 02:00 ET (07:00 GMT)