TIDMBRK
RNS Number : 2332Z
Brooks Macdonald Group PLC
17 September 2020
17 September 2020
BROOKS MACDONALD GROUP PLC
Final results for the year ended 30 June 2020
Strong financial performance with record revenue, profit and
margin
Now a more robust business, confident and ambitious, ready to
move on to the next stage of our strategy
Brooks Macdonald Group plc ("Brooks Macdonald" or "the Group")
today announces its audited results for the year ended 30 June
2020.
Year ended Year ended Change
30.06.2020 30.06.2019(1)
Total discretionary funds under
management ("FUM") continuing operations GBP13.7bn GBP13.1bn 4.1%
Revenue, continuing operations GBP108.6m GBP105.7m 2.7%
Underlying results(2)
Underlying profit before tax GBP23.0m GBP20.7m 11.1%
Underlying profit margin 21.2% 19.6% +1.6ppt
Underlying earnings per share 123.7p 123.5p 0.2%
Statutory results
Statutory profit before tax GBP10.0m GBP7.9m 26.6%
Statutory earnings per share 43.1p 42.6p 1.2%
Net cash GBP50.2m GBP34.6m 45.1%
Dividends
Proposed final dividend 32.0p 32.0p -
Total dividend 53.0p 51.0p 3.9%
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 platforms as detailed
in the Financial review.
2 The underlying figures represent the results for the Group's
continuing activities excluding certain adjusting items as listed
in the Financial review. These represent an alternative performance
measure for the Group. A reconciliation between the Group's
statutory and underlying profit before tax is also included in the
Financial review.
Caroline Connellan, CEO of Brooks Macdonald, commented:
"I am delighted with our strong financial performance and the
continued disciplined execution of our strategy, particularly given
the context of a challenging year with the unprecedented backdrop
of COVID-19. We increased our profit margin, delivered record
revenue and underlying profit, and announced two high-quality
acquisitions. This has been made possible by the actions we have
taken over recent years as well as our "protect to thrive" approach
through COVID-19, allowing us to operate successfully in this
uncertain and ever-changing world. I would like to thank the
advisers we work with, and our clients, for their continued support
and our people for their dedication and hard work.
"We are now nearing the completion of the strategy we announced
in 2017, having done what we said we would do and delivered the
outcomes we promised. We are now a more robust business, confident
in our vision for Brooks Macdonald as the leading investment
manager for intermediaries, leveraging our strengths. We are
working to deliver best-in-class adviser experience and client
service levels, to complement our compelling investment proposition
and robust investment performance.
"The short-term outlook is uncertain, driven by both the
progress of the pandemic and events surrounding Brexit.
Nonetheless, the fundamental opportunity for Brooks Macdonald
remains strong, we are uniquely positioned in the market and
confident about what the future holds."
Financial highlights
-- Underlying profit margin up from 19.6% to 21.2%, in line with
the Group's commitment to increase profit margin in the medium
term
-- Record Group revenue of GBP108.6m, underlying profit of
GBP23.0m, and year-end FUM of GBP13.7bn
-- Strong overall investment performance for the financial year
to 30 June of 1.0%, protecting our clients' wealth in volatile
markets, well ahead of the MSCI PIMFA Private Investor Balanced
Index which declined by 3.5% over the same period
-- Improved underlying profit in all three segments, including
International which is delivering increased momentum in its
profitability
-- Total dividend increased by 3.9% to 53.0p (FY19: 51.0p)
reflecting the Board's continued confidence in the strength of the
underlying business and commitment to a progressive dividend
policy, and continuing the Group's record of increasing the
dividend every year since beginning trading on AIM in 2005
-- Committed to delivering top quartile underlying profit margin over the medium term
Strategic progress
-- Nearing completion of the strategy announced in 2017, to
deliver improved returns from a sustainable and scalable business,
achieving year-on-year improvements in profit margin:
o Reinforced the foundations of the business, exiting non-core
activities
o Improved our proposition, launching Responsible Investment and
Decumulation services, and invested in our people and
infrastructure
o Increased efficiency and effectiveness, through cost
discipline, process improvement and centralisation of client
operations
o Complemented our organic growth strategy by announcing two
high-quality acquisitions, both meeting the Group's strict
acquisition criteria - strong businesses, good strategic and
cultural fit, high levels of EPS accretion
-- Been through a period of change, emerging a more robust
business ready to capitalise on the significant growth
opportunities we see ahead
-- Moving to a new stage of our strategy, based on our vision
for Brooks Macdonald as the leading investment manager for
intermediaries, with best-in-class adviser experience and client
service levels, complemented by our robust Centralised Investment
Process and compelling investment proposition
-- Committed to driving value creation through organic growth,
service and operational excellence and further selective
high-quality acquisitions
-- Strategy enabled by our people and culture, focused on
attracting, engaging and retaining the best talent in the
industry
-- In advanced discussions on a partnership agreement with a
leading wealth management technology and services provider to
support the transformation of the adviser experience and client
service levels.
Conference call and investor presentation details
There will be a presentation for analysts and investors at
9:30am today via webcast and conference call. For details please
contact MHP Communications on +44 (0)20 3128 8147 or
r.collett-creedy@mhpc.com
Presentation slides will be available from 7:00 a.m. today by
going to the Investor Relations section of Brooks Macdonald's
website using the following link:
https://www.brooksmacdonald.com/investor-relations
Enquiries to:
Brooks Macdonald Group plc
Caroline Connellan, CEO
Ben Thorpe, Group Finance Director 020 7659 3492
Peel Hunt LLP (Nominated Adviser and Broker)
Adrian Trimmings / Rishi Shah / John Welch 020 7418 8900
MHP Communications 020 3128 8540
Reg Hoare / Simon Hockridge / Charlie Barker brooks@mhpc.com
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
GBP13.7 billion as at 30 June 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 offshore investment management and
acts as fund manager to two regulated OEICs (the IFSL Brooks
Macdonald Fund and the SVS Cornelian Investment Funds) providing a
range of risk-managed multi-asset funds and a specialised absolute
return fund.
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.
www.brooksmacdonald.com / @BrooksMacdonald
LEI: 213800WRDF8LB8MIEX37
Chairman's statement
Introduction
I am pleased to report that, despite the challenging backdrop of
continued Brexit uncertainty in the first half of our financial
year, and then the COVID-19 pandemic in the second half, Brooks
Macdonald has had another strong year. The Group has delivered
further improvement in underlying profit and underlying profit
margin in line with our medium-term commitments. Strong investment
performance in extremely volatile markets and our acquisition of
Cornelian Asset Managers resulted in us finishing the year with a
new record closing FUM figure of GBP13.7 billion. This was despite
the impact on client sentiment of ongoing macroeconomic uncertainty
and outflows of mainly lower margin business as a result of the
Group's focus on business quality.
Caroline Connellan and her team have continued their disciplined
execution of the Group's strategy with a highlight being the
announcement of two acquisitions meeting our strict criteria -
first Cornelian in November and then Lloyds Banking Group's Channel
Islands wealth management and funds business in June, complementing
our organic growth strategy.
Our Centralised Investment Process continues to deliver robust
performance particularly through the more recent volatile markets,
underpinning our mission to protect and enhance our clients'
wealth. Overall investment performance of 1.0% for the financial
year to June was well ahead of the MSCI PIMFA Private Investor
Balanced Index which declined by 3.5% over the same period.
The Group and our people responded well to the pandemic and the
lockdown, moving quickly and smoothly to working remotely,
leveraging our flexible working policies and the strong
infrastructure we already had in place. Caroline prioritised the
wellbeing and safety of our people while ensuring that the Group
was able to support advisers and clients in volatile markets, for
example increasing the frequency of contact with regular webinars
and investment bulletins.
While the pandemic raised challenges, it also creates
opportunities for firms willing to be positive in their actions, as
with our Lloyds Channel Islands acquisition. Brooks Macdonald
emerged from the lockdown a stronger organisation, well placed to
take advantage of opportunities as they arise.
Delivering our strategy
We are now nearing completion of the strategy announced in 2017,
having done what we said we would do and delivered the promised
outcomes. We reinforced the foundations of the business, upgrading
our risk management and operational framework and strengthening
senior management. We increased the value of the business by
enhancing what we do and how we do it, delivering the improvement
in margin we had committed. We maintained focus on our clients and
advisers, including revamping and launching a series of new
offerings, including Court of Protection, Responsible Investment
Service and Decumulation.
We drove greater efficiency and effectiveness, particularly with
the changes in processes, centralisation of our client operations
and headcount reduction announced in January 2019. We used the
savings to invest in our talent and capabilities, with a number of
key hires and development programmes at leadership and management
levels, and in improvements in our digital infrastructure.
We are now moving into a new stage of our strategy, where we
look to deliver further improvements in returns, building on the
sustainable and scalable business model we are putting in place.
Our vision for Brooks Macdonald is as the leading investment
manager for intermediaries and we will work with our adviser
network - present and future - to ensure we understand what they
need from us.
A core element of our strategy will be to transform our adviser
experience and client service levels. We are working with a leading
wealth management technology and service company to deliver this
transformation and we are close to agreement on a partnership,
which will include material upgrade of our investment
administration and operations activities.
We will look to create further value for shareholders through
continued organic growth, service and operational excellence, and
selective high-quality acquisitions. This will be underpinned by
actions to further improve our successful Centralised Investment
Process, to add to our investment proposition, and to deliver
market-leading adviser experience and levels of client service.
This will be complemented by a continuing focus on our people and
on the culture of the firm, underpinned by our Guiding
Principles.
Performance overview
The Group continues to make strong progress - our funds under
management increased during the financial year from GBP13.1 billion
to GBP13.7 billion, an increase of 4.1%. Our revenue growth was
2.7%, bringing the full year total to GBP108.6 million, a new high
for the Group, despite the impact of lower markets at the end of
our third quarter driven by the pandemic. We maintained our cost
discipline, putting us in a strong position to deal with the
uncertain environment. The increase in underlying profit before
tax, of 11.1%, is ahead of both FUM and revenue growth, resulting
in a figure of GBP23.0 million (FY19: GBP20.7 million).
Statutory profit before tax rose 26.6% to GBP10.0 million (FY19:
GBP7.9 million). Statutory diluted EPS from continuing operations
rose 1.2% to 43.1p (FY19: 42.6p), with growth constrained by the
issue of 2.1 million ordinary shares in relation to the Cornelian
acquisition.
Dividend
The Board has recommended a final dividend of 32.0p (FY19:
32.0p) which, subject to approval by shareholders at the AGM, will
result in total dividends for the year of 53.0p (FY19: 51.0p). This
represents an increase of 3.9% on the previous year and reaffirms
the Board's confidence in the strength of the business even in the
context of the COVID-19 pandemic, and our commitment to a
progressive dividend policy. The final dividend will be paid on 6
November 2020 to shareholders on the register at the close of
business on 25 September 2020.
Board changes
There have been several changes to the Board during the
financial year and in the post-close period. Colin Harris had
completed 9 years' service and therefore, in line with the UK
Corporate Governance Code, did not seek re-election at last year's
Annual General Meeting. He left the Board with effect from 31
October 2019. On 1 May 2020, we announced that David Stewart was
taking up the role of CEO of LSL Property Services plc and would
accordingly leave the Group Board on 31 July 2020. I thank Colin
and David for their contributions to the Group.
On 9 June 2020 we announced that Dagmar Kershaw would join the
Board with effect from 1 July 2020. On 16 July 2020 we announced
the appointment of Robert Burgess effective 1 August 2020. We
welcome Dagmar and Robert to the Board.
Governance and regulatory
The Group follows the UK Corporate Governance Code and this is
our first full year of reporting against the 2018 Code. We have
continued to keep abreast of regulatory change, where the major
activity this year was the implementation of the Senior Managers
and Certification Regime ("SM&CR") which went live on 9
December 2019. We also continued to embed the changes related to
MiFID II and GDPR. The Group maintained high standards of
compliance throughout the lockdown period.
Looking ahead
The macroeconomic outlook is highly uncertain in the short term,
given the pandemic and the continuing negotiations on our
post-Brexit relations with the EU, which will both have an impact
on the economy, markets and client sentiment. We are positive that
the fundamental opportunity for Brooks Macdonald remains strong,
driven by demographic and policy trends as well as increasing
adviser demand for outsourced investment management, where we will
continue to work to be the partner of choice. The Group continues
to have a strong balance sheet and supportive shareholders. I am
confident that we will continue to create value for both
shareholders and other stakeholders through organic growth, service
and operational excellence, alongside selective high quality
acquisitions.
Alan Carruthers
Chairman
16 September 2020
CEO's review
Introduction
I am delighted with what we have achieved this year ("FY20") in
both financial performance and strategy delivery. We have continued
to execute our strategy with discipline and rigour, not only taking
the actions we said we would, but also achieving the outcomes we
promised, including the continuing improvement in our underlying
profit margin. In parallel, we delivered robust investment
performance, despite volatile markets, protecting our clients'
wealth.
These have been unprecedented times with the impact of Brexit
and then the COVID-19 pandemic causing widespread disruption and
anxiety. Many have been affected by the recent uncertainty and,
throughout, our priority has been to support our people and deliver
for advisers and clients. When the COVID-19 pandemic led to
lockdown, our flexible working approach and adaptable technology
setup meant we were able to move to a remote working model
seamlessly. We significantly increased our focus on the health and
wellbeing of our people, providing reassurance and stability,
allowing us to continue to operate at our best for those we serve
in this uncertain and ever-changing world.
Given the challenges we have all faced, I would like to thank
the advisers we work with and our clients for their continuing
support, which we do not take for granted. I also want to thank all
the people who work for Brooks Macdonald. What we have achieved
over the past year has only been possible because of their
continued passion, commitment and hard work - regardless of whether
that work was in one of our offices or at home during lockdown. I
am hugely grateful for all that they have done and continue to
do.
As we move into a new stage of our strategy, I am confident that
the actions we have taken over recent times have resulted in a more
robust business, and I am excited by the potential for Brooks
Macdonald going forward. We have a bold vision for Brooks Macdonald
as the leading investment manager for intermediaries, leveraging
our strengths and unique position in the market.
Delivering our strategy
Our current strategy was agreed by the Board in November 2017 to
deliver improved returns from a sustainable and scalable business.
Since then, through each phase, we have done 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 have delivered improving underlying profit and profit margins
year-on-year and, in the last 9 months, we have complemented our
organic growth strategy with two high-quality, value-enhancing
acquisitions.
As we near completion of the strategy we laid out in 2017, what
we have delivered has made Brooks Macdonald a more robust business.
We have been through a period of change to set the business up for
the future and in parallel have delivered strong financial
performance. Despite the near-term external headwinds, we are ready
to capitalise on the significant growth opportunities we see
ahead.
We are now pivoting from a focus on preserving value towards
value creation, moving into a new ambitious stage of our strategy.
We look forward with confidence, building on what we have delivered
over the past three years and leveraging our strengths, with our
vision of Brooks Macdonald as the leading investment manager for
intermediaries. To enable this, a core element of our strategy,
alongside our robust Centralised Investment Process and our
compelling investment proposition, is to transform our adviser
experience and client service levels to be best in class. Our
digital experience for advisers and clients - complementing our
face-to-face relationships - will be market-leading, including
automated onboarding, full adviser and client portal functionality,
and bespoke reporting. We are working with a leading wealth
management technology and services company to deliver this
transformation and we are close to agreement on a partnership to
materially upgrade our operations activities.
Continuing the trajectory of the improving financial results we
have delivered over the last three years, we will aim for top
quartile underlying profit margin over the medium term. We are
committed to driving value creation through a return to organic
growth, market-leading service and operational excellence, and
further selective high-quality acquisitions.
Financial performance
FY20 was another year of strong financial performance for Brooks
Macdonald. We increased our underlying profit margin, up 1.6 points
to 21.2% (FY19: 19.6%), in line with our commitment. We also
delivered record revenue and underlying profit levels of GBP108.6m
and GBP23.0m respectively (FY19: GBP105.7m and GBP20.7m
respectively).
Our year-end closing FUM reached a new high, up 4.1% to
GBP13.7bn (FY19: GBP13.1bn), driven by GBP1.2 billion from the
acquisition of Cornelian Asset Managers and GBP0.1 billion in
investment performance which was partially offset by GBP0.8 billion
of net outflows, related to the Group's focus on business quality
and the proactive actions we took to position the business for
future success.
Revenue grew by 2.7% to GBP108.6 million (FY19: GBP105.7
million), and underlying profit before tax by 11.1% to GBP23.0
million (FY19: GBP20.7 million). Statutory profit before tax was
also up strongly, increasing 26.6% from GBP7.9 million to GBP10.0
million. A full reconciliation of underlying and statutory profit
is given in the Financial review.
We also announced two high-quality and value-enhancing
acquisitions - Cornelian, announced in November and completed in
February, and the Channel Islands wealth management and funds
business of Lloyds Banking Group, which we announced in June and
expect to complete before the end of the calendar year.
Despite the challenging headwinds and reflecting the strength of
the Group today, we took a "protect to thrive" approach through
COVID-19 making the health and wellbeing of our people our first
priority, while providing reassurance to our advisers and clients
(see Our response to COVID-19 after the CEO's review) and
continuing to deliver against our strategic priorities. Our
approach has allowed us to operate successfully and we are emerging
as a stronger organisation, excited and optimistic about what the
future holds.
Investment performance and market conditions
Our investment performance through FY20 was strong, at 1.0%
compared to a decline of 3.5% in the MSCI PIMFA Private Investor
Balanced Index. This maintained our position of being ahead of ARC
benchmarks for almost all risk profiles over 1, 3, 5 and 10
years.
Investment performance in FY20 was all the more creditable given
the exceptionally difficult markets, with Brexit uncertainty in the
first half being replaced by the COVID-19 pandemic in the
second.
This has further demonstrated the value of active investment
management in protecting our clients' wealth in difficult
times.
During the first half of the financial year markets were broadly
constructive but with bouts of instability around Brexit deadlines,
Sino-US relations and a German manufacturing slump.
This environment was disrupted by the rise of COVID-19 which led
to widespread volatility in financial markets and the economy.
After the March lows, the rebound in equities has been driven by
three factors: the relative attraction of equities versus the low
yields of safe haven assets, investors looking ahead to greener
economic pastures and ultra-accommodative global monetary and
fiscal policy which is expected to supercharge the recovery.
Both anecdotally via investor surveys, and looking at money
market fund AUM, there is significant investor cash still on the
side-lines and we believe the desire to achieve a positive real
yield will drive reallocations into equities helping to support
valuations.
Review of business performance
Robin Eggar took over as sole Head of UK Investment Management
("UKIM"), our largest and most profitable business, in January
2020. He and his team have continued to deliver for advisers and
clients across the UK, supporting an increase in underlying profit.
The enhancements we have made in our offering have delivered
positive organic flows in our specialised Bespoke Portfolio Service
("BPS") variants - Court of Protection, Responsible Investment
Service, and Decumulation - and in our Managed Portfolio Service
("MPS"), particularly our relaunched Platform MPS, as well as
initial traction in our business-to-business BM Investment
Solutions offering. Overall, we saw good momentum in inflows,
growing through the last three quarters of the year, with full year
inflows holding up well, at over 90% of FY19 levels.
This achievement was despite a weakening in net flows in BPS and
Funds which were affected by the impact on client sentiment of
ongoing macroeconomic uncertainty and outflows of mainly lower
margin business as a result of the Group's focus on business
quality and actions taken to position the business for future
success. As examples, during the year we moved our office from York
to Leeds, to access a larger group of advisers and greater pools of
wealth, and the Group's investment management agreement for the
Grosvenor Consulting funds was terminated.
The mandate came to an end when we were unable to reach a
satisfactory commercial arrangement with Grosvenor for the purchase
of the sponsorship company attached to the funds. This accounted
for GBP244 million of FUM corresponding to annualised revenues of
circa GBP0.6 million.
Andrew Shepherd continued to lead the reinvigoration of our
International business, evidenced by improving commercial
performance, and reinforced by the announcement in June of the
acquisition of Lloyds Banking Group's Channel Islands wealth
management and funds business. In FY20, robust investment
performance did not fully offset improving albeit slightly negative
net flows, resulting in an overall FUM decline of 1.6%.
International improved its underlying profit margin to 18.7% and
the team has a clear plan to bring margins to UKIM levels in the
medium term, with progress toward that target accelerated by the
Lloyds transaction.
Financial Planning, our in-house Independent Financial Adviser,
made good progress in its restructuring under the leadership of
Adrian Keane-Munday. In FY20, he and his team succeeded in
materially reducing its underlying loss margin and they continue to
see a positive client response to the changes they are making.
Client need and demand for financial advice and high-quality
investment management remains strong, driven by underlying
demographics and increasing policy onus on the individual to save
for retirement. We continue to see a strong opportunity both to
build relationships with more advisers and to extend our
relationships with our current advisers, thereby returning over
time to strong organic net flows. Our confidence in the opportunity
is based both on feedback from the advisers in our network and from
broader survey data which show more advisers planning to outsource
and those who already do, planning to outsource more.
People
We have continued to invest in our people throughout the year,
supporting the talent we have in the business and bringing in new
high-quality hires. We aim to attract and retain the best talent in
the industry, and, over the year, we have taken on key hires across
our adviser and client facing teams and built further functional
capability. We have continued to hire through lockdown with over 30
hires joining us since March. Notably, Lynsey Cross, formerly COO
of Amtrust International and CEO of specialist insurer ANV Group
before that, was fully onboarded to the Group remotely as Chief
Operating Officer, effective 1 May 2020.
While we are always looking for individuals who complement our
current skills, today we have a full and talented team in place to
deliver our strategy. The teams across our business represent a
powerful mix of those with long-standing Brooks Macdonald
experience and those who have joined us more recently, with fresh
ideas and different expertise.
We communicate frequently with our people and also gather their
feedback through town halls, more informal sessions and Group-wide
employee engagement surveys. It is pleasing to see that the focus
we have put on our people agenda has led to a significant increase
in engagement metrics over the year. As a result, we are emerging
from lockdown with stronger engagement, creating a stronger
organisation, better able to capture the opportunities ahead.
Outlook
We have executed our strategy with discipline over the past
three years, and Brooks Macdonald is now a more robust business for
it, ambitious for the future. I am excited by our bold vision for
the company as the leading investment manager for intermediaries.
We are uniquely positioned with our focus on advisers and trustees,
and we will leverage our strengths in this area. We will build on
our success to date - driving organic growth, ensuring service and
operational excellence, particularly through our planned
partnership to transform the adviser experience and client service
levels, and seeking selective high-quality acquisitions. We will
also continue to deliver strong financial performance with
improving margins.
The fundamental potential for Brooks Macdonald remains strong,
despite the short-term headwinds and impact on client sentiment
from both the pandemic and renewed Brexit uncertainty. The
disruption caused by COVID-19 has reinforced the importance of
high-quality financial advice and investment management and we are
well positioned to help clients, and advisers, realise their
ambitions and secure their futures. The disruption has created a
window of opportunity for bold strategic moves, we have a strong
team and are well positioned for the future.
I would like to finish by reiterating my thanks to the advisers
we work with and our clients for their continuing support, as well
as to our people. It has been a year of many challenges, but also
many positives, and we are emerging stronger from lockdown. I look
forward with confidence to what we can achieve together.
Caroline Connellan
CEO
16 September 2020
Our response to COVID-19
Since mid-March, the COVID-19 pandemic has caused widespread
disruption. Our response was to adopt a "protect to thrive"
approach, making the health and wellbeing of our people our first
priority, while reassuring advisers and clients. This enabled us to
move seamlessly to remote working and to continue to deliver for
our advisers and clients in volatile markets. We stepped up our
support with more frequent contact, particularly aimed at advisers,
including daily investment bulletins and regular webinars on
thematic topics relevant to investing in such an unprecedented
economic environment. We continued active management of client
portfolios and again delivered robust investment performance,
protecting our clients' wealth.
Our "protect to thrive" approach included a commitment during
lockdown of no redundancies and no furlough. We had frequent
communication with our people including regular wellbeing "pulse"
surveys to track how they were feeling, which allowed us to
understand what was important to them, and respond to their needs
and concerns, getting positive feedback. Our pre-existing flexible
working approach and robust technology support for working outside
the office meant we had comprehensive homeworking capabilities from
day one of lockdown. Throughout the pandemic we have worked as
close to normal as possible.
Alongside the challenges, the pandemic has also created
opportunities. We have been able to move to a different approach to
engage with advisers and clients - more virtual and more frequent -
which has worked well. We have fast-tracked a number of process
improvements and reduced our reliance on paper with increasing use
of digital. Looking forward, we believe the disruption caused by
the pandemic is creating opportunities for players willing to do
things differently.
Since the financial year end, we have started reopening our
offices reflecting our desire, as a relationship business, to start
bringing our people together again and, in time, to meet face to
face with advisers and clients. We have worked hard to ensure our
workplaces are safe and are encouraging our teams, where
appropriate, to start returning to the office while still
benefitting from the flexibility of home working. Enabling a
balance of office and home working allows us to move forward in a
way that is right for our people, to perform as a business, and to
play our part in helping the economy to recover.
Our strategy
We are nearing completion of the strategy we announced in 2017.
We have done what we said we would do and delivered the promised
outcomes. Now we are moving into a new stage of our strategy,
pivoting from value preservation to value creation.
We have done what we said we would do
We reinforced the foundations of the business and took immediate
actions to improve profit margins. We exited non-core businesses
and upgraded our risk and operational management framework. We
strengthened the senior management, both by developing and
promoting internal talent and by bringing in key hires,
particularly in the functional and back office areas to complement
the existing adviser- and client-facing expertise. We tightened
cost discipline and launched a comprehensive people strategy aimed
at attracting and retaining the best people in industry.
We maintained and strengthened the business's focus on our
clients and advisers, with propositions like our new Decumulation
and Responsible Investment Service and our revamped Court of
Protection offering.
We also started considering selective, high-quality acquisitions
to complement our organic growth. We established strict criteria
for acquisitions - quality businesses, good strategic and cultural
fit, and compelling economics - and announced two excellent deals
meeting these criteria. We announced the acquisition of Cornelian
Asset Managers, the Edinburgh-based investment manager, in November
and completed the acquisition in February. Integration is now
largely complete. Then in June we announced the acquisition of
Lloyds Banking Group's Channel Islands wealth management and funds
business, supporting the reinvigoration of our International
business.
Objectives of Phase 2
of 2017 strategy Progress in FY20
----------------------------- -------------------------------------------------------------
Maintaining focus on
clients and advisers * Through the pandemic and the lockdown, continued to
deliver for our advisers and clients. Stepped up the
frequency of support contact, from daily investment
briefings to regular webinars covering important
investment topics
* Increased focus on providing Investment Solutions for
advisers who are looking for solutions tailored to
their needs and preferences. Appointed an Investment
Solutions Director to lead the effort
----------------------------- -------------------------------------------------------------
Efficiency and effectiveness,
easier to do business * Continued improving client and investment
with administration and operations processes, new
centralised Client Operations team
* Implemented new client portal, myBM
----------------------------- -------------------------------------------------------------
Targeted investment
* Invested in technology upgrades, e.g. cyber security
* Rolled out infrastructure and staff support, which
enabled remote working to work smoothly
* Funded two acquisitions in the year with support of
shareholders
* Invested in people, both through development of our
existing talent and bringing in
* selective high-quality hires
----------------------------- -------------------------------------------------------------
Looking forward
Our vision for Brooks Macdonald is as the leading investment
manager for intermediaries. A core element of that will be to
transform our adviser experience and client service levels. As part
of this, the digital experience delivered for advisers and clients
- complementing our face-to-face relationships - will be
market-leading with, for example, automated onboarding, full
adviser and client portal functionality, and bespoke reporting. We
are working with a leading wealth management technology and service
company to deliver this transformation and we are close to
agreement on a partnership to materially upgrade our operations
activities.
In parallel, we will maintain and enhance our robust Centralised
Investment Process, delivering consistent strong investment returns
for clients. We will continue to seek new opportunities for growth,
looking to grow FUM organically with new segments and partnerships,
further adding to our compelling overall investment proposition. We
have added specialised products to our Bespoke Portfolio Service
and we are broadening and deepening our offering in model
portfolios, funds and unitised solutions, and in our
business-to-business Investment Solutions offering, where we tailor
our products and services to the needs and requirements of
advisers.
Our go-forward value creation strategy has been approved by the
Board, and is based on the three value drivers of strong organic
growth, driving towards service and operational excellence, and
selective high-quality acquisitions. We will deliver further
improvements in returns, building on the sustainable and scalable
business model we are putting in place.
Organic growth
-- Maintain and enhance our Centralised Investment Process,
delivering consistent investment returns for clients
-- Continue to add to our compelling investment proposition in
specialised bespoke portfolios, model portfolios and fund/unitised
solutions, and in business-to-business solutions for advisers, all
supported by a high-impact Take To Market strategy
-- Deliver market-leading adviser experience and client service
levels, through our planned partnership with world-class wealth
management technology and service company, and related
improvements
Service and operational excellence
-- Continue high levels of cost discipline, freeing up investment into service differentiators
-- Complete roll-out of new client administration processes
-- Benefit from efficiencies of new technology and services partnership
Selective high-quality acquisitions
-- Criteria are high-quality businesses, good strategic and cultural fit, compelling economics
-- Leverage the scalability of the platform we are putting in place
This is all underpinned by our investment in people and culture
with the objective of attracting, engaging and retaining the best
talent in the industry.
Financial review
Review of results for the year
The Group had a strong year, delivering record income and
underlying profit against the backdrop of political and
macroeconomic uncertainty pre-Christmas, which was then further
exacerbated by the market disruption caused by the outbreak of the
COVID-19 pandemic. Our disciplined approach to the management of
the firm's financial resources means we entered the crisis well
placed and the payment of the interim dividend in April 2020,
reaffirmed the resilience of our business model and our confidence
in the future opportunity. This disciplined management, combined
with the successful acquisition and integration of Cornelian have
led to the delivery of both record profits and an improved
underlying profit margin, which increased from 19.6% to 21.2%.
The table below shows the Group's financial performance for the
year ended 30 June 2020 with comparative periods and provides a
reconciliation between the underlying results, which the Board
considers to be a more appropriate reflection of the Group's
performance, and the statutory results. A breakdown of the
underlying adjustments is shown further down in the Financial
review.
Group financial results summary
FY20 FY19 Change
restated
GBPm GBPm %
------------------------------------------------------- ------ ---------- -------
Revenue 108.6 105.7 2.7
Fixed staff costs (39.8) (37.1) 7.3
Variable staff costs (10.8) (15.5) (30.3)
------------------------------------------------------- ------ ---------- -------
Total staff costs (50.6) (52.6) (3.8)
FSCS levy (2.2) (1.2) 83.3
Non-staff costs (32.8) (31.2) 5.1
------------------------------------------------------- ------ ---------- -------
Total non-staff costs (35.0) (32.4) 8.0
------------------------------------------------------- ------ ---------- -------
Total underlying costs (85.6) (85.0) 0.7
------------------------------------------------------- ------ ---------- -------
Underlying profit before tax 23.0 20.7 11.1
Underlying adjustments (13.0) (12.4) 4.8
------------------------------------------------------- ------ ---------- -------
Statutory profit before tax from continuing operations 10.0 8.3 20.5
Loss from discontinued operations - (0.4) (100.0)
------------------------------------------------------- ------ ---------- -------
Statutory profit before tax 10.0 7.9 26.6
Taxation (3.6) (2.4) 50.0
------------------------------------------------------- ------ ---------- -------
Statutory profit after tax 6.4 5.5 16.4
------------------------------------------------------- ------ ---------- -------
Underlying profit margin before tax 21.2% 19.6% 1.6ppt
Underlying diluted earnings per share 123.7p 123.5p 0.2
Statutory profit margin before tax from continuing
operations 9.2% 7.9% 1.3ppt
Statutory profit margin before tax 9.2% 7.5% 1.7ppt
Statutory diluted earnings per share from continuing
operations 43.1p 42.6p 1.2
Dividends per share 53.0p 51.0p 3.9
------------------------------------------------------- ------ ---------- -------
Restatement of comparative figures
The Group's results for FY19 have been restated in respect of
the following two matters which have come to light during the
finalisation of the Group's results for the year ended 30 June 2020
which have been reflected in the Consolidated financial statements.
These are explained in brief below and further details provided in
Note 4 to the Consolidated financial statements.
ACD fees and associated costs
FY19 figures have been restated in respect of the recognition of
the Authorised Corporate Director ("ACD") fees and associated costs
for one of the regulated OEICs managed by the Group. In prior years
these were recognised on a grossed-up basis in revenue and
non-staff costs respectively. During FY20, the accounting was
corrected to only recognise the investment management fees due to
the Group from the ACD under the Investment Management Agreements.
This adjustment has no impact on the underlying and statutory
profits before tax.
VAT on Platform MPS
The Group has been undergoing a review of its Managed Portfolio
Service ("MPS"), with a view to seeking a ruling from HMRC that MPS
is not subject to VAT. When conducting this review, it was noted
that the fees received on MPS offered through third party platforms
(Platform MPS) were in part 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, it
was concluded that the error required correction in the
Consolidated financial statements. Accordingly, the Group
recognised a prior year adjustment of GBP0.4 million in respect of
FY17 and FY18 and restated the results for FY19 by GBP0.3
million.
Revenue
The Group's total revenue for FY20 increased by 2.7% to GBP108.6
million (Restated FY19: GBP105.7 million). This was driven by
higher average FUM levels, particularly in H1 and the contribution
from the Cornelian activities during the latter four months of the
year (GBP3.1 million). FUM related revenue increased by 2.4% in
line with the increase in average FUM on the quarterly billing
dates. The overall yield remained stable at 79.2bps. Non-FUM
related revenue increased by 8.1% to GBP6.7 million (FY19 GBP6.2
million) due to higher levels of third party-administration
fees.
Revenue, yields and average FUM
Revenue Yield Average FUM
-------------------- ------------------- ----------------------
FY20 FY19 Change FY20 FY19 Change FY20 FY19 Change
GBPm GBPm % bps bps % GBPm GBPm %
-------------------------- ----- ----- ------ ---- ----- ------ ------ ------ ------
BPS fees 53.2 53.0 0.4 67.9 67.5 0.6
BPS non-fees 18.8 18.3 2.7 24.1 23.4 3.0
-------------------------- ----- ----- ------ ---- ----- ------ ------ ------ ------
Total BPS 72.0 71.3 1.0 92.0 90.9 1.2 7,830 7,847 (0.2)
MPS 8.0 7.8 2.6 46.8 48.9 (4.3) 1,709 1,596 7.1
-------------------------- ----- ----- ------ ---- ----- ------ ------ ------ ------
UKIM discretionary 80.0 79.1 1.1 83.9 83.8 0.1 9,539 9,443 1.0
Funds 6.4 6.9 (7.2) 47.7 45.0 6.0 1,341 1,534 (12.6)
-------------------------- ----- ----- ------ ---- ----- ------ ------ ------ ------
Total UKIM excluding
Cornelian 86.4 86.0 0.5 79.4 78.3 1.4 10,880 10,977 (0.9)
Cornelian(1) 3.1 - - 73.8 - - 420 - -
-------------------------- ----- ----- ------ ---- ----- ------ ------ ------ ------
Total UKIM including
Cornelian 89.5 86.0 4.1 79.2 78.3 1.1 11,300 10,977 2.9
International 12.4 13.5 (8.1) 79.0 85.0 (7.1) 1,569 1,589 (1.3)
-------------------------- ----- ----- ------ ---- ----- ------ ------ ------ ------
Total FUM related revenue 101.9 99.5 2.4 79.2 79.2 - 12,869 12,566 2.4
Financial Planning -
UK 3.8 3.6 5.6
Financial Planning -
International 1.0 1.1 (9.1)
Other income 1.9 1.5 26.7
-------------------------- ----- ----- ------
Total non-FUM related
revenue 6.7 6.2 8.1
Total Group revenue 108.6 105.7 2.7
-------------------------- ----- ----- ------ ---- ----- ------ ------ ------ ------
1. Average FUM for Cornelian time weighted to four months for
the purposes of the yield calculation.
BPS fee yield increased marginally to 67.9bps (FY19: 67.5bps)
given the continued shift to "all in" fees. BPS non-fee income
increased to 24.0bps (FY19 23.3bps) primarily due to higher
interest income in H1, however this was somewhat offset by the
lowering of the Bank of England base rate in H2. MPS saw a slight
increase in income to GBP8.0 million (Restated FY19 GBP7.8 million)
due to growth in platform MPS and this was after the restatement of
FY19 for the VAT related error detailed above. Overall MPS yield
dropped slightly due to the mix of business in MPS in custody.
Funds income was down GBP0.5 million primarily due to the exit of
the Grosvenor Funds business in H1, as we failed to agree terms to
buy the fund given our focus on value and strict acquisition
criteria.
International income dropped by 8.1% (GBP1.1 million) to GBP12.4
million (FY19: 13.5 million) due to average FUM being down by 1.3%
and lower FX related transaction income. The drop in average FUM
was primarily due to the prior year's exits and the business put in
a much-improved net flows performance, although it remained
marginally negative in the year.
The successful acquisition and integration of Cornelian meant
income increased by GBP3.1 million over the final four months of
the year.
Financial Planning (UK) income increased by 5.6% year on year to
GBP3.8 million as the impact of new business and the recent
repricing initiative started coming through. Third-party
administration fees and other income were up 26.7% to GBP1.9
million largely driven by the repricing of this business to better
reflect the actual costs of servicing. The third-party
administration business is currently in wind down as we simplify
the business and focus on our core offering.
Underlying costs
Total underlying costs have gone up marginally by 0.7% to
GBP85.6 million (Restated FY19: GBP85.0 million). The underlying
costs of Cornelian in the period were GBP1.7 million, therefore
excluding Cornelian underlying costs fell to GBP83.9 million or by
1.3%. The Group continues to focus on cost discipline and had
adopted a "save to spend" approach to costs, with efficiency
targets being set each year as part of the annual planning cycle.
These benefits are then reinvested into the client and adviser
experience or to offset inflationary increases elsewhere. The Group
did not utilise any of the Government COVID-19 related schemes in
the year. Being a relationship led business, our staff are our key
resource and we took the decision early on to adopt a "protect to
thrive" approach to our staff and we have not used the Government
furlough scheme or made anyone redundant since the beginning of the
COVID-19 pandemic.
Staff costs
Total staff costs fell by GBP2.0 million or 3.8% during the year
due to full year benefit of last year's efficiency and
effectiveness programme coming through and this was after the
inclusion of additional GBP0.7 million of staff costs from
Cornelian. The fixed staff increase of 7.3% to GBP39.8 million was
driven by last year's changes to investment manager compensation,
where we removed variable commission payments and replaced them
with higher base salaries and higher discretionary bonus
opportunities, inflationary pay increases to the rest of staff and
the addition of Cornelian. The Group also continued to invest in
talent, strengthening the highly skilled and experienced teams
across the business and laying down strong foundations to deliver
on our growth agenda whilst enabling us to better serve our clients
and advisers. Variable staff costs fell by 30.3% to GBP10.8 million
due to the changes in compensation for investment managers, however
the cash bonus pool and share based payment charge for the year
were broadly flat given the challenging macroeconomic background
and our focus on protecting the jobs.
Non-staff costs
Non-staff costs amounted to GBP35.0 million, an increase of 8.0%
on the prior year including the addition of GBP1.0 million for
Cornelian non-staff costs. Therefore, excluding Cornelian non-staff
costs increased by GBP1.6 million or 4.9%. The bulk of this
increase, GBP1.1 million was driven by the FSCS levy which
increased by 83.3% on the prior year, now reaching GBP2.0 million
for FY20 (FY19: GBP1.2 million) with a further GBP0.2 million
related to a prior year levy true up. The FSCS levy is becoming an
ever more prominent cost driver across the sector and at such
levels is not considered directly commensurate to the Group's
regulated activities. Brooks Macdonald is a member of the FSCS
working group established by the Investment Association and we
continue to engage in discussing alternative ways of structuring
and charging the levy in future years. The other contributors to
this increase include higher IT spend as we invest in cyber
security risk mitigation, and higher insurance and audit costs
although these were in part offset by lower travel and
entertainment spend in the second half due to the COVID-19 related
lockdown.
Combined, the above gave rise to an underlying profit before tax
of GBP23.0 million, representing an increase of 11.1% on the
previous year and resulting in a profit margin of 21.2% (Restated
FY19: 19.6%) delivering on our strategic objective of incremental
progression in margin and the delivery of operational gearing.
The statutory profit before tax from continuing operations is
also higher compared to the prior year at GBP10.0 million (Restated
FY19: GBP8.3 million) giving rise to a statutory profit margin of
9.2% compared to 7.9% reported in FY19 (as restated). The
underlying adjustments for the year of GBP13.0 million, comprising
one-off costs, are broadly in line with the quantum of adjustments
recognised in the prior year (FY19: GBP12.4 million) although the
mix has changed, with a significant portion of the items now being
related to acquisitions and the growth agenda, rather than last
year's restructuring costs. A breakdown of the underlying
adjustments together with an explanation of each item is included
further down in the Financial review.
FUM movement in the year
FY20 FY19
GBPm GBPm
---------------------------------------------- ------ ------
Opening FUM 13,147 12,312
Organic net new business (774) 409
FUM acquired in the year(1) 1,181 -
Investment performance 131 426
---------------------------------------------- ------ ------
Total FUM growth 538 835
---------------------------------------------- ------ ------
Closing FUM 13,685 13,147
---------------------------------------------- ------ ------
Organic net new business (5.9%) 3.3%
Total FUM growth 4.1% 6.8%
---------------------------------------------- ------ ------
Investment performance in the year 1.0% 3.5%
MSCI PIMFA Private Investor Balanced Index(2) (3.5%) 2.2%
---------------------------------------------- ------ ------
1. Closing value of Cornelian Asset Managers Limited's FUM as at 31 March 2020.
2. Capital-only index.
Over the course of the year, FUM increased by GBP0.5 billion or
4.1%. This includes the assets acquired from Cornelian in February
2020 of GBP1.2 billion and positive investment performance of
GBP0.1 billion, partly offset by organic net outflows of GBP0.8
billion. The net outflows were partly driven by softer client
sentiment in the light of the macroeconomic uncertainty during the
first half and market volatility arising from the outbreak of the
COVID-19 pandemic in the latter part of the year, and the effect of
outflows of mainly lower margin business as a result of the Group's
focus on efficiency and business quality and the actions taken to
support medium term value creation. Overall investment performance
for the year to June of 1.0% was well ahead of the MSCI PIMFA
Private Investor Balanced Index which declined by 3.5% over the
same period.
As noted below, within UKIM, and including the impact of the
acquired Cornelian assets, the BPS core offering remained stable
over the year closing at GBP8.2 billion and we have seen decent
growth in our MPS (6.1%) and Funds (29.5%) business. Within our
International business, we have seen much reduced outflows, with a
slight net inflow position during the last quarter as the business
regains momentum.
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 30 June 2020 and comparative
periods.
FY20 FY19 Change
GBPm GBPm %
-------------- ------ ------ ------
BPS 8,247 8,254 (0.1)
MPS 1,809 1,705 6.1
Funds 2,051 1,584 29.5
-------------- ------ ------ ------
UKIM total 12,107 11,543 4.9
International 1,578 1,604 (1.6)
-------------- ------ ------ ------
Total FUM 13,685 13,147 4.1
-------------- ------ ------ ------
Segmental analysis
The Group reports its results across three key operating
segments, UK Investment Management ("UKIM"), International and
Financial Planning. The tables below provide a breakdown of the
annual performance broken down by these segments, with
comparatives. The results of Cornelian since acquisition have been
included in the UKIM segment.
Group and
UK Investment Financial consolidation
FY20 (GBPm) Management International Planning adjustments Total
------------------------------------ ------------- ------------- --------- -------------- ------
Revenue 91.4 13.4 3.8 - 108.6
Direct costs (42.0) (8.0) (3.2) (32.4) (85.6)
------------------------------------ ------------- ------------- --------- -------------- ------
Operating contribution 49.4 5.4 0.6 (32.4) 23.0
Indirect cost recharges (24.2) (2.9) (1.9) 29.0 -
------------------------------------ ------------- ------------- --------- -------------- ------
Underlying profit/(loss) before tax 25.2 2.5 (1.3) (3.4) 23.0
------------------------------------ ------------- ------------- --------- -------------- ------
Underlying profit/(loss) before tax
margin 27.6% 18.7% (34.2%) N/A 21.2%
------------------------------------ ------------- ------------- --------- -------------- ------
Group and
UK Investment Financial consolidation
FY19 (Restated)(1) (GBPm) Management International Planning adjustments Total
------------------------------------ ------------- ------------- --------- -------------- ------
Revenue 87.5 14.6 3.6 - 105.7
Direct costs (43.9) (9.2) (2.9) (29.0) (85.0)
------------------------------------ ------------- ------------- --------- -------------- ------
Operating contribution 43.6 5.4 0.7 (29.0) 20.7
Indirect cost recharges (19.2) (3.2) (2.5) 24.9 -
------------------------------------ ------------- ------------- --------- -------------- ------
Underlying profit/(loss) before tax 24.4 2.2 (1.8) (4.1) 20.7
------------------------------------ ------------- ------------- --------- -------------- ------
Underlying profit/(loss) before tax
margin 27.9% 15.1% (50.0%) N/A 19.6%
------------------------------------ ------------- ------------- --------- -------------- ------
1. Comparative segmental results 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 revenues recognised on the
Managed Portfolio Service offered through third party
platforms.
All three business segments reported an improvement in
performance during the year compared to FY19. UKIM and Financial
Planning recognised an increase in revenues during the period, up
by 4.5% and 5.6% respectively.
Financial planning made decent progress against its three-year
plan to return to profitability with further improvements expected
in FY21.
International reported a decline in revenues of 8.2% driven by
the marginal decrease in average FUM noted above and lower foreign
exchange related transactional income. The business reinvigoration
under Andrew Shepherd's leadership continues to progress well and
the recent acquisition of the Lloyds Banking Group's Channel
Islands wealth management and fund business will provide further
positive momentum over the year ahead.
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 year ended 30 June 2020 with comparatives is shown in the
table below:
FY20 FY19
restated
GBPm GBPm
------------------------------------------------------------- ----- ---------
Underlying profit before tax 23.0 20.7
Goodwill impairment (4.5) (4.8)
Acquisitions related costs:
Deal structuring and legal costs (2.8) -
Integration and staff retention costs (1.4) -
Amortisation of client relationships and contracts acquired
with fund managers (2.9) (2.2)
Head office relocation costs (1.2) -
Changes in fair value of consideration and related disposals (0.2) 0.2
Restructuring charge - (3.3)
Client relationship contracts impairment - (2.3)
------------------------------------------------------------- ----- ---------
Total underlying adjustments 13.0 12.4
------------------------------------------------------------- ----- ---------
Statutory profit before tax from continuing operations 10.0 8.3
Loss from discontinued operations - (0.4)
------------------------------------------------------------- ----- ---------
Statutory profit before tax 10.0 7.9
------------------------------------------------------------- ----- ---------
Goodwill impairment (GBP4.5 million charge)
Goodwill is reviewed annually for impairment based on the
carrying value of the asset compared to its expected recoverable
amount. The impairment charge recognised in the year relates to the
Levitas transaction. Last year, the Group entered into a new
five-year partnership with the distributor of the Levitas fund that
carried a lower fund sponsorship fee, the aim of this reduction was
to enhance FUM flows and deepen the relationship. Unfortunately for
reasons beyond our control, the anticipated inflows have not been
forthcoming and in fact the fund has recorded net outflows in the
period therefore impacting its rate of growth and future cash
flows. This partnership is still active and FUM flows could improve
in due course, however given current market conditions and the
situation at our partner firm, we have reassessed the carrying
value of this intangible asset. As a result, the associated
goodwill carrying value is no longer supported and triggered an
impairment charge in the year. Refer to Note 9 to the Consolidated
financial statements for more details.
Acquisitions related costs (GBP4.2 million charge)
i. Deal and structuring and legal costs (GBP2.8 million charge)
These represent costs incurred in relation to the acquisition of
Cornelian Asset Managers Group Limited announced on 22 November
2019 and the acquisition of the Lloyds Banking Group's
International Channel Islands wealth management and funds business
announced on 24 June 2020. The costs incurred include corporate
finance services, legal fees and due diligence fees.
ii. Integration and staff retention costs (GBP1.4 million charge)
These comprise the costs incurred in integrating the Cornelian
acquisition which completed on 28 February 2020 into the Brooks
Macdonald business including migration of client accounts, IT,
systems and processes. It also includes payments made to key
Cornelian employees who are being retained by the Group for a short
period of time to assist with the integration of the
businesses.
The above costs are being excluded from the Group's underlying
performance as they were one-off in nature.
Amortisation of client relationship contracts and contracts
acquired with fund managers (GBP2.9 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 year includes the newly acquired investment management
contracts arising on the Cornelian transaction. This amortisation
charge has been excluded from the underlying profit since it is a
significant non-cash item. Refer to Note 9 to the Consolidated
financial statements for more details.
Head office relocation costs (GBP1.2 million charge)
The Group's previous London offices based in Welbeck Street and
Bevis Marks have been 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
for Bevis Marks and Welbeck Street came to an end 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.
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 previous acquisitions and disposals
carried out by the Group, together with their associated net
finance costs and costs of disposal where applicable.
FY19 - Restructuring charge
This relates to the efficiency and effectiveness programme
announced in January 2019. The Group identified a range of
opportunities to streamline and remove duplication from core
processes. The headcount reduction resulted in redundancy costs,
payment in lieu of notice, settlement and other
restructuring-related costs. These have been excluded from
underlying earnings in view of their one-off nature.
FY19 - Client relationship contracts impairment
This impairment charge relates to the value of Spearpoint client
relationships following the previously disclosed loss of a
client-facing team. Refer to Note 9 to the Consolidated financial
statements for more details.
Taxation
The Group's corporation tax charge on underlying profits for the
period was GBP4.6 million (Restated FY19: GBP3.6 million)
representing an effective tax rate of 20.0% (Restated FY19: 17.8%).
The increase in the effective tax rate is largely due to an
intangible asset impairment recognised in the prior period which is
not allowable for tax purposes. The effective tax charge for the
current year also includes the recognition of deferred tax on the
acquired client-relationship intangible assets as part of the
Cornelian transaction. Details on taxation are provided in Note 5
of the Consolidated financial statements.
Earnings per share
The Group's basic statutory earnings per share for the year
ended 30 June 2020 was 43.2p (Restated FY19: 39.7p). On an
underlying basis, diluted earnings per share of 123.7p is broadly
flat on the prior year (Restated FY19: 123.5p) largely due to a
higher weighted average number of shares in issue during FY20
following the share placing carried out by the Group in November
2019 and the shares issued as part of the Cornelian acquisition at
the completion date on 28 February 2020. Details on the basic and
diluted earnings per share are provided in Note 7 of the
Consolidated financial statements.
Dividend
The Group has a progressive dividend policy growing dividends in
line with 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.
Considering the Group's strong balance sheet and the current
macroeconomic uncertainty, the Board has proposed a final dividend
of 32.0p per share (FY19: 32.0p). Taking into account the interim
dividend of 21.0p per share (H1 FY19: 19.0p), this results in a
total dividend for the year of 53.0p per share (FY19: 51.0p), an
overall increase of 3.9%. Refer to Note 8 to the Consolidated
financial statements for more details. The recommended dividend is
subject to shareholders' approval, which will be sought at the
Company's Annual General Meeting on 27 October 2020.
Financial position and regulatory capital
The Group's financial position remains strong with net assets of
GBP123.5 million at 30 June 2020 (Restated FY19: GBP86.9 million)
and tangible net assets (net assets excluding intangibles) up to
GBP39.7 million (Restated FY19: GBP36.7 million). As at 30 June
2020, the Group had regulatory capital resources of GBP46.6 million
(Restated FY19: GBP39.0 million). The own funds calculation take
into account the respective years' profit after tax as these are
deemed to be verified at the date of publication of the annual
results. The Group continues to be well capitalised with a total
capital ratio of 20.7% over our Pillar I risk exposure
requirement.
FY20 FY19
restated
GBPm GBPm
----------------------------------------------------------- ------ ---------
Share capital 0.1 0.1
Share premium 78.0 39.1
Other reserves 6.4 4.6
Retained earnings 39.0 43.1
----------------------------------------------------------- ------ ---------
Total equity 123.5 86.9
Intangible assets (net book value) (83.8) (50.2)
Deferred tax liabilities associated with intangible assets 6.9 2.3
----------------------------------------------------------- ------ ---------
Tier 1 Capital 46.6 39.0
----------------------------------------------------------- ------ ---------
Own funds 46.6 39.0
----------------------------------------------------------- ------ ---------
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 FY19 ICAAP review was conducted for the period ended 30 June
2019 and signed off by the Board in December 2019. 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.
Cash flow and capital expenditure
The Group continues to have strong levels of cash generation
from continuing operations. Total cash resources at the end of the
year were GBP50.2 million (FY19: GBP34.6 million). The Group had no
borrowings at 30 June 2020 (FY19: GBPnil).
During the year ended 30 June 2020, GBP1.7 million was
capitalised on leasehold fit out works, office furniture and
equipment as part of the fit out of the Group's new head office at
21 Lombard Street, London. Moreover, GBP1.6 million was spend
during the year on the further development of the Group's adviser
and client portal, risk systems and the core operational
platform.
Financial outlook
The current outlook is highly uncertain given the ongoing impact
of the COVID-19 pandemic, however the Group is well placed to
continue its success. We have proven the resilience of the Group's
business model and operating platform and this gives us a high
degree of confidence in our ability to deliver for shareholders,
advisers and clients in the months and years ahead. The continued
growth in our core business profitability, combined with the
successful integration of Cornelian and the acquisition of Lloyd's
Channel Islands wealth management and funds business will allow us
to continue to grow earnings, whilst investing in further
enhancements to the adviser and client experience. The Group
remains focused on the delivery of improved growth in organic net
flows whilst actively looking for further high quality, accretive
acquisitions.
Ben Thorpe
Group Finance Director
16 September 2020
Risks
Taking a dynamic approach to risk management
Over the past year, the Group has continued in its commitment to
invest in compliance and risk management capabilities. Furthermore,
the Group has sustained its focus on embedding the risk management
framework, through greater business collaboration, streamlined
analytics and enhanced governance reporting. This has led to
efficient, data driven and evidenced based risk management, whilst
facilitating the transition to an agile and dynamic approach to
identifying, assessing, managing and monitoring risks. Not only has
this proven valuable to the Group's acquisition of Cornelian Asset
Managers and the Lloyd's offshore wealth and funds business, but
also during the COVID-19 pandemic. Overall, the Group remains well
capitalised and liquid with significant buffers above all
regulatory requirements.
How we manage risk
The Group Risk Management Framework ("RMF")
Risk management starts with oversight through an appropriate
governance structure using a board and committee structure, with
individual and collective roles and delegated authorities and a set
of core policies to provide guidance to staff.
Effective risk management relies on insight through robust and
timely management information. We manage our risks by learning
lessons from past events such as errors, breaches, near misses and
complaints, by conducting point-in-time risk assessments in the
present and attempting to predict what the future risk landscape
might look like through our suite of key indicators.
The risk management methodology within the Group's risk
management framework consists of the following six interlinked
steps:
Risk identification. This takes place through regular business
monitoring and periodic reviews, including risk mapping exercises
and the risks arising from change or new products and services.
Risk appetite. Once we have identified risks, we set an appetite
for each material risk. This defines the amount of risk that the
Board is prepared to accept in order to deliver its business
objectives. Risk appetite reflects culture, strategic goals and the
existing operating and control environment.
Risk analysis. Having set the risk appetite, we can assess the
impact and probability of each material risk against the agreed
risk appetite. This can include the quantification of capital risk
as part of the Internal Capital Adequacy Assessment Process
("ICAAP").
Assess controls. We also assess the effectiveness of controls in
reducing the probability of a risk occurring or, should it
materialise, in mitigating its impact.
Additional actions. Where differences exist between our risk
appetite and the current residual risk profile, we take action
either: to accept, avoid or transfer part or all of those risks
which are outside our risk appetite; or to reconsider the risk
appetite.
Reporting. Ongoing reporting of risks to senior management
provides insight to inform decision-making and allocation of
resources to achieve business objectives.
Overarching Risk Appetite Statement
-- The Group's Overarching Risk Appetite ("ORAS"), as defined by
the Board, sets out the acceptable level of current & emerging
risk we are willing to take to achieve our strategic business
objectives. It provides a framework to allow the Group to
effectively balance the risk and reward relationship in decision
making.
-- Clients, both existing and prospective, are at the heart of
everything we do. As such, we will operate a sustainable business
that conducts itself in a reputable and prudent manner, taking into
account the interests of our clients through providing products and
services suited to their needs and risk profile, which demonstrate
value for money.
-- As the business continues to grow through sustainable organic
growth and strategic value-adding acquisitions, the ORAS will help
ensure our key stakeholder obligations are met, supported by
internal policies and regulatory requirements. We commit to using
this framework to ensure we make strategic and business decisions
that do not exceed our overarching risk appetite.
-- In all of the Group's decisions and operations, we balance
risk versus reward and we consider the following three
dimensions:
Client Outcome
-- We will put client interests at the heart of everything we do
to ensure appropriate client outcomes.
Control Environment
-- We will, at all times, operate within our risk appetite,
operational risk parameters and regulatory framework, ensuring a
robust control and oversight environment.
Financial Performance and Resources
-- We will optimise profitability and use resources efficiently to drive financial performance.
-- We will, at all times, maintain adequate capital and liquid
assets to meet financial and funding obligations as they fall
due.
-- We will invest in the development and wellbeing of our employee.
Key risks
We have identified our risks at Group and business line levels
to help manage our key risks in a consistent and uniform way with
oversight from relevant Committees and Boards.
Group level risks
Key risks identified
by risk management Change since Rationale for
Definition framework last year change
--------------------- ---------------------------------------------------------- ------------ ---------------------
1. Credit risk Unchanged None
The risk of loss * Cash deposits with external banks
arising
from a client or
counterparty * Client credit risk
failing to meet their
financial obligations
to a Brooks Macdonald * Counterparty credit risk
entity as and when
they
fall due. * Custodian-related credit risk
* Indirect counterparty risk in respect of referrals
--------------------- ---------------------------------------------------------- ------------ ---------------------
2. Liquidity risk Decreasing The Group has
The risk that assets * Corporate cash deposited with external banks sufficient liquidity
are resources
insufficiently liquid significantly
and/or Brooks * Client cash deposited with external banks (CASS above its Minimum
Macdonald rules) Liquidity
does not have Requirement.
sufficient Since the last
financial resources * Failed trades Annual Report,
available the Group has
to meet liabilities developed a robust
as * Indirect liquidity risk associated with client Liquidity Risk
they fall due, or can portfolios Management Framework,
secure such resources including adequate
only at excessive contingency funding
cost. * Indirect liquidity risks associated with dealing arrangements
Liquidity risk also
includes
the risk that the * Indirect risk in respect of the liquidity of
Group individual holdings in a fund
is unable to meet
regulatory
prudential liquidity * Indirect risk in respect of the overall liquidity of
ratios. our funds
--------------------- ---------------------------------------------------------- ------------ ---------------------
3. Market risk Increasing Given the COVID-19
The risk that arises * Failed trades pandemic, markets
from and most asset
fluctuations in the classes have
value * Indirect market risk associated with advising on exhibited
of, or income arising client portfolios significant
from, movements in volatility.
equity, This could continue
bonds, or other * Indirect market risks associated with dealing as long as there
traded is a risk of a
markets, interest second wave of
rates * Indirect market risk associated with managing client the virus
or foreign exchange portfolios
rates
that has a financial
impact.
--------------------- ---------------------------------------------------------- ------------ ---------------------
Business level risks
Key risks identified
by risk management Change since Rationale for
Definition framework last year change
------------------------------- ------------------------------------------- ------------ ------------------------
4. Business and strategic Unchanged None
risk * Adviser concentration
The risk of having an
inadequate business model
or making strategic decisions * Business growth
that may result in lower
than anticipated profit
or losses or exposes the * Extreme market events
Group to unforeseen risks.
* Investment performance
* Product governance
* UK political risk
------------------------------- ------------------------------------------- ------------ ------------------------
5. Conduct risk Decreasing Over the past
The risk of causing detriment * Client service year the group
to clients, stakeholders has been working
or the integrity of the on several initiatives
wider market because of * Investment performance to promote good
inappropriate execution risk culture and
of Brooks Macdonald's awareness. Furthermore,
business activities. * Suitability and conduct risk the Group has
developed enhanced
Management Information
to measure conduct
risk.
------------------------------- ------------------------------------------- ------------ ------------------------
6. Operational risk Decreasing The Group has
The risk of loss arising * Data quality enhanced its processes,
from inadequate or failed including improved
internal processes, people documentation
and systems, or from external * Cyber of all key processes.
events. It includes legal Incident management
and fraud risk but not has been enhanced
strategic, reputational * IT infrastructure and capability throughout the
and business risks. year.
* Key suppliers and outsourcing
* Operational maturity
* People
* Resilience and BCP
------------------------------- ------------------------------------------- ------------ ------------------------
7. Prudential risk Decreasing The Group has
The risk of loss arising * Prudential requirements capital resources
from inadequate or failed significantly
internal processes, people above its Minimum
and systems, or from external Capital Requirement.
events. It includes legal
and fraud risk but not
strategic, reputational
and business risks.
------------------------------- ------------------------------------------- ------------ ------------------------
8. Legal and regulatory Unchanged None
risk * Extreme reputational risk
Legal and regulatory risk
is defined as the risk
of exposure to legal or * Financial crime
regulatory penalties,
financial forfeiture and
material loss due to failure * Governance
to act in accordance with
industry laws and regulations.
* Legacy issues
* Regulatory, tax and legal compliance
------------------------------- ------------------------------------------- ------------ ------------------------
New and emerging risks
Definition Context
-------------------------------- -----------------------------------------------------
9. Acquisition risk (New) There has been an increase in the M&A activity
The potential financial, in the wider financial planning and wealth
reputational, operational management sectors. As this continues, it has
and client-related risks the potential to materially impact the Brooks
arising from the failure Macdonald operating model but it also provides
to realise value from an opportunity for inorganic growth for BM.
acquisitions within a Furthermore, given the recent acquisitions
reasonable timeframe and made by the Group, there is a heightened integration
the failure to properly risk, including the failure to realise synergies.
integrate the acquired
company in a timely manner
and within the target
budget.
-------------------------------- -----------------------------------------------------
10. Change Management In line with our growth agenda, the Group is
risk (Emerging) undertaking a strategic review of the end to
The potential financial, end operating model and client journey, to
reputational, operational cater for shifting client demand and sectoral
and client-related risks changes.
arising from the poor
implementation of material
projects or change initiatives.
-------------------------------- -----------------------------------------------------
11. Pandemic risk (Emerging) Given our agile operating model, strong capital
The potential financial, and liquidity position, the Group has continued
reputational, operational to provide a high level of service to our clients
and client-related risks and advisers, whilst ensuring the wellbeing
arising from the continued and safety of our staff.
global impact of COVID-19
and any potential subsequent
waves.
-------------------------------- -----------------------------------------------------
Consolidated statement of comprehensive income
For the year ended 30 June 2020
2020 2019
restated(1)
Note GBP'000 GBP'000
----------------------------------------------------- ---- -------- -------------
Revenue 4 108,558 105,650
Administrative costs (93,794) (90,546)
Other gains/(losses) - net (4,519) (6,928)
----------------------------------------------------- ---- -------- -------------
Operating profit 10,245 8,176
Finance income 261 227
Finance costs (454) (94)
----------------------------------------------------- ---- -------- -------------
Profit before tax from continuing operations 10,052 8,309
Taxation on continuing operations 5 (3,626) (2,454)
----------------------------------------------------- ---- -------- -------------
Profit for the period from continuing operations 6,426 5,855
Loss from discontinued operations - (395)
----------------------------------------------------- ---- -------- -------------
Profit for the period attributable to equity holders
of the Company 6,426 5,460
Other comprehensive income - -
Total comprehensive income for the year 6,426 5,460
----------------------------------------------------- ---- -------- -------------
Earnings per share(2)
Basic 7 43.2p 39.7p
Diluted 7 43.1p 39.6p
----------------------------------------------------- ---- -------- -------------
1. See Note 4 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.
2. The comparative weighted average number of shares and
therefore basic and diluted earnings per share have been restated
for the effect of the share placing issued in November 2019.
Consolidated statement of financial position
As at 30 June 2020
30 June 30 June 1 July
2020 2019 2018
restated(1) restated(1)
Note GBP'000 GBP'000 GBP'000
---------------------------------------------- ---- -------- ------------ ------------
Assets
Non-current assets
Intangible assets 9 83,804 50,167 60,556
Property, plant and equipment 3,181 3,177 3,996
Right of use assets 10 6,991 - -
Financial assets at fair value through other
comprehensive income 500 500 -
Available for sale financial assets - - 1,578
Other non-current assets - 94 -
Deferred tax assets 11 1,524 1,223 1,176
---------------------------------------------- ---- -------- ------------ ------------
Total non-current assets 96,000 55,161 67,306
Current assets
Financial assets at fair value through profit
or loss 549 613 1,267
Trade and other receivables 26,081 26,732 26,019
Cash and cash equivalents 50,168 34,590 30,939
---------------------------------------------- ---- -------- ------------ ------------
Total current assets 76,798 61,935 58,225
---------------------------------------------- ---- -------- ------------ ------------
Total assets 172,798 117,096 125,531
---------------------------------------------- ---- -------- ------------ ------------
Liabilities
Non-current liabilities
Deferred consideration 12 (6,300) (380) (1,479)
Lease liabilities 13 (6,659) - -
Provisions 14 (219) (278) -
Other non-current liabilities (330) (714) (157)
Deferred tax liabilities 11 (7,230) (2,278) (2,990)
---------------------------------------------- ---- -------- ------------ ------------
Total non-current liabilities (20,738) (3,650) (4,626)
Current liabilities
Trade and other payables (22,765) (21,550) (23,722)
Current tax liabilities (480) (2,287) (1,325)
Lease liabilities 13 (1,275) - -
Provisions 14 (3,999) (2,736) (8,332)
---------------------------------------------- ---- -------- ------------ ------------
Total current liabilities (28,519) (26,573) (33,379)
---------------------------------------------- ---- -------- ------------ ------------
Net assets 123,541 86,873 87,526
---------------------------------------------- ---- -------- ------------ ------------
Equity
Share capital 161 139 138
Share premium account 77,982 39,068 38,404
Other reserves 6,398 4,575 3,114
Retained earnings 39,000 43,091 45,870
---------------------------------------------- ---- -------- ------------ ------------
Total equity 123,541 86,873 87,526
---------------------------------------------- ---- -------- ------------ ------------
1. See Note 4 for details regarding the restatement as a result
of the output VAT on Platform MPS.
The Consolidated financial statements were approved by the Board
of Directors and authorised for issue on 16 September 2020, and
signed on their behalf by:
Caroline Connellan
CEO
Ben Thorpe
Group Finance Director
Company registration number: 4402058
Consolidated statement of changes in equity
For the year ended 30 June 2020
Share
premium Other Retained Total
Share capital account reserves earnings equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ ------ ------------- -------- --------- --------- --------
Balance at 30 June 2018 138 38,404 3,114 46,301 87,957
------------------------------------ ------ ------------- -------- --------- --------- --------
Adjustment on initial application
of IFRS 9 - - (1) - (1)
Adjustment on restatement(1) 4 - - - (431) (431)
------------------------------------ ------ ------------- -------- --------- --------- --------
Adjusted balance at 1 July
2018 138 38,404 3,113 45,870 87,525
------------------------------------ ------ ------------- -------- --------- --------- --------
Comprehensive income
Profit for the year from continuing
operations - - - 6,123 6,123
Adjustment on restatement(1) 4 - - - (268) (268)
Loss for the year from discontinued
operations - - - (395) (395)
Other comprehensive income - - - - -
------------------------------------ ------ ------------- -------- --------- --------- --------
Total comprehensive income - - - 5,460 5,460
Transactions with owners
Issue of ordinary shares 1 664 - - 665
Share-based payments - - 2,634 - 2,634
Share-based payments exercised - - (1,123) 1,123 -
Purchase of own shares by
Employee Benefit Trust - - - (2,648) (2,648)
Tax on share options - - (49) - (49)
Dividends paid 8 - - - (6,714) (6,714)
------------------------------------ ------ ------------- -------- --------- --------- --------
Total transactions with owners 1 664 1,462 (8,239) (6,112)
Restated balance at 30 June
2019(1) 139 39,068 4,575 43,091 86,873
------------------------------------ ------ ------------- -------- --------- --------- --------
Comprehensive income
Profit for the year - - - 6,426 6,426
Other comprehensive income - - - - -
------------------------------------ ------ ------------- -------- --------- --------- --------
Total comprehensive income - - - 6,426 6,426
Transactions with owners
Issue of ordinary shares 22 38,914 - - 38,936
Share-based payments - - 3,571 - 3,571
Share-based payments exercised - - (1,770) 1,770 -
Purchase of own shares by
Employee Benefit Trust - - - (4,607) (4,607)
Tax on share options - - 22 - 22
Dividends paid 8 - - - (7,680) (7,680)
------------------------------------ ------ ------------- -------- --------- --------- --------
Total transactions with owners 22 38,914 1,823 (10,517) 30,242
Balance at 30 June 2020 161 77,982 6,398 39,000 123,541
------------------------------------ ------ ------------- -------- --------- --------- --------
1. See Note 4 for details regarding the restatement as a result
of the output VAT on Platform MPS.
Consolidated statement of cash flows
For the year ended 30 June 2020
2020 2019
Note GBP'000 GBP'000
------------------------------------------------------ ---- -------- --------
Cash flows from operating activities
Cash generated from operations 15 36,088 15,553
Taxation paid (5,865) (2,301)
------------------------------------------------------ ---- -------- --------
Net cash generated from operating activities 30,223 13,252
Cash flows from investing activities
Purchase of intangible assets 9 (1,614) (1,106)
Purchase of property, plant and equipment (1,958) (572)
Consideration paid 6 (27,757) -
Deferred consideration paid 12 (919) (1,251)
Proceeds from sale of discontinued operations 568 593
Interest received 252 198
Finance costs paid (5) -
Proceeds of sale of financial assets at fair value
through profit or loss - 1,234
------------------------------------------------------ ---- -------- --------
Net cash used in investing activities (31,433) (904)
Cash flows from financing activities
Proceeds of issue of shares 38,936 665
Shares issued as consideration 6 (9,000) -
Payment of lease liabilities and initial direct costs (2,111) -
Proceeds of lease reverse premium 1,250 -
Purchase of own shares by Employee Benefit Trust (4,607) (2,648)
Dividends paid to shareholders 8 (7,680) (6,714)
------------------------------------------------------ ---- -------- --------
Net cash generated/(used) in financing activities 16,788 (8,697)
Net increase in cash and cash equivalents 15,578 3,651
------------------------------------------------------ ---- -------- --------
Cash and cash equivalents at beginning of year 34,590 30,939
------------------------------------------------------ ---- -------- --------
Cash and cash equivalents at end of year 50,168 34,590
------------------------------------------------------ ---- -------- --------
Notes to the consolidated financial statements
For the year ended 30 June 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 offshore
investment management and acts as fund manager to two regulated
Open-Ended Investment Companies ("OEICs") (the IFSL Brooks
Macdonald Fund and the SVS Cornelian Investment Funds) providing a
range of risk-managed multi-asset funds and a specialised absolute
return fund.
The Company is a public limited company, incorporated and
domiciled in the United Kingdom under the Companies Act 2006 and
listed on AIM. The address of its registered office is 21 Lombard
Street, London, EC3V 9AH.
2. Principal accounting policies
The general accounting policies applied in the preparation of
these Financial statements are set out below. These policies have
been applied consistently to all years presented, unless otherwise
stated.
a. Basis of preparation
The Group's Consolidated financial statements 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
Financial statements have been prepared on the historical cost
basis, except for the revaluation of financial assets at fair value
through other comprehensive income, financial assets and financial
liabilities at fair value through profit or loss and deferred
consideration such that they are measured at their fair value.
At the time of approving the Financial statements, after making
enquiries and the work performed and actions already taken by the
Group in response to the COVID-19 pandemic, 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 the Financial statements.
b. Basis of consolidation
The Group's Financial statements are a consolidation of the
financial statements of the Company and its subsidiaries. The
underlying financial statements of the subsidiaries are prepared
for the same reporting period as the Company, using consistent
accounting policies. Subsidiaries and structured entities are all
entities controlled by the Company, deemed to exist where the
Company is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those
returns through its power over the entity. The financial statements
of the subsidiaries are included from the date on which control is
transferred to the Group to the date that control ceases.
All intercompany transactions and balances between Group
companies are eliminated on consolidation.
The Group has interests in structures entities, with one
consolidated structured entity, being the Brooks Macdonald Group
Employee Benefit Trust. The Group has interests in other structured
entities as a result of contractual arrangements arising from the
management of assets on behalf of its clients, but are not
consolidated as the Group does not commit to financially support
its funds, nor guarantee for the repayment of any borrowings.
c. Changes in accounting policies
The Group's accounting policies that have been applied in
preparing these Financial statements are consistent with those
disclosed in the Annual Report and Accounts for the year ended 30
June 2019, except as explained below.
New accounting standards, amendments and interpretations adopted
in the year
In the year ended 30 June 2020, the Group adopted one new
standard being IFRS 16 'Leases'. The Group did not adopt any other
new standards and amendments issued by the International Accounting
Standards Board ("IASB") or interpretations issued by the IFRS IC
in the year ended 30 June 2020.
IFRS 16 'Leases'
IFRS 16 removes the classification of leases as either operating
leases or finance leases for lessees. The standard introduces a
single, on-balance sheet accounting model, which requires:
-- recognition of a right of use asset and corresponding lease
liability with respect to all lease arrangements in which the Group
is the lessee, except for short-term leases and leases of low value
assets;
-- recognition of a depreciation charge on the right of use
asset on a straight-line basis over the shorter of the expected
life of the asset and the lease term; and
-- recognition of an interest charge arising from the unwinding
of the discounted lease liability over the lease term.
Transition
The Group holds property leases in relation to offices which
have previously been considered operating leases under IAS 17. On
transition to IFRS 16, the Group was permitted to choose from the
following transition approaches:
-- full retrospective transition method, whereby IFRS 16 is
applied to all its contracts as if it had always applied; or
-- a modified retrospective approach with optional practical expedients.
The Group has chosen to apply IFRS 16 using the modified
retrospective approach resulting in no restatement of the
comparative information which continues to be reported under IAS 17
and IFRIC 4.
On adoption, lease agreements have given rise to both a right of
use ("ROU") asset and a lease liability. For leases previously
classified as operating leases at 30 June 2019 under IAS 17, lease
liabilities were measured at the present value of the remaining
lease payments, discounted at the Group's incremental borrowing
rate as at 1 July 2019. ROU assets were measured at an amount equal
to the lease liability, adjusted by the amount of any prepaid or
accrued lease payments on the Group's Consolidated statement of
financial position at the date of transition. On 30 June 2019, the
Group had prepaid expenses and lease incentive balances in line
with IAS 17 on the Consolidated statement of financial position, to
be unwound over the life of remaining leases. The prepaid and lease
incentive balances at 30 June 2019 have been recognised as a
depreciation charge to the ROU asset on day one of the transition
to IFRS 16.
The lease liability is subsequently measured by reducing for
lease payments made, adjusting the carrying amount to reflect the
interest charge and any reassessment or lease modifications.
The ROU assets are subsequently measured at cost, less
accumulated depreciation on a straight-line basis over the shorter
of the expected life of the asset and the lease term, adjusted for
any remeasurements of the lease liability, for example a change in
lease term, or payments based on an index. In accordance with IAS
36, ROU assets are assessed for indicators of impairment at the end
of each reporting period.
The Group has used the following practical expedients when
applying IFRS 16 to leases that were previously classified as
operating leases under IAS 17 at 30 June 2019:
-- applied the practical expedient to grandfather the assessment
of which contracts are leases and applied IFRS 16 only to those
that were previously identified as leases. Contracts not identified
as leases under IAS 17 and IFRIC 4 were not reassessed for whether
there is a lease. The identification of a lease under IFRS 16 was
therefore only applied to contracts entered into (or modified) on
or after 1 July 2019;
-- the use of a single discount rate to a portfolio of leases
with reasonably similar characteristics;
-- the accounting for operating leases with a remaining lease
term of less than 12 months as at 1 July 2019 as short-term leases.
The Group recognises the lease payments associated with these
leases as an administrative expense in the Consolidated statement
of comprehensive income on a straight-line basis over the lease
term;
-- the use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease; and
-- reliance on previous assessments on whether leases are onerous.
Impact on the relevant extracts from the Consolidated statement
of financial position as at 1 July 2019
As reported Restated
30 June 1 July
2019 Adjustments 2019
GBP'000 GBP'000 GBP'000
---------------------------- ----------- ------------- --------
Assets
Right of use assets - 1,555 1,555
Trade and other receivables 26,732 (50) 26,682
---------------------------- ----------- ------------- --------
Total assets 117,096 1,505 118,601
---------------------------- ----------- ------------- --------
Liabilities
Trade and other payables (20,788) 294 (20,494)
Lease liabilities - (1,799) (1,799)
---------------------------- ----------- ------------- --------
Total liabilities (29,524) (1,505) (31,029)
---------------------------- ----------- ------------- --------
Net assets 87,572 - 87,572
---------------------------- ----------- ------------- --------
Equity
Retained earnings 43,790 - 43,790
---------------------------- ----------- ------------- --------
Total equity 87,572 - 87,572
---------------------------- ----------- ------------- --------
The adjustments to the Consolidated statement of financial
position reflect the initial application of IFRS 16.
The table below presents operating lease commitments disclosed
at 30 June 2019 and lease liabilities recognised at 1 July
2019.
GBP'000
---------------------------------------------------------------- -------
Total operating lease commitments disclosed at 30 June 2019 2,930
Exemptions applied:
Leases with remaining lease term of less than 12 months (1,308)
---------------------------------------------------------------- -------
Operating lease liabilities before discounting 1,622
Adjustments:
Rental payments on date of initial application 314
---------------------------------------------------------------- -------
Total lease liabilities before discounting 1,936
Discounted using incremental borrowing rate (137)
---------------------------------------------------------------- -------
Total lease liabilities recognised under IFRS 16 at 1 July 2019 1,799
---------------------------------------------------------------- -------
On transition to IFRS 16 on 1 July 2019, the current lease
liability was GBP530,000 and the non-current lease liability was
GBP1,269,000.
Impact on financial statements for the year ended 30 June
2020
During the year ended 30 June 2020, the Group recognised an
interest charge arising on lease liabilities of GBP304,000 and a
depreciation charge on the ROU assets of GBP1,256,000. Included
within the interest charge and depreciation charge was GBP236,000
and GBP763,000 respectively for new leases that commenced during
the year ended 30 June 2020.
An analysis of ROU assets is presented in Note 10 and lease
liabilities presented in Note 13.
The Group applied judgement in calculating the discount rate to
be used in computing lease liabilities. The Group performed
research into issued corporate debt in the comparable industry
given the Group does not have any debt of its own, resulting in
estimating its incremental borrowing rate of 4.5% to measure lease
liabilities.
Other 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
-------------------------------------------------------------------- --------------
Recognition of deferred tax assets for unrealised losses (amendments
to IAS 12) 1 January 2018
Disclosure initiative (amendments to IAS 7) 1 January 2018
Annual improvements to IFRS standards 2014-2016 cycle (IFRS
12) 1 January 2018
-------------------------------------------------------------------- --------------
New accounting standards, amendments and interpretations not yet
adopted
A number of new standards, amendments and interpretations, which
have not been applied in preparing these Financial statements, have
been issued and are effective for annual years beginning after 1
July 2019:
Standard, Amendment or Interpretation Effective date
---------------------------------------------------------------- -----------------
Uncertainty over Income Tax Treatments (IFRIC 23) 1 January 2019
Annual improvements to IFRS standards 2015-2018 cycle (IFRS
3, IFRS 11, IAS 12, IAS 23) 1 January 2019(1)
Amendments to IAS 28: Long-term Interest in Associates and Joint
Ventures 1 January 2019(1)
Amendments to References to the Conceptual Framework in IFRS
Standards 1 January 2020(1)
Amendment to IFRS 3 Business Combinations 1 January 2020
Amendments to IAS 1 and IAS 8: Definition of Material 1 January 2020(1)
Insurance Contracts (IFRS 17) 1 January 2021
---------------------------------------------------------------- -----------------
1. Not yet endorsed by the EU.
The impact of these changes is currently being reviewed and
there is no intention to early adopt.
d. Critical accounting estimates and judgements
The preparation of financial information requires the use of
assumptions, estimates and judgements about future conditions. Use
of currently available information and application of judgement are
inherent in the formation of estimates. Actual results in the
future may differ from those reported. In this regard, the
Directors believe that the accounting policies where important
estimations are used relate to the measurement of intangible
assets, deferred consideration, the estimation of the fair value of
share-based payments and client compensation provisions.
There have been no critical judgements required in applying the
Group's accounting policies in this period, but there have been the
use of important estimations detailed separately below.
The underlying assumptions made are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the year
in which the estimate is revised only if the revision affects both
current and future periods.
Further information about key assumptions and sources of
estimation uncertainty is set out below.
Intangible assets
The Group has acquired client relationships and the associated
investment management contracts as part of business combinations,
through separate purchase or with newly employed teams of fund
managers, as described in Note 9. In assessing the fair value of
these assets the Group has estimated their finite life based on
information about the typical length of existing client
relationships. Contracts acquired with fund managers and acquired
client relationship contracts are amortised on a straight-line
basis over their estimated useful lives, ranging from 5 to 20
years.
Goodwill recognised as part of a business combination is
reviewed annually for impairment, or when a change in circumstances
indicates that it might be impaired. The recoverable amounts of
cash generating units are determined by value in use calculations,
which require the use of estimates to derive the projected future
cash flows attributable to each unit. Details of the more
significant assumptions are given in Note 9.
Deferred consideration
As described in Note 12, the Group has a deferred consideration
balance in respect of the acquisition of Levitas Investment
Management Services Limited in July 2014 and Cornelian Asset
Managers Group Limited in February 2020. Deferred consideration is
recognised at its fair value, being an estimate of the amount that
will ultimately be payable in future periods. For Levitas, as at 30
June 2020, there is one fixed payment remaining. For Cornelian, the
deferred consideration has been calculated allowing for estimated
growth in the acquired funds and estimated cost savings, discounted
by the estimated interest rate.
Share-based payments
The Group operates various share-based payment schemes in
respect of services received from certain employees. Estimating the
fair value of these share-based payments requires the Group to
apply an appropriate valuation model and determine the inputs to
that model. The charge to the Consolidated statement of
comprehensive income in respect of share-based payments is
calculated using assumptions about the number of eligible employees
that will leave the Group and the number of employees that will
satisfy the relevant performance conditions. These estimates are
reviewed regularly.
Provisions
Provisions are recognised when the Group has a present
obligation as a result of a past event, where it is probable that
it will result in an outflow of economic benefits and can be
reliably estimated. Provisions are measured at the present value of
the expenditures expected to be required to settle the obligation
using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to
the obligation.
Where the outflow is not probable or cannot be reliably
measured, the potential obligation is disclosed as a contingent
liability in the Financial statements.
Insurance recoveries relating to legal fees are recognised when,
and only when, it is virtually certain that reimbursement will be
received if the corresponding obligation is settled. Reimbursements
received are disclosed net in the Consolidated statement of
comprehensive income and gross in the Consolidated statement of
financial position.
The Group may receive complaints from clients in relation to the
services provided. Complaints are assessed on a case-by-case basis
and provisions are made where it is judged to be likely that
compensation will be paid.
As described in Note 14, the Group has recognised a provision in
respect of exceptional costs of resolving legacy matters. The Group
has a present obligation relating to a number of discretionary
portfolios formerly managed by Spearpoint which was acquired by the
Group in 2012 and the provision has been reliably measured at the
value of expenditures expected to be required to settle the
obligation.
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 which the Board
of Directors uses internally for evaluating the performance of its
operating segments and allocating resources to those segments. The
information presented in this note is consistent with the
presentation for internal reporting.
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 acquisition of Cornelian (Note 6), the activities
since acquisition have been included in the UK Investment
Management segment.
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.
Group &
UK Investment Financial consolidation
Management International Planning adjustments Total
Year ended 30 June 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- ------------- ------------- --------- -------------- --------
Total revenue 95,950 13,335 3,831 (6) 113,110
Inter segment revenue (4,552) - - - (4,552)
--------------------------------------------- ------------- ------------- --------- -------------- --------
External revenue 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
--------------------------------------------- ------------- ------------- --------- -------------- --------
Group &
UK Investment Financial consolidation
Management International Planning adjustments
Year ended 30 June 2020 GBP'000 GBP'000 GBP'000 GBP'000 Total GBP'000
----------------------------------- ------------- ------------- --------- -------------- -------------
Statutory operating (costs)/income
included the following:
Amortisation (3,134) (429) - (1,764) (5,327)
Depreciation (2,937) (324) (3) (120) (3,284)
Interest income 107 87 - 58 252
----------------------------------- ------------- ------------- --------- -------------- -------------
Group &
UK Investment Financial consolidation
Management International planning adjustments Total
Year ended 30 June 2019 restated(1) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- ------------- ------------- --------- -------------- --------
Total revenue 87,749 14,609 3,556 28 105,942
Inter segment revenue (292) - - - (292)
--------------------------------------------- ------------- ------------- --------- -------------- --------
External revenue 87,457 14,609 3,556 28 105,650
Underlying administrative costs (43,832) (9,247) (2,926) (28,996) (85,001)
--------------------------------------------- ------------- ------------- --------- -------------- --------
Operating contribution 43,625 5,362 630 (28,968) 20,649
Allocated costs (19,171) (3,180) (2,469) 24,820 -
Net finance income/(costs) 18 (37) - 28 9
--------------------------------------------- ------------- ------------- --------- -------------- --------
Underlying profit/(loss) before tax 24,472 2,145 (1,839) (4,120) 20,658
Goodwill impairment - - - (4,756) (4,756)
Restructuring charge (1,764) (739) - (762) (3,265)
Client relationship contracts impairment - - - (2,328) (2,328)
Amortisation of client relationships
and contracts acquired with fund
managers (787) (420) - (1,039) (2,246)
Changes in fair value of deferred
consideration - - - 419 419
Finance cost of deferred consideration - - - (94) (94)
Changes in fair value of contingent
consideration - - - (75) (75)
Disposal costs - - (21) (12) (33)
Finance income from contingent consideration - - 5 24 29
--------------------------------------------- ------------- ------------- --------- -------------- --------
Profit/(loss) before tax 21,921 986 (1,855) (12,743) 8,309
Taxation (2,454)
Loss from discontinued operations (395)
--------------------------------------------- ------------- ------------- --------- -------------- --------
Profit for the year attributable
to equity holders of the Company 5,460
--------------------------------------------- ------------- ------------- --------- -------------- --------
1. See Note 4 for details regarding the restatement to the UK
Investment Management segment as a result of the Authorised
Corporate Director ("ACD") fees and associated costs and also the
output VAT on Platform MPS.
Group &
UK Investment Financial consolidation
Management International Planning adjustments Total
Year ended 30 June 2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Statutory operating (costs)/income
included the following:
Amortisation (2,304) (433) (135) (1,539) (4,411)
Depreciation (293) (108) (990) - (1,391)
Interest income 19 118 - 61 198
----------------------------------- ------------- ------------- --------- -------------- --------
4. Revenue
2020 2019
restated
GBP'000 GBP'000
-------------------------------- -------- ---------
Portfolio management fee income 95,108 93,789
Financial services commission 481 479
Advisory fees 4,325 4,509
Fund management fees 8,644 6,873
-------------------------------- -------- ---------
Total revenue 108,558 105,650
-------------------------------- -------- ---------
Portfolio management fee income comprises revenue earnt in the
UK Investment Management and International segments (Note 3). The
financial services commission and advisory fees are generated by
the Financial Planning Segment, and some of this revenue is also
generated in the International segment. Fund management fees
revenue is earnt in the UK Investment Management segment.
Restatement - ACD fees and associated costs
During 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 year ended 30 June 2019, reported revenue and
costs were overstated by GBP1,212,000. Accordingly, the
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
above and the revenue generated in the United Kingdom per Note
4(a).
Restatement - VAT on Platform MPS
In the light of recent case law, the Group has been undergoing a
review of its Managed Portfolio Service ("MPS"), with a view to
seeking a ruling from HMRC that MPS is not subject to VAT. 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. Upon identification of this error,
the Group notified HMRC of the situation and is currently awaiting
a response on the resolution of the matter. Since previously
reported revenue from Platform MPS was overstated, the Directors
concluded it prudent to rectify the error in these Consolidated
financial statements.
Accordingly, the Group recognised a prior year adjustment to
reduce revenue by GBP408,000 for the output VAT on platform MPS and
reduce administrative costs by GBP77,000 for the entitlement to
input VAT credit. The decrease to profit before tax as a result of
this restatement for the year ended 30 June 2019 was GBP331,000.
This reduction in profit before tax has resulted in the income tax
expense to be reduced by GBP63,000. The total reduction to total
comprehensive income for the year ended 30 June 2019 was
GBP268,000. The restatement has impacted the UK Investment
Management segment in Note 3, the Portfolio management fee income
in the revenue table above and the revenue generated in the United
Kingdom per Note 4(a). The Consolidated statement of financial
position at 30 June 2019 was restated to reflect this increase in
trade and other payables to recognise the additional VAT liability
due to HMRC of GBP331,000 and reduce current tax liabilities by the
reduced income tax expense of GBP63,000. The opening balances to
the comparative information at 1 July 2018 were also restated to
reflect the reduction in retained earnings of GBP431,000 and an
increase in trade and other payables of GBP431,000.
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.
2020 2019
restated
GBP'000 GBP'000
---------------- -------- ---------
United Kingdom 95,223 91,041
Channel Islands 13,335 14,609
---------------- -------- ---------
Total revenue 108,558 105,650
---------------- -------- ---------
b. Major clients
The Group is not reliant on any one client or group of connected
clients for the generation of revenues.
5. Taxation
The tax charge on profit for the year was as follows:
2020 2019
restated(1)
GBP'000 GBP'000
----------------------------------------------- -------- ------------
UK Corporation Tax at 19% (FY19: 19%) 3,991 4,006
Over provision in prior years (66) (419)
----------------------------------------------- -------- ------------
Total current tax 3,925 3,587
Deferred tax credits (674) (808)
Under provision of deferred tax in prior years 462 -
Research and development tax credit (87) (325)
----------------------------------------------- -------- ------------
Income tax expense 3,626 2,454
----------------------------------------------- -------- ------------
1. See Note 4 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:
2020 2019
restated(1)
GBP'000 GBP'000
--------------------------------------------------------- -------- ------------
Profit before taxation from continued operations 10,052 8,309
Loss before taxation from discontinued operations - (395)
--------------------------------------------------------- -------- ------------
Profit before taxation 10,052 7,914
--------------------------------------------------------- -------- ------------
Profit multiplied by the standard rate of tax in the UK
of 19% (FY19: 19%) 1,910 1,504
Tax effect of amounts which are not deductible (taxable)
in calculating taxable income:
Overseas tax losses not available for UK tax purposes (24) (56)
Disallowable expenses 394 178
Share-based payments (139) 327
Depreciation and amortisation 336 (25)
Impairment charges 850 1,346
Non-taxable income (10) (76)
Research and development tax credit (87) (325)
Under/(over) provision in prior years 396 (419)
--------------------------------------------------------- -------- ------------
Income tax expense 3,626 2,454
--------------------------------------------------------- -------- ------------
1. See Note 4 for details regarding the restatement as a result
of the output VAT on Platform MPS.
During the year, the Group made a claim for research and
development tax relief in relation to qualifying expenditure on
software development incurred in the year ended 30 June 2019. This
resulted in a reduction in the Corporation Tax liabilities in the
respective years, and a repayment of GBP87,000 (FY19: GBP325,000)
is due from HM Revenue and Customs. The Group will consider whether
claims can also be made for qualifying expenditure incurred in the
year ended 30 June 2020 and thereafter in due course.
The deferred tax charges/(credits) for the year arise from:
2020 2019
GBP'000 GBP'000
----------------------------------------------------------- -------- --------
Share option reserve (247) (6)
Accelerated capital allowances (91) (96)
Accelerated capital allowances on research and development (154) -
Amortisation of acquired client relationship contracts (224) (712)
Unused overseas trading losses 42 6
----------------------------------------------------------- -------- --------
Deferred tax credits (674) (808)
----------------------------------------------------------- -------- --------
On 1 April 2017, the standard rate of Corporation Tax in the UK
was reduced to 19%. As a result the effective rate of Corporation
Tax applied to the taxable profit for the year ended 30 June 2020
is 19% (FY19: 19%).
It was announced on 11 March 2020 (and substantively enacted on
17 March 2020) that the UK Corporation Tax rate would remain at 19%
and not reduce to 17% (the previously enacted rate) from 1 April
2020. As a result, the relevant deferred tax balances have been
remeasured. Deferred tax assets and liabilities are calculated at
the rate that is expected to be in force when the temporary
differences unwind, but limited to the extent that such rates have
been substantively enacted. The tax rate used to determine the
deferred tax assets and liabilities is therefore 19% (FY19: 17%)
and will be reviewed in future years subject to new
legislation.
6. Business combinations
On 28 February 2020, the Group acquired the entire share capital
of Cornelian Asset Managers Group Limited ("Cornelian"), an
Edinburgh based independent, well-established wealth manager with
national distribution reach. Cornelian Asset Managers Group Limited
had two wholly owned subsidiaries: Cornelian Asset Managers Limited
and Cornelian Asset Managers Nominees Limited, which also formed
part of the Group on acquisition.
The acquisition has been accounted for using the acquisition
method and details of the purchase consideration are as
follows:
Note GBP'000
------------------------------------------------ ----- -------
Cash paid i 22,000
Shares issued ii 9,000
Cash paid for final net assets acquired 5,757
Deferred contingent consideration at fair value iii 7,466
------------------------------------------------ ----- -------
Total purchase consideration 44,223
------------------------------------------------------- -------
i. The Group issued 1,690,141 ordinary shares in November 2019
to fund the cash consideration, based on the share price on 21
November 2020 of GBP18.25 discounted by GBP0.50 to GBP17.75 per
share.
ii. The Group issued 453,172 ordinary shares to the previous
shareholders of Cornelian Asset Managers Group Limited at a price
of GBP19.86 per share, based on the share price at 28 February
2020.
iii. The total cash deferred contingent consideration is
GBP8,000,000, payable in up to three instalments in March 2021,
October 2021 and March 2022, based on the future value of the funds
under management acquired, and cost savings and synergies achieved
on integrating the business.
The fair value of the deferred consideration liability has been
remeasured at 30 June 2020, and remains unchanged, which assumes
the deferred consideration criteria will be met resulting in the
full GBP8,000,000 to be paid at the various payment dates. The
growth of funds under management ("FUM") has been forecast using a
similar growth pattern to that experienced by the rest of the
Group. The future value of the FUM is dependent on several
unpredictable variables including client retention and market
movements. The cost savings and synergies are expected to be
yielded in full, which has been forecast based on the Group's
five-year Medium-Term Plan ("MTP").
Client relationship intangible assets of GBP25,623,000 were
recognised on acquisition in respect of the expected cash inflows
and economic benefit from the discretionary and fund-management
contracts acquired. Goodwill of GBP16,111,000 was recognised on
acquisition in respect of the expected growth in the funds under
management and associated cash inflows. 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 GBP2,229,000 and
integration costs, including staff retention costs of GBP1,426,000
were incurred in the acquisition and integration of Cornelian,
which have been charged to administrative costs in the Consolidated
statement of comprehensive income but excluded from underlying
profit.
a. Net assets acquired through business combination
GBP'000
--------------------------------------------------------- -------
Computer software 87
Property, plant and equipment 74
Financial assets at fair value through profit and loss 543
Trade and other receivables 1,244
Cash and cash equivalents 6,655
Trade and other payables (1,229)
Deferred tax liabilities (17)
--------------------------------------------------------- -------
Total net assets recognised by acquired companies 7,357
--------------------------------------------------------- -------
Fair value adjustments:
Client relationship contracts - discretionary business 18,012
Client relationship contracts - fund-management business 7,611
Deferred tax liabilities (4,868)
--------------------------------------------------------- -------
Net identifiable assets 28,112
Goodwill 16,111
--------------------------------------------------------- -------
Total purchase consideration 44,223
--------------------------------------------------------- -------
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 30 June 2020, Cornelian earned
revenue of GBP3,048,000 and statutory profit before tax of
GBP452,000. Had Cornelian been consolidated from 1 July 2019, the
Consolidated statement of comprehensive income would show revenue
of GBP7,328,000 and statutory profit before tax of
GBP1,685,000.
c. Net cash outflow resulting from business combinations
GBP'000
------------------------------------------ -------
Total purchase consideration (Note 6a) 44,223
Less:
Shares issued as consideration (9,000)
Deferred cash consideration at fair value (7,466)
------------------------------------------ -------
Cash paid to acquire Cornelian 27,757
Less cash held by Cornelian (6,655)
------------------------------------------ -------
Net cash outflow - investing activities 21,102
------------------------------------------ -------
7. Earnings per share
The Directors believe that underlying earnings per share provide
a truer reflection of the Group's performance in the year.
Underlying earnings per share, 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 finance costs of deferred consideration, finance income of
contingent consideration, changes in the fair value of deferred and
contingent consideration, goodwill impairment, client relationship
contracts impairment, amortisation of client relationships and
contracts acquired with fund managers, acquisition related costs,
head office relocation costs, restructuring charge, business
disposal costs and profit or loss from discontinued operations. The
tax effect of these adjustments has also been considered.
Earnings for the year used to calculate earnings per share as
reported in these Consolidated financial statements were as
follows:
2019
2020 restated(1)
GBP'000 GBP'000
------------------------------------------------------------- -------- ------------
Profit from continued operations 6,426 5,855
Loss from discontinued operations - (395)
------------------------------------------------------------- -------- ------------
Earnings attributable to ordinary shareholders 6,426 5,460
Goodwill impairment (Note 9) 4,471 4,756
Acquisition related costs (Note 6 and 18) 4,261 -
Amortisation of acquired client relationship contracts (Note
9) 2,867 2,144
Head office relocation costs 1,166 -
Finance cost of deferred consideration (Note 12) 145 94
Changes in fair value of contingent consideration 54 75
Amortisation of contracts acquired with fund managers (Note
9) 16 102
Finance income of contingent consideration (9) (29)
Restructuring charge - 3,265
Client relationship contracts impairment (Note 9) - 2,328
Changes in fair value of deferred consideration (Note 12) - (419)
Loss from discontinued operations - 395
Disposal costs - 33
Tax impact of adjustments (939) (1,185)
------------------------------------------------------------- -------- ------------
Underlying earnings attributable to ordinary shareholders 18,458 17,019
------------------------------------------------------------- -------- ------------
1. See Note 4 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 year. Diluted earnings per
share represents the basic earnings per share adjusted for the
effect of dilutive potential shares issuable on exercise of
employee share options under the Group's share-based payment
schemes, weighted for the relevant period.
The weighted average number of shares in issue during the year
was as follows:
2020 2019(2)
Number Number
of shares of shares
--------------------------------------------------------- ---------- ----------
Weighted average number of shares in issue 14,870,729 13,730,530
Effect of dilutive potential shares issuable on exercise
of employee share options 46,052 6,211
--------------------------------------------------------- ---------- ----------
Diluted weighted average number of shares in issue 14,916,781 13,736,741
--------------------------------------------------------- ---------- ----------
2. The comparative weighted average number of shares have been
restated for the effect of new ordinary shares issued at a discount
to their market value as part of the share placing issued in
November 2019.
Earnings per share for the year attributable to equity holders
of the Company were:
2020 2019
restated(1,2)
p p
--------------------------------- ----- --------------
Based on reported earnings:
Basic earnings per share from:
Continuing operations 43.2 42.5
Discontinued operations - (2.8)
--------------------------------- ----- --------------
Total basic earnings per share 43.2 39.7
Diluted earnings per share from:
Continuing operations 43.1 42.6
Discontinued operations - (3.0)
--------------------------------- ----- --------------
Total diluted earnings per share 43.1 39.6
Based on underlying earnings:
Basic earnings per share 124.1 123.6
Diluted earnings per share 123.7 123.5
--------------------------------- ----- --------------
1. See Note 4 for details regarding the restatement as a result
of the output VAT on Platform MPS.
2. The comparative weighted average number of shares and
therefore basic and diluted earnings per share have been restated
for the effect of new ordinary shares issued at a discount to their
market value as part of the share placing issued in November
2019.
8. Dividends
Amounts recognised as distributions to equity holders of the
Company in the year were as follows:
2020 2019
GBP'000 GBP'000
------------------------------------------------------------- -------- --------
Final dividend paid for the year ended 30 June 2019 of 32.0p
(FY18: 30.0p) per share 4,382 4,123
Interim dividend paid for the year ended 30 June 2020 of
21.0p (FY19: 19.0p) per share 3,298 2,591
------------------------------------------------------------- -------- --------
Total dividends 7,680 6,714
------------------------------------------------------------- -------- --------
Final dividend proposed for the year ended 30 June 2020
of 32.0p (FY19: 32.0p) per share 5,161 4,378
------------------------------------------------------------- -------- --------
The interim dividend of 21.0p (FY19: 19.0p) per share was paid
on 24 April 2020.
A final dividend for the year ended 30 June 2020 of 32.0p (FY19:
32.0p) per share was declared by the Board of Directors on 16
September 2020 and is subject to approval by the shareholders at
the Company's Annual General Meeting. It will be paid on 6 November
2020 to shareholders who are on the register at the close of
business on 25 September 2020. In accordance with IAS 10 'Events
After the Reporting Period', the aggregate amount of the proposed
dividend expected to be paid out of retained earnings is not
recognised as a liability in these Financial statements.
9. Intangible assets
Contracts
Acquired acquired
client with
Computer relationship fund
Goodwill software contracts managers Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- -------- --------- ------------- --------- --------
Cost
At 1 July 2018 35,776 7,768 32,161 3,521 79,226
Additions - 1,106 - - 1,106
----------------------------------------- -------- --------- ------------- --------- --------
At 30 June 2019 35,776 8,874 32,161 3,521 80,332
Additions 16,111 1,614 25,623 - 43,348
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
----------------------------------------- -------- --------- ------------- --------- --------
Accumulated amortisation and impairment
At 1 July 2018 1,986 1,027 12,254 3,403 18,670
Amortisation charge - 2,165 2,144 102 4,411
Impairment 4,756 - 2,328 - 7,084
----------------------------------------- -------- --------- ------------- --------- --------
At 30 June 2019 6,742 3,192 16,726 3,505 30,165
Amortisation charge - 2,444 2,867 16 5,327
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
----------------------------------------- -------- --------- ------------- --------- --------
Net book value
At 1 July 2018 33,790 6,741 19,907 118 60,556
At 30 June 2019 29,034 5,682 15,435 16 50,167
----------------------------------------- -------- --------- ------------- --------- --------
At 30 June 2020 40,674 4,939 38,191 - 83,804
----------------------------------------- -------- --------- ------------- --------- --------
The amortisation charge of intangible assets is recognised
within administrative costs in the Consolidated statement of
comprehensive income.
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:
2020 2019
GBP'000 GBP'000
----------------------------------------------------------- -------- --------
Funds
Braemar Group Limited ("Braemar") 3,320 3,320
Levitas Investment Management Services Limited ("Levitas") - 4,471
----------------------------------------------------------- -------- --------
3,320 7,791
International
Brooks Macdonald Asset Management (International) Limited
and Brooks Macdonald Retirement Services (International)
Limited (collectively "Brooks Macdonald International") 21,243 21,243
Cornelian
Cornelian Asset Managers Group Limited ("Cornelian") 16,111 -
----------------------------------------------------------- -------- --------
Total goodwill 40,674 29,034
----------------------------------------------------------- -------- --------
During the year ended 30 June 2020, the Group acquired goodwill
of GBP16,111,000 in relation to the acquisition of Cornelian (Note
6).
Goodwill is reviewed annually for impairment and its
recoverability has been assessed at 30 June 2020 by comparing the
carrying amount of the CGUs to their expected recoverable amount,
estimated on a value-in-use basis. The value-in-use of each CGU has
been calculated using pre-tax discounted cash flow projections
based on the most recent budgets approved by the relevant
subsidiary company boards of directors, covering a period of five
years. Cash flows are then extrapolated beyond the forecast period
using an expected long-term growth rate.
At the end of the previous financial year, the Group entered
into a new five-year partnership agreement in relation to Levitas
that carried a lower sponsorship fee, the aim of this reduction was
to enhance FUM flows and deepen the relationship with the fund
distributor. Unfortunately for reasons beyond the Group's control,
the anticipated fund inflows have not been forthcoming and the
Levitas fund recorded net outflows during the financial year,
impacting its rate of growth and future cash flows. Based on an
updated value-in-use calculation, the recoverable amount of the
Levitas CGU at 30 June 2020 did not support the goodwill balance of
GBP4,471,000.
The key underlying assumption of the recoverable amount
calculation is the growth in funds under management of the Levitas
funds. Given the fund outflows during the year ended 30 June 2020,
flat fund flows have been forecast in the next five financial
years, resulting in a small recoverable amount that does not
support the goodwill balance. As a result, the Levitas goodwill
balance has been fully impaired, recognising an impairment of
GBP4,471,000, giving a goodwill balance of GBPnil at 30 June 2020.
The five-year partnership is still active and fund flows could
improve in due course, however given current market conditions, the
situation with the fund distributor, and the need for FUM to grow
by GBP584 million over the five-year period, it is prudent to write
off the accounting goodwill balance in the Levitas CGU at 30 June
2020.
Based on a value-in-use calculation, the recoverable amount of
the Brooks Macdonald International CGU at 30 June 2020 was
GBP59,063,000, indicating that there is no impairment. The key
underlying assumptions of the calculation are the discount rate,
the short-term growth in earnings and the long-term growth rate of
the business. A pre-tax discount rate of 11% (FY19: 12%) has been
used, based on the Group's assessment of the risk-free rate of
interest and specific risks relating to Brooks Macdonald
International. Annual cash inflow growth rates of up to 35% are
forecast over the next five financial years, the period covered by
the most recent forecasts, which reflect historic actual growth and
planned management actions and are considered to be reasonable in
the current market and industry conditions. The 2% long-term growth
rate applied is considered prudent in the context of the long-term
average growth rate for the funds, investment management and
financial planning industries in which the CGU operates.
Sensitivity analysis has been performed and an impairment would
arise if the following occurred:
-- An increase of the pre-tax discount rate by 8%.
-- A decrease in the perpetuity growth rate by 14%.
-- A decrease in the pre-tax cash flows by 48% from the forecasts.
Based on a value-in-use calculation, the recoverable amount of
the Braemar CGU at 30 June 2020 was GBP49,461,000, indicating that
there is no impairment. A pre-tax discount rate of 11% (FY19: 13%)
has been used, based on the Group's assessment of the risk-free
rate of interest and specific risks relating to Braemar. The key
underlying assumptions of the calculation are the discount rate,
the growth in funds under management of the funds business and the
long-term growth rate. Annual funds under management growth rates
of between 22% and 43% for the various funds are forecast in the
next five financial years, the period covered by the most recent
forecasts, which reflect historic actual growth and planned
management activities and are considered to be reasonable in the
current market and industry conditions. The 2% long-term growth
rate applied is considered prudent in the context of the long-term
average growth rate for the funds industry in which the CGU
operates. Sensitivity analysis has not been performed given the
vast headroom the recoverable amount provides over the goodwill
balance.
At 30 June 2020 headroom exists in the calculations of the
respective recoverable amounts of these CGUs over the carrying
amounts of the goodwill allocated to them, except for Levitas. On
this basis, excluding Levitas, the Directors have concluded that
there is no impairment required to the goodwill balances at 30 June
2020.
b. Computer software
Costs incurred on internally developed computer software are
initially recognised at cost and when the software is available for
use, the costs are amortised on a straight-line basis over an
estimated useful life of four years.
During the year ended 30 June 2020, the Group conducted a review
of the computer software assets and retired assets from the fixed
asset register with a GBPnil net book value, and no longer used in
the business. This resulted in disposals of computer software, with
cost and accumulated amortisation both totalling GBP991,000.
c. Acquired client relationship contracts
This asset represents the fair value of future benefits accruing
to the Group from acquired client relationship contracts. The
amortisation of client relationships is charged to the Consolidated
statement of comprehensive income on a straight-line basis over
their estimated useful lives (6 to 20 years). At 30 June 2020, no
impairment indicators were present for the acquired client
relationship contract intangible assets.
During the year ended 30 June 2020, the Group acquired client
relationship contracts totalling GBP25,623,000, as part of the
acquisition of Cornelian (Note 6), which were recognised as
separately identifiable intangible assets in the Consolidated
statement of financial position. The additions included contracts
related to the Cornelian discretionary business of GBP18,012,000,
with a useful economic life of 20 years, and GBP7,611,000 related
to the Cornelian funds-management business, with a useful economic
life of six years.
d. Contracts acquired with fund managers
This asset represents the fair value of the future benefits
accruing to the Group from contracts acquired with fund managers.
Payments made to acquire such contracts are stated at cost and
amortised on a straight-line basis over an estimated useful life of
five years. At 30 June 2020, no impairment indicators were present
for the contracts acquired with fund managers intangible
assets.
10. Right of use assets
Property
GBP'000
--------------------------------------------- --------
Cost
At 30 June 2019 -
Adjustment on initial application of IFRS 16 1,799
--------------------------------------------- --------
At 1 July 2019 1,799
Additions 6,692
--------------------------------------------- --------
At 30 June 2020 8,491
--------------------------------------------- --------
Depreciation
At 30 June 2019 -
Adjustment on initial application of IFRS 16 244
--------------------------------------------- --------
At 1 July 2019 244
Depreciation charge 1,256
--------------------------------------------- --------
At 30 June 2020 1,500
--------------------------------------------- --------
Right of use assets
At 30 June 2019 -
--------------------------------------------- --------
At 30 June 2020 6,991
--------------------------------------------- --------
During the year ended 30 June 2020, the Group adopted IFRS 16
resulting in the recognition of right of use assets and
corresponding lease liabilities (Note 13). On transition, amounts
previously recognised on the Consolidated statement of financial
position at 30 June 2019 for prepaid rental expenses and lease
incentive accruals were recognised as depreciation. Further details
of the application of IFRS 16 can be found in Note 2(c).
The additions relate to additional leases that commenced during
the year ended 30 June 2020. The Group received a lease incentive
by way of a reverse lease premium, receiving GBP1,250,000, and paid
initial direct costs of GBP77,000 in relation to a new lease during
the year. These amounts have been included in the calculation for
the additional right of use assets during the period. The Group's
right of use assets relates solely to property-related leases.
11. Deferred income tax
Deferred income tax assets are only recognised to the extent
that it is probable that future taxable profit will be available
against which the temporary differences can be utilised. An
analysis of the Group's deferred assets and deferred tax
liabilities is shown below.
2020 2019
GBP'000 GBP'000
----------------------------------------------------------- -------- --------
Deferred tax assets
Deferred tax assets to be settled after more than one year 430 524
Deferred tax assets to be settled within one year 1,094 699
----------------------------------------------------------- -------- --------
Total deferred tax assets 1,524 1,223
----------------------------------------------------------- -------- --------
Deferred tax liabilities
Deferred tax liabilities to be settled after more than one
year (6,463) (1,566)
Deferred tax liabilities to be settled within one year (767) (712)
----------------------------------------------------------- -------- --------
Total deferred tax liabilities (7,230) (2,278)
----------------------------------------------------------- -------- --------
The gross movement on the deferred income tax account during the
year was as follows:
2020 2019
GBP'000 GBP'000
------------------------------------------------------------- -------- --------
At 1 July (1,055) (1,814)
Additional liability on acquisition of client-relationship
intangible assets (Note 6) (4,868) -
Adjustment on acquisition of business combination (17) -
Credit to the Consolidated statement of comprehensive income 212 808
Credit/(charge) recognised in equity 22 (49)
------------------------------------------------------------- -------- --------
At 30 June (5,706) (1,055)
------------------------------------------------------------- -------- --------
The change in deferred income tax assets and liabilities during
the year was as follows:
Trading
losses Accelerated
Share-based carried capital
payments forward allowances Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------- ----------- -------- ----------- --------
Deferred tax assets
At 1 July 2018 663 505 8 1,176
Credit/(charge) to the Consolidated statement
of comprehensive income 6 (6) 96 96
Charge to equity (49) - - (49)
-------------------------------------------------- ----------- -------- ----------- --------
At 30 June 2019 620 499 104 1,223
Adjustment on acquisition of business combination - - (17) (17)
Credit/(charge) to the Consolidated statement
of comprehensive income 247 (42) 91 296
Credit to equity 22 - - 22
-------------------------------------------------- ----------- -------- ----------- --------
At 30 June 2020 889 457 178 1,524
-------------------------------------------------- ----------- -------- ----------- --------
The carrying amount of the deferred tax asset is reviewed at
each reporting date and is only recognised to the extent that it is
probable that future taxable profits of the Group will allow the
asset to be recovered.
Accelerated
capital
allowances
on research Intangible Intangible
& development asset amortisation asset amortisation
GBP'000 GBP'000 GBP'000
----------------------------------------------------------- -------------- ------------------- -------------------
Deferred tax liabilities
At 1 July 2018 - 2,990 2,990
Credit to the Consolidated statement of comprehensive
income - (712) (712)
----------------------------------------------------------- -------------- ------------------- -------------------
At 30 June 2019 - 2,278 2,278
Additional liability on acquisition of client-relationship
intangible assets (Note 6) - 4,868 4,868
Credit to the Consolidated statement of comprehensive
income (154) (224) (378)
Under provision in prior years charged to the Consolidated
statement of comprehensive income 462 - 462
----------------------------------------------------------- -------------- ------------------- -------------------
At 30 June 2020 308 6,922 7,230
----------------------------------------------------------- -------------- ------------------- -------------------
12. Deferred consideration
Deferred consideration payable is split between non-current
liabilities (see below) and provisions within current liabilities
(Note 14) to the extent that it is due for payment within one year
of the reporting date. It reflects the Directors' best estimate of
amounts payable in the future in respect of certain client
relationships and subsidiary undertakings that were acquired by the
Group. Deferred consideration is measured at its fair value based
on discounted expected future cash flows. The movements in the
total deferred consideration balance during the year were as
follows:
2020 2019
GBP'000 GBP'000
--------------------------------------------- -------- --------
At 1 July 1,299 2,875
Additions 7,466 -
Finance cost of deferred consideration 145 94
Fair value adjustments - (419)
Payments made during the year (919) (1,251)
--------------------------------------------- -------- --------
At 30 June 7,991 1,299
--------------------------------------------- -------- --------
Analysed as:
Amounts falling due within one year 1,691 919
Amounts falling due after more than one year 6,300 380
--------------------------------------------- -------- --------
Total deferred consideration 7,991 1,299
--------------------------------------------- -------- --------
During the year ended 30 June 2020, the Group acquired Cornelian
Asset Managers Group Limited (Note 6) and part of the consideration
was deferred over a period of up to two years. The total cash
deferred consideration of GBP8,000,000 was recognised at its fair
value of GBP7,466,000 on acquisition. The deferred consideration is
payable in up to three instalments in March 2021, October 2021 and
March 2022 based on the future value of the funds under management
acquired, and cost savings and synergies achieved on integrating
the business. During the period from acquisition to 30 June 2020,
the Group recognised a finance cost of GBP110,000 on the Cornelian
deferred consideration. The fair value of the Cornelian deferred
consideration at 30 June 2020 was GBP7,576,000.
During the year ended 30 June 2020, payments totalling
GBP919,000 (FY19: GBP1,251,000) were made to the vendors of
Levitas. Full details of the Levitas acquisition are disclosed in
Note 13 of the 2015 Annual Report and Accounts. A total increase in
the fair value of deferred consideration of GBPnil (FY19:
GBP419,000) was recognised during the year in respect of Levitas.
The fair value of the Levitas deferred consideration at 30 June
2020 was GBP415,000.
Deferred consideration is classified as Level 3 within the fair
value hierarchy.
Amounts falling due after more than one year from the reporting
date are presented in non-current liabilities as shown below:
2020 2019
GBP'000 GBP'000
--------------------------------------- -------- --------
At 1 July 380 1,479
Additions 7,466 -
Finance cost of deferred consideration 145 94
Fair value adjustments - (419)
Transfer to current liabilities (1,691) (774)
--------------------------------------- -------- --------
At 30 June 6,300 380
--------------------------------------- -------- --------
An amount of GBP1,691,000 (FY19: GBP774,000), representing
deferred consideration payable in respect of the acquisitions of
Cornelian and Levitas, was transferred to provisions within current
liabilities (Note 14).
13. Lease liabilities
GBP'000
--------------------------------------------- -------
At 30 June 2019 -
Adjustment on initial application of IFRS 16 1,799
--------------------------------------------- -------
At 1 July 2019 1,799
Additions 7,865
Payments made against lease liabilities (2,034)
Interest on lease liabilities 304
--------------------------------------------- -------
At 30 June 2020 7,934
--------------------------------------------- -------
Analysed as:
Amounts falling due within one year 1,275
Amounts falling due after more than one year 6,659
--------------------------------------------- -------
Total lease liabilities 7,934
--------------------------------------------- -------
On adoption of IFRS 16, the Group recognised lease liabilities
in relation to leases which had previously been classified as
'operating leases' under the principles of IAS 17 Leases. These
liabilities were measured at the present value of the remaining
lease payments, discounted using the lessee's estimated incremental
borrowing rate. Further details of the application of IFRS 16 can
be found in Note 2(c).
The additions relate to additional leases that commenced during
the year ended 30 June 2020.
14. Provisions
Exceptional
costs of
resolving
Client legacy Deferred Leasehold
compensation matters consideration FSCS levy dilapidations Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------------- ----------- -------------- --------- -------------- --------
At 1 July 2018 22 6,225 1,396 689 - 8,332
Charge to the Consolidated
statement of comprehensive
income 100 - - 1,036 416 1,552
Transfer from non-current
liabilities - - 774 - - 774
Utilised during the year (22) (5,524) (1,251) (797) (50) (7,644)
---------------------------- ------------- ----------- -------------- --------- -------------- --------
At 30 June 2019 100 701 919 928 366 3,014
Charge to the Consolidated
statement of comprehensive
income 266 - - 2,171 381 2,818
Additions on acquisition of
subsidiary - - - - 103 103
Transfer from non-current
liabilities - - 1,691 - - 1,691
Utilised during the year (328) (93) (919) (1,598) (470) (3,408)
---------------------------- ------------- ----------- -------------- --------- -------------- --------
At 30 June 2020 38 608 1,691 1,501 380 4,218
---------------------------- ------------- ----------- -------------- --------- -------------- --------
Analysed as:
Amounts falling due within
one year 38 608 1,691 1,501 161 3,999
Amounts falling due after
more than one year - - - - 219 219
---------------------------- ------------- ----------- -------------- --------- -------------- --------
Total provisions 38 608 1,691 1,501 380 4,218
---------------------------- ------------- ----------- -------------- --------- -------------- --------
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. The amount
utilised during the year of GBP93,000 represented goodwill payments
made to clients of GBP96,000 and net legal fees credit of GBP3,000.
The amount remaining at 30 June 2020 of GBP608,000 relates to the
remaining goodwill offers yet to be accepted by clients. During the
year ended 30 June 2019, a contingent liability was recognised in
relation to potential claims related to the legacy matters (Note
16), which is still recognised as at 30 June 2020.
c. Deferred consideration
Deferred consideration has been included within provisions as a
current liability to the extent that it is due for payment within
one year of the reporting date. The amount outstanding at 30 June
2020 was GBP1,691,000 (FY19: GBP919,000). Deferred consideration
was recognised on the acquisition of Cornelian Asset Managers Group
Limited (Notes 6 and 12). At 30 June 2020, the current deferred
consideration in relation to Cornelian was GBP1,277,000.
Deferred consideration was recognised on the previous
acquisition of Levitas, and a final annual payment has now been
calculated and is due in November 2020. At 30 June 2020, the
current deferred consideration in relation to Levitas was
GBP414,000.
An amount of GBP1,691,000 (FY19: GBP774,000) was transferred
from non-current liabilities, representing amounts falling due
within one year of the reporting date. Provisions of GBP919,000
(FY19: GBP1,251,000) were utilised during the year on payment to
the vendors of Levitas.
d. FSCS levy
Following confirmation by the FSCS in April 2020 of its final
industry levy for the 2020/21 scheme year, the Group has made a
provision of GBP1,501,000 (FY19: GBP928,000) for its estimated
share.
e. 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.
As part of the acquisition of Cornelian Asset Managers Group
Limited (Note 6), leasehold dilapidations totalling GBP103,000 were
acquired.
15. Reconciliation of operating profit to net cash inflow from
operating activities
2020 2019
restated(1)
GBP'000 GBP'000
----------------------------------------------------- -------- ------------
Operating profit/(loss)
Continuing operations 10,245 8,176
Discontinued operations - (724)
----------------------------------------------------- -------- ------------
Operating profit 10,245 7,452
Adjustments for:
Amortisation of intangible assets 5,327 4,411
Depreciation of property, plant and equipment 2,028 1,391
Depreciation of right of use assets 1,256 -
Other (gains)/losses - net 4,519 6,928
Decrease/(increase) in receivables 694 (807)
Increase/(decrease) in payables 1,044 (2,172)
Increase/(decrease) in provisions 431 (4,841)
(Decrease)/increase in other non-current liabilities (384) 557
Share-based payments charge 3,571 2,634
Net assets acquired in business combination 7,357 -
----------------------------------------------------- -------- ------------
Net cash inflow from operating activities 36,088 15,553
----------------------------------------------------- -------- ------------
1. See Note 4 for details regarding the restatement as a result
of the output VAT on Platform MPS.
16. Guarantees and contingent liabilities
In the normal course of business the Group is exposed to certain
legal issues which, in the event of a dispute, could develop into
litigious proceedings and in some cases may result in contingent
liabilities. Similarly, a contingent liability may arise in the
event of an unexpected finding in respect of the Group's tax
affairs which could result in a financial outflow to the relevant
tax authorities.
A claim for unspecified losses has been made by a client against
Brooks Macdonald Financial Consulting Limited, a subsidiary of the
Group, in relation to alleged negligent financial advice. The
claimant has not yet advised the quantum of their claim so it is
not possible to reliably estimate the potential impact of a ruling
in their favour. There remains significant uncertainty surrounding
the claim and the Group's legal advice indicates that it is not
probable that the claim will be upheld; therefore, 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 2019, 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 14(b)), which were released from the
provision. It is possible that one or more of these clients might
issue claims against Brooks Macdonald Asset Management
(International) Limited but no such claims have been issued as at
30 June 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.
17. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, are eliminated on consolidation. The Company's
individual financial statements include the amounts attributable to
subsidiaries. These amounts are disclosed in aggregate in the
relevant company financial statements and in detail in the
following table:
Amounts owed by Amounts owed to
related parties related parties
----------------------------------------------------- ------------------ ------------------
2020 2019 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------------- -------- -------- -------- --------
Braemar Group Limited - 661 - -
Brooks Macdonald Asset Management Limited - - 22,641 6,993
Brooks Macdonald Asset Management (International)
Limited 14 - - 24
Brooks Macdonald Retirement Services (International)
Limited 29 - - -
Brooks Macdonald Financial Consulting Limited - - 2,638 11,918
Brooks Macdonald Funds Limited - - - 4,786
Brooks Macdonald Nominees Limited - - - 2,583
Levitas Investment Management Services Limited - 9 - -
----------------------------------------------------- -------- -------- -------- --------
All of the above amounts are interest-free and repayable on
demand.
The Group manages a number of collective investment funds that
are considered related parties. During the year ended 30 June 2019
the Group disposed of their 563,689 class A units in the IFSL
Brooks Macdonald Balanced Fund. These transactions were conducted
on an arm's length basis.
18. Events since the end of the year
On 24 June 2020, the Group entered into a binding agreement to
acquire the Lloyds Bank International's Channel Islands wealth
management and funds business, subject to regulatory approval.
Lloyds Channel Islands' wealth management and funds business is
expected to bring circa GBP1.0 billion of FUM and is a strong fit
for the Group. It 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 total consideration is expected to be up to GBP9,630,000,
including GBP2,500,000 of regulatory capital, with initial
consideration being up to GBP9,300,000. A contingent cash
consideration of up to GBP330,000 will be payable two years after
completion depending upon the acquired business meeting certain
pre-agreed performance targets relating to the retention of
portfolio clients. Completion is expected to take place in the
fourth quarter of the 2020 calendar year subject to regulatory
approval.
The Group incurred costs amounting to GBP606,000 in relation to
the acquisition. These have been recognised in the Consolidated
statement of comprehensive income and excluded from underlying
profit in view of their non-recurring nature.
At the time of approving these Consolidated financial
statements, the transaction has not yet completed. Accordingly,
these Consolidated financial statements do not reflect the
accounting of the acquisition and this will be performed and
recognised as at the completion date.
Finance information
The financial information contained within this preliminary
announcement has been extracted from the Group's financial
statements, which have been approved by the Board of Directors and
agreed with the Company's auditors'.
The financial information set out above does not constitute the
Group's statutory financial statements for the years ended 30 June
2020 or 2019. Statutory financial statements for 2019 have been
delivered to the Registrar of Companies. Statutory financial
statements for 2020 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting. The auditor has
reported on both the 2020 and 2019 financial statements. Their
reports were unqualified.
Forward looking statements
This announcement has been prepared to provide information to
shareholders to assess the current position and future potential of
Brooks Macdonald Group. It contains certain forward-looking
statements with respect to the Group's financial condition,
operations, and business opportunities. Forward looking statements
involve known and unknown risks, uncertainties and other important
factors that could cause actual results to differ materially from
what is expressed or implied by the statements. Any forward-looking
statement is made in good faith based on information available to
the Directors as of the date of the statement. Past performance
cannot be relied on as a guide to future performance.
Financial calendar
Results announcement 17 September 2020
------------------------------ -----------------
Ex-dividend date for final
dividend 24 September 2020
------------------------------ -----------------
Record date for final dividend 25 September 2020
------------------------------ -----------------
Annual General Meeting 27 October 2020
------------------------------ -----------------
Final dividend payment date 6 November 2020
------------------------------ -----------------
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END
FR SFFFUMESSEEU
(END) Dow Jones Newswires
September 17, 2020 02:00 ET (06:00 GMT)
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