TIDMBRK
RNS Number : 5149Z
Brooks Macdonald Group PLC
15 September 2022
15 September 2022
BROOKS MACDONALD GROUP PLC
Final results for the year ended 30 June 2022
Strong net flows, record underlying profit margin, and continued
strategic delivery.
Brooks Macdonald Group plc ("Brooks Macdonald" or "the Group")
today announces its audited results for the year ended 30 June
2022.
Financial highlights
-- Group Funds Under Management ("FUM") closing at GBP15.7
billion (down 4.8% on FY21) as positive net flows were offset by
the impact of declining markets on asset values
-- Positive net flows throughout the year, now five successive
quarters, with net flows for the full year of 4.8%, representing a
GBP1.1 billion improvement on prior year
-- Flows particularly strong in the fourth quarter (three months
to 30 June 2022) with the annualised rate reaching 6.7% and 8.6%
for Group and UK Investment Management respectively
-- Group revenue of GBP122.2 million, up 3.4% on FY21, driven by
higher average FUM and the full year impact of the Group's
acquisition of the Lloyds Channel Islands business
-- Underlying profit margin up by 2.3 points to 28.2%, in line
with the Group's commitment to deliver top quartile margin over the
medium term
-- Investment performance across the range of services of (9.6)%
for the year, driven by declining and volatile markets
-- Total dividend increased by 12.7% to 71.0p (FY21: 63.0p), in
line with the increase in underlying profit before tax, reflecting
the Board's confidence in the Group's prospects.
Strategic progress
-- Remaining client- and adviser-facing processes now live on
the SS&C platform, shortly after year end, a major milestone in
the Group's digital transformation which will make Brooks Macdonald
increasingly easy to do business with. Work now continuing to embed
and refine the systems and processes
-- Investing for growth, with repositioning of the Group's Funds
business under way through material repricing of the Cornelian Risk
Managed Fund range to drive medium-term growth
-- Continued rapid growth of Brooks Macdonald Investment
Solutions ("BMIS"), with FUM more than doubling during the
financial year
-- Increasing momentum in the Managed Portfolio Service ("MPS")
with 34.4% net flows for the year
-- Continued positive net flows in the Group's specialist
Bespoke Portfolio Service products - Responsible Investment
Service, Decumulation, AIM Portfolio Service and Court of
Protection
-- Improving flows and solid commercial performance in
International despite difficult market conditions. New Isle of Man
office progressing well and expected to be a source of growth,
particularly through the Group's referral agreement with Lloyds
Bank
-- Acquisition of Integrity Wealth Solutions, subject to
regulatory approval, bringing further scale, capability and
management expertise to the Private Clients business.
Outlook
-- Fundamental long-term opportunity remains strong, driven by
demographic and policy trends as well as continuing adviser demand
for outsourced investment management
-- Medium-term ambition for net flows is 8-10%p.a., and the
Group expects that flows will remain positive despite ongoing
short-term market uncertainty affecting client confidence and
conversion times
-- FY23 underlying profitability in line with current market expectations
-- Well positioned, continuing to deliver on the Group's
ambitious growth strategy, looking forward with confidence.
Andrew Shepherd, CEO of Brooks Macdonald, commented:
"This has been another strong year for Brooks Macdonald - we've
delivered higher net flows, we've hit another record for underlying
profit margin, and we've increased our full year dividend for the
seventeenth consecutive year. We have made good progress in driving
our digital transformation forward, having now gone live with our
remaining client- and adviser-facing processes on the SS&C
platform. This will make Brooks Macdonald increasingly easy to do
business with, delivering a best-in-class adviser experience and
client service.
"Our clients and advisers are facing a challenging macroeconomic
and market environment and, as ever, we will support them through
these difficult times. Nonetheless, the fundamental long-term
opportunity for Brooks Macdonald remains strong despite these
challenges. We have momentum, we have an ambitious growth strategy
and we have a strong team with the capabilities to take full
advantage of the opportunities ahead."
Key financial results
Year ended Year ended Change
30.06.2022 30.06.2021
Funds under management ("FUM") GBP15.7bn GBP16.5bn (4.8)%
Revenue GBP122.2m GBP118.2m 3.4%
Underlying results(1)
Underlying profit before tax GBP34.5m GBP30.6m 12.7%
Underlying profit margin before
tax 28.2% 25.9% 2.3ppt
Underlying basic earnings per share 174.1p 155.6p 18.5p
Underlying diluted(2) earnings per
share 168.7p 150.6p 18.1p
Statutory results
Statutory profit before tax GBP29.5m GBP25.1m 17.5%
Statutory profit margin before tax 24.1% 21.2% 2.9ppt
Statutory basic earnings per share 149.0p 125.3p 23.7p
Statutory diluted(2) earnings per
share 144.4p 121.3p 23.1p
Net cash GBP61.3m GBP54.9m 11.7%
Dividends
Proposed final dividend per share 45.0p 40.0p 12.5%
Total dividend per share 71.0p 63.0p 12.7%
1 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 ("APM") for the Group. R efer to the Non-IFRS financial
information section for a glossary of the Group's APMs, their
definition, and the criteria for how underlying adjustments are
considered . A reconciliation between the Group's statutory and
underlying profit before tax is also included in the Financial
Review.
2 The underlying and statutory diluted earnings per share for
FY21 have been restated in line with the current year methodology
of calculating the diluted weighted average number of shares. Refer
to note 8 for further details on the restatement.
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 FTI Consulting on +44 (0) 07976 870961 or
brooksmacdonald@fticonsulting.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 www.brooksmacdonald.com
Andrew Shepherd, CEO 020 7659 3492
Ben Thorpe, Chief Financial Officer
Peel Hunt LLP (Nominated Adviser and
Broker)
Paul Shackleton / Andrew Buchanan / John
Welch 020 7418 8900
FTI Consulting brooksmacdonald@fticonsulting.com
Edward Berry / Laura Ewart / Katherine 07703 330199 / 07711
Bell 387085 / 07976 870961
Notes to editors
Brooks Macdonald Group plc, through its various subsidiaries,
provides leading investment management services in the UK and
internationally. The Group, which was founded in 1991 and began
trading on AIM in 2005, had discretionary Funds under Management of
GBP15.7 billion as at 30 June 2022.
Brooks Macdonald offers a range of investment management
services to private high net worth individuals, pension funds,
institutions, charities and trusts. The Group also provides
financial planning as well as international investment management,
and acts as fund manager to a range of onshore and international
funds.
The Group has fourteen offices across the UK and Crown
Dependencies including London, Birmingham, Cheltenham, East Anglia,
Exeter, Leeds, Manchester, Southampton, Tunbridge Wells, Scotland,
Wales, Jersey, Guernsey and Isle of Man.
LEI: 213800WRDF8LB8MIEX37
www.brooksmacdonald.com / @BrooksMacdonald
Chairman's statement
Introduction
I am pleased to report that Brooks Macdonald has had an
excellent first year under the leadership of Andrew Shepherd as
CEO. Despite challenging market conditions, the Group set records
for revenue, underlying profit and underlying profit margin. The
closing FUM figure of GBP15.7 billion was delivered through
positive and improving net flows, offset by the impact on asset
values of declining and volatile markets. After the Group's net
flows returned to being positive in Q4 of the previous financial
year, they remained positive throughout the twelve months to 30
June 2022, delivering 4.8% organic net new business for the year.
The fourth quarter (three months to 30 June 2022) was particularly
pleasing with an annualised positive net flows rate of 6.7%.
Our Centralised Investment Process continues to deliver strong
performance over the medium and longer term, underpinning our
mission to protect and enhance our clients' wealth. Our investment
performance remains robust versus our peer group, as measured by
the ARC indices, particularly over 3, 5 and 10 years. Overall Group
investment performance for this financial year was (9.6)%, driven
by three factors: the overall market decline, which affected both
equity markets (MSCI All Countries World Index was down 12.3%) and
bond markets (Bloomberg Gilts Total Return Index fell 14.3%);
exposure to small- and medium-sized companies, which is common
across the wealth management industry; and the impact of equity
volatility on some of the portfolios the Group runs for clients
with higher risk appetite.
Performance overview
Brooks Macdonald continues to grow strongly, driven by our
strategy of focusing on intermediaries, alongside our complementary
Private Clients business. Underlying profit before tax was GBP34.5
million, up 12.7% on the year (FY21: GBP30.6 million), and
underlying basic earnings per share ("EPS") was up 11.9% to 174.1p
(FY21: 155.6p).
Statutory profit before tax rose 17.5% to GBP29.5 million (FY21:
GBP25.1 million). Statutory basic EPS rose 18.9% to 149.0p (FY21:
125.3p).
Delivering our strategy
We have a clear strategy based on the three value drivers of
market-leading organic growth, service and operational excellence,
and selective high-quality M&A. We have continued to deliver
against all three drivers:
-- On organic growth, our focus on BM Investment Solutions and
our Managed Portfolio Service (both in custody and on third-party
platforms) has been highly successful with FUM growth of 25%.
-- We have driven improvements in our adviser experience and
client service levels, with all client- and adviser-facing
processes moving to the SS&C platform shortly after year end,
continuing our digital transformation.
-- We announced the acquisition of Integrity Wealth Solutions, subject to regulatory approval.
In parallel, we have maintained our focus on the culture of the
business and taken forward Our Promise, which is the Group's
commitment to its people, to deliver an inclusive culture,
fulfilling careers, and great recognition.
Dividend
The Board has recommended a final dividend of 45.0p (FY21:
40.0p), which, subject to approval by shareholders, will result in
total dividends for the year of 71.0p (FY21: 63.0p). This
represents an increase of 12.7% in total dividend on the previous
year and underlines the Board's confidence in the prospects for the
Group, despite the challenging macroeconomic environment, and our
commitment to a progressive dividend policy. The final dividend
will be paid on 4 November 2022 to shareholders on the register at
the close of business on 23 September 2022.
Board changes
There were two changes to the Board during the financial year.
As mentioned in last year's Annual Report and Accounts, our CEO,
Andrew Shepherd, and the Group Chief Operating Officer, Lynsey
Cross, were appointed to the Board with effect from 13 July
2021.
Looking ahead
The UK macroeconomic outlook in the short term remains highly
uncertain, with high inflation, a cost of living crisis, increasing
interest rates, and recessionary risks. Nonetheless, the
fundamental opportunity for Brooks Macdonald remains strong, driven
by demographic and policy trends as well as increasing adviser
demand for outsourced investment management. The Group has a strong
balance sheet, consistently supportive shareholders and an
ambitious growth agenda. We look to the future with confidence.
Alan Carruthers
Chairman
14 September 2022
CEO's review
Introduction
I am delighted that my first full year as CEO of Brooks
Macdonald has been another year of record performance across a
number of dimensions, further demonstrating the strength and
resilience of our business model.
The ongoing macroeconomic and market conditions have been
challenging for all our stakeholders, and I thank them for their
support. I am pleased that our positive and improving net flows
show that our clients and their intermediaries recognise and value
our products and services. I am also extremely grateful to our
people who, over recent years, have dealt with Brexit, the pandemic
and a global economic crisis whilst, despite all that, maintaining
their service and commitment to our clients and their
intermediaries.
Delivering our strategy
Brooks Macdonald's strategy is founded on the three value
drivers of organic growth, service and operational excellence, and
selective high-quality acquisitions. We are committed to delivering
consistently top quartile underlying profit margins, through
building on the sustainable and scalable business model we have put
in place. We continue to make progress, ready to capitalise on the
growth opportunities we see ahead, achieving higher returns as we
go.
A core element of our strategy, alongside our robust Centralised
Investment Process and our compelling investment proposition, is
delivering a high-quality intermediary experience alongside
exceptional client service. We are committed to continuous
improvement on that dimension and I am delighted that, shortly
after our financial year end, we reached a major milestone in our
digital transformation when we went live with all our client- and
intermediary-facing processes to the SS&C platform.
This is a critical step in our digital transformation, giving
our clients and their intermediaries improved digital self-service
capabilities, complementing the high-quality of our face-to-face
relationships. The platform includes automated onboarding, full
intermediary and client portal functionality, and bespoke
reporting.
The migration has been a massive effort and I want to thank all
our staff for their commitment and indeed patience as we continue
the work to embed and refine the new processes and systems.
However, although this is a major milestone, it is by no means
the end of our digital transformation, which will continue with
further improvements in, for example, our use of data and the
application of artificial intelligence.
We announced another building block in our M&A agenda with
the acquisition of Integrity Wealth Solutions ("Integrity"), an IFA
firm whom we have worked closely with for almost a decade now. We
expect the acquisition to complete, subject to regulatory approval,
later this calendar year. As well as being an important addition to
our Private Clients business, Integrity will give us deeper insight
into the products and services a high-quality, growing IFA firm
values from a discretionary fund manager. This was one of a number
of M&A discussions and going forward we expect further
acquisitions.
We continue to review how we can further help the intermediaries
we know well and with whom we have built a long-term trust-based
relationship. While we do not set out to be a consolidator of IFAs,
we are keen to give the opportunity to successful financial
advisers, like Integrity, to join a larger wealth management
company, and we expect this to become an increasingly important
part of our proposition. We firmly believe that the biggest single
factor in successful integration of acquisitions is complementary
cultures, so working with firms we know well gives us a head start
in integration.
Financial performance
We had another year of strong financial performance in FY22,
continuing to deliver on our medium-term commitment to top quartile
margins, with the underlying profit margin up 2.3 points to 28.2%.
We also delivered record revenue and underlying profit levels of
GBP122.2 million and GBP34.5 million respectively.
Statutory profit before tax rose 17.5% to GBP29.5 million (FY21:
GBP25.1 million).
Our year-end closing FUM was GBP15.7 billion. Net flows were
positive in all quarters, 4.8% at Group level for the full year,
and reaching an annualised level of 6.7% for the final quarter.
Total FUM was down 4.8% over the year, with the decline being the
result of strong flows offset by the impact of declining markets on
asset values. We have a strong pipeline going into FY23, although
market conditions are resulting in some clients taking longer to
commit funds.
Investment performance and market conditions
Investment performance for the year came in at (9.6)%, with
declining markets bringing down FUM totals. Nonetheless, our
investment performance remains strong for client portfolios over 3,
5 and 10 years against peers as represented by ARC benchmarks.
The path of investment markets over the year was complex, with
the market environment favouring different asset classes and
different investment styles at different times. In the first
quarter, equities were strong and Brooks Macdonald's growth and
mid-cap positions performed well. Later in 2021, equity sentiment
worsened, with smaller companies most affected. Active funds, which
tend to have a smaller companies skew, therefore underperformed,
which was negative for the Group given our active bias. During
2022, the market has focused on inflationary risks, resulting
initially in good performance for our short-duration bond positions
but declines in our growth-orientated equity positions. The last
quarter of our financial year saw investors shift focus to possible
recessionary risks, leading to falls across asset classes. Brooks
Macdonald performed broadly in line with peers.
Looking ahead, we expect inflation to begin to moderate in the
United States but remain sticky in Europe. Despite the higher
yields now available in bond markets, equities remain our preferred
asset class given the lower valuations after the sell-off to date
in 2022. The impact of inflation is creating a catalyst for flows
as clients look to 'put money to work' to help offset the effect of
rising prices on real returns.
Review of business performance
UK Investment Management
In UK Investment Management ("UKIM"), led by Robin Eggar and his
team, we have continued to provide high-quality service to clients
and intermediaries across the UK. We have seen positive net flows
throughout the year, reaching an annualised rate of 8.6% at UKIM
level in the final quarter. The standout performance was from BM
Investment Solutions ("BMIS"), our business-to-business offering,
where we work with an adviser firm to provide a tailored investment
proposition, in either model portfolio or fund format, to meet the
needs of their clients. Over the course of FY22, the team continued
to build on their previous success, signing a series of material
deals.
Our Platform Managed Portfolio Service ("PMPS") also had a good
year. PMPS is the platform version of our traditional custody
Managed Portfolio Service ("MPS") and we have continued to increase
the number of platforms where it is available, now up to over 20 of
the most popular platforms, and this has helped drive strong growth
in the year. BMIS and PMPS combined to deliver the material
majority of our net flows over the year.
In our flagship Bespoke Portfolio Service ("BPS") product, we
have continued to see good growth in our specialist offerings, the
AIM Portfolio Service, the Responsible Investment Service, our
Decumulation Service, and our Court of Protection service. The
continued success of these more specialised offerings highlights
how we have been able to innovate to meet developing client
needs.
In common with much of the industry, our Funds business had a
challenging year, with persistent net outflows. Within that, our
Defensive Capital Fund ("DCF") had a stronger year, with a
particular highlight being positive investment performance in such
a difficult year, although flows continued to be affected by the
ongoing downturn in sentiment in the Investment Association's
Targeted Absolute Return sector. We see multi-asset funds as a
major potential source of growth for Brooks Macdonald, and we have
therefore started repositioning our Funds business, with the first
step being a material repricing of our Cornelian Risk Managed Fund
range to drive medium-term growth.
During the year, we opened offices in Southampton and
Birmingham, replacing our former offices in Fareham and Leamington
Spa respectively, to improve facilities for clients and colleagues,
and to access a larger group of intermediaries and greater pools of
wealth.
Private Clients
Our new Private Clients arm, bringing together Financial
Planning and UKIM direct client investment management services, has
also had strong flows and has restructured processes to ensure our
direct clients receive the best possible service. The acquisition
of Integrity Wealth Solutions (expected to complete, subject to
regulatory approval, later this calendar year) brings further
scale, capability and management expertise to our Private Clients
business, and we look forward to welcoming Martin Lindsey and his
team to the Group.
International
In International, Richard Hughes' first full year since he took
over from me as CEO International has been a good one, with
improving flows and solid commercial performance in difficult
market conditions. We opened a new Isle of Man office, which we
expect to be an increasing source of business growth, particularly
through our referral agreement with Lloyds Bank.
People
I am personally committed to ensuring that we support the talent
we have in the business, as well as bringing in new, high-quality
hires. The aim of our people agenda is to enable our strategy by
attracting, engaging and retaining the best talent in the industry.
The people agenda is founded on our Guiding Principles and
promoting and advancing our culture is a core priority for me. The
current focus of our people agenda, what we call 'Our Promise,' is
to offer an inclusive culture, fulfilling careers, and great
recognition.
Among internal promotions this year, we brought two more of our
most talented internal leaders on to the Executive Committee in
March: Caroline Abbondanza, our Chief Technology Officer, and Simon
Broomfield, our General Counsel. I am also delighted to welcome
Sarah Ackland as our new Global Head of Distribution. Sarah is an
experienced senior executive with deep expertise in the UK retail
funds market, most recently at Liontrust and Architas, and took up
her post after the financial year end.
Outlook
One year into my tenure as CEO, we are well positioned to take
advantage of the opportunities facing Brooks Macdonald, despite the
external macroeconomic and markets challenges. We will build on our
success to date:
-- Driving organic growth, both through intermediaries and among private clients;
-- Ensuring service and operational excellence, building on our migration of all client- and intermediary-facing processes to the SS&C platform to further our digital transformation; and
-- Executing selective high-quality acquisitions.
We will also continue to deliver top quartile profit margins and
improving returns.
The fundamental opportunity for Brooks Macdonald remains strong.
An ageing population, a supportive policy environment that both
encourages individuals to save for their retirement and gives them
pension freedoms to invest as they please, plus growing wealth in
our target demographic, all combine to give us a highly positive
market opportunity so long as we continue to deliver strong
investment performance alongside exceptional client service.
We have a strong team and we are well positioned for the future,
with deep experience in navigating a wide range of economic
conditions. I would like to finish by reiterating my thanks to our
clients, the intermediaries we work with, and our people for their
continuing support. I look forward with excitement to what we can
achieve together.
Andrew Shepherd
CEO
14 September 2022
Our strategy
Brooks Macdonald is delivering strong performance and has put in
place foundations for our continued future success. Our strategy is
clear and we are making substantial progress, ready to capitalise
on the growth opportunities we see ahead.
Looking forward
Our vision for Brooks Macdonald is to be the leading investment
manager for intermediaries, both in the UK and internationally.
Our strategy also includes a strong and growing Private Clients
business providing financial planning and investment management -
an advice-led integrated wealth management offering.
Our Purpose - Realising ambitions and securing futures
Our Vision - To be the leading investment manager for
intermediaries
Our Mission - To protect and enhance our clients' wealth through
the provision of investment management and advice underpinned by
excellent client service
Our strategy
Market-leading organic growth - Best-in-class adviser experience
and excellent client service, rigorous Centralised Investment
Process, compelling investment proposition
Service and operational excellence - Easy to do business with,
digital enhancement, margin growth through efficiency and
scalability resilience
Agile, high-quality M&A - Strict criteria, delivery of
benefits
Value drivers
Our strategy is based on the three value drivers of strong
organic growth, service and operational excellence, and selective
high-quality acquisitions. We will deliver further improvements in
returns, committing to top quartile margins over the medium term,
by building on the sustainable and scalable business model we have
put in place. Within the three value drivers of the existing
strategy, we announced five priority areas for 2022:
Organic growth
-- Investment Solutions: strong focus on MPS, Funds and BMIS,
the fastest-growing sectors of the wealth marketplace.
-- Private Clients: standardisation and streamlining of our
financial planning processes, building a strong advice-led pillar
of the Group.
Service and operational excellence
-- Being the best we can be: driving continuous improvement in
our client and adviser service levels, delivering digital
transformation, increasing data-driven decision making throughout
the firm.
-- Delivering Our Promise: attracting, engaging and retaining the best talent in the industry.
Agile, high-quality M&A
-- Selective acquisitions: disciplined acquisition criteria -
high-quality businesses that are a good strategic and cultural fit
and bring compelling economics - and ambitious inorganic growth
plans, with Integrity Wealth acquisition announced in May (subject
to regulatory approval).
Delivering our strategy
We announced our new strategy in our annual results presentation
last year, and since then we have made material progress on all
three value drivers.
Value driver Progress in FY22
------------------- ------------------------------------------------------------
Organic growth
* Increasingly strong positive net flows of client
assets throughout the financial year
* Further strong business-to-business mandates through
BM Investment Solutions
* Further growth in Platform MPS and our specialist BPS
products - Responsible Investment Service,
Decumulation, Court of Protection, and the AIM
Portfolio Service
* Positive net flows in Private Clients
------------------- ------------------------------------------------------------
Service and
operational * Continued to work with our technology partner, SS&C,
excellence rolling out digital onboarding and (after financial
year end) migrating all our processes to the SS&C
platform
------------------- ------------------------------------------------------------
Agile, high-quality
M&A * Announced acquisition of Integrity Wealth Solutions
in May, subject to regulatory approval
* Continued to review a range of potential targets
------------------- ------------------------------------------------------------
Financial review
Review of results for the year
The Group delivered another strong set of results for FY22,
despite the second half of the financial year being impacted by the
Russian invasion of Ukraine. The change in financial markets and
client sentiment has been significant, with the situation being
further impacted by the increase in energy prices, the resulting
rise of inflation and the need for central banks to respond with
higher interest rates. However, the Group responded well and flows
in H2 were up on H1 and financial performance was resilient.
Therefore, once again, the Group reported improved revenue,
underlying profit and underlying profit margin.
The improved performance was due to increased revenue driven by
higher average FUM for the year and the full year impact of the
Lloyds Channel Islands acquisition, and the Group's continued
discipline around costs and financial resources.
This contributed to an underlying profit of GBP34.5 million, an
increase of 12.7% on the previous year and an underlying profit
margin of 28.2%, up 2.3 percentage points from last year's margin
of 25.9%.
Group financial results summary
The table below shows the Group's financial performance for the
year ended 30 June 2022 with the comparative period and provides a
reconciliation between the underlying results, which the Board
considers to be an appropriate reflection of the Group's underlying
performance, and the statutory results. Underlying profit
represents an alternative performance measure ("APM") for the
Group. Refer to the Non-IFRS financial information section at the
end of the document for a glossary of the Group's APMs, their
definition, and the criteria for how underlying adjustments are
considered. A breakdown of the underlying adjustments is shown in
the Reconciliation between underlying and statutory profits section
below.
FY22 FY21
GBPm GBPm Change
-------------------------------------- ------ ------ -------
Revenue 122.2 118.2 3.4%
Fixed staff costs (40.5) (40.0) 1.3%
Variable staff costs (14.8) (13.2) 12.1%
-------------------------------------- ------ ------ -------
Total staff costs (55.3) (53.2) 3.9%
Non-staff costs (31.3) (32.2) (2.8)%
FSCS levy (1.1) (2.2) (50.0)%
-------------------------------------- ------ ------ -------
Total non-staff costs (32.4) (34.4) (5.8)%
-------------------------------------- ------ ------ -------
Total underlying costs (87.7) (87.6) 0.1%
-------------------------------------- ------ ------ -------
Underlying profit before tax 34.5 30.6 12.7%
Underlying adjustments (5.0) (5.5) (9.1)%
-------------------------------------- ------ ------ -------
Statutory profit before tax 29.5 25.1 17.5%
Taxation (6.1) (5.5) 10.9%
-------------------------------------- ------ ------ -------
Statutory profit after tax 23.4 19.6 19.4%
-------------------------------------- ------ ------ -------
Underlying profit margin before tax 28.2% 25.9% 2.3ppt
Underlying basic earnings per share 174.1p 155.6p 18.5p
Underlying diluted earnings per share 168.7p 150.6p 18.1p
Statutory profit margin before tax 24.1% 21.2% 2.9ppt
Statutory basic earnings per share 149.0p 125.3p 23.7p
Statutory diluted earnings per share 144.4p 121.3p 23.1p
Dividends per share 71.0p 63.0p 8.0p
-------------------------------------- ------ ------ -------
FUM movement in the year
The table below shows the opening and closing FUM position and
the flows for the year broken down by segment and by our key
services within UK Investment Management ("UKIM").
Year ended 30 June 2022 (GBPm)
Organic net new business
------- ------- ------- --------- -------
Opening Closing Total
FUM Total FUM organic
1 Jul Inv. 30 Jun net new Total
21 Q1 Q2 Q3 Q4 Total Perf. 22 business mvmt
-------------------- ------- ----- ----- ----- ----- ------ ------- ------- --------- ---------
BPS 9,460 6 51 30 1 88 (967) 8,581 0.9% (9.3)%
MPS Custody 1,025 13 3 10 5 31 (96) 960 3.0% (6.3)%
MPS Platform 1,386 149 153 171 325 798 (131) 2,053 57.6% 48.1%
-------------------- ------- ----- ----- ----- ----- ------ ------- ------- --------- ---------
MPS 2,411 162 156 181 330 829 (227) 3,013 34.4% 25.0%
-------------------- ------- ----- ----- ----- ----- ------ ------- ------- --------- ---------
UKIM discretionary 11,871 168 207 211 331 917 (1,194) 11,594 7.7% (2.3)%
-------------------- ------- ----- ----- ----- ----- ------ ------- ------- --------- ---------
Funds - DCF 478 (11) 2 (15) (22) (46) 7 439 (9.6)% (8.2)%
Funds - Other 1,598 (15) (23) (20) (3) (60) (120) 1,418 (3.8)% (11.3)%
-------------------- ------- ----- ----- ----- ----- ------ ------- ------- --------- ---------
Funds total 2,076 (26) (21) (35) (25) (106) (113) 1,857 (5.1)% (10.5)%
-------------------- ------- ----- ----- ----- ----- ------ ------- ------- --------- ---------
UKIM total 13,947 142 186 176 306 810 (1,307) 13,451 5.8% 3.6%
-------------------- ------- ----- ----- ----- ----- ------ ------- ------- --------- ---------
International 2,512 (14) 12 3 (26) (25) (271) 2,216 (1.0)% (11.8)%
-------------------- ------- ----- ----- ----- ----- ------ ------- ------- --------- ---------
Total 16,459 128 198 179 280 785 (1,578) 15,667 4.8% (4.8)%
-------------------- ------- ----- ----- ----- ----- ------ ------- ------- --------- ---------
Total investment performance (9.6)%
----------------------------------------------------------------------------------- --------- ---------
MSCI PIMFA Private Investor Balanced Index(1) (6.3)%
----------------------------------------------------------------------------------- --------- ---------
1 Capital-only index.
During the year, the Group recorded positive net flows of GBP0.8
billion or 4.8%, representing an upswing of GBP1.1 billion on last
year. This was offset by the market downturn experienced in the
second half leading to an overall decrease in the Group's closing
FUM of 4.8% to GBP15.7 billion (FY21: GBP16.5 billion).
Investment performance for the year came in at (9.6%), with
declining markets bringing down FUM totals. Nonetheless, investment
performance remains strong for client portfolios over the three,
five and ten-years against peers as represented by ARC
benchmarks.
Within UKIM, the BPS core offering made good progress with net
inflows of GBP0.1 billion in the year. We continue to see good
growth in our specialist products - the AIM Portfolio Service, the
Responsible Investment Service, the Decumulation Service, and the
Court of Protection Service - all focused on meeting different
client needs.
Increasing flows in MPS has been an area of strategic focus for
the Group in FY22 and our MPS services delivered flows of GBP0.8
billion in the year, primarily seen within Platform MPS and in
Brooks Macdonald Investment Solutions, with several material deals
agreed during the year.
The Funds business recorded total net outflows of GBP0.1 billion
during the year. Whilst still experiencing net outflows overall, we
have seen a notable decline in outflows in the Defensive Capital
Fund compared to the prior year, assisted in part by its robust
investment performance over the last six months.
International made good progress in the year, returning to
positive net flows for two-quarters of the year, with net outflows
reducing from GBP59.8 million to GBP25.4 million overall for the
year.
Revenue
The Group's total revenue for FY22 increased by 3.4% to GBP122.2
million (FY21: GBP118.2 million). FUM-related revenue overall
increased by 3.5% to GBP116.1 million, whilst non-FUM-related
revenue increased marginally to GBP6.1 million. The rise in fee
income was driven by higher average FUM as a result of net inflows
and favourable markets in H1, and the full-year impact of the
Lloyds Channel Islands business, which contributed an additional
GBP3.4 million of revenue compared to FY21.
This was offset by a reduction in transactional income as a
result of the Group's relatively stable asset allocation during the
year and the continued trend of clients moving to a fee-only rate
card.
Interest turn increased slightly on the prior year, driven by
the rise in the Bank of England base rates in the latter part of
the financial year, although it continues to remain low by historic
levels.
Total financial planning and wealth management advice income
increased slightly by GBP0.2 million during the year. Within that,
UKIM financial planning fees were up by GBP0.4 million as we
continue to grow our Private Clients business, whilst International
saw a slight reduction as more private clients moved to an all-in
investment management fee.
Revenue, yields and average FUM
Revenue Average FUM Yield(2)
FY22 FY21 Change FY22 FY21 Change FY22 FY21 Change
GBPm GBPm % GBPm GBPm % bps bps bps
----------------------------- ----- ----- ------ ------ ------ ------ ----- ----- ------
BPS fees 59.9 58.7 2.0 65.8 67.3 (1.5)
BPS non-fees (transactional) 12.1 14.5 (16.6) 13.3 16.6 (3.3)
BPS non-fees (interest
turn) 1.0 1.4 (28.6) 1.1 1.6 (0.5)
----------------------------- ----- ----- ------ ------ ------ ------ ----- ----- ------
Total BPS 73.0 74.6 (2.1) 9,108 8,722 4.4 80.2 85.5 (5.3)
MPS Custody 6.4 6.0 6.7 1,029 950 8.3 62.6 63.2 (0.6)
MPS Platform 3.5 2.3 52.2 1,808 1,119 61.6 19.2 20.6 (1.4)
----------------------------- ----- ----- ------ ------ ------ ------ ----- ----- ------
Total MPS 9.9 8.3 19.3 2,837 2,069 37.1 34.9 40.1 (5.2)
----------------------------- ----- ----- ------ ------ ------ ------ ----- ----- ------
UKIM discretionary 82.9 82.9 - 11,945 10,791 10.7 69.4 76.8 (7.4)
Funds 12.8 12.2 4.9 2,220 2,207 0.6 57.8 55.3 2.5
----------------------------- ----- ----- ------ ------ ------ ------ ----- ----- ------
Total UKIM 95.7 95.1 0.6 14,165 12,998 9.0 67.6 73.2 (5.6)
International fees 9.0 8.9 1.1 1,602 1,636 (2.1) 56.7 54.4 2.3
International non-fees 2.7 2.9 (6.9) - - - 16.6 17.7 (1.1)
Lloyds Channel Islands(1) 8.7 5.3 64.2 841 540 55.7 103.0 101.9 1.1
----------------------------- ----- ----- ------ ------ ------ ------ ----- ----- ------
Total International 20.4 17.1 19.3 2,443 2,176 12.3 83.6 79.3 4.3
----------------------------- ----- ----- ------ ------ ------ ------ ----- ----- ------
Total FUM-related
revenue 116.1 112.2 3.5 16,608 15,174 9.5 70.0 73.9 (3.9)
----------------------------- ----- ----- ------ ------ ------ ------ ----- ----- ------
Financial planning
- UK 4.1 3.7 10.8
Financial planning
- International 0.8 1.0 (20.0)
Other income 1.2 1.3 (7.7)
----------------------------- ----- ----- ------ ------ ------ ------ ----- ----- ------
Total non-FUM-related
revenue 6.1 6.0 1.7
----------------------------- ----- ----- ------ ------ ------ ------ ----- ----- ------
Total Group revenue 122.2 118.2 3.4
----------------------------- ----- ----- ------ ------ ------ ------ ----- ----- ------
1 The Lloyds Channel Islands yields for FY21 were calculated on
a pro rata basis reflecting the relative period the business was
owned by the Group.
2 The yield calculation is based on the average FUM at the respective billing dates.
The yield on BPS fees for UKIM decreased by 1.5bps to 65.8bps
during the year (FY21: 67.3bps). This was driven by the movement
from net outflows to net inflows year on year and also a number of
IFA partners passing through pricing thresholds, as we captured
higher levels of their new business. This highlights the alignment
between us and IFAs and how our collective success can ultimately
lead to better outcomes for clients. The BPS non-fee income yield
also declined, primarily due to the decrease in transactional
income (3.3bps) due to a higher proportion of fee-only accounts and
a relatively stable asset allocation; and lower interest turn
(0.5bps) driven by lower Bank of England base rates at the start of
the financial year.
MPS recorded a decline in yields of 5.2bps to 34.9bps. This
reduction was principally driven by a change in mix with Platform
MPS growing more rapidly than custody MPS. The Platform MPS service
includes our Brooks Macdonald Investment Solutions offering that
attracts relatively larger mandates, which benefit from discounted
tiered rates.
The Funds fee yields rose by 2.5bps to 57.8bps in FY22, also as
a result of a change in mix and the impact of timing inflows and
outflows.
International fee-income yields were up by 2.3bps to 56.7bps as
a result of higher performance and custody fees, whilst non-fee
income yield declined by 1.1bps driven by a decrease in interest
and FX income during the year. The Lloyds Channel Islands assets
reported a yield of 103.0bps, slightly up on the prior year.
Underlying costs
Total underlying costs have remained relatively flat at GBP87.7
million (FY21: GBP87.6 million) with the increase in staff costs
fully offset by a reduction in non-staff costs.
Staff costs
Total staff costs increased by GBP2.1 million to GBP55.3
million. Of this, GBP0.9 million was driven by the incremental
costs arising from the Lloyds Channel Islands acquisition, which
completed at the end of November 2020.
Fixed staff costs for the Group's core operations decreased
slightly by GBP0.3 million. This comprised an increase of GBP1.0
million resulting from pay rises and net new joiners, with FTE
headcount increasing slightly from 430 to 446 during the year,
offset by savings of GBP1.3 million arising from the transfer of a
number of roles from the Investment Services and the Technology
departments to SS&C in December 2020 as part of the Group's
digital transformation project.
Variable staff costs increased by 12.1% to GBP14.8 million in
FY22. Apart from the impact of the Lloyds Channel Islands
acquisition, the increase comprised a higher bonus pool reflecting
the improvement in the Group's financial performance, offset by a
reduction in the share-based payment charge as the share option
schemes held at the end of the year were marked to market.
Non-staff costs
Non-staff costs amounted to GBP32.4 million representing a
decrease of 5.8% on the prior year. Excluding the impact of the
acquired costs of GBP1.1 million, non-staff costs for the core
business fell by GBP3.1 million or 11.0%. Within that there were a
number of movements, which are set out in the bridge chart on the
left and the key items explained below.
With the Group's return to office and increased travel and
client facing activities, travel and entertainment spend increased
by GBP0.8 million on the prior year.
During the year, the Group turned on portions of the new
SS&C technology landscape with a full go-live taking place
shortly after year end. This gave rise to additional external
technology spend of GBP1.9 million in the year. This was in part
driven by the transition from our legacy systems but also by the
delivery of brand-new capabilities to the Group to support our
growth agenda. In FY22, the main delivery being a whole new suite
of tools to support our Funds business, which has grown rapidly
through the acquisition of the Cornelian and Lloyds offshore funds
businesses.
This movement to an outsourced technology and operations
provider has allowed us to make further structural non-staff costs
reductions. For example, during the year, the Group fully amortised
the remaining legacy operating platform-related assets in advance
of moving onto the SS&C platform. This gave rise to a decrease
in computer software amortisation of GBP1.3 million compared to
FY21. The Group also spent GBP0.6 million less on technology and
operational change as it focused on the new system go-live.
The Group also received a further benefit from the partnership
agreement with SS&C as it received a transition funding credit
of GBP1.2 million due to the partial utilisation of the new
operating platform during the transition period.
Following agreement with HMRC over the VAT treatment on the
supply of certain Group services and other historic tax provisions,
the Group recognised a release of GBP1.4 million during the year.
Moreover, the FSCS levy for the year represented a reduction of
GBP1.1 million on the fee charged for FY21.
Profit before tax
Combined, the above gave rise to an underlying profit before tax
of GBP34.5 million, representing an increase of 12.7% on FY21 and
resulting in a profit margin of 28.2%, an increase of 2.3
percentage points (FY21: 25.9%).
On a statutory basis, the profit before tax increased by 17.5%
to GBP29.5 million (FY21: GBP25.1 million). The statutory profit
margin before tax also saw an increase from last year, up to 24.1%.
The quantum of one-off underlying adjustments for the year has
reduced by GBP0.5 million, with just three material
adjustments.
Segmental analysis
The Group reports its results across two key operating segments,
UK Investment Management and International. The tables below
provide a breakdown of the half-year performance broken down by
these segments, with comparatives.
Group and
UK Investment consolidation
FY22 (GBPm) Management International adjustments Total
---------------------------------------- ------------- ------------- -------------- ------
Revenue 101.0 21.2 - 122.2
Direct costs (43.4) (14.0) (30.0) (87.4)
---------------------------------------- ------------- ------------- -------------- ------
Operating contribution 57.6 7.2 (30.0) 34.8
Indirect cost recharges and net finance
costs (25.4) (3.2) 28.3 (0.3)
---------------------------------------- ------------- ------------- -------------- ------
Underlying profit/(loss) before tax 32.2 4.0 (1.7) 34.5
---------------------------------------- ------------- ------------- -------------- ------
Underlying adjustments (1.9) (3.0) (0.1) (5.0)
---------------------------------------- ------------- ------------- -------------- ------
Statutory profit/(loss) before tax 30.3 1.0 (1.8) 29.5
---------------------------------------- ------------- ------------- -------------- ------
Underlying profit margin before tax 31.9% 18.9% N/A 28.2%
Statutory profit margin before tax 30.0% 4.7% N/A 24.1%
---------------------------------------- ------------- ------------- -------------- ------
Group and
UK Investment consolidation
FY21 (GBPm) Management International adjustments Total
---------------------------------------- ------------- ------------- -------------- ------
Revenue 100.0 18.2 - 118.2
Direct costs (45.7) (10.8) (30.9) (87.4)
---------------------------------------- ------------- ------------- -------------- ------
Operating contribution 54.3 7.4 (30.9) 30.8
Indirect cost recharges and net finance
costs (25.3) (2.9) 28.0 (0.2)
---------------------------------------- ------------- ------------- -------------- ------
Underlying profit/(loss) before tax 29.0 4.5 (2.9) 30.6
---------------------------------------- ------------- ------------- -------------- ------
Underlying adjustments (3.1) (4.6) 2.2 (5.5)
---------------------------------------- ------------- ------------- -------------- ------
Statutory profit/(loss) before tax 25.9 (0.1) (0.7) 25.1
---------------------------------------- ------------- ------------- -------------- ------
Underlying profit before tax margin 29.0% 24.7% N/A 25.9%
Statutory profit/(loss) margin before
tax 25.9% (0.5)% N/A 21.2%
---------------------------------------- ------------- ------------- -------------- ------
UKIM, which includes the Group's Private Clients business,
reported a 1.0% increase in revenue, arising from higher fee income
offset by a fall in transactional income. The increase in revenue,
combined with disciplined cost management and efficiencies,
resulted in an underlying profit of GBP32.2 million, up by 11.0%,
and an underlying profit margin of 31.9%, an improvement of 2.9
percentage points.
The International segment reported an increase in revenues of
16.5% driven by higher fee income during the year, primarily due to
a full-year contribution from the Lloyds Channel Islands business.
Direct costs of GBP14.0 million were ahead of the prior year,
largely as a result of the incremental costs from the Lloyds
Channel Islands business, investment in setting up the Isle of Man
office, which is now fully up and running and legal and
professional costs incurred in re-domiciling and simplifying the
legal entity corporate structure. This resulted in a slight decline
in underlying profit to GBP4.0 million and a lower underlying
profit margin of 18.9% for the year. Excluding the Isle of Man
office direct costs of GBP0.5 million, the International underlying
profit margin would have been 21.2%, a reduction of 3.5 percentage
points on FY21 due to the impact of markets on fee income in the
second half of the year and the additional costs noted above.
Reconciliation between underlying and statutory profits
Underlying profit before tax is considered by the Board to be an
appropriate reflection of the Group's performance compared to the
statutory results as it excludes income and expense categories,
which are deemed to be of a non-recurring nature or a non-cash
operating item. Reporting at an underlying basis is also considered
appropriate for external analyst coverage. Underlying profit is
deemed to be an alternative performance measure ("APM"); refer to
the Non-IFRS financial information section at the end of the
document for a glossary of the Group's APMs, their definitions, and
the criteria for how underlying adjustments are considered. A
reconciliation between underlying and statutory profit before tax
for the year ended 30 June 2022 with comparatives is shown in the
table below:
FY22 FY21
GBPm GBPm
--------------------------------------------------- ----- -----
Underlying profit before tax 34.5 30.6
Amortisation of client relationships (5.5) (4.9)
Dual running operating platform costs (2.4) (1.0)
Changes in fair value and finance cost of deferred
consideration (0.1) (0.4)
Other non-operating income 3.0 -
Client relationship contracts impairment - (1.5)
Acquisitions related items:
- Gain arising on acquisition - 5.0
- Integration and staff retention costs - (2.7)
--------------------------------------------------- ----- -----
Total underlying adjustments (5.0) (5.5)
Statutory profit before tax 29.5 25.1
--------------------------------------------------- ----- -----
Amortisation of client relationship contracts (GBP5.5 million
charge)
These intangible assets are created in the course of acquiring
funds under management and are amortised over their useful life,
which have been assessed to range between 6 and 20 years. The
increase in the charge from last year is due to the full year
impact of the Lloyds Channel Islands acquisition. This amortisation
charge has been excluded from the underlying profit since it is a
significant non-cash item.
Dual running operating platform costs (GBP2.4 million
charge)
The Group is in a partnership agreement with SS&C to
transform our client- and intermediary-facing processes, launch a
digital onboarding solution and enhance our operating platform. As
part of the transition process, during FY22 the Group incurred
incremental costs in running two operating platforms concurrently.
The increase is due to the full-year impact given the partnership
agreement commenced half way through FY21. The dual running costs
have been excluded from underlying profit in view of their
non-recurring nature.
Changes in fair value and finance cost of deferred consideration
(GBP0.1 million charge)
This comprises the associated net finance costs arising on
deferred consideration payments from acquisitions carried out by
the Group, together with their fair value measurements where
applicable.
Other non-operating income (GBP3.0 million credit)
During the year, the Group received confirmation from HMRC that
the supply of certain Group services was exempt from VAT. As a
result, the Group received a refund from HMRC in respect of VAT
arising on those services during the period from 1 July 2017 to 30
June 2020 of GBP3.0 million. This has been treated as an adjusting
item to the underlying profit in view of its non-recurring
nature.
FY21 - Client relationship contracts impairment (GBP1.5 million
charge)
Client relationship contracts are reviewed annually for
impairment. In view of accelerated withdrawals from the previously
acquired business, DPZ Limited, seen during FY21, the estimated
useful economic life of the intangible assets associated with this
business was reduced. Accordingly, an impairment charge of GBP1.5
million was recognised in FY21.
FY21 - Acquisition related costs (GBP2.3 million credit)
i. Gain arising on acquisition (GBP5.0 million credit)
A gain on purchase was recognised in respect of the Lloyds
Channel Islands acquisition as the net identifiable assets acquired
were greater than the total purchase consideration paid.
ii. Integration and staff retention costs (GBP2.7 million
charge)
These comprise the costs incurred in integrating the Cornelian
business (acquisition completed on 28 February 2020) and the Lloyds
Channel Islands business (acquisition completed on 30 November
2020). They also include payments made to key employees who were
retained by the Group for a short period of time to assist with the
integration of the businesses.
The above costs are being excluded from the Group's underlying
performance as they were one-off in nature.
Reconciliation between profits and earnings before interest, tax
depreciation and amortisation ("EBITDA")
The table below provides a reconciliation between the Group's
underlying profit before tax and the earnings before interest, tax
and depreciation ("EBITDA"), which constitutes an APM, and which
the Board considers to be an appropriate alternative measure to the
Group's BAU performance.
FY22 FY21 Change
GBPm GBPm %
-------------------------------------------- ----- ----- ------
Statutory profit before tax 29.5 25.1 17.5
Add back total underlying adjustments 5.0 5.5 (9.1)
Underlying profit before tax 34.5 30.6 12.7
Add back:
Net finance costs 0.2 0.2 -
Depreciation and amortisation 4.0 5.4 (25.9)
-------------------------------------------- ----- ----- ------
Underlying EBITDA 38.7 36.2 6.9
-------------------------------------------- ----- ----- ------
Net finance costs on deferred consideration 0.1 0.4 (75.0)
Amortisation of client relationships 5.5 4.9 12.2
-------------------------------------------- ----- ----- ------
Earnings before interest, tax depreciation
and amortisation ("EBITDA") 44.3 41.5 6.7
-------------------------------------------- ----- ----- ------
Taxation
The Group's total tax charge for the year was GBP6.1 million,
representing an increase of 10.9% from last year (FY21: GBP5.5
million). The Group's underlying effective tax rate has increased
marginally from 20.3% to 20.8% and the statutory effective tax rate
has decreased from 21.7% to 20.8%. This is due to a higher
proportion of allowable deductions for tax purposes, such as those
arising from the allowance on share-option exercises, compared to
taxable add backs, which have not changed significantly from the
prior year.
Earnings per share
Basic statutory earnings per share for the Group in FY22 was
149.0p (FY21: 125.3p). On an underlying basis, basic earnings per
share was 174.1p representing an increase of 11.9% on the prior
year (FY21: 155.6p) driven by the increase in underlying
earnings.
Dividend
The Board recognises the importance of dividends to shareholders
and the benefit of providing sustainable shareholder returns. In
determining the level of dividend in any year, the Board considers
a number of factors, such as, the level of retained earnings,
future cash commitments, statutory profit cover, capital and
liquidity requirements and the level of profit retention required
to sustain the growth of the Group. The Board has proposed a final
dividend of 45.0p per share (FY21: 40.0p). Including the interim
dividend of 26.0p per share (FY21: 23.0p), this results in a total
dividend for the year of 71.0p per share (FY21: 63.0p), an overall
increase of 8.0p or 12.7%. The recommended dividend is subject to
shareholders' approval, which will be sought at the Company's
Annual General Meeting on 27 October 2022.
Financial position and regulatory capital
Net assets increased by 10.7% to GBP148.4 million at 30 June
2022 (FY21: GBP134.0 million), demonstrating the Group's continued
strong financial position. The Group's tangible net assets (net
assets excluding intangibles) was up to GBP62.5 million at 30 June
2022 (FY21: GBP44.1 million). As at 30 June 2022, the Group had
regulatory capital resources of GBP70.0 million (FY21: GBP52.6
million). The own funds calculation takes 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 28.5% over the Pillar I risk exposure requirement (FY21: 21.6%).
The total capital ratio is the Group's total regulatory capital
resources relative to its Pillar I risk exposure requirement.
FY22 FY21
GBPm GBPm
---------------------------------------------------- ------ ------
Share capital 0.1 0.1
Share premium 79.1 78.7
Other reserves 10.0 8.5
Retained earnings 59.2 46.7
---------------------------------------------------- ------ ------
Total equity 148.4 134.0
Intangible assets (net book value) (85.9) (89.9)
Deferred tax liabilities associated with intangible
assets 7.5 8.5
---------------------------------------------------- ------ ------
Tier 1 capital 70.0 52.6
---------------------------------------------------- ------ ------
Own funds 70.0 52.6
---------------------------------------------------- ------ ------
Brooks Macdonald Asset Management Limited, the Group's main
operating subsidiary, is a MIFIDPRU Investment 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 analyses 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 FY21 ICAAP review was conducted for the year ended 30 June
2021 and signed off by the Board in December 2021. 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 IFPR
Public Disclosures (previously referred to as the 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 operations. Total cash resources at the end of the year were
GBP61.3 million (FY21: GBP54.9 million) and the Group had no
borrowings at 30 June 2022.
During the year ended 30 June 2022, the Group made the final
payment in relation to the acquisition of Cornelian Asset Managers
Group Limited of GBP6.0 million.
The Group incurred capital expenditure of GBP3.2 million (FY21:
GBP3.7 million). This comprised technology-related development of
GBP2.9 million, property-related costs of GBP0.2 million and IT and
office equipment of GBP0.1 million. The capital expenditure
comprised the programme implementation and software costs incurred
in respect of the migration of the Group's client- and
intermediary-facing processes onto the SS&C platform. The
amortisation for these costs will commence in FY23 and will be
amortised over the remaining eight years of the ten-year agreement
entered into with SS&C.
FY23 guidance and outlook
Looking ahead, we anticipate the impact of lower markets year on
year to have some impact on financial performance, although this
will be in part offset by lower variable performance-based pay. The
Group has a clear plan in place to manage and offset inflationary
cost pressures and we are focused on containing cost growth to a
mid-single digit percentage increase. We remain mindful of the need
to support staff through these difficult times, whilst balancing
our desire to deliver top quartile underlying profit margins.
Despite these short-term headwinds, the Group is well placed to
deliver on our strategy in the medium term. The fundamental
opportunity is huge and building and we now have all the required
elements to deliver our ambitious organic and inorganic growth
agenda and we look forward to the future with confidence.
The Strategic report in its entirety has been approved by the
Board of Directors and is signed on its behalf by:
Ben Thorpe
Chief Financial Officer
14 September 2022
Risks
Continued dynamic approach to risk identification and management
in order to support positive client outcomes
Despite the pandemic, geopolitical and macroeconomic challenges
faced in the last year and the subsequent increase in certain risk
exposures, the Group has continued in its commitment to promote a
positive compliance and risk culture across the organisation.
Furthermore, it has maintained its focus on embedding and
enhancing the risk management framework, through its focus on
resilience, third parties, and client outcomes.
The Group has also continued its drive towards efficient,
data-driven and evidenced-based risk management, which has
facilitated the transition to a more agile and dynamic approach to
identifying, assessing, managing and monitoring risks.
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 appropriate
governance; an efficient 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 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 and Risk Assessment
("ICARA").
Controls assessment. 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 to
either accept, avoid or transfer part or all of those risks that
are outside our risk appetite, or to reconsider the risk
appetite.
Reporting. Ongoing reporting of risks to senior management
provides insight to inform risk-based decision-making and
allocation of resources to achieve business objectives.
Overarching risk appetite statement
-- The Group's overarching risk appetite statement ("ORAS"), as
defined by the Board, sets out the acceptable level of current and
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 aim to 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 helps
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 put client interests at the heart of everything we do to
ensure appropriate client outcomes.
Control environment
-- We, 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 optimise profitability and use resources efficiently to drive financial performance.
-- We, at all times, maintain adequate capital and liquid assets
to meet financial and funding obligations as they fall due.
-- We invest in the development and wellbeing of our employees.
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 The risk continues
The risk of loss * Cash deposits with external banks to remain unchanged
arising given the strong
from a client or credit risk control
counterparty * Client credit risk environment including
failing to meet their ongoing monitoring
financial and due diligence
obligations to a * Counterparty credit risk on all
Brooks counterparties.
Macdonald entity as
and * Custodian-related credit risk
when they fall due.
* Indirect counterparty risk in respect of referrals
--------------------- ---------------------------------------------------------- ------------ ---------------------
2. Liquidity risk Unchanged The Group has
The risk that assets * Corporate cash deposited with external banks adequate
are liquidity resources
insufficiently liquid significantly above
and/or * Client cash deposited with external banks (CASS its Minimum Liquidity
Brooks Macdonald does rules) Requirement and
not maintains appropriate
have sufficient banking facilities.
financial * Failed trades The Group regularly
resources available monitors forecast
to meet against actual
liabilities as they * Indirect liquidity risk associated with client cash flows and
fall portfolios matches the maturity
due, or can secure profiles of financial
such assets and
resources only at * Indirect liquidity risks associated with dealing liabilities.
excessive The Group has robust
cost. Liquidity risk contingency funding
also * Indirect risk in respect of the liquidity of arrangements which
includes the risk individual holdings in a fund are tested on a
that the periodic basis.
Group is unable to
meet * Indirect risk in respect of the overall liquidity of
regulatory prudential our funds
liquidity
ratios.
--------------------- ---------------------------------------------------------- ------------ ---------------------
3. Market risk Increasing Although it is
The risk that arises * Failed trades likely that the
from worst of the pandemic
fluctuations in the induced market
value * Indirect market risk associated with advising on shocks have passed,
of, or income arising client portfolios the continued
from, conflict
movements in equity, in Ukraine and
bonds, * Indirect market risks associated with dealing the associated
or other traded geopolitical
markets, tensions,
interest rates or * Indirect market risk associated with managing client coupled with
foreign portfolios significant
exchange rates that global inflationary
has pressure, gives
a financial impact. rise to increased
volatility and
heightened downside
risk.
--------------------- ---------------------------------------------------------- ------------ ---------------------
Business level risks
Definition Key risks identified Change Rationale
by since last for change
risk management framework year
------------------------------------ ---------------------------------------- ----------- -------------------------
4. Business and strategic Unchanged Despite current
risk * Adviser concentration macro-economic
The risk of having an inadequate and geological
business model or making challenges, the
strategic decisions that * Acquisitions Group continues
may result in lower than to post positive
anticipated profit or losses, net flows on a
or exposes the Group to * Business growth quarterly basis,
unforeseen risks. therefore highlighting
the resiliency
* Extreme market events of its business
model.
* Investment performance
* Product governance
------------------------------------ ---------------------------------------- ----------- -------------------------
5. Conduct risk Unchanged The Group continues
The risk of causing detriment * Suitability and conduct risk to work on numerous
to clients, stakeholders initiatives to
or the integrity of the promote good risk
wider market because of and compliance
inappropriate execution culture and awareness
of Brooks Macdonald's business to ensure positive
activities. client outcomes.
------------------------------------ ---------------------------------------- ----------- -------------------------
6. Operational risk Unchanged This risk remains
The risk of loss arising * Data quality unchanged despite
from inadequate or failed the increase of
internal processes, people external threats
and systems, or from external * Cyber/data security brought about by
events. It includes legal the current geopolitical
and fraud risk but not strategic, environment coupled
reputational and business * Change management with idiosyncratic
risks. risks linked to
the Group's transition
* IT infrastructure and capability to a new operating
model and business
as usual oversight.
* Operational maturity The Group is monitoring
this risk closely
and will continue
* Third-party suppliers to invest in enhancing
its control environment.
* People
* Resilience
------------------------------------ ---------------------------------------- ----------- -------------------------
7. Prudential risk Unchanged The Group continues
The risk of adverse business * Prudential requirements to maintain capital
and/or client impact resulting resources and liquid
from breaching regulatory assets above its
capital/liquidity requirements, minimum regulatory
or market/credit risk internal requirement and
limits. internal thresholds.
------------------------------------ ---------------------------------------- ----------- -------------------------
8. Legal and regulatory Unchanged This risk continues
risk * Reputational risk to remain unchanged
Legal and regulatory risk given that the
is defined as the risk of regulatory landscape
exposure to legal or regulatory * Financial crime and focus on the
penalties, financial forfeiture wealth management
and material loss due to industry has not
failure to act in accordance * Governance changed.
with industry laws and regulations.
* Legacy issues
* Regulatory, tax and legal complian
ce
------------------------------------ ---------------------------------------- ----------- -------------------------
Emerging risks
Definition Context
-------------------------------- --------------------------------------------------
9. Climate change (Emerging) With the frequency of extreme natural events
The potential financial, increasing as a result of climate change, this
reputational and client-related could have a profound impact on the financial
risks associated with services industry.
ever increasing climate
change-related risks.
-------------------------------- --------------------------------------------------
10. Geopolitical landscape Geopolitical events have a direct impact on
(Emerging) market risk listed previously. Prolonged economic
In light of an ongoing downturn also has an impact on client sentiment
energy crisis and cost and thus business and strategic risk as listed
of living issues. previously.
-------------------------------- --------------------------------------------------
Viability statement
In accordance with the UK Corporate Governance Code, the Board
has assessed the Group's viability over a five-year period from
FY23 through to FY27. The decision to do so over this period is to
be aligned with the Group's strategy, its budgeting and forecasting
process and the scenarios set out in the 2021 Internal Capital
Adequacy Assessment Process ("ICAAP").
The Board has carried out a robust assessment of the principal
risks facing the Group along with the stress tests and scenarios
that would threaten the sustainability of its business model,
future performance, solvency or liquidity. This assessment is based
on the Group's Medium-Term Plan ("MTP"), the ICAAP and an
evaluation of the Group's emerging and principal risks, as set out
in the Risks section of this Strategic report and outlined in the
Risk and Compliance Committee report.
In assessing the future viability of the overall business, the
Board has considered the current and future strategy, as well as
any significant business restructuring and legacy issues. The Board
has also considered the business environment of the Group and the
potential threats to its business model arising from regulatory,
demographic, political and technological changes. Moreover, the
Board's assessment considered the widespread economic impact
arising from the Russian invasion of Ukraine and subsequent impact
on markets and rising inflation, on the Group's profitability,
regulatory capital and liquidity forecasts. The Board's assessment
of the Group's capital and liquidity position also considers the
implications of maintaining the Group's proposed interim and final
dividend pay-outs.
The five-year MTP forms part of the Group's annual business
planning process. The model translates the Group's current and
future strategy into a detailed year-one budget, followed by higher
level forecasts for years two through to five. The combination of
this detailed budgeting, longer-term forecasting and various stress
tests provides a transparent and holistic view of the
forward-looking financial prospects of the Group. The Board reviews
and challenges the Group's MTP annually. The MTP covering the
five-year period from FY23 to FY27 was reviewed, challenged and
approved by the Board in June 2022.
In addition to the annual MTP preparation process, a re-forecast
is carried out by management and reviewed by the Board on a
quarterly basis. These reflect updates for prevailing trading
conditions and other changes required to the budget assumptions set
at the start of the year.
As part of the ICAAP, the Group models a range of downside
scenarios and a severe but plausible stress scenario designed to
assess the Group's ability to withstand a market-wide shock such as
a sharp market decline triggered by a global recession;
Group-specific stresses, such as the loss of an investment
management team or key introducer; and a combination of both.
The Group modelled a multi-layered scenario involving a
significant decline in financial markets over a five-year period (a
drop of 28% and 12% in years one and two respectively, followed by
a gradual recovery), combined with the loss of a key investment
management team. This scenario would have a material impact on the
Group's profitability compared to the MTP base case, with the CET1
capital ratio forecast to decrease by 63% over the five-year
period, without management applying any mitigating actions.
Management identified a number of mitigating actions that could
be implemented in the event of such severe stresses. These include
a reduction in staff variable pay and Group dividends as well as a
reduction in discretionary expenditure (T&E, marketing and
similar), as well as freezing and deferring purchases of
non-current assets and a recruitment freeze or headcount reduction.
In the Group's modelling on the above-mentioned multi-layered
scenario, the management mitigating actions implemented forecast
that the Group's forecast CET1 capital ratio would increase by 29%
as opposed to fall by 63% without any mitigating actions. Over the
longer term, mitigating actions could include a broader and more
significant reduction in the Group's cost base (IT, property,
change initiatives and others). The implementation of the above
actions depends on the nature of the specific stress events and the
time frames over which they occur.
These scenarios are refreshed on a regular basis to ensure they
remain relevant and continue to be a suitable tool for developing
our controls and mitigating actions. Management also considers a
reverse stress case and carries out an assessment of the cost to
the Group of a wind-down in the event of a non-recoverable shock to
the operating model. Moreover, Management has identified a number
of actions that could be implemented in the event of severe
stresses. The implementation of the above actions depends on the
nature of the specific stress events and the time frames over which
they occur.
Taking into consideration the assessment of the above factors,
including the results of the latest ICAAP, the Group's risk
management framework and the mitigating actions that can be put in
place, together with the Group's successful navigation of the
pandemic thus far, the Board has reasonable expectations the Group
will be able to continue in operation and meet its liabilities as
they fall due over the period under assessment.
Consolidated statement of comprehensive income
For the year ended 30 June 2022
2022 2021(1)
Note GBP'000 GBP'000
------------------------------------------- ---- -------- ---------
Revenue 4 122,210 118,206
Administrative costs (95,288) (96,012)
------------------------------------------- ---- -------- ---------
Gross profit 26,922 22,194
Other gains/(losses) - net (55) (1,438)
Operating profit 26,867 20,756
Finance income 68 47
Finance costs (372) (678)
Other non-operating income 6 2,983 -
Gain on bargain purchase - 4,966
Profit before tax 29,546 25,091
Taxation 5 (6,135) (5,449)
Profit for the year attributable to equity
holders of the Company 23,411 19,642
Other comprehensive income - -
Total comprehensive income for the year 23,411 19,642
------------------------------------------- ---- -------- ---------
Earnings per share
Basic 8 149.0p 125.3p
Diluted 8 144.4p 121.3p
------------------------------------------- ---- -------- ---------
1 See Note 8 for details regarding the restatement of diluted earnings per share.
Consolidated statement of financial position
As at 30 June 2022
30 June 30 June
2022 2021
Note GBP'000 GBP'000
---------------------------------------------- ---- -------- --------
Assets
Non-current assets
Intangible assets 10 85,887 89,897
Property, plant and equipment 2,202 2,756
Right-of-use assets 4,971 5,979
Financial assets at fair value through other
comprehensive income 500 500
Deferred tax assets 3,002 2,736
---------------------------------------------- ---- -------- --------
Total non-current assets 96,562 101,868
Current assets
Financial assets at fair value through profit
or loss 784 624
Trade and other receivables 30,473 28,449
Current tax receivables - 32
Cash and cash equivalents 61,328 54,899
---------------------------------------------- ---- -------- --------
Total current assets 92,585 84,004
---------------------------------------------- ---- -------- --------
Total assets 189,147 185,872
---------------------------------------------- ---- -------- --------
Liabilities
Non-current liabilities
Lease liabilities (4,075) (5,422)
Provisions 11 (326) (279)
Deferred consideration 12 - (303)
Deferred tax liabilities (7,959) (8,902)
Other non-current liabilities (570) (548)
---------------------------------------------- ---- -------- --------
Total non-current liabilities (12,930) (15,454)
Current liabilities
Lease liabilities (1,952) (1,447)
Provisions 11 (819) (1,979)
Deferred consideration 12 (327) (5,934)
Trade and other payables (23,861) (27,055)
Current tax liabilities (833) -
---------------------------------------------- ---- -------- --------
Total current liabilities (27,792) (36,415)
---------------------------------------------- ---- -------- --------
Net assets 148,425 134,003
---------------------------------------------- ---- -------- --------
Equity
Share capital 162 161
Share premium account 79,141 78,703
Other reserves 9,962 8,467
Retained earnings 59,160 46,672
---------------------------------------------- ---- -------- --------
Total equity 148,425 134,003
---------------------------------------------- ---- -------- --------
The Consolidated financial statements were approved by the Board
of Directors and authorised for issue on 14 September 2022, and
signed on their behalf by:
Andrew Shepherd
CEO
Ben Thorpe
Chief Financial Officer
Company registration number: 4402058
Consolidated statement of changes in equity
For the year ended 30 June 2022
Share
Share premium Other Retained Total
capital account reserves earnings equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ------ -------- -------- --------- --------- --------
Balance at 1 July 2020 161 77,982 6,398 39,000 123,541
--------------------------- ------ -------- -------- --------- --------- --------
Comprehensive income
Profit for the year - - - 19,642 19,642
Other comprehensive income - - - - -
--------------------------- ------ -------- -------- --------- --------- --------
Total comprehensive income - - - 19,642 19,642
Transactions with owners
Issue of ordinary shares - 721 - - 721
Share-based payments - - 2,991 - 2,991
Share options exercised - - (1,812) 1,812 -
Purchase of own shares by
Employee Benefit Trust - - - (5,210) (5,210)
Tax on share options - - 890 - 890
Dividends paid 9 - - - (8,572) (8,572)
--------------------------- ------ -------- -------- --------- --------- --------
Total transactions with
owners - 721 2,069 (11,970) (9,180)
Balance at 30 June 2021 161 78,703 8,467 46,672 134,003
--------------------------- ------ -------- -------- --------- --------- --------
Comprehensive income
Profit for the year - - - 23,411 23,411
Other comprehensive income - - - - -
--------------------------- ------ -------- -------- --------- --------- --------
Total comprehensive income - - - 23,411 23,411
Transactions with owners
Issue of ordinary shares 1 438 - - 439
Share-based payments - - 2,779 - 2,779
Share options exercised - - (2,494) 2,494 -
Purchase of own shares by
Employee Benefit Trust - - - (3,100) (3,100)
Tax on share options - - 1,210 - 1,210
Dividends paid 9 - - - (10,317) (10,317)
--------------------------- ------ -------- -------- --------- --------- --------
Total transactions with
owners 1 438 1,495 (10,923) (8,989)
Balance at 30 June 2022 162 79,141 9,962 59,160 148,425
--------------------------- ------ -------- -------- --------- --------- --------
Consolidated statement of cash flows
For the year ended 30 June 2022
2022 2021
Note GBP'000 GBP'000
----------------------------------------------- ---- -------- --------
Cash flows from operating activities
Cash generated from operations 13 32,826 36,907
Corporation Tax paid (5,269) (5,804)
Tax refund 6 2,983 -
----------------------------------------------- ---- -------- --------
Net cash generated from operating activities 30,540 31,103
Cash flows from investing activities
Purchase of computer software 10 (2,912) (3,061)
Purchase of property, plant and equipment (289) (620)
Purchase of financial assets at fair value
through profit or loss (215) -
Consideration paid - (5,287)
Deferred consideration paid 12 (6,000) (2,421)
Interest received 68 47
----------------------------------------------- ---- -------- --------
Net cash used in investing activities (9,348) (11,342)
Cash flows from financing activities
Proceeds of issue of shares 439 721
Payment of lease liabilities (1,785) (1,969)
Purchase of own shares by Employee Benefit
Trust (3,100) (5,210)
Dividends paid to shareholders 9 (10,317) (8,572)
----------------------------------------------- ---- -------- --------
Net cash used in financing activities (14,763) (15,030)
Net increase in cash and cash equivalents 6,429 4,731
----------------------------------------------- ---- -------- --------
Cash and cash equivalents at beginning of year 54,899 50,168
----------------------------------------------- ---- -------- --------
Cash and cash equivalents at end of year 61,328 54,899
----------------------------------------------- ---- -------- --------
Notes to the consolidated financial statements
For the year ended 30 June 2022
1. General information
Brooks Macdonald Group plc ("the Company") is the Parent Company
of a group of companies ("the Group"), which offers a range of
investment management services to private high net worth
individuals, pension funds, institutions, charities and trusts. The
Group also provides financial planning as well as international
investment management, and acts as fund manager to a range of
onshore and international funds.
The 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 for the year ended
30 June 2022 have been prepared in accordance with UK-adopted
International Accounting Standards ("IFRS") and with the
requirements of the Companies Act 2006 as applicable to companies
reporting under those standards. These Consolidated financial
statements have been prepared on a 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, 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. For further
details on the Group's going concern assessment, see the Viability
statement. There have been no post balance sheet events that have
materially impacted the Group's liquidity headroom and going
concern assessment.
b. 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 2021, except as explained below.
New accounting standards, amendments and interpretations adopted
in the year
In the year ended 30 June 2022, the Group did not adopt any new
standards or amendments issued by the International Accounting
Standards Board ("IASB") or interpretations by the IFRS
Interpretations Committee ("IFRS IC") that have had a material
impact on the Consolidated financial statements.
Other new standards, amendments and interpretations listed in
the following table 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
---------------------------------------------------- --------------
Deferral of IFRS 9 (Amendments to IFRS 4) 1 January 2021
Interest Rate Benchmark Reform - Phase 2 (Amendments
to IFRS 4, IFRS 16) 1 January 2021
COVID-19-related Rent Concessions (Amendment to IFRS
16) 1 April 2021
---------------------------------------------------- --------------
c. 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 and the estimation of the fair value of share-based
payments.
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 10. 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.
Of the client-relationship intangible assets held by the Group
at 30 June 2022, the expected amortisation charge for the year
ending 30 June 2023 is GBP5,443,000. If the useful economic lives
were to reduce by one year, the charge would increase by
GBP1,302,000.
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 ("CGU") 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 and sensitivity analysis are given
in Note 10.
In assessing the value of client relationships and the
associated investment management contracts and goodwill or gain on
bargain purchase arising as part of a business combination, the
Group prepares forecasts for the cash flows acquired and discounts
to a net present value. The Group uses a pre-tax discount rate,
adjusting from a post-tax discount rate calculated by the Group's
weighted average cost of capital ("WACC"), adjusted for any
specific risks for the relevant CGU. The Group uses the capital
asset pricing model ("CAPM") to estimate the WACC, which is
calculated at the point of acquisition for a business combination,
or the relevant reporting period. The key inputs are the risk-free
rate, market risk premium, the Group's adjusted beta with reference
to beta data from peer listed companies, small company premium and
any risk adjusted premium for the relevant CGU. See Note 10 for
further details on the discount rate for the various CGUs.
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. A decrease of 10% in the total options would
decrease the share-based payment charge and the associated national
insurance charge in the Consolidated statement of comprehensive
income for the year by GBP891,000 and GBP159,000 respectively.
3. Segmental information
For management purposes, the Group's activities are organised
into two operating divisions: UK Investment Management and
International. 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 Group Board of
Directors, which is the Group's chief operating decision-maker. In
accordance with IFRS 8 'Operating Segments', disclosures are
required to reflect the information which the Board of Directors
uses internally for evaluating the performance of its operating
segments and allocating resources to those segments. The
information presented in this Note is consistent with the
presentation for internal reporting.
The UK Investment Management segment offers a range of
investment management services to private high net worth
individuals, pension funds, institutions, charities and trusts, as
well as 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
International segment is based in the Channel Islands and the Isle
of Man, offering a similar range of investment management and
wealth management services as the UK Investment Management segment.
The Group segment principally comprises the Group Board's
management and associated costs, along with the consolidation
adjustments.
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 and
UK Investment consolidation
Management International adjustments Total
Year ended 30 June 2022 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------------- ----------------------- ----------------------- -----------------------
Total revenue 105,550 21,156 - 126,706
Inter segment revenue (4,496) - - (4,496)
---------------------------- ------------- ----------------------- ----------------------- -----------------------
External revenue 101,054 21,156 - 122,210
Underlying administrative
costs (43,469) (14,016) (29,932) (87,417)
---------------------------- ------------- ----------------------- ----------------------- -----------------------
Operating contribution 57,585 7,140 (29,932) 34,793
Allocated costs (25,129) (3,152) 28,281 -
Net finance costs (254) (15) - (269)
---------------------------- ------------- ----------------------- ----------------------- -----------------------
Underlying profit/(loss)
before tax 32,202 3,973 (1,651) 34,524
Amortisation of client
relationships (2,978) (2,465) - (5,443)
Other non-operating income 2,983 - - 2,983
Dual running costs of
operating platform (2,119) (309) - (2,428)
Finance cost of deferred
consideration - (12) (78) (90)
Profit/(loss) mark-up on
Group allocated
costs 214 (214) - -
---------------------------- ------------- ----------------------- ----------------------- -----------------------
Profit/(loss) before tax 30,302 973 (1,729) 29,546
Taxation (6,135)
---------------------------- ------------- ----------------------- ----------------------- -----------------------
Profit for the period
attributable
to equity holders of the
Company 23,411
---------------------------- ------------- ----------------------- ----------------------- -----------------------
Group and
UK Investment consolidation
Management International adjustments Total
Year ended 30 June 2022 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ------------- ------------- -------------- --------
Statutory operating costs included
the following:
Amortisation 2,888 917 3,117 6,922
Depreciation 2,014 498 - 2,512
Interest income 20 23 - 43
----------------------------------- ------------- ------------- -------------- --------
Group and
UK Investment consolidation
Management International adjustments Total
Year ended 30 June 2021 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------- ------------- ------------- -------------- -----------------------
Total revenue 102,998 18,211 - 121,209
Inter segment revenue (3,003) - - (3,003)
----------------------------------------------- ------------- ------------- -------------- -----------------------
External revenue 99,995 18,211 - 118,206
Underlying administrative costs (45,738) (10,804) (30,870) (87,412)
----------------------------------------------- ------------- ------------- -------------- -----------------------
Operating contribution 54,257 7,407 (30,870) 30,794
Allocated costs (25,067) (2,864) 27,931 -
Net finance (costs)/income (285) (21) 109 (197)
----------------------------------------------- ------------- ------------- -------------- -----------------------
Underlying profit/(loss) before tax 28,905 4,522 (2,830) 30,597
Gain on bargain purchase - - 4,966 4,966
Amortisation of client relationships (1,770) (992) (2,166) (4,928)
Acquisition-related costs (467) (2,244) 39 (2,672)
Impairment of client relationships - (1,210) (303) (1,513)
Dual running costs of operating platform (1,000) - - (1,000)
Finance cost of deferred consideration - (7) (292) (299)
Changes in fair value of deferred consideration - - (60) (60)
Profit/(loss) mark-up on Group allocated
costs 143 (147) 4 -
----------------------------------------------- ------------- ------------- -------------- -----------------------
Profit/(loss) before tax 25,811 (78) (642) 25,091
Taxation (5,449)
----------------------------------------------- ------------- ------------- -------------- -----------------------
Profit for the period attributable
to equity holders of the Company 19,642
----------------------------------------------- ------------- ------------- -------------- -----------------------
Group and
UK Investment consolidation
Management International adjustments Total
Year ended 30 June 2021 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ------------- ------------- -------------- --------
Statutory operating costs included
the following:
Amortisation 4,307 1,209 2,166 7,682
Depreciation 2,142 495 - 2,637
Interest income 3 10 - 13
----------------------------------- ------------- ------------- -------------- --------
4. Revenue
UK Investment
Management International Total
Year ended 30 June 2022 GBP'000 GBP'000 GBP'000
--------------------------- ------------- ------------- --------
Investment management fees 70,161 13,182 83,343
Transactional income 12,209 2,491 14,700
Fund management fees 13,187 4,441 17,628
Wealth management fees 4,082 832 4,914
Interest turn 1,377 210 1,587
Other income 38 - 38
--------------------------- ------------- ------------- --------
Total revenue 101,054 21,156 122,210
--------------------------- ------------- ------------- --------
UK Investment
Management International Total
Year ended 30 June 2021(1) GBP'000 GBP'000 GBP'000
--------------------------- ------------- ------------- --------
Investment management fees 67,301 11,452 78,753
Transactional income 15,008 2,766 17,774
Fund management fees 12,538 2,815 15,353
Wealth management fees 3,721 963 4,684
Interest turn 1,427 215 1,642
--------------------------- ------------- ------------- --------
Total revenue 99,995 18,211 118,206
--------------------------- ------------- ------------- --------
1 The revenue note has been updated to provide a more
appropriate breakdown of how revenue is recorded and monitored by
the Directors. As a result, the prior year revenue breakdown has
been reclassified to ensure a consistent, like-for-like comparison
to the current year.
Investment management fees
Investment management fees are earned for the management
services provided to clients. Fees are billed quarterly in arrears
but are recognised over the period the service is provided. Fees
are calculated based on a percentage of the value of the portfolio
at the billing date. Fees are only recognised when the fee amount
can be estimated reliably, and it is probable that the fee will be
received. Amounts are shown net of rebates paid to significant
investors.
Performance fees are earned from some clients when contractually
agreed performance levels are exceeded within specified performance
measurement periods. They are only recognised, at the end of these
performance periods, when a reliable estimate of the fee can be
made and is virtually certain that it will be received.
Transactional income
Transactional income is earned through dealing and admin charges
levied on trades at the time a deal is placed for a client. Revenue
is recognised at the point of the trade being placed.
Foreign exchange trading fees are also included, that are
charged on client trades placed in non-base currencies, and
therefore requiring a foreign currency exchange in order to action
the trade. Revenue is recognised at the point of the trade being
placed.
Fund management fees
Fund management fees are earned for the management services
provided to several Open-Ended Investment Company ("OEICs"). Fees
are billed monthly in arrears but are recognised over the period
the service is provided. Fees are calculated daily based on a
percentage of the value of each fund. Fees are only recognised when
the fee amount can be estimated reliably, and it is probable that
the fee will be received. Amounts are shown net of rebates paid to
significant investors.
Wealth management fees
Wealth management fees relate to fees for the provision of
financial advice. Fees are charged to clients using an hourly rate,
by a fixed fee arrangement, or by a fund-based arrangement whereby
fees are calculated based on a percentage of the value of the
portfolio at the billing date. All fees are recognised over the
period the service is provided. Commissions receivable and payable
are accounted for in the period in which they are earned.
Interest turn
Interest turn is bank interest earned on client cash deposits.
Income is recognised over the period for which the deposit is held
with the bank. Amounts shown are net of any interest passed on to
clients.
a. Geographic analysis
The Group's operations are located in the United Kingdom, the
Channel Islands and the Isle of Man. The following table presents
external revenue analysed by the geographical location of the Group
entity providing the service.
2022 2021
GBP'000 GBP'000
---------------- -------- --------
United Kingdom 101,054 99,995
Channel Islands 21,079 18,211
Isle of Man 77 -
---------------- -------- --------
Total revenue 122,210 118,206
---------------- -------- --------
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:
2022 2021
GBP'000 GBP'000
----------------------------------------------- -------- --------
UK Corporation Tax at 19% (FY21: 19%) 6,441 5,466
Over provision in prior years (307) (127)
----------------------------------------------- -------- --------
Total current tax 6,134 5,339
Deferred tax credits (211) (6)
Under provision of deferred tax in prior years 212 116
----------------------------------------------- -------- --------
Income tax expense 6,135 5,449
----------------------------------------------- -------- --------
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, split out between underlying and statutory profits:
Underlying Underlying Statutory
profit profit adjustments profit
Year ended 30 June 2022 GBP'000 GBP'000 GBP'000
------------------------------------------------------------- ---------- ------------------- ---------
Profit before taxation 34,524 (4,978) 29,546
Profit multiplied by the standard rate of tax
in the UK of 19% 6,560 (946) 5,614
Tax effect of amounts that are not deductible/(taxable)
in calculating taxable income:
* Depreciation and amortisation 609 (207) 402
* Non-taxable income (8) - (8)
* Overseas tax losses not available for UK tax purposes (293) - (293)
* Lower tax rates in other jurisdictions in which the
Group operates (201) 92 (109)
* Disallowable expenses 309 15 324
* Share-based payments 315 - 315
* Over provision in prior years (110) - (110)
------------------------------------------------------------- ---------- ------------------- ---------
Income tax expense 7,181 (1,046) 6,135
------------------------------------------------------------- ---------- ------------------- ---------
Effective tax rate 20.8% n/a 20.8%
------------------------------------------------------------- ---------- ------------------- ---------
Underlying Underlying Statutory
profit profit adjustments profit
Year ended 30 June 2021 GBP'000 GBP'000 GBP'000
------------------------------------------------------------- ---------- ------------------- ---------
Profit before taxation 30,597 (5,506) 25,091
Profit multiplied by the standard rate of tax
in the UK of 19% 5,813 (1,046) 4,767
Tax effect of amounts that are not deductible/(taxable)
in calculating taxable income:
* Depreciation and amortisation 749 670 1,419
* Non-taxable income (7) (944) (951)
* Overseas tax losses not available for UK tax purposes (541) - (541)
* Disallowable expenses 174 273 447
* Impairment charges - 287 287
* Share-based payments 30 - 30
* Over provision of deferred tax in prior years (9) - (9)
------------------------------------------------------------- ---------- ------------------- ---------
Income tax expense 6,209 (760) 5,449
------------------------------------------------------------- ---------- ------------------- ---------
Effective tax rate 20.3% n/a 21.7%
------------------------------------------------------------- ---------- ------------------- ---------
The deferred tax charges/(credits) for the year arise from:
2022 2021
GBP'000 GBP'000
----------------------------------------------------------- -------- --------
Share-based payments 399 (77)
Accelerated capital allowances 73 (53)
Accelerated capital allowances on research and development (63) (16)
Dilapidations 12 15
Amortisation of acquired client relationship contracts (880) 309
Trading losses carried forward 248 (184)
Under provision in prior years 212 116
----------------------------------------------------------- -------- --------
Deferred tax charge 1 110
----------------------------------------------------------- -------- --------
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 2022
is 19% (FY21: 19%).
It was outlined in the Finance Bill 2021 (11 March 2021) and
substantively enacted having received royal ascent on the 10 June
2021 that the UK Corporation Tax rate would increase to 25% from 1
April 2023 and remain at 19% until that date. 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, however
limited to the extent that such rates have been substantively
enacted.
6. Other non-operating income
During the year, the Group received confirmation from HMRC that
the supply of certain group services were exempt from VAT. As a
result, the Group received a refund from HMRC in respect of VAT
arising on those services during the period from 1 July 2017 to 30
June 2020 of GBP2,983,000. This has been treated as non-operating
income in view of its non-recurring nature and given it is outside
the ordinary course of business. This other non-operating income is
fully taxable for Corporation Tax purposes.
7. Business combinations
On 23 May 2022, the Group announced, subject to regulatory
approval, the acquisition of Integrity Wealth (Holdings) Limited,
together with its subsidiary, Integrity Wealth Solutions Limited
("IWS"), a successful and rapidly growing Independent Financial
Adviser ("IFA") firm with funds under management of c.GBP250m and
c.800 clients. The acquisition consists of acquiring 100% of the
issued share capital of Integrity Wealth (Holdings) Limited and
Integrity Wealth Bidco Limited (intermediate holding company), and
this will be funded through existing financial resources.
Under the terms of the acquisition, the purchase consideration
includes an initial up front portion and a deferred contingent
element. The acquisition will be accounted for in the Group's books
following regulatory approval, expected in H1 FY23.
8. Earnings per share
The Directors believe that underlying earnings per share
provides an appropriate reflection of the Group's performance in
the year. Underlying earnings per share, which is an alternative
performance measure ("APM"), is calculated based on 'underlying
earnings', which is also an APM. Refer to the Non-IFRS information
section at the end of the document for a glossary of the Group's
APMs, their definition and criteria for how underlying adjustments
are considered. The tax effect of the underlying adjustments to
statutory earnings has also been considered, refer to Note 5 for
the taxation on underlying and statutory profit.
Earnings for the year used to calculate earnings per share as
reported in these Consolidated financial statements were as
follows:
2022 2021
GBP'000 GBP'000
---------------------------------------------------------- -------- --------
Earnings attributable to ordinary shareholders 23,411 19,642
---------------------------------------------------------- -------- --------
Amortisation of acquired client relationship contracts
(Note 10) 5,443 4,928
Other non-operating income (Note 6) (2,983) -
Dual running costs of operating platform 2,428 1,000
Finance cost of deferred consideration (Note 12) 90 299
Gain on bargain purchase - (4,966)
Acquisition-related costs - 2,672
Impairment of acquired client relationship contracts
(Note 10) - 1,513
Changes in fair value of deferred consideration (Note
12) - 60
Tax impact of adjustments (1,046) (760)
---------------------------------------------------------- -------- --------
Underlying earnings attributable to ordinary shareholders 27,343 24,388
---------------------------------------------------------- -------- --------
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:
2022 2021(1)
Number Number
of shares of shares
--------------------------------------------------------- ---------- ----------
Weighted average number of shares in issue 15,707,706 15,671,672
Effect of dilutive potential shares issuable on exercise
of employee share options 502,259 521,547
--------------------------------------------------------- ---------- ----------
Diluted weighted average number of shares in issue 16,209,965 16,193,219
--------------------------------------------------------- ---------- ----------
Earnings per share for the year attributable to equity holders
of the Company were:
2022 2021(1)
p p
------------------------------ ----- -------
Based on reported earnings:
Basic earnings per share 149.0 125.3
Diluted earnings per share 144.4 121.3
Based on underlying earnings:
Basic earnings per share 174.1 155.6
Diluted earnings per share 168.7 150.6
------------------------------ ----- -------
1 The Group previously reported the dilutive effect of potential
shares issuable on exercise of employee share options for employee
share options that are satisfied from newly created shares. This
did not take into account share options that are satisfied from
shares bought in the market and held in the Group's Employee
Benefit Trust ("EBT"). The Group now considers it is appropriate to
also take into account the share options that are satisfied from
shares held in the EBT where the average market price of the
ordinary shares during the period exceeds the exercise price of the
options, in calculating the dilutive weighted average number of
shares in issue. Accordingly, the diluted weighted average number
of shares in issue and diluted earnings per share for the
comparative period has been restated to be consistent with the
current period calculation. For the ye ar ended 30 June 2021, the
reported effect of dilutive potential shares was 50,891 and the
reported diluted weighted average number of shares in issue was
15,722,563. For the year ended 30 June 2021, the reported diluted
earnings per share on statutory and underlying earnings was 124.9p
and 155.1p respectively.
9. Dividends
Amounts recognised as distributions to equity holders of the
Company in the year were as follows:
2022 2021
GBP'000 GBP'000
------------------------------------------------------ -------- --------
Final dividend paid for the year ended 30 June 2021
of 40.0p (FY20: 32.0p) per share 6,251 4,999
Interim dividend paid for the year ended 30 June 2022
of 26.0p (FY21: 23.0p) per share 4,066 3,573
------------------------------------------------------ -------- --------
Total dividends 10,317 8,572
------------------------------------------------------ -------- --------
Final dividend proposed for the year ended 30 June
2022 of 45.0p (FY21: 40.0p) per share 7,031 6,229
------------------------------------------------------ -------- --------
The interim dividend of 26.0p (FY21: 23.0p) per share was paid
on 14 April 2022.
A final dividend for the year ended 30 June 2022 of 45.0p (FY21:
40.0p) per share was declared by the Board of Directors on 14
September 2022 and is subject to approval by the shareholders at
the Company's Annual General Meeting. It will be paid on 4 November
2022 to shareholders who are on the register at the close of
business on 23 September 2022. 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.
10. 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 2020 51,887 10,503 57,784 3,521 123,695
Additions - 3,061 12,227 - 15,288
Disposals - (2,166) - - (2,166)
-------------------------------------- -------- --------- ------------- --------- --------
At 30 June 2021 51,887 11,398 70,011 3,521 136,817
Additions - 2,912 - - 2,912
Disposals - (7,380) - - (7,380)
-------------------------------------- -------- --------- ------------- --------- --------
At 30 June 2022 51,887 6,930 70,011 3,521 132,349
-------------------------------------- -------- --------- ------------- --------- --------
Accumulated amortisation and
impairment
-------------------------------------- -------- --------- ------------- --------- --------
At 1 July 2020 11,213 5,564 19,593 3,521 39,891
Amortisation charge - 2,754 4,928 - 7,682
Accumulated amortisation on disposals - (2,166) - - (2,166)
Impairment - - 1,513 - 1,513
-------------------------------------- -------- --------- ------------- --------- --------
At 30 June 2021 11,213 6,152 26,034 3,521 46,920
Amortisation charge - 1,479 5,443 - 6,922
Accumulated amortisation on disposals - (7,380) - - (7,380)
-------------------------------------- -------- --------- ------------- --------- --------
At 30 June 2022 11,213 251 31,477 3,521 46,462
-------------------------------------- -------- --------- ------------- --------- --------
Net book value
At 1 July 2020 40,674 4,939 38,191 - 83,804
At 30 June 2021 40,674 5,246 43,977 - 89,897
-------------------------------------- -------- --------- ------------- --------- --------
At 30 June 2022 40,674 6,679 38,534 - 85,887
-------------------------------------- -------- --------- ------------- --------- --------
The amortisation charge of intangible assets is recognised
within administrative costs in the Consolidated statement of
comprehensive income.
At 30 June 2022, intangible assets totalling GBP76,140,000 are
recognised in the United Kingdom and GBP9,747,000 are recognised in
the Channel Islands.
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:
2022 2021
GBP'000 GBP'000
------------------------------------------------------------------ -------- --------
Funds
Braemar Group Limited ("Braemar") 3,320 3,320
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 16,111
Total goodwill 40,674 40,674
------------------------------------------------------------------ -------- --------
Goodwill is reviewed annually for impairment and its
recoverability has been assessed at 30 June 2022 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 and forecasts approved by the
relevant subsidiary company boards of directors. The most recent
budgets prepared are part of the detailed budget process for the
year ending 30 June 2023, and then extrapolated over a longer
period for the following four years, resulting in the budgets and
forecasts covering a period of five years. Cash flows are then
extrapolated beyond the five-year budget and forecast period using
an expected long-term growth rate, with the long-term growth rate
considered reasonable against the budgeted and forecast growth.
The Cornelian CGU recoverable amount was calculated as
GBP61,502,000 at 30 June 2022, giving a surplus over the Cornelian
CGU carrying amount of GBP29,182,000, 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. The revenue growth forecasts
range between 13% and 21% annually over the five-year period.
Revenue growth is forecast using new business targets, expected
outflows and estimated impact of market performance on FUM,
multiplied by estimated fee yields. Expenditure growth is forecast
between 4% and 6% annually over the five-year period. Both the
revenue growth and expenditure growth reflect historic actual
growth and planned management actions and are considered to be
reasonable in the current market and industry conditions. A pre-tax
discount rate of 16% has been used (FY21: 13%), based on the
Group's assessment of the risk-free rate of interest and specific
risks relating to Cornelian. The recoverable amount was based on
the estimated cash inflows over the next five financial years, the
period covered by the most recent forecasts, which reflect 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 and investment management
industries in which the CGU operates.
The Directors do not believe that any reasonably possible change
would result in an impairment however to provide additional
analysis, sensitivity analysis has been performed to show what may
be required for an impairment to be recognised.
-- An increase of the pre-tax discount rate by 12%, from 16% to
28% would result in an impairment.
-- The 2% perpetuity growth rate would need to reduce by 24% to -22% to trigger an impairment.
-- The forecast pre-tax cash flows would need to reduce by 40% to result in an impairment.
Based on a value-in-use calculation, the recoverable amount of
the Brooks Macdonald International CGU at 30 June 2022 was
GBP64,453,000, giving a surplus over the Brooks Macdonald
International CGU carrying amount of GBP32,200,000, 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 14% (FY21: 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. The key input in
forecasting revenue is FUM, which is forecast to grow between 8%
and 12% annually over the five-year period, based on new business
targets, expected outflows and estimated impact of market
performance. Annual cash flow growth rates range between 14% and
47% 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.
The Directors do not believe that any reasonably possible change
would result in an impairment however to provide additional
analysis, sensitivity analysis has been performed to show what may
be required for an impairment to be recognised.
-- An increase of the pre-tax discount rate by 10%, from 14% to
24% would result in an impairment.
-- The 2% perpetuity growth rate would need to reduce by 23% to -21% to trigger an impairment.
-- The forecast pre-tax cash flows would need to reduce by 47% to result in an impairment.
Based on a value-in-use calculation, the recoverable amount of
the Braemar CGU at 30 June 2022 was GBP17,847,000, giving a surplus
over the Braemar CGU carrying amount of GBP3,299,000 indicating
that there is no impairment. A pre-tax discount rate of 17% (FY21:
14%) 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 FUM of the funds business and the long-term
growth rate. The revenue generated in the cash flow forecasts is
based on FUM forecasts multiplied by the relevant yields, with FUM
growth ranging between 9% and 11% annually over the five-year
period. FUM growth is forecast using estimated new business
targets, expected outflows and estimated impact of market
performance. Expenditure growth is forecast between 1% and 12%
annually over the five-year period. The inputs to the forecast cash
inflows over the next five financial years, 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.
The Directors do not believe that any reasonably possible change
would result in an impairment however to provide additional
analysis, sensitivity analysis has been performed to show what may
be required for an impairment to be recognised.
-- An increase of the pre-tax discount rate by 48%, from 17% to
65% would result in an impairment.
-- The 2% perpetuity growth rate could reduce by 100% to -98%
and an impairment would still not be triggered.
-- The forecast pre-tax cash flows would need to reduce by 83% to result in an impairment.
At 30 June 2022, headroom exists in the calculations of the
respective recoverable amounts of these CGUs over the carrying
amounts of the goodwill allocated to them. On this basis, the
Directors have concluded that there is no impairment required to
the goodwill balances at 30 June 2022.
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 2022, the Group received
GBP2,039,000 from SS&C towards the costs incurred in the
transition of the client- and adviser-facing processes to their
platform and systems, which has been utilised against capitalised
spend on the project. The gross computer software additions during
the year were GBP4,951,000, with the net amount recognised of
GBP2,912,000, after the amount received from SS&C.
During the year ended 30 June 2022, 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 GBP7,380,000.
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).
During the year ended 30 June 2021, the Group acquired client
relationship contracts totalling GBP12,227,000, as part of the
Lloyds Channel Islands acquisition, which were recognised as
separately identifiable intangible assets in the Consolidated
statement of financial position. The additions included contracts
related to the Lloyds Channel Islands discretionary business of
GBP9,080,000, with a useful economic life of 15 years, and
GBP3,147,000 related to the Lloyds Channel Islands funds-management
business, with a useful economic life of six years.
During the year ended 30 June 2021, the Group recognised an
impairment of GBP1,513,000 on the client-relationship intangible
assets as the expected useful economic life was reduced from 15 to
12 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.
11. Provisions
Exceptional
costs of
resolving Leasehold
Client compensation legacy matters FSCS levy dilapidations Tax-related Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------------------- --------------- --------- -------------- ----------- --------
At 1 July 2020 38 608 1,501 380 - 2,527
Charge to the Consolidated
statement of comprehensive
income 347 - 2,218 136 - 2,701
Utilised during the
year (385) (8) (2,474) (103) - (2,970)
---------------------------- ------------------- --------------- --------- -------------- ----------- --------
At 30 June 2021 - 600 1,245 413 - 2,258
Charge to the Consolidated
statement of comprehensive
income 398 - 1,304 126 162 1,990
Transfer from trade
and other payables - - - - 1,217 1,217
Utilised during the
year (286) (600) (2,163) (172) (1,099) (4,320)
---------------------------- ------------------- --------------- --------- -------------- ----------- --------
At 30 June 2022 112 - 386 367 280 1,145
---------------------------- ------------------- --------------- --------- -------------- ----------- --------
Analysed as:
Amounts falling due
within one year 112 - 386 41 280 819
Amounts falling due
after more than one
year - - - 326 - 326
---------------------------- ------------------- --------------- --------- -------------- ----------- --------
Total provisions 112 - 386 367 280 1,145
---------------------------- ------------------- --------------- --------- -------------- ----------- --------
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 related to a number of discretionary portfolios
formerly managed by Spearpoint, now managed by the Group and a
Dublin-based fund, for which Spearpoint acted as investment
manager. The Directors deem the legacy matters to be resolved and
therefore a provision is no longer required. The amount utilised
during the year of GBP600,000 represents the remaining offers paid
to claimants and associated legal fees during the year ended 30
June 2022. There are a small number of clients who have rejected
the goodwill offers, and the Group has recognised a contingent
liability as a result of these, see Note 14 for further
details.
c. FSCS levy
Following confirmation by the FSCS in July 2022 of its final
industry levy for the 2022/23 scheme year, the Group has made a
provision of GBP386,000 (FY21: GBP1,245,000) for its estimated
share.
d. Leasehold dilapidations
Leasehold dilapidations relate to dilapidation provisions
expected to arise on leasehold premises held by the Group, and
monies due under the contract with the assignee of leases on the
Group's leased properties.
e. Tax-related
During the year ended 30 June 2022, the Group recognised a
provision in relation to an input VAT review, making a voluntary
disclosure to HM Revenue and Customs ("HMRC"), totalling
GBP162,000.
At 1 July 2021, the Group reclassified other tax-related
provisions from trade and other payables, totalling GBP1,217,000.
These amounts were previously voluntarily disclosed to HMRC,
however HMRC had not responded on the disclosures and it was
therefore deemed more appropriate to reclassify the balance as a
provision.
As discussed in Note 6, the Group received a refund from HMRC in
relation to previously paid VAT on certain Group services. As
disclosed in the 2020 Annual Report and Accounts, the Group
previously recognised an estimated VAT liability due to HMRC in
relation to certain Group services. Following HMRC's confirmation
that this VAT is no longer payable on these services, the Group
released GBP1,044,000 in relation to the estimated VAT payable,
which is no longer payable. The remaining utilised amount of
GBP55,000 relates to the HMRC four-year time limitation rules,
reducing the relevant provision accordingly.
12. Deferred consideration
Deferred consideration payable is split between non-current
liabilities and current liabilities 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:
2022 2021
GBP'000 GBP'000
--------------------------------------------- -------- --------
At 1 July 6,237 7,991
Additions - 308
Finance cost of deferred consideration 90 299
Fair value adjustments - 60
Payments made during the year (6,000) (2,421)
--------------------------------------------- -------- --------
At 30 June 327 6,237
--------------------------------------------- -------- --------
Analysed as:
Amounts falling due within one year 327 5,934
Amounts falling due after more than one year - 303
--------------------------------------------- -------- --------
Total deferred consideration 327 6,237
--------------------------------------------- -------- --------
During the year ended 30 June 2021, the Group completed the
Lloyds Channel Islands acquisition and part of the consideration is
to be deferred over a period of two years. The total cash deferred
consideration of GBP334,000 was recognised at its fair value of
GBP308,000 on acquisition. The deferred consideration is payable in
December 2022 based on the future revenue generated by the
discretionary business acquired. During the year ended 30 June
2022, the Group recognised a finance cost of GBP12,000 on the
Lloyds Channel Islands acquisition deferred consideration. The fair
value of the Lloyds Channel Islands acquisition deferred
consideration at 30 June 2022 was GBP327,000.
During the year ended 30 June 2022, the final payment was made
in relation to the acquisition of Cornelian Asset Managers Group
Limited totalling GBP6,000,000 (FY21: GBP2,000,000). Prior to the
final payment, GBP78,000 was recognised as a finance cost of
deferred consideration within FY22. Full details of the Cornelian
acquisition are disclosed in Note 11 of the 2020 Annual Report and
Accounts.
13. Reconciliation of operating profit to net cash inflow from
operating activities
2022 2021
GBP'000 GBP'000
----------------------------------------------------- -------- --------
Operating profit 26,867 20,756
Adjustments for:
* Amortisation of intangible assets 6,922 7,682
* Depreciation of property, plant and equipment 843 1,045
* Depreciation of right-of-use assets 1,669 1,614
* Other gains/(losses) - net 55 1,438
* Increase in receivables (2,024) (2,333)
* (Decrease)/increase in payables (3,194) 3,765
* Decrease in provisions (1,113) (269)
* Increase in other non-current liabilities 22 218
* Share-based payments charge 2,779 2,991
----------------------------------------------------- -------- --------
Net cash inflow from operating activities 32,826 36,907
----------------------------------------------------- -------- --------
14. Contingent liabilities and guarantees
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 a finding in respect of the Group's tax
affairs, including the accounting for VAT, which could result in a
financial outflow and/or inflow from 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.
During the year ended 30 June 2020, a small number of clients
rejected goodwill offers made by Brooks Macdonald Asset Management
(International) Limited in connection with the exceptional costs of
resolving legacy matters. While some of these clients have since
accepted their offers, it is possible that one or more of these
remaining clients might issue claims against Brooks Macdonald Asset
Management (International) Limited. At 30 June 2022, one claim has
been issued to Brooks Macdonald Asset Management (International)
Limited; however, it is not possible to estimate with any certainty
whether or not any outflow might result, nor the quantum or timing
of any potential outflow. As a result, it is not possible to
estimate the quantum of any potential liability with any certainty
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.
15. 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
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------- -------- -------- -------- --------
Brooks Macdonald Asset Management Limited 238 - - -
Brooks Macdonald Asset Management (International)
Limited - 246 89 -
Brooks Macdonald Financial Consulting
Limited - - 34 2,753
-------------------------------------------------- -------- -------- -------- --------
All of the above amounts are interest-free and repayable on
demand.
16. Events since the end of the year
No material events have occurred between the reporting date and
the date of signing the financial statements.
Non-IFRS financial information
Non-IFRS financial information or alternative performance
measures ("APMs") are used as supplemental measures in monitoring
the performance of the Group. The adjustments applied to IFRS
measures to compute the Group's APMs exclude income and expense
categories which are deemed of a non-recurring nature or a non-cash
operating item. The Board considers the disclosed APMs to be an
appropriate reflection of the Group's performance and considered
appropriate for external analyst coverage and peer group
benchmarking.
The Group follows a rigorous process in determining whether an
adjustment should be made to present an alternative performance
measure compared to IFRS measures. For an adjustment to be excluded
from underlying profit as an alternative performance measure
compared to statutory profit, it must initially meet at least one
of the following criteria:
-- It is unusual in nature, e.g. outside the normal course of business and operations.
-- It is a significant item, which may be recognised in more than one accounting period.
-- It has been incurred as a result of either an acquisition,
disposal or a company restructure process.
The Group uses the below APMs:
APM Equivalent IFRS Definition and purpose
measure
-------------------- -------------------- ------------------------------------------------------
Underlying profit Statutory profit Calculated as profit before tax excluding
before tax before tax income and expense categories which are deemed
of a non-recurring nature or a non-cash operating
item. It is considered by the Board to be
an appropriate reflection of the Group's performance
and considered appropriate for external analyst
coverage and peer group benchmarking.
-------------------- -------------------- ------------------------------------------------------
Underlying tax Statutory tax charge Calculated as the statutory tax charge, excluding
charge the tax impact of the adjustments excluded
from underlying profit. See Note 5 Taxation.
-------------------- -------------------- ------------------------------------------------------
Underlying earnings/ Total comprehensive Calculated as underlying profit before tax
Underlying profit income less the underlying tax charge.
after tax See Note 8 for a reconciliation of underlying
profit after tax and statutory profit after
tax.
-------------------- -------------------- ------------------------------------------------------
Underlying profit Statutory profit Calculated as underlying profit before tax
margin before tax margin before tax over revenue for the year. This is another
key metric assessed by the Board and appropriate
for external analyst coverage and peer group
benchmarking.
-------------------- -------------------- ------------------------------------------------------
EBITDA/Underlying N/A Earnings before interest, tax, depreciation
EBITDA and amortisation ("EBITDA"). Underlying EBITDA
is EBITDA excluding income and expense categories
which are deemed of a non-recurring nature
or a non-cash operating item.
-------------------- -------------------- ------------------------------------------------------
Underlying basic Statutory basic Calculated as underlying profit after tax
earnings per share earnings per share divided by the weighted average number of
shares in issue during the year. This is a
key management incentive metric and is a measure
used within the Group's remuneration schemes.
See Note 8 Earnings per share.
-------------------- -------------------- ------------------------------------------------------
Underlying diluted Statutory diluted Calculated as underlying profit after tax
earnings per share earnings per share divided by the weighted average number of
shares in issue during the year, including
the dilutive impact of future share awards.
This is a key management incentive metric
and is a measure used within the Group's remuneration
schemes. See Note 8 Earnings per share.
-------------------- -------------------- ------------------------------------------------------
Underlying costs Statutory costs Calculated as total administrative expenses,
other net gains/(losses), finance income and
finance costs and excluding income and expense
categories which are deemed of a non-recurring
nature or a non-cash operating item. This
is a key measure used in calculating underlying
profit before tax.
-------------------- -------------------- ------------------------------------------------------
Segmental underlying Segmental statutory Calculated as profit before tax excluding
profit before tax profit before tax income and expense categories which are deemed
of a non-recurring nature or a non-cash operating
item for each segment. See Note 3 Segmental
information.
-------------------- -------------------- ------------------------------------------------------
Segmental underlying Segmental statutory Calculated as segmental underlying profit
profit before tax profit before tax before tax over segmental revenue.
margin margin
-------------------- -------------------- ------------------------------------------------------
Total capital ratio N/A Calculated as the Group's total regulatory
resources relative to its Pillar I risk exposure
requirement.
-------------------- -------------------- ------------------------------------------------------
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
2022 or 2021. Statutory financial statements for 2021 have been
delivered to the Registrar of Companies. Statutory financial
statements for 2022 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting. The auditor has
reported on both the 2022 and 2021 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 15 September 2022
------------------------------ -----------------
Ex-dividend date for final
dividend 22 September 2022
------------------------------ -----------------
Record date for final dividend 23 September 2022
------------------------------ -----------------
Annual General Meeting 27 October 2022
------------------------------ -----------------
Final dividend payment date 4 November 2022
------------------------------ -----------------
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END
FR GZGMLLDZGZZM
(END) Dow Jones Newswires
September 15, 2022 02:00 ET (06:00 GMT)
Brooks (AQSE:BRK.GB)
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