16 September 2021

 

BROOKS MACDONALD GROUP PLC

 

Final results for the year ended 30 June 2021

 

Strong strategic progress underlined by excellent financial performance

Return to positive net flows in H2 with momentum growing

 

Brooks Macdonald Group plc ("Brooks Macdonald" or "the Group") today announces its audited results for the year ended 30 June 2021.

 

 

Financial highlights

 

·      Group FUM reached record level of £16.5 billion (up 20.3% on FY20)

 

·      Net flows improved each quarter and were positive in H2 at a Group level, with the core UKIM discretionary business positive for the full year, demonstrating organic growth momentum which has continued into FY22 with both months positive

 

·      Group revenue of £118.2 million, up 8.8% on FY20, driven by FUM growth and the successful integration of the two recently acquired businesses

 

·      Underlying profit margin up by 4.7 points to 25.9%, in line with the Group's commitment to deliver top quartile margin over the medium term

 

·      Continued strong investment performance of 15.8% for the year, well ahead of the 12.9% for the MSCI PIMFA Private Investor Balanced Index

 

·      Improved performance and underlying profit margin in both the UKIM and International business segments, in part boosted by the contribution of the acquired businesses

 

·      Total dividend increased by 18.9% to 63.0p (FY20: 53.0p) reflecting the Board's confidence in the Group's prospects.

 

 

Strategic progress

 

·      Andrew Shepherd appointed as new CEO, bringing unrivalled experience and knowledge of the industry from his 27-year financial services career, including 19 years at Brooks Macdonald

·      Successfully completed integration of two high-quality acquisitions, Cornelian Asset Managers and Lloyds Banking Group's Channel Islands funds and wealth management business, which have both delivered above the targeted earnings accretion, underlining the Group's acquisition capabilities

·      Rapid growth of Brooks Macdonald Investment Solutions proposition, with strong pipeline for FY22

·      Near 50% increase in FUM for specialised Bespoke Portfolio Service products - Responsible Investment Service ("RIS"), Court of Protection, Decumulation, AIM Portfolio Service - underlining ongoing strong demand as the Group continued to innovate for clients and advisers

·      Private Clients proposition launched post period end to build an integrated wealth management service with specialist advice from internal IFA team, designed to ensure direct clients get the best possible service, operating alongside core outsourced investment offering to third party IFAs

·      Material progress on the Group's digital transformation - partnered with SS&C, the global wealth management technology and operations company, to deliver best-in-class client and intermediary experience and service levels. Initial deliveries of funds business processes and digital onboarding successful. Expecting SS&C to complete the current phase, which is the transition of all client- and intermediary-facing processes on to their platform, by the end of this calendar year.

 

Outlook

 

·      Fundamental opportunity remains strong, driven by demographic and policy trends as well as increasing adviser demand for outsourced investment management, where the Group aims to be the partner of choice

·      Well positioned to continue to deliver on ambitious growth strategy with a strong pipeline and net flows expected to improve further over FY22, looking to the future with confidence.

 

Andrew Shepherd, CEO designate of Brooks Macdonald, commented:

 

"I am pleased to report that, in a period dominated by the pandemic, we have not only again delivered strong financial performance, but we have also made further progress against our strategic ambitions. FUM reached record levels, we increased our profit margin and delivered record revenue and underlying profit - at the same time as successfully integrating two acquisitions to increase the Group's scale, service offerings, and capabilities. And all in our 30^th anniversary year!

 

"We continued to deliver a high-quality service to clients and made great progress in our ongoing ambitions to transform client and intermediary service levels through technology and innovation. None of this would have been possible without the steadfast commitment and hard work of our people who have done an exceptional job during the most unprecedented circumstances.

 

"I am excited to lead the firm at a time of great opportunity for Brooks Macdonald, based on our vision as the leading investment manager for intermediaries. Our strategy is working, grounded in our purpose of realising ambitions and securing futures. We are in a strong position, primed to deliver on our ambitious growth aspirations."

 

Key financial results

	Year ended 30.06.2021	Year ended 30.06.2020	Change
Funds under management ("FUM")	£16.5bn	£13.7bn	20.3%
Revenue	£118.2m	£108.6m	8.8%

 

Underlying results¹

Underlying profit before tax	£30.6m	£23.0m	33.0%
Underlying profit margin before tax	25.9%	21.2%	+4.7ppt
Underlying diluted earnings per share	155.1p	123.7p	25.4%

 

Statutory results

Statutory profit before tax	£25.1m	£10.0m	151.0%
Statutory profit margin before tax	21.2%	9.2%	+12.0ppt
Statutory diluted earnings per share	124.9p	43.1p	189.8%
Net cash	£54.9m	£50.2m	9.4%

 

Dividends

Proposed final dividend	40.0p	32.0p	25.0%
Total dividend	63.0p	53.0p	18.9%

 

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 for the Group. A reconciliation between the Group's statutory and underlying profit before tax is also included in the Financial review.

 

 

 

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 [email protected]

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 Andrew Shepherd, Group CEO designate Ben Thorpe, Chief Financial Officer	www.brooksmacdonald.com 020 7659 3492
Peel Hunt LLP (Nominated Adviser and Broker) Rishi Shah / John Welch	020 7418 8900
FTI Consulting Ed Berry / Laura Ewart / Katherine Bell	[email protected] 07703 330199 / 07711 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 £16.5 billion as at 30 June 2021.

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 thirteen offices across the UK and the Channel Islands including London, Cheltenham, East Anglia, Exeter, Hampshire, Leamington Spa, Leeds, Manchester, Tunbridge Wells, Scotland, Wales, Jersey and Guernsey.

 

LEI: 213800WRDF8LB8MIEX37

www.brooksmacdonald.com / @BrooksMacdonald

 

 

 

Chairman's statement

 

Brooks Macdonald has had a strong year, setting records for FUM and revenue.

 

Introduction

I am pleased to report that Brooks Macdonald has had a strong year, setting records for FUM and revenue. The Group has also delivered further improvement in underlying profit and underlying profit margin in line with our medium-term commitments. The closing FUM figure of £16.5 billion was delivered through strong investment performance and the completion of our acquisition of Lloyds Banking Group's Channel Islands wealth management and funds business ("Lloyds Channel Islands"), partially offset by net outflows over the year. Although net flows for the full year were negative, they improved each quarter and we were pleased to return to positive net flows in Q4 and for H2 overall.

 

Our Centralised Investment Process continues to deliver strong performance, underpinning our mission to protect and enhance our clients' wealth. Overall investment performance of 15.8% for the financial year to June was well ahead of the MSCI PIMFA Private Investor Balanced Index which was up 12.9%.

 

In May, I was delighted to announce the appointment of Andrew Shepherd as our new Group CEO, subject to regulatory approval, following the resignation of Caroline Connellan. Andrew's unrivalled knowledge of the industry and commitment to the Group made him uniquely qualified to build on the significant momentum in the business and he has certainly hit the ground running since his appointment.

 

I would also like to reiterate my thanks to Caroline for her leadership of Brooks Macdonald over a four-year period, where she has been central to the transformation of the business, leaving it in a position of strength and primed for further growth.

 

Andrew has a strong focus on people and culture and, as we emerge from the pandemic and associated restrictions, he will continue to prioritise the wellbeing and safety of our people, while ensuring that the Group supports its intermediaries and clients.

 

Performance overview

Brooks Macdonald continues to grow strongly, driven by our strategy of focusing on intermediaries, for whom we aim to be partner of choice. Underlying profit before tax was £30.6 million, up 33.0% on the year (FY20: £23.0 million), and underlying diluted earnings per share ("EPS") was up 25.4% to 155.1p (FY20: 123.7p).

 

Statutory profit before tax rose 151.0% to £25.1 million (FY20: £10.0 million), driven mainly by a gain related to the Lloyds Channel Islands acquisition. Statutory diluted EPS rose 189.8% to 124.9p (FY20: 43.1p).

 

Dividend

The Board has recommended a final dividend of 40.0p (FY20: 32.0p) which, subject to approval by shareholders, will result in total dividends for the year of 63.0p (FY20: 53.0p). This represents an increase of 25.0% in the final dividend and 18.9% in the total dividend on the previous year and underlines the Board's confidence in the prospects for the Group, and our commitment to a progressive dividend policy. The final dividend will be paid on 5 November 2021 to shareholders on the register at the close of business on 24 September 2021.

 

Board changes

There have been several changes to the Board during the financial year and in the post-close period. As mentioned in last year's Annual Report and Accounts, Dagmar Kershaw and Robert Burgess joined the Board with effect from 1 July 2020 and 1 August 2020 respectively. Following her resignation as CEO, Caroline Connellan formally stepped down from the Board with effect from 27 May 2021. Post-close, our new CEO designate, Andrew Shepherd, and the Group Chief Operating Officer, Lynsey Cross, were appointed to the Board with effect from 13 July 2021.

 

Looking ahead

The macroeconomic outlook in the short term remains tightly linked to progress in moving beyond the pandemic and its impact on the economy, markets and client sentiment. The fundamental opportunity for Brooks Macdonald remains strong, driven by demographic and policy trends as well as increasing adviser demand for outsourced investment management, where we aim to be the partner of choice. The Group has a strong balance sheet, supportive shareholders and an ambitious growth agenda. We look to the future with confidence.

 

Alan Carruthers

Chairman

 

15 September 2021

 

CEO's review

 

Another year when Brooks Macdonald delivered strong financial performance.

 

Introduction

Having taken over as CEO of Brooks Macdonald in May, I am delighted to present my first report covering another year when we delivered strong financial performance, despite pandemic-related restrictions persisting throughout the year. Under the leadership of my predecessor, Caroline Connellan, the business has emerged stronger from a period of change followed by the rigours of lockdown. I am excited to take over a business primed for growth with exceptional opportunities and I am grateful to Caroline for the work she has done in her four years as CEO. While this was a turbulent time for both the economy and wider society, with the impact of Brexit and the pandemic, the Group has been able to trade largely as normal, deliver robust financial results and support our clients and intermediaries.

 

Nonetheless, it has been a challenging year in many ways and I would like to thank several groups of people without whom this performance would not have been possible. Our first priority is our clients and I am pleased that we have been able to continue to protect and enhance their wealth with strong investment performance and high levels of service, and I thank them for their confidence in our business and our people. Likewise, I thank the intermediaries we work with for their continuing support, which is critical to our continued success. However, most of all, I want to thank all the people who work for Brooks Macdonald. Their hard work and commitment to our clients and intermediaries has been unwavering despite the challenging context, and I am enormously grateful to them.

 

Delivering our strategy

Brooks Macdonald has been through a period of change, building the foundations for our future success. Our strategy is clear, founded on the three value drivers of organic growth, service and operational excellence, and selective high-quality acquisitions.

 

Our vision for Brooks Macdonald is as the leading investment manager for intermediaries and we are working with our intermediary network - present and future - to ensure we understand what they need from us. We continue to look to deliver further improvements in returns, delivering consistently top quartile underlying profit margins, through building on the sustainable and scalable business model we are putting in place. We are making substantial progress, ready to capitalise on the growth opportunities we see ahead.

 

A core element of our strategy, alongside our robust Centralised Investment Process and our compelling investment proposition, is to transform our intermediary experience and client service levels to be best-in-class. Our digital experience for intermediaries and clients - complementing our face-to-face relationships - will be market-leading, including automated onboarding, full intermediary and client portal functionality, and bespoke reporting. We are partnering with SS&C Technologies ("SS&C"), the leading wealth management technology and services company, to deliver this transformation. We expect SS&C to complete the current phase of the transformation, transition of all client- and intermediary-facing processes on to their platform, by the end of this calendar year.

 

Financial performance

Brooks Macdonald had another year of strong financial performance in FY21, delivering on our medium-term commitment to improve profit margins with underlying profit margin up 4.7 points to 25.9%. We also delivered record revenue and underlying profit levels of £118.2 million and £30.6 million respectively.

 

Our year-end closing FUM also increased sharply to £16.5 billion, up 20.3% on the FY20 figure of £13.7 billion. The biggest contributor was strong investment performance, delivering £2.2 billion of growth, supported by £0.9 billion from the acquisition of the Lloyds Channel Islands business (which completed in November 2020), partially offset by £0.3 billion of net outflows over the year. Net flows improved every quarter over the year, with positive flows of £0.1 billion in H2 overall, and we have a strong pipeline going into FY22.

 

Investment performance and market conditions

Our investment performance through FY21 was strong at 15.8%, well ahead of the 12.9% recorded by the MSCI PIMFA Private Investor Balanced Index. We were also ahead of the ARC benchmark for all our risk profiles over the year, as well as, over the last 5 and 10 years.

Investment markets in FY21 were complicated by the significant sector rotation at the start of calendar 2021, as cyclical and value sectors recovered after the growth and defensive dominance of 2020. Despite the challenging conditions, we navigated this market well, outperforming in the first half of the financial year and bringing more balance to client portfolios in the second half.

 

Looking ahead, we expect equities to continue to outperform bonds due to the strong relative valuation preference for equity markets. We also expect higher inflation levels in 2021 to encourage investors still in cash to deploy these funds into risk assets to seek an above inflation return. This scenario would support our overweight equity portfolio positioning, as well as, improving flows into asset management in general.

 

Review of business performance

Robin Eggar, our Head of UK Investment Management ("UKIM"), and his team have continued to serve clients and intermediaries across the UK, providing outstanding levels of service. We have seen a steady improvement in flows throughout the year, with particularly strong performance from Brooks Macdonald Investment Solutions, Platform Managed Portfolio Service ("PMPS"), and our specialist Bespoke Portfolio Service ("BPS") offerings. Investment Solutions is a more 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. This has been highly successful in the past year with several material deals agreed. 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 20 of the most popular platforms, and this has helped drive strong growth in the year.

 

In our flagship 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 success of these more specialised offerings underlines the importance of our focus on client needs.

 

The Funds business has experienced net outflows in each quarter, particularly in our Defensive Capital Fund ("DCF") which has been affected by a downturn in sentiment in the Investment Association's Targeted Absolute Return sector. DCF did have strong investment performance for the year at 14.4% for the main institutional share class, well ahead of the sector. For Funds overall, the quarterly trend showed declining outflows so we are optimistic for FY22.

 

We have integrated our Financial Planning business with our existing UKIM direct client activities, which were boosted by the Cornelian acquisition, into a new Private Clients arm within UKIM designed to ensure our direct clients receive the best possible service.

 

We have continued to take action to position the business for future success. As examples, during the year we opened offices in Exeter and Cheltenham, replacing our office in Taunton, and moved premises in Edinburgh, Manchester, Leeds and Jersey, to improve facilities for clients and staff, and to access a larger group of intermediaries and greater pools of wealth.

 

In International, Richard Hughes took over from me as CEO International when I took the Group role, and I am delighted to leave the business in such capable hands, having worked closely with him as my deputy for the past two years. We continued to improve International's commercial performance, with the underlying profit margin before tax up six points, now just short of 25% and materially closing the gap to UKIM. International was reinforced by the completion in November of the acquisition of the Lloyds Channel Islands business and we are delighted with the quality of people we brought in, all allowing us to accelerate the margin improvement. We will also shortly be opening an Isle of Man office, subject to regulatory approval. Over the year, solid investment performance was largely outweighed by net outflows, driven in particular by a number of larger, low margin mandates, with overall FUM growth in International being mainly driven by the Lloyds addition.

 

Client need and demand for the benefits provided by the combination of high-quality financial planning and investment management remain strong, driven by underlying demographics and increasing policy onus on the individual to save for retirement. We continue to see a strong opportunity both to build relationships with more intermediaries and to extend our relationships with our current intermediaries, as well as, building our new Private Clients unit.

 

People

People and culture are high priorities for me and I am pleased to report that we have continued to invest in our people throughout the year, supporting the talent we have in the business, as well as, bringing in new, high-quality hires. I am particularly pleased that we have been able to promote two more of our most talented internal leaders to the Executive Committee: Richard Hughes, who replaced me in International, and Edward Park, who took over as Chief Investment Officer last October when co-founder Richard Spencer decided to step down from the role. Richard Spencer's decision was made all the easier by having a strong deputy in place to take up the reins, and Richard remains very much a presence in the business, looking after his clients and acting as senior adviser to the Investment Committee.

 

We communicate frequently with our people and also gather their feedback through town halls, more informal sessions and Group-wide employee engagement surveys. We continue to see strong engagement metrics as we emerge from lockdown and we continue to explore ways to improve Brooks Macdonald's proposition to our people.

 

Outlook

I am hugely excited by our ambitious vision for the Group as the leading investment manager for intermediaries. We will build on our success to date:

•     Driving organic growth, both through intermediaries and among private clients, with strong investment performance;

•     Ensuring service and operational excellence, particularly through our partnership with SS&C to transform the intermediary experience and client service levels; and

•     Seeking selective high-quality acquisitions.

 

We will also continue to strive to deliver strong financial performance with improving returns, targeting consistent top quartile profit margins.

The fundamental potential for Brooks Macdonald remains strong. The disruption caused by COVID-19 has reinforced the importance of high-quality financial planning and investment management and we are well positioned to help clients and intermediaries realise their ambitions and secure their futures.

 

I would like to finish by reiterating my thanks to the intermediaries we work with and our clients for their continuing support, as well as - most importantly - to our people. I am delighted to have been invited to take on the role of CEO for many reasons but, above all else, for the opportunity to lead these people at a time of great excitement and opportunity for the Group.

 

Andrew Shepherd
CEO designate

 

15 September 2021

 

Our strategy

Brooks Macdonald has emerged a stronger business after a period of change, building the foundations for our future success, followed by the rigours of lockdown. 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 as 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 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

 

1. Market-leading organic growth

Best-in-class adviser experience and excellent client service, rigorous Centralised Investment Process, compelling investment proposition

 

2. Service and operational excellence

Easy to do business with, digital enhancement, margin growth through efficiency and scalability resilience

 

3. Agile, high-quality M&A

Strict criteria, delivery of benefits

 

Committed to top quartile underlying profit margin over the medium-term

 

 

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 are putting in place.

 

Organic growth

•     Maintain and enhance our Centralised Investment Process, delivering consistent robust investment returns for clients

•     Continue to add to our compelling investment proposition in specialised bespoke portfolios, model portfolios and fund/unitised solutions, and in business-to-business solutions for advisers, all supported by a high-impact strategy for how we take these products and services to market

•     Deliver market-leading adviser experience and client service levels, through our partnership with SS&C, the world-class wealth management technology and service company

 

Service and operational excellence

•     Continue high levels of cost discipline, freeing up investment into service differentiators

•     Benefit from efficiencies of new technology and services partnership

 

Selective high-quality acquisitions

•     Continue to observe our published criteria for acquisition targets - high-quality businesses that are a good strategic and cultural fit and who bring compelling economics

•     Leverage the scalability of the digital solutions we are putting in place

This is all underpinned by our investment in people and culture with the objective of attracting, engaging and retaining the best talent in the industry.

 

Delivering our strategy

We announced our new strategy in our annual results presentation last year, since then we have made material progress on all three value drivers.

 

Value driver	Progress in FY21
Organic growth	•     Secured a series of strong business-to-business mandates through Brooks Macdonald Investment Solutions •     Grew our Platform MPS further, making it available on a wider range of leading platforms •     Continued to grow our specialist products - Responsible Investment Service, Decumulation, Court of Protection, and the AIM Portfolio Service •     Returned to positive net flows of client assets in the second half of the financial year, as forecast to the market a year ago
Service and operational excellence	•     Transferred administrative processes to our partner SS&C •     Moved funds administration and portfolio management to SS&C platform •     Digital onboarding live with internal IFA, to be rolled out to intermediaries soon. Expecting to complete this calendar year the current phase, which is the transition of all client- and intermediary-facing processes on to the SS&C platform, including an adviser and client portal with comprehensive functionality
Agile, high-quality M&A	•     Completed acquisition of Lloyds Banking Group's Channel Islands funds and wealth management business •     Completed integration of Lloyds business and Cornelian Asset Managers •     Continued to review a range of potential targets

 

 

 

 

Financial review

 

In FY21, the Group reported strong strategic and financial progress, delivering record underlying profit and margin, returning to positive organic net flows and successfully integrated the Lloyds Channel Islands business.

 

Review of results for the year

The Group delivered a strong set of results for FY21 as we entered the next phase of our strategy announced in September 2020. Despite the year under review still being characterised by periods of national lockdown, economic uncertainly and market volatility arising from the COVID-19 pandemic, the Group continued to operate resiliently and emerged as a stronger business. The acquisition of the Lloyds Channel Islands business was completed at the end of November 2020 with the business and our new colleagues successfully integrated within our International division, now led by Richard Hughes. We have also seen growing momentum in our organic business, particularly within our discretionary specialised products and Investment Solutions offering. In addition, our disciplined management of the Group's financial resources and focus on operational efficiency contributed to a record underlying profit and underlying profit margin, which increased from 21.2% to 25.9%.

 

The table below shows the Group's financial performance for the year ended 30 June 2021 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 performance, and the statutory results. A breakdown of the underlying adjustments is shown further below in the Financial review.

 

Group financial results summary

	FY21 £m	FY20 £m	Change %
Revenue	118.2	108.6	8.8
Fixed staff costs	(40.0)	(39.8)	0.5
Variable staff costs	(13.2)	(10.8)	22.2
Total staff costs	(53.2)	(50.6)	5.1
FSCS levy	(2.2)	(2.2)	-
Non-staff costs	(32.2)	(32.8)	(1.8)
Total non-staff costs	(34.4)	(35.0)	(1.7)
Total underlying costs	(87.6)	(85.6)	2.3
Underlying profit before tax	30.6	23.0	33.0
Underlying adjustments	(5.5)	(13.0)	(57.7)
Statutory profit before tax	25.1	10.0	151.0
Taxation	(5.5)	(3.6)	52.8
Statutory profit after tax	19.6	6.4	206.3
Underlying profit margin before tax	25.9%	21.2%	4.7ppt
Underlying diluted earnings per share	155.1p	123.7p	31.4p
Statutory profit margin before tax	21.2%	9.2%	12.0ppt
Statutory diluted earnings per share	124.9p	43.1p	81.8p
Dividends per share	63.0p	53.0p	10.0p

 

 

 

 

Revenue

The Group's total revenue for FY21 increased by 8.8% to £118.2 million (FY20: £108.6 million). This was due to higher average FUM levels driven by strong investment performance, particularly in H2, and the contribution from the two recent acquisitions. The Cornelian business contributed an additional £6.5 million compared to the prior year, given completion part way through FY20, and the Lloyds Channel Islands business boosted revenue by £5.3 million during the latter seven months of the financial year. FUM-related revenue overall increased by 10.1%, whilst non-FUM-related revenue dropped by 10.4% to £6.0 million (FY20: £6.7 million). The rise in fee income during the year, was offset by a reduction in interest turn of £4.3 million or 72.9% driven by the fall in the Bank of England base rate. The reduction in non-FUM-related revenue was principally due to a decline in other income including the termination of the third-party administration business at the start of the year, as the focus is directed on the core offering.

 

Revenue, yields and average FUM

 

	Revenue			Yield			Average FUM
	FY21 £m	FY20 £m	Change %	FY21 bps	FY20 bps	Change bps	FY21 £m	FY20 £m	Change %
BPS fees	58.7	53.8	9.1	67.3	67.8	(0.5)
BPS non-fees (transactional)	14.5	14.6	(0.7)	16.6	18.4	(1.8)
BPS non-fees (interest turn)	1.4	4.4	(68.2)	1.6	5.5	(3.9)
Total BPS	74.6	72.8	2.5	85.5	91.8	(6.3)	8,722	7,932	10.0
MPS	8.3	8.0	3.8	40.1	46.8	(6.7)	2,069	1,709	21.1
UKIM discretionary	82.9	80.8	2.6	76.8	83.8	(7.0)	10,791	9,641	11.9
Funds	12.2	8.7	40.2	55.3	52.4	2.9	2,207	1,659	33.0
Total UKIM	95.1	89.5	6.3	73.2	79.2	(6.0)	12,998	11,300	15.0
International fees	8.9	8.5	4.7	54.4	54.2	0.2	1,636	1,569	4.3
International non-fees	2.9	3.9	(25.6)	17.7	24.9	(7.2)	-	-	-
Lloyds Channel Islands1	5.3	-	N/A	98.1	-	N/A	540	-	N/A
Total International	17.1	12.4	37.9	78.6	79.0	(0.4)	2,176	1,569	38.7
Total FUM-related revenue	112.2	101.9	10.1	73.9	79.2	(5.3)	15,174	12,869	17.9
Financial Planning - UK	3.7	3.8	(2.6)
Financial Planning - International	1.0	1.0	-
Other income	1.3	1.9	(31.6)
Total non-FUM-related revenue	6.0	6.7	(10.4)
Total Group revenue	118.2	108.6	8.8

 

 

1.             Average FUM for Lloyds Channel Islands time weighted to seven months for the purposes of the yield calculation.

 

The yield on BPS fees for UKIM decreased marginally by 0.5bps to 67.3bps (FY20: 67.8bps) driven by the attrition seen in H1 and phasing of inflows in H2. The BPS non-fee income yield also declined, primarily due to the decrease in interest turn revenue noted above, resulting in a yield of 1.6bps compared to 5.5bps reported for FY20.

 

MPS recorded a decline in fee yield of 6.7bps to 40.1bps compared to the prior year. This was principally driven by a change in mix with Platform MPS growing more rapidly than custody MPS. The Platform MPS service includes our BM Investment Solutions, business-to-business offering that generates a relatively lower yield. Moreover, as announced to the market on 7 January 2021, the standard fee rate for MPS fees has reduced in view of the removal of the application of VAT to this service.

 

The Funds fee yields rose by 2.9bps to 55.3bps in FY21 due to a change in mix reflecting the outflows seen during the period in the Defensive Capital Fund and other BM funds relative to the higher yielding Cornelian Risk Managed Funds range.

 

International fee-income yields were up marginally by 0.2bps to 54.4bps whilst non-fee income yield declined by 7.2bps driven by a decrease in interest and FX income during the period. The acquired Lloyds Channel Islands assets generated a yield of 98.1bps based on time weighted FUM for seven months of the year.

 

Underlying costs

Total underlying costs have increased by 2.3% to £87.6 million (FY20: £85.6 million) mainly due to the incremental costs arising from the two recent acquisitions of £4.2 million and higher variable staff costs.

 

Staff costs

Total staff costs increased by 5.1% to £53.2 million. Fixed staff costs increased marginally by 0.5% from £39.8 million to £40.0 million. The incremental cost from the two acquired businesses amounted to £1.7 million whilst the Group's core operations recorded a net decrease of £1.5 million in the year. This comprised additional payroll costs of £2.0 million from net new hires, primarily within the front office areas, and inflationary pay rises, offset by savings of £1.5 million arising from the transfer of a number of roles from the Investment Services and Technology Services departments to SS&C during the year under the partnership arrangement, and reductions in temporary staff costs and recruitment fees of £2.0 million.

 

Variable staff costs increased by 22.2% to £13.2 million in FY21. Of this, £0.7 million was attributable to the two acquired businesses. The higher bonus pool accrual for the year reflects the Group's resilient performance against a challenging macroeconomic background and our focus on retaining key talent.

 

Non-staff costs

Non-staff costs amounted to £34.4 million representing a decrease of 1.7% on the prior year. Excluding the additional acquired costs of £1.8 million, non-staff costs for the core business fell by £2.4 million or 7.1%. The bulk of this cost reduction was seen within Change costs, down £2.4 million, as the Group completed business remediation in FY20 and is now focused on growth and ongoing client and adviser focused technology enhancements. Property and office costs decreased by £1.0 million, partly driven by the saving achieved from the Group moving to a single office in London in March 2020 and travel and entertainment spend was down £0.9 million as a result of reduced travel and client facing activities caused by the COVID-19 pandemic. These reductions were offset by an increase in operational costs as part of the transformation of our operating platform, in partnership with SS&C, amounting to £1.5 million and legal and professional fees of £0.4 million.

 

Combined, the above gave rise to an underlying profit before tax of £30.6 million, representing an increase of 33.0% on the previous year and resulting in a profit margin of 25.9% up 4.7 points on last year (FY20: 21.2%).

 

On a statutory basis, the profit before tax more than doubled on the prior year to £25.1 million (FY20: £10.0 million) partly due to a £5.0 million gain recognised on the Lloyds Channel Islands acquisition. The other one-off underlying adjustments for the period are broadly similar in quantum to the prior year, however, the amortisation of client-relationship intangible assets has increased from £2.9 million to £4.9 million due to the recognition of intangible assets arising on the Cornelian and Lloyds Channel Islands acquisitions. A breakdown of the underling adjustments, together with an explanation of each, is included further below in the Financial review. The statutory profit margin before tax is of 21.2% compared to 9.2% reported in FY20.

 

 

FUM movement in the year

	FY21 £m	FY20 £m
Opening FUM	13,685	13,147
Organic net new business	(275)	(774)
FUM acquired in the year1	882	1,181
Investment performance	2,167	131
Total FUM growth	2,774	538
Closing FUM	16,459	13,685
Organic net new business	(2.0%)	(5.9%)
Total FUM growth	20.3%	4.1%
Investment performance in the year	15.8%	1.0%
MSCI PIMFA Private Investor Balanced Index2	12.9%	(3.5%)

 

 

1.             Closing value of the acquired Lloyds Channel Islands FUM at the completion date, 30 November 2020.

2.             Capital-only index.

 

During FY21, FUM increased by £2.8 billion or 20.3%. This reflects the assets acquired from Lloyds Channel Islands in November 2020 of £0.9 billion and positive investment performance of £2.2 billion, partly offset by organic net outflows of £0.3 billion. The net outflows were predominantly seen in the first half of the financial year, which was impacted by the macroeconomic uncertainty and market volatility caused by the COVID-19 pandemic. The Group returned to positive net flows in H2 with growing momentum seen in the last quarter driven by its strong client and intermediary relationships.

 

Overall investment performance for the year to June was 15.8%, well ahead of the MSCI PIMFA Private Investor Balanced Index which rose by 12.9% over the same period.

 

Closing FUM by service and segment

The table below shows the closing FUM broken down by segment and by our key services within UKIM at 30 June 2021 and the comparative period.

	FY21 £m	FY20 £m	Change %
BPS	9,460	8,247	14.7
MPS	2,411	1,809	33.3
Funds	2,076	2,051	1.2
UKIM total	13,947	12,107	15.2
International	2,512	1,578	59.2
Total FUM	16,459	13,685	20.3

 

Within UKIM, the BPS core offering made good progress closing the year at £9.5 billion. 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 client needs.

 

Within MPS, we continue to see good momentum on Platform MPS and particularly in Brooks Macdonald Investment Solutions, our business-to-business offering, with several material deals agreed during the year.

 

The Funds business has experienced net outflows during the year, particularly in our Defensive Capital Fund which has been affected by a downturn in sentiment in the Absolute Return sector. However, outflows have slowed down during H2.

 

In addition to the solid investment performance, the FUM growth in International during the year was principally driven by the acquisition of the Lloyds Channel Islands business. This was partly off-set by net outflows in the core business, driven in particular by a number of larger, low margin mandates. With the acquired business, now fully integrated, International is best positioned to continue to grow and attract new business.

 

Segmental analysis

As previously announced in January 2021, the Financial Planning division was integrated with the UK Investment Management business in a move to ensure the Group is best placed to deliver quality service to both private clients and intermediaries. Accordingly, going forward, the Group has two distinct business segments; UKIM and International. The results of Cornelian since acquisition are included in the UKIM segment, whilst the results of the Lloyds Channel Islands business since acquisition have been included in the International segment.

The tables below provide a breakdown of the annual performance broken down by these segments. Comparative figures have been presented on the same basis to ensure a like-for-like comparison.

FY21 (£m)	UK Investment Management	International	Group and consolidation 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 before tax	29.0	4.5	(2.9)	30.6
Underlying profit before tax margin	29.0%	24.7%	N/A	25.9%

 

 

FY20 (£m)	UK Investment Management	International	Group and consolidation adjustments	Total
Revenue	95.2	13.4	-	108.6
Direct costs	(45.2)	(8.0)	(32.4)	(85.6)
Operating contribution	50.0	5.4	(32.4)	23.0
Indirect cost recharges and net finance costs	(26.1)	(2.9)	29.0	-
Underlying profit before tax	23.9	2.5	(3.4)	23.0
Underlying profit before tax margin	25.1%	18.7%	N/A	21.2%

 

Both business segments delivered an improvement in performance during the year with increases registered across revenues, contribution, underlying profit and underlying profit margin.

 

UKIM reported a 4.8% increase in revenue, driven by a full year contribution of the Cornelian business and an improvement in flows seen during the year, particularly within the specialist BPS products, Platform MPS and Brooks Macdonald Investment Solutions offerings. The increase in revenue, combined with disciplined cost management, resulted in a 21.3% rise in underlying profit and an improvement in underlying profit margin of 3.9 points.

 

International reported an increase in revenues of 35.8% driven primarily by the acquisition of the Lloyds Channel business adding £0.9 billion in FUM and £5.3 million in revenues during the year since November 2020. The division's profits almost doubled, and its underlying profit margin was up by six percentage points on the prior year.

 

Reconciliation between underlying and statutory profits

Underlying profit before tax is considered by the Board to be an accurate reflection of the Group's performance when compared to the statutory results, as this excludes income and expense categories which are deemed of a non-recurring nature or a non-cash operating item. Reporting at an underlying basis is also considered appropriate for external analyst coverage and peer group benchmarking. A reconciliation between underlying and statutory profit before tax for the year ended 30 June 2021 with comparatives is shown in the table below:

	FY21 £m	FY20 £m
Underlying profit before tax	30.6	23.0
Acquisitions related items:
- Gain arising on acquisition	5.0	-
- Deal structuring and legal costs	-	(2.8)
- Integration and staff retention costs	(2.7)	(1.4)
Amortisation of client relationships and contracts acquired with fund managers	(4.9)	(2.9)
Client relationship contracts impairment	(1.5)	-
Dual running operating platform costs	(1.0)	-
Changes in fair value and finance cost of deferred consideration	(0.4)	(0.2)
Goodwill impairment	-	(4.5)
Head office relocation costs	-	(1.2)
Total underlying adjustments	(5.5)	(13.0)
Statutory profit before tax	25.1	10.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition related costs (£2.3 million credit)

i.    Gain arising on acquisition (£5.0 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. Refer to Note 6 of the Notes to the preliminary announcement further below for details on the acquisition accounting.

ii.   FY20 - Deal structuring and legal costs (£2.8 million charge)
These represent costs incurred in relation to the acquisition of Cornelian Asset Managers Group Limited announced on 22 November 2019 and the acquisition of the Lloyds Channel Islands business announced on 24 June 2020. The costs incurred included corporate finance services, legal fees and due diligence fees.

iii.  Integration and staff retention costs (£2.7 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.

 

Amortisation of client relationship contracts and contracts acquired with fund managers (£4.9 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 5 and 20 years. The charge for the year includes the newly acquired investment management contracts arising on the Lloyds Channel Islands transaction. This amortisation charge has been excluded from the underlying profit since it is a significant non-cash item. Refer to Note 9 to the Notes to the preliminary announcement further below for more details.

 

Client relationship contracts impairment (£1.5 million charge)

Client relationship contracts are reviewed annually for impairment. In view of accelerated withdrawals from the previously acquired business, DPZ Limited, seen during the year, the estimated useful economic life of the intangible assets associated with this business is reduced. Accordingly, an impairment charge of £1.5 million has been recognised in the year. Refer to Note 9 to the Notes to the preliminary announcement further below for more details.

 

Dual running operating platform costs (£1.0 million charge)

As announced in October 2020, the Group has entered into a partnership agreement with SS&C to transform our adviser and client service including the onboarding process and digital experience, as well enhancing our operating platform. As part of the transition process, during FY21, the Group incurred incremental costs in running two operating platforms concurrently. 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 (£0.4 million charge)

This comprises the fair value measurement arising on deferred consideration payments from acquisitions carried out by the Group, together with their associated net finance costs where applicable. The increase is due to the recognition of deferred consideration on the Cornelian and Lloyds Channel Islands acquisitions.

 

FY20 - Goodwill impairment (£4.5 million charge)

Goodwill is reviewed annually for impairment based on the carrying value of the asset compared to its expected recoverable amount. The impairment charge recognised in the prior year related to the Levitas transaction. In 2019, the Group entered into a new five-year partnership with the distributor of the Levitas fund that carried a lower fund sponsorship fee, the aim of this reduction was to enhance FUM flows and deepen the relationship. Unfortunately, for reasons beyond our control, the anticipated inflows were not forthcoming and we reassessed the carrying value of this intangible asset. As a result, the associated goodwill carrying value was no longer supported and triggered an impairment charge in the prior year.

 

FY20 - Head office relocation costs (£1.2 million charge)

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

 

Taxation

The Group's total tax charge for the year of £5.5 million is up by 52.8% on the prior year. This is in part attributable to higher statutory profits, and a higher proportion of disallowable expenses added back for tax purposes, such as those arising on amortisation of intangible assets and share-based payments, compared to deductible tax allowances. The increase is also attributable to the deferred tax debit recognised as a result of remeasuring our deferred tax assets and liabilities for the substantively enacted corporation tax rate to 25% from 1 April 2023. Details on taxation are provided in Note 5 of the Notes to the preliminary announcement further below.

Earnings per share

The Group's basic statutory earnings per share for the year ended 30 June 2021 was 125.3p (FY20: 43.2p). On an underlying basis, diluted earnings per share was of 155.1p representing an increase of 25.4% on the prior year (FY20: 123.7p) largely driven by the contribution from the two acquired businesses. Details on the basic and diluted earnings per share are provided in Note 7 of the Notes to the preliminary announcement further below.

 

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 40.0p per share (FY20: 32.0p). Taking into account the interim dividend of 23.0p per share (FY20: 21.0p), this results in a total dividend for the year of 63.0p per share (FY20: 53.0p), an overall increase of 10p or 18.9%. Refer to Note 8 to the Notes to the preliminary announcement further below for more details. The recommended dividend is subject to shareholders' approval, which will be sought at the Company's Annual General Meeting on 28 October 2021.

 

Financial position and regulatory capital

The Group's financial position is strong with net assets increasing by 8.5% to £134.0 million at 30 June 2021 (FY20: £123.5 million) and tangible net assets (net assets excluding intangibles) up to £44.1 million (FY20: £39.7 million). As at 30 June 2021, the Group had regulatory capital resources of £52.6 million (FY20: £46.6 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 21.6% over the Pillar I risk exposure requirement (FY20: 20.7%).

	FY21 £m	FY20 £m
Share capital	0.1	0.1
Share premium	78.7	78.0
Other reserves	8.5	6.4
Retained earnings	46.7	39.0
Total equity	134.0	123.5
Intangible assets (net book value)	(89.9)	(83.8)
Deferred tax liabilities associated with intangible assets	8.5	6.9
Tier 1 Capital	52.6	46.6
Own funds	52.6	46.6

 

Brooks Macdonald Asset Management Limited, the Group's main operating subsidiary, is an IFPRU EUR125k Limited Licence Firm regulated by the Financial Conduct Authority ("FCA"). In view of this, the Group is classified as a regulated group and subject to the same regime. As required under FCA rules, and those of both the Jersey and Guernsey Financial Services Commission, the Group assesses its regulatory capital and liquidity on an ongoing basis through the Internal Capital Adequacy Assessment Process ("ICAAP") and Adjusted Net Liquid Asset ("ANLA") assessments, which include performing a range of stress tests and scenario 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 FY20 ICAAP review was conducted for the year ended 30 June 2020 and signed off by the Board in December 2020. Regulatory capital forecasts are performed monthly and take into account expected dividends and intangible asset acquisitions and disposals, as well as, budgeted and forecast trading results. The Group's Pillar III disclosures are published annually on the Group's website (www.brooksmacdonald.com) and provide further details about the Group's regulatory capital resources and requirements. The Group monitors a range of capital and liquidity statistics on a daily and monthly basis.

 

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 £54.9 million (FY20: £50.2 million). During the year, the Group financed the Lloyds Channel Islands acquisition resulting in a net cash outflow of £5.3m from own funds. The Group had no borrowings at 30 June 2021 (FY20: £nil).

 

During the year ended 30 June 2021, the Group incurred capital expenditure of £3.7 million. This comprised technology-related development of £3.1 million, property-related costs of £0.4 million and IT and office equipment of £0.2 million. The technology-related spend was incurred in connection with the partnership arrangement with SS&C to enhance our operating platform and transform the Group's adviser and client service. The capital expenditure incurred during the year includes legal fees in relation to the master agreement, planning and scoping the implementation programme and software costs to re-platform. These will be amortised over a ten-year period from the point the new platform goes live in FY22.

 

Financial outlook

The economic uncertainty and market disruption caused by the COVID-19 pandemic has reinforced the importance of high-quality financial planning and investment management. The past year has proven the resilience of the Group's business model and gives us a high degree of confidence in our ability to deliver for shareholders, advisers and clients. The continued growth in our core business, combined with the successful integration of the Cornelian and the Lloyds Channel Islands businesses, together with the enhancements we are putting in place to our operating platform, position the Group well for further success. As we implement the next phase of our strategy, we remain focused on positive momentum in organic growth, delivery of a scalable operating platform and progression in operating margin.

Ben Thorpe
Chief Financial Officer

 

15 September 2021

 

Risks

Taking a dynamic approach to risk management to accelerate digital transformation and positive client outcomes

Over the past year, the Group has continued in its commitment to promote a positive compliance and risk culture across the organisation. Furthermore, it has sustained its focus on embedding and enhancing the risk management framework, through its focus on harm, third parties and resilience. The Group has also continued its drive towards efficient, data-driven and evidenced-based risk management, which has facilitated the transition to an agile and dynamic approach to identifying, assessing, managing and monitoring risks. Not only has this proven valuable with the acquisition of Cornelian and the Lloyds Channel Islands acquisition, but also during the COVID-19 pandemic and the concurrent change management initiatives, including the new partnership with SS&C. Overall, the Group remains well capitalised and liquid with significant buffers above all regulatory requirements.

 

How we manage risk

The Group Risk Management Framework ("RMF")

Risk management starts with oversight through an appropriate governance structure using a board and committee structure, with individual and collective roles and delegated authorities and a set of core policies to provide guidance to staff.

 

Effective risk management relies on insight through robust and timely management information. We manage our risks by learning lessons from past events, such as, errors, breaches, near misses and complaints, by conducting point-in-time risk assessments in the present and attempting to predict what the future risk landscape might look like through our suite of key indicators.

 

The risk management methodology within the Group's risk management framework consists of the following six interlinked steps:

Risk identification. This takes place through regular business monitoring and periodic reviews, including risk mapping exercises and the risks arising from change or new products and services.

Risk appetite. Once we have identified risks, we set an appetite for each material risk. This defines the amount of risk that the Board is prepared to accept in order to deliver its business objectives. Risk appetite reflects culture, strategic goals and the existing operating and control environment.

Risk analysis. Having set the risk appetite, we can assess the impact and probability of each material risk against the agreed risk appetite. This can include the quantification of capital risk as part of the Internal Capital Adequacy Assessment Process ("ICAAP").

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 either: to accept, avoid or transfer part or all of those risks which are outside our risk appetite; or to reconsider the risk appetite.

Reporting. Ongoing reporting of risks to senior management provides insight to inform decision-making and allocation of resources to achieve business objectives.

 

Overarching risk appetite statement

•     The Group's Overarching risk appetite 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 will operate a sustainable business that conducts itself in a reputable and prudent manner, taking into account the interests of our clients through providing products and services suited to their needs and risk profile, which demonstrate value for money.

•     As the business continues to grow through sustainable organic growth and strategic value-adding acquisitions, the ORAS will help ensure our key stakeholder obligations are met, supported by internal policies and regulatory requirements. We commit to using this framework to ensure we make strategic and business decisions that do not exceed our overarching risk appetite.

•     In all of the Group's decisions and operations, we balance risk versus reward and we consider the following three dimensions.

 

Client outcome

•     We will put client interests at the heart of everything we do to ensure appropriate client outcomes.

Control environment

•     We will, at all times, operate within our risk appetite, operational risk parameters and regulatory framework, ensuring a robust control and oversight environment.

 

Financial performance and resources

•     We will optimise profitability and use resources efficiently to drive financial performance.

•     We will, at all times, maintain adequate capital and liquid assets to meet financial and funding obligations as they
fall due.

•     We will invest in the development and wellbeing of our 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

Definition	Key risks identified by risk management framework	Change since last year	Rationale for change
1. Credit risk The risk of loss arising from a client or counterparty failing to meet their financial obligations to a Brooks Macdonald entity as and when they fall due.	•     Cash deposits with external banks •     Client credit risk •     Counterparty credit risk •     Custodian-related credit risk •     Indirect counterparty risk in respect of referrals	Unchanged	The risk remains unchanged given the strong credit risk control environment including ongoing monitoring and due diligence on all counterparties.
2. Liquidity risk The risk that assets are insufficiently liquid and/or Brooks Macdonald does not have sufficient financial resources available to meet liabilities as they fall due, or can secure such resources only at excessive cost. Liquidity risk also includes the risk that the Group is unable to meet regulatory prudential liquidity ratios.	•     Corporate cash deposited with external banks •     Client cash deposited with external banks (CASS rules) •     Failed trades •     Indirect liquidity risk associated with client portfolios •     Indirect liquidity risks associated with dealing •     Indirect risk in respect of the liquidity of individual holdings in a fund •     Indirect risk in respect of the overall liquidity of our funds	Decreasing	The Group has sufficient liquid resources significantly above its Minimum Liquidity Requirement. The Group has a robust Liquidity Risk Management Framework, including adequate contingency funding arrangements which are tested on a periodic basis.
3. Market risk The risk that arises from fluctuations in the value of, or income arising from, movements in equity, bonds, or other traded markets, interest rates or foreign exchange rates that has a financial impact.	•     Failed trades •     Indirect market risk associated with advising on client portfolios •     Indirect market risks associated with dealing •     Indirect market risk associated with managing client portfolios	Decreasing	Given the COVID-19 pandemic, markets, and most asset classes exhibited significant volatility. However, with a successful vaccine rollout and gradual reopening of economies, it is expected that the worst of the COVID-19 induced market volatility is over.

 

 

 

 

 

 

Business level risks

Definition	Key risks identified by risk management framework	Change since last year	Rationale for change
4. Business and strategic risk The risk of having an inadequate business model or making strategic decisions that may result in lower than anticipated profit or losses or exposes the Group to unforeseen risks.	•     Adviser concentration •     Business growth •     Extreme market events •     Investment performance •     Product governance •     UK political risk	Unchanged	This risk remains unchanged, given strong investment performance and a progressive improvement in net flows over the last year.
5. Conduct risk The risk of causing detriment to clients, stakeholders or the integrity of the wider market because of inappropriate execution of Brooks Macdonald's business activities.	•     Client service •     Investment performance •     Suitability and conduct risk	Unchanged	Over the past year, the Group has been working on several initiatives to promote good risk culture and awareness. Furthermore, the Group has developed enhanced management information to measure conduct risk, as well as, promoting good conduct culture through policy compliance, online training, and virtual classrooms/webinars.
6. Operational risk The risk of loss arising from inadequate or failed internal processes, people and systems, or from external events. It includes legal and fraud risk but not strategic, reputational and business risks.	•     Data quality •     Cyber •     IT infrastructure and capability •     Key suppliers and outsourcing •     Operational maturity •     People •     Resilience	Unchanged	The Group has enhanced its processes, including improved documentation of all key processes. Incident management has been enhanced throughout the year. Furthermore, a change risk management framework is in place.
7. Prudential risk The risk of adverse business and/or client impact resulting from breaching regulatory capital/liquidity requirements, or market/credit risk internal limits.	•     Prudential requirements	Decreasing	The Group has capital resources significantly above its Minimum Capital Requirement.
8. Legal and regulatory risk Legal and regulatory risk is defined as the risk of exposure to legal or regulatory penalties, financial forfeiture and material loss due to failure to act in accordance with industry laws and regulations.	•     Reputational risk •     Financial crime •     Governance •     Legacy issues •     Regulatory, tax and legal compliance	Unchanged	This risk remains unchanged given that the regulatory landscape and focus on the wealth management industry has not changed.

 

 

 

 

 

 

 

 

 

 

 

 

 

Emerging risks

 

Definition	Context
9. Change management risk (Emerging) The potential financial, reputational, operational and client-related risks arising from the poor implementation of material projects or change initiatives.	In line with our growth agenda, the Group is undergoing a strategic transformation project of the end-to-end operating model and client journey, to cater for shifting client demand and sectoral changes.
10. Operational resilience (Emerging) The potential financial, reputational, operational and client-related risks arising from the inability to prevent, adapt, respond to, recover and learn from operational disruptions.	Given our agile operating model, strong capital and liquidity position, the Group has continued to provide a high level of service to our clients and advisers, whilst introducing a new connected way of working as staff begin to return to our offices.
11. Third-party supplier risk (Emerging) The potential financial, reputational, operational and client-related risks arising from using third-party suppliers.	Given our announcement to partner with SS&C and outsource back office services, the Group has focused on enhancing its third-party supplier framework and continuing to invest in oversight capabilities.

 

 

 

 

Viability statement

In accordance with the UK Corporate Governance Code, the Board has assessed the Group's viability over a five-year period from FY22 through to FY26. The decision to do so over this period is aligned with the Group's strategy, its budgeting and forecasting process and the scenarios set out in the 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 outbreak of the COVID-19 pandemic 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 FY22 to FY26 was reviewed, challenged and approved by the Board in June 2021.

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 42.5% and 19.0% 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.

 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) and a recruitment freeze or headcount reduction. 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.

The Group's business continuity planning enabled it to react effectively to the COVID-19 crisis and move seamlessly to remote working during the various lockdown periods with a strong focus on staff well-being and maintaining high-quality service to clients and intermediaries. The Group was also able to transition to a hybrid operating model as Government restrictions eased.

The COVID-19 outbreak last year caused economic uncertainty and market volatility and whilst the markets have since recovered, the pandemic is still present and its full scale and duration are still not known. However, 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 2021

	Note	2021 £'000	2020 £'000
Revenue	4	118,206	108,558
Administrative costs		(96,012)	(93,794)
Gross profit		22,194	14,764
Other gains/(losses) - net		(1,438)	(4,519)
Operating profit		20,756	10,245
Gain on bargain purchase	6	4,966	-
Finance income		47	261
Finance costs		(678)	(454)
Profit before tax		25,091	10,052
Taxation	5	(5,449)	(3,626)
Profit for the period attributable to equity holders of the Company		19,642	6,426
Other comprehensive income		-	-
Total comprehensive income for the year		19,642	6,426
Earnings per share
Basic	7	125.3p	43.2p
Diluted	7	124.9p	43.1p

 

 

 

 

 

 

 

 

 

 

Consolidated statement of financial position

As at 30 June 2021

	Note	30 Jun 2021 £'000	30 Jun 20201 £'000
Assets
Non-current assets
Intangible assets	9	89,897	83,804
Property, plant and equipment		2,756	3,181
Right-of-use assets		5,979	6,991
Financial assets at fair value through other comprehensive income		500	500
Deferred tax assets	10	2,736	1,524
Total non-current assets		101,868	96,000
Current assets
Financial assets at fair value through profit or loss		624	549
Trade and other receivables		28,449	26,081
Current tax receivables		32	-
Cash and cash equivalents		54,899	50,168
Total current assets		84,004	76,798
Total assets		185,872	172,798
Liabilities
Non-current liabilities
Deferred consideration	11	(303)	(6,300)
Lease liabilities		(5,422)	(6,659)
Provisions	12	(279)	(219)
Deferred tax liabilities	10	(8,902)	(7,230)
Other non-current liabilities		(548)	(330)
Total non-current liabilities		(15,454)	(20,738)
Current liabilities
Trade and other payables		(27,055)	(22,765)
Current tax liabilities		-	(480)
Deferred consideration	11	(5,934)	(1,691)
Lease liabilities		(1,447)	(1,275)
Provisions	12	(1,979)	(2,308)
Total current liabilities		(36,415)	(28,519)
Net assets		134,003	123,541
Equity
Share capital		161	161
Share premium account		78,703	77,982
Other reserves		8,467	6,398
Retained earnings		46,672	39,000
Total equity		134,003	123,541

 

 

 

 

 

 

 

 

 

 

 

 

 

¹  See Note 2b for details regarding the reclassification of current deferred consideration and current provisions as at 30 June 2020.

The Consolidated financial statements were approved by the Board of Directors and authorised for issue on 15 September 2021, and signed on their behalf by:

Andrew Shepherd                                                                              Ben Thorpe
CEO                                                                                                       Chief Financial Officer

Company registration number: 4402058

 

Consolidated statement of changes in equity

For the year ended 30 June 2021

	Note	Share capital £'000	Share premium account £'000	Other reserves £'000	Retained earnings £'000	Total equity £'000
Balance at 1 July 2019		139	39,068	4,575	43,091	86,873
Comprehensive income
Profit for the year		-	-	-	6,426	6,426
Other comprehensive income		-	-	-	-	-
Total comprehensive income		-	-	-	6,426	6,426
Transactions with owners
Issue of ordinary shares		22	38,914	-	-	38,936
Share-based payments		-	-	3,571	-	3,571
Share options payments exercised		-	-	(1,770)	1,770	-
Purchase of own shares by Employee Benefit Trust		-	-	-	(4,607)	(4,607)
Tax on share options		-	-	22	-	22
Dividends paid	8	-	-	-	(7,680)	(7,680)
Total transactions with owners		22	38,914	1,823	(10,517)	30,242
Balance at 30 June 2020		161	77,982	6,398	39,000	123,541
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 payments 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	8	-	-	-	(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

 

 

 

 

 

 

 

Consolidated statement of cash flows

For the year ended 30 June 2021

	Note	2021 £'000	20201 £'000
Cash flows from operating activities
Cash generated from operations	13	36,907	29,433
Taxation paid		(5,804)	(5,865)
Net cash generated from operating activities		31,103	23,568
Cash flows from investing activities
Purchase of computer software	9	(3,061)	(1,614)
Purchase of property, plant and equipment		(620)	(1,958)
Consideration paid	6	(5,287)	(21,102)
Deferred consideration paid	11	(2,421)	(919)
Proceeds from sale of discontinued operations		-	568
Interest received		47	252
Finance costs paid		-	(5)
Net cash used in investing activities		(11,342)	(24,778)
Cash flows from financing activities
Proceeds of issue of shares		721	38,936
Shares issued as consideration	6	-	(9,000)
Payment of lease liabilities and initial direct costs		(1,969)	(2,111)
Proceeds of lease reverse premium		-	1,250
Purchase of own shares by Employee Benefit Trust		(5,210)	(4,607)
Dividends paid to shareholders	8	(8,572)	(7,680)
Net cash (used)/generated in financing activities		(15,030)	16,788
Net increase in cash and cash equivalents		4,731	15,578
Cash and cash equivalents at beginning of year		50,168	34,590
Cash and cash equivalents at end of year		54,899	50,168

 

¹  See Note 13 for details regarding changes to the prior year classification of cash flows from operating activities and cash flows from investing activities.

 

 

Notes to the preliminary announcement

For the year ended 30 June 2021

 

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

 

a.   Basis of preparation

The Group's Consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the EU, and IFRS Interpretations Committee ("IFRS IC") interpretations, as adopted by the Companies Act 2006 applicable to companies reporting under IFRS. The Financial statements have been prepared on the historical cost basis, except for the revaluation of financial assets at fair value through other comprehensive income, financial assets and financial liabilities at fair value through profit or loss and deferred consideration such that they are measured at their fair value.

 

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

 

 

b.   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 2020, except as explained below.

 

New accounting standards, amendments and interpretations adopted in the year

In the year ended 30 June 2021, the Group did not adopt any new standards or amendments issued by the IASB or interpretations by the IFRS IC that have had a material impact on the Consolidated financial statements.

 

As a result of the UK leaving the European Union on 31 January 2021, the Group's Consolidated financial statements for the year ended 30 June 2021 have been prepared under international accounting standards in conformity with the Companies Act 2006. This has not had any impact on the recognition, measurement or disclosure in these Consolidated financial statements.

 

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

 

 

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

 

Comparative year reclassification

Current deferred consideration has been recognised on the face of the Consolidated statement of financial position in the current year. In previous periods, current deferred consideration was recognised within current provisions. The comparative information has therefore been reclassified by moving £1,691,000 from current provisions to current deferred consideration at 30 June 2020 to be consistent with the current period.

 

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, deferred consideration, the estimation of the fair value of share-based payments and client compensation provisions.

 

There have been no critical judgements required in applying the Group's accounting policies in this period, but there have been the use of important estimations detailed separately below.

 

The underlying assumptions made are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised only if the revision affects both current and future periods.

 

Further information about key assumptions and sources of estimation uncertainty is set out below.

Intangible assets

 

The Group has acquired client relationships and the associated investment management contracts as part of business combinations, through separate purchase or with newly employed teams of fund managers, as described in Note 9. In assessing the fair value of these assets, the Group has estimated their finite life based on information about the typical length of existing client relationships. Contracts acquired with fund managers and acquired client relationship contracts are amortised on a straight-line basis over their estimated useful lives, ranging from 5 to 20 years.

 

Goodwill recognised as part of a business combination is reviewed annually for impairment, or when a change in circumstances indicates that it might be impaired. The recoverable amounts of cash-generating units ("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 are given in Note 9.

 

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 9 for further details on the discount rate for the various CGUs.

 

Deferred consideration

As described in Note 11, the Group has a deferred consideration balance in respect of the acquisition of Cornelian Asset Managers Group Limited in February 2020, and the Lloyds Channel Island acquisition in November 2020. Deferred consideration is recognised at its fair value, being an estimate of the amount that will ultimately be payable in future periods. For Cornelian, the deferred consideration has been calculated allowing for estimated growth in the acquired funds and estimated cost savings, discounted by the estimated interest rate. For the Lloyds Channel Islands acquisition, the deferred consideration has been calculated based on client attrition, discounted by the estimated interest rate. If the estimated discount rate used in the deferred consideration calculations increased by 2%, the Group's estimated deferred consideration at 30 June 2021 would decrease by £73,000.

 

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 vesting assumptions would decrease the charge in the Consolidated statement of comprehensive income for the year by £801,000.

 

Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event, where it is probable that it will result in an outflow of economic benefits and can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation.

 

Where the outflow is not probable or cannot be reliably measured, the potential obligation is disclosed as a contingent liability in the Financial statements.

 

Insurance recoveries relating to legal fees are recognised when, and only when, it is virtually certain that reimbursement will be received if the corresponding obligation is settled. Reimbursements received are disclosed net in the Consolidated statement of comprehensive income and gross in the Consolidated statement of financial position.

 

The Group may receive complaints from clients in relation to the services provided. Complaints are assessed on a case-by-case basis and provisions are made where it is judged to be likely that compensation will be paid.

 

As described in Note 12, the Group has recognised a provision in respect of exceptional costs of resolving legacy matters. The Group has a present obligation relating to a number of discretionary portfolios formerly managed by Spearpoint, which was acquired by the Group in 2012 and the provision has been reliably measured at the value of expenditures expected to be required to settle the obligation.

 

3.   Segmental information

For management purposes the Group's activities are organised into 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 Executive Committee, which is the Group's chief operating decision-maker. In accordance with IFRS 8 'Operating Segments', disclosures are required to reflect the information which the Board of Directors uses internally for evaluating the performance of its operating segments and allocating resources to those segments. The information presented in this Note is consistent with the presentation for internal reporting.

 

From 1 January 2021, the Group integrated its previous Financial Planning segment into its UK Investment Management segment. As a result, the prior year information has been restated to reflect the new segments of UK Investment Management, International and Group and other consolidation adjustments, consistent with the current year.

 

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 offers a similar range of investment management and financial planning 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.

 

Following the Lloyds Channel Islands acquisition (Note 6), the activities since acquisition have been included in the International segment.

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

 

 

Year ended 30 June 2021	UK Investment Management £'000	International £'000	Group & consolidation adjustments £'000	Total £'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 (cost)/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 relationship contracts	-	(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

 

Year ended 30 June 2021	UK Investment Management £'000	International £'000	Group & consolidation adjustments £'000	Total £'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

 

 

 

 

 

 

	UK Investment Management	International	Group & consolidation adjustments	Total
Year ended 30 June 20201	£'000	£'000	£'000	£'000
Total revenue	99,781	13,335	(6)	113,110
Inter segment revenue	(4,552)	-	-	(4,552)
External revenue	95,229	13,335	(6)	108,558
Underlying administrative costs	(45,165)	(8,026)	(32,424)	(85,615)
Operating contribution	50,064	5,309	(32,430)	22,943
Allocated costs	(26,069)	(2,890)	28,959	-
Net finance income	1	50	29	80
Underlying profit/(loss) before tax	23,996	2,469	(3,442)	23,023
Goodwill impairment	-	-	(4,471)	(4,471)
Acquisition-related costs	(1,085)	(606)	(2,570)	(4,261)
Amortisation of client relationships and contracts acquired with fund managers	(701)	(420)	(1,762)	(2,883)
Head office relocation costs	(1,166)	-	-	(1,166)
Finance cost of deferred consideration	-	-	(145)	(145)
Changes in fair value of contingent consideration	(54)	-	-	(54)
Finance income from contingent consideration	7	-	2	9
Profit mark-up on Group allocated costs	136	(136)	-	-
Profit/(loss) before tax	21,133	1,307	(12,388)	10,052
Taxation				(3,626)
Profit for the period attributable to equity holders of the Company				6,426

 

 

 

	UK Investment Management	International	Group & consolidation adjustments	Total
Year ended 30 June 20201	£'000	£'000	£'000	£'000
Statutory operating costs included the following:
Amortisation	3,134	429	1,764	5,327
Depreciation	2,940	324	120	3,384

 

¹  The prior year has been restated to reflect the integration of the previous Financial Planning into UK Investment Management as described earlier in this Note.

 

 

 

 

 

 

 

 

 

 

 

4.   Revenue

	2021 £'000	2020 £'000
Portfolio management fees	98,006	95,108
Fund management fees	15,353	8,644
Advisory fees	4,526	4,325
Financial services commission	321	481
Total revenue	118,206	108,558

 

 

Portfolio management fees and financial services commission

Portfolio management and other advisory and custody services are billed in arrears but are recognised over the period the service is provided. Fees are calculated on the basis of a percentage of the value of the portfolio over the period. Dealing charges are levied at the time a deal is placed for a client. 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.

 

Fund management fees

Where amounts due are conditional on the successful completion of fundraising for investment vehicles, revenue is recognised where, in the opinion of the Directors, there is reasonable certainty that sufficient funds have been raised to enable the successful operation of that investment vehicle. Amounts due on an annual basis for the management of third-party investment vehicles are recognised on a time apportioned basis. Fees are calculated on the basis of a percentage of the value of the portfolio over the period.

Advisory fees

 

Advisory fees are charged to clients using an hourly rate or by a fixed fee arrangement and are recognised over the period the service is provided. Commissions receivable and payable are accounted for in the period in which they are earned.

 

a.   Geographic analysis

 

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

	2021 £'000	2020 £'000
United Kingdom	99,995	95,223
Channel Islands	18,211	13,335
Total revenue	118,206	108,558

 

 

 

 

 

 

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:

	2021 £'000	2020 £'000
UK Corporation Tax at 19% (FY20: 19%)	5,466	3,991
Over provision in prior years	(127)	(66)
Total current tax	5,339	3,925
Deferred tax credits	(6)	(674)
Under provision of deferred tax in prior years	116	462
Research and development tax credit	-	(87)
Income tax expense	5,449	3,626

 

 

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:

 

	2021 £'000	2020 £'000
Profit before taxation	25,091	10,052
Profit multiplied by the standard rate of tax in the UK of 19% (FY20: 19%)	4,767	1,910
Tax effect of amounts that are not deductible (taxable) in calculating taxable income:
Overseas tax losses not available for UK tax purposes	(541)	(24)
Disallowable expenses	447	394
Share-based payments	30	(139)
Depreciation and amortisation	1,419	336
Impairment charges	287	850
Non-taxable income	(951)	(10)
Research and development tax credit	-	(87)
(Over)/under provision in prior years	(9)	396
Income tax expense	5,449	3,626

 

 

 

The deferred tax credits for the year arise from:

	2021 £'000	2020 £'000
Share option reserve	(77)	(247)
Accelerated capital allowances	(53)	(91)
Accelerated capital allowances on research and development	(16)	(154)
Dilapidations	15	-
Amortisation of acquired client relationship contracts	309	(224)
Unused overseas trading losses	(184)	42
Under provision in prior years	116	-
Deferred tax credits	110	(674)

 

 

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 2021 is 19% (FY20: 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.   Business combinations

 

2021

 

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

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

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

 

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

ii.   Per the SPA, the completion balance sheet was to contain net assets of £2,500,000 to be acquired by the Group. Any excess or deficit of the actual net assets acquired would be paid or recouped by the Group. The actual net assets acquired by the Group were £2,595,000 resulting in the Group paying additional consideration of £95,000.

iii.  The total cash deferred contingent consideration is £334,000, payable in two years following completion, based on the client attrition of the funds under management acquired over the two-year period.

 

The fair value of the deferred consideration liability has been remeasured at 30 June 2021, and remains unchanged, which assumes the deferred consideration criteria will be met resulting in the full £334,000 to be paid in two years. The client attrition has been forecast using a similar outflows pattern to that experienced by the rest of the Group. The client attrition is dependent on several unpredictable variables including client sentiment and market conditions.

 

Client relationship intangible assets of £9,080,000 and £3,147,000 were recognised on acquisition in respect of the expected cash inflows and economic benefit from the discretionary and fund management contracts acquired respectively. A gain on bargain purchase of £4,284,000 was recognised on acquisition in relation to the discretionary business and a gain on bargain purchase of £682,000 was recognised on acquisition in relation to the funds business as the net identifiable assets acquired were greater than the total purchase consideration, which has been recognised in the Consolidated statement of comprehensive income. The fair value of the assets acquired are the gross contractual amounts and all are considered to be fully recoverable. The fair value of the identifiable assets and liabilities acquired, at the date of acquisition, are detailed in (a) below.

 

Directly attributable acquisition costs of £19,000 (FY20: £606,000) and integration costs of £2,225,000 (FY20: £nil) were incurred in the acquisition and integration of the Lloyds Channel Islands acquisition, which have been charged to administrative costs in the Consolidated statement of comprehensive income but excluded from underlying profit. During H1 of the year ended 30 June 2021, the Group incurred the remaining integration costs of £456,000 (FY20: £1,426,000) in relation to the Cornelian acquisition that completed during the prior year, see further details below in this Note.

 

 

a.   Net assets acquired through business combination

	£'000
Trade and other receivables	35
Cash at bank	3,038
Trade and other payables	(367)
Corporation tax payable	(115)
Total net assets recognised by acquired companies	2,591
Fair value adjustments:
Client relationship contracts - discretionary business	9,080
Client relationship contracts - fund-management business	3,147
Deferred tax liabilities	(1,219)
Net identifiable assets	13,599
Gain on bargain purchase	(4,966)
Total purchase consideration	8,633

 

 

 

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

b.   Impact on reported results from date of acquisition

In the period from acquisition to 30 June 2021, the Lloyds Channel Islands acquisition earned revenue of £5,315,000 and statutory profit before tax of £3,005,000.

c.   Net cash outflow resulting from business combinations

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

 

 

 

 

 

2020

 

On 28 February 2020, the Group acquired the entire share capital of Cornelian Asset Managers Group Limited ("Cornelian"), an Edinburgh-based independent, well-established wealth manager with national distribution reach. Cornelian Asset Managers Group Limited had two wholly owned subsidiaries: Cornelian Asset Managers Limited and Cornelian Asset Managers Nominees Limited, which also formed part of the Group on acquisition.

 

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

 

	Note	£'000
Cash paid	i	22,000
Shares issued	ii	9,000
Cash paid for final net assets acquired		5,757
Deferred contingent consideration at fair value	iii	7,466
Total purchase consideration		44,223

 

i.    The Group issued 1,690,141 ordinary shares in November 2019 to fund the cash consideration, based on the share price on 21 November 2020 of £18.25 discounted by £0.50 to £17.75 per share.

ii.   The Group issued 453,172 ordinary shares to the previous shareholders of Cornelian Asset Managers Group Limited at a price of £19.86 per share, based on the share price at 28 February 2020.

iii.  The total cash deferred contingent consideration is £8,000,000, payable in up to three instalments in March 2021, October 2021 and March 2022, based on the future value of the funds under management acquired, and cost savings and synergies achieved on integrating the business (Note 11).

 

The fair value of the deferred consideration liability has been remeasured at 30 June 2020, and remains unchanged, which assumes the deferred consideration criteria will be met resulting in the full £8,000,000 to be paid at the various payment dates. The growth of funds under management ("FUM") has been forecast using a similar growth pattern to that experienced by the rest of the Group. The future value of the FUM is dependent on several unpredictable variables including client retention and market movements. The cost savings and synergies are expected to be yielded in full, which has been forecast based on the Group's five-year Medium-Term Plan ("MTP").

 

Client relationship intangible assets of £25,623,000 were recognised on acquisition in respect of the expected cash inflows and economic benefit from the discretionary and fund-management contracts acquired. Goodwill of £16,111,000 was recognised on acquisition in respect of the expected growth in the funds under management and associated cash inflows. The fair value of the assets acquired are the gross contractual amounts and all are considered to be fully recoverable. The fair value of the identifiable assets and liabilities acquired, at the date of acquisition, are detailed in (d) below.

 

Directly attributable acquisition costs of £2,229,000 and integration costs, including staff retention costs of £1,426,000, were incurred in the acquisition and integration of Cornelian, which have been charged to administrative costs in the Consolidated statement of comprehensive income but excluded from underlying profit.

 

d.   Net assets acquired through business combination

	£'000
Computer software	87
Property, plant and equipment	74
Financial assets at fair value through profit and loss	543
Trade and other receivables	1,244
Cash and cash equivalents	6,655
Trade and other payables	(1,229)
Deferred tax liabilities	(17)
Total net assets recognised by acquired companies	7,357
Fair value adjustments:
Client relationship contracts - discretionary business	18,012
Client relationship contracts - fund-management business	7,611
Deferred tax liabilities	(4,868)
Net identifiable assets	28,112
Goodwill	16,111
Total purchase consideration	44,223

 

 

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

 

e.   Impact on reported results from date of acquisition

In the period from acquisition to 30 June 2020, Cornelian earned revenue of £3,048,000 and statutory profit before tax of £452,000. Had Cornelian been consolidated from 1 July 2019, the Consolidated statement of comprehensive income would show revenue of £7,328,000 and statutory profit before tax of £1,685,000.

 

f.    Net cash outflow resulting from business combinations

	£'000
Total purchase consideration	44,223
Less:
Shares issued as consideration	(9,000)
Deferred cash consideration at fair value	(7,466)
Cash paid to acquire Cornelian	27,757
Less cash held by Cornelian	(6,655)
Net cash outflow - investing activities	21,102

 

 

 

7.   Earnings per share

The Directors believe that underlying earnings per share provide a truer reflection of the Group's performance in the year. Underlying earnings per share, which is an alternative performance measure, are calculated based on 'underlying earnings', which is also an alternative performance measure and is defined as earnings before finance costs of deferred consideration, finance income of contingent consideration, changes in the fair value of deferred and contingent consideration, gain on bargain purchase, goodwill impairment, client relationship contracts impairment, amortisation of client relationships and contracts acquired with fund managers, acquisition related costs, dual running costs of operating platform and head office relocation costs. The tax effect of these adjustments has also been considered.

 

Earnings for the year used to calculate earnings per share as reported in these Consolidated financial statements were as follows:

 

	2021 £'000	2020 £'000
Earnings attributable to ordinary shareholders	19,642	6,426
Gain on bargain purchase	(4,966)	-
Amortisation of acquired client relationship contracts (Note 9)	4,928	2,867
Acquisition-related costs (Note 6)	2,672	4,261
Impairment of acquired client relationship contracts (Note 9)	1,513	-
Dual running costs of operating platform	1,000	-
Finance cost of deferred consideration (Note 11)	299	145
Changes in fair value of deferred consideration (Note 11)	60	-
Goodwill impairment (Note 9)	-	4,471
Head office relocation costs	-	1,166
Changes in fair value of contingent consideration	-	54
Amortisation of contracts acquired with fund managers (Note 9)	-	16
Finance income of contingent consideration	-	(9)
Tax impact of adjustments	(760)	(939)
Underlying earnings attributable to ordinary shareholders	24,388	18,458

 

 

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:

	2021 Number of shares	2020 Number of shares
Weighted average number of shares in issue	15,671,672	14,870,729
Effect of dilutive potential shares issuable on exercise of employee share options	50,891	46,052
Diluted weighted average number of shares in issue	15,722,563	14,916,781

 

 

Earnings per share for the year attributable to equity holders of the Company were:

	2021 p	2020 p
Based on reported earnings:
Basic earnings per share	125.3	43.2
Diluted earnings per share	124.9	43.1
Based on underlying earnings:
Basic earnings per share	155.6	124.1
Diluted earnings per share	155.1	123.7

 

 

 

 

8.   Dividends

Amounts recognised as distributions to equity holders of the Company in the year were as follows:

	2021 £'000	2020 £'000
Final dividend paid for the year ended 30 June 2020 of 32.0p (FY19: 32.0p) per share	4,999	4,382
Interim dividend paid for the year ended 30 June 2021 of 23.0p (FY20: 21.0p) per share	3,573	3,298
Total dividends	8,572	7,680
Final dividend proposed for the year ended 30 June 2021 of 40.0p (FY20: 32.0p) per share	6,229	5,161

 

The interim dividend of 23.0p (FY20: 21.0p) per share was paid on 16 April 2021.

 

A final dividend for the year ended 30 June 2021 of 40.0p (FY20: 32.0p) per share was declared by the Board of Directors on 15 September 2021 and is subject to approval by the shareholders at the Company's Annual General Meeting. It will be paid on 5 November 2021 to shareholders who are on the register at the close of business on 24 September 2021. In accordance with IAS 10 'Events After the Reporting Period', the aggregate amount of the proposed dividend expected to be paid out of retained earnings is not recognised as a liability in these Financial statements.

 

9.   Intangible assets

	Goodwill £'000	Computer software £'000	Acquired client relationship contracts £'000	Contracts acquired with fund managers £'000	Total £'000
Cost
At 1 July 2019	35,776	8,874	32,161	3,521	80,332
Additions	16,111	1,614	25,623	-	43,348
Cost of intangible assets on acquisition of subsidiary	-	1,006	-	-	1,006
Disposals	-	(991)	-	-	(991)
At 30 June 2020	51,887	10,503	57,784	3,521	123,695
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
Accumulated amortisation and impairment
At 1 July 2019	6,742	3,192	16,726	3,505	30,165
Amortisation charge	-	2,444	2,867	16	5,327
Accumulated amortisation of intangible assets on acquisition of subsidiary	-	919	-	-	919
Accumulated amortisation on disposals	-	(991)	-	-	(991)
Impairment	4,471	-	-	-	4,471
At 30 June 2020	11,213	5,564	19,593	3,521	39,891
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
Net book value
At 1 July 2019	29,034	5,682	15,435	16	50,167
At 30 June 2020	40,674	4,939	38,191	-	83,804
At 30 June 2021	40,674	5,246	43,977	-	89,897

 

 

 

The amortisation charge of intangible assets is recognised within administrative costs in the Consolidated statement of comprehensive income.

 

Intangible assets totalling £74,462,000 at 30 June 2021 are recognised in the United Kingdom and £15,435,000 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:

	2021 £'000	2020 £'000
Funds
Braemar Group Limited ("Braemar")	3,320	3,320
Levitas Investment Management Services Limited ("Levitas")	-	-
	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 2021 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 2022, and then extrapolated over a longer period of the next 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 £39,420,000 at 30 June 2021, 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 generated in the cash flow forecasts is based on FUM forecasts multiplied by the relevant yields, with FUM growth ranging between 6% and 7% 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 4% and 6% annually over the five-year period. Both the FUM 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 13% has been used, 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.

 

Sensitivity analysis has been performed and an impairment would arise if the one of the following occurred:

•     An increase of the pre-tax discount rate by 1%.

•     A decrease in the perpetuity growth rate by 2%.

•     A decrease in the pre-tax cash flows by 12% from the forecasts.

 

Based on a value-in-use calculation, the recoverable amount of the Brooks Macdonald International CGU at 30 June 2021 was £83,061,000, 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 12% (FY20: 11%) 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 12% and 17% annually over the five-year period. FUM growth is forecast using estimated new business targets, expected outflows and estimated impact of market performance. Annual cash inflow growth rates range between 9% and 45% over the next five financial years, the period covered by the most recent forecasts, which reflect historic actual growth and planned management actions and are considered to be reasonable in the current market and industry conditions. The 2% long-term growth rate applied is considered prudent in the context of the long-term average growth rate for the funds, investment management and financial planning industries in which the CGU operates. Sensitivity analysis has not been performed given the vast headroom the recoverable amount provides over the goodwill balance.

 

Based on a value-in-use calculation, the recoverable amount of the Braemar CGU at 30 June 2021 was £10,461,000, indicating that there is no impairment. A pre-tax discount rate of 14% (FY20: 11%) 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 6% and 7% 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 3% and 7% 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. Sensitivity analysis has not been performed given the vast headroom the recoverable amount provides over the goodwill balance.

 

At 30 June 2021, 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 2021.

 

At the end of the financial year ended 30 June 2019, the Group entered into a five-year partnership agreement in relation to Levitas that carried a lower sponsorship fee, the aim of this reduction was to enhance FUM flows and deepen the relationship with the fund distributor. Unfortunately, for reasons beyond the Group's control, the anticipated fund inflows were not forthcoming and the Levitas fund recorded net outflows during the financial year ended 30 June 2020, impacting its rate of growth and future cash flows. Based on an updated value-in-use calculation, the recoverable amount of the Levitas CGU at 30 June 2020 did not support the goodwill balance of £4,471,000 and was fully impaired.

 

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 2021, the Group conducted a review of the computer software assets and retired assets from the fixed asset register with a £nil net book value, and no longer used in the business. This resulted in disposals of computer software, with cost and accumulated amortisation both totalling £2,166,000 (2020: £991,000).

 

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, the Group recognised an impairment of £1,513,000 on the client-relationship intangible assets as the expected useful economic life was reduced from 15 to 12 years. No further impairment indicators were present for the acquired client relationship contract intangible assets.

 

Of the client-relationship intangible assets held by the Group at 30 June 2021, the expected amortisation charge for the year ending 30 June 2022 is £5,443,000. If the useful economic lives are reduced by one year, the charge would increase by £1,302,000.

During the year ended 30 June 2021, the Group acquired client relationship contracts totalling £12,227,000, as part of the Lloyds Channel Islands acquisition (Note 6), which were recognised as separately identifiable intangible assets in the Consolidated statement of financial position. The additions included contracts related to the Lloyds discretionary business of £9,080,000, with a useful economic life of 15 years, and £3,147,000 related to the Cornelian funds-management business, with a useful economic life of six years.

 

d.   Contracts acquired with fund managers

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

 

10. Deferred income tax

Deferred income tax assets are only recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. An analysis of the Group's deferred assets and deferred tax liabilities is shown below.

 

	2021 £'000	2020 £'000
Deferred tax assets
Deferred tax assets to be settled after more than one year	2,022	430
Deferred tax assets to be settled within one year	714	1,094
Total deferred tax assets	2,736	1,524
Deferred tax liabilities
Deferred tax liabilities to be settled after more than one year	(8,022)	(6,463)
Deferred tax liabilities to be settled within one year	(880)	(767)
Total deferred tax liabilities	(8,902)	(7,230)

 

 

The gross movement on the deferred income tax account during the year was as follows:

	2021 £'000	2020 £'000
At 1 July	(5,706)	(1,055)
Additional liability on acquisition of client-relationship intangible assets (Note 6)	(1,219)	(4,868)
Adjustment on acquisition of business combination	(21)	(17)
(Charge)/credit to the Consolidated statement of comprehensive income	(110)	212
Credit recognised in equity	890	22
At 30 June	(6,166)	(5,706)

 

 

The change in deferred income tax assets and liabilities during the year was as follows:

 

	Share-based payments £'000	Trading losses carried forward £'000	Dilapidations £'000	Accelerated capital allowances £'000	Total £'000
Deferred tax assets
At 1 July 2019	620	499	-	104	1,223
Adjustment on acquisition of business combination	-	-	-	(17)	(17)
Credit/(charge) to the Consolidated statement of comprehensive income	247	(42)	-	91	296
Credit to equity	22	-	-	-	22
At 30 June 2020	889	457	-	178	1,524
Adjustment on acquisition of business combination	-	-	-	(21)	(21)
Under provision in prior years charged to the Consolidated statement of comprehensive income	-	-	44	-	44
Credit/(charge) to the Consolidated statement of comprehensive income	77	184	(15)	53	299
Credit to equity	890	-	-	-	890
At 30 June 2021	1,856	641	29	210	2,736

 

 

 

The carrying amount of the deferred tax asset is reviewed at each reporting date and is only recognised to the extent that it is probable that future taxable profits of the Group will allow the asset to be recovered.

	Accelerated capital allowances on research & development £'000	Intangible asset amortisation £'000	Total £'000
Deferred tax liabilities
At 1 July 2019	-	2,278	2,278
Additional liability on acquisition of client-relationship intangible assets	-	4,868	4,868
Credit to the Consolidated statement of comprehensive income	(154)	(224)	(378)
Under provision in prior years charged to the Consolidated statement of comprehensive income	462	-	462
At 30 June 2020	308	6,922	7,230
Additional liability on acquisition of client-relationship intangible assets (Note 6)	-	1,219	1,219
Under provision in prior years charged to the Consolidated statement of comprehensive income	160	-	160
(Credit)/charge to the Consolidated statement of comprehensive income	(16)	309	293
At 30 June 2021	452	8,450	8,902

 

 

 

 

 

 

 

 

 

 

11. 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:

	2021 £'000	2020 £'000
At 1 July	7,991	1,299
Additions	308	7,466
Finance cost of deferred consideration	299	145
Fair value adjustments	60	-
Payments made during the year	(2,421)	(919)
At 30 June	6,237	7,991
Analysed as:
Amounts falling due within one year	5,934	1,691
Amounts falling due after more than one year	303	6,300
Total deferred consideration	6,237	7,991

 

 

During the year ended 30 June 2021, the Group completed the Lloyds Channel Islands acquisition (Note 6) and part of the consideration is to be deferred over a period of two years. The total cash deferred consideration of £334,000 was recognised at its fair value of £308,000 on acquisition. The deferred consideration is payable in December 2022 based on the future revenue generated by the discretionary business acquired. Since acquisition to 30 June 2021, the Group recognised a finance cost of £7,000 on the Lloyds Channel Islands acquisition deferred consideration. The fair value of the Lloyds Channel Islands acquisition deferred consideration at 30 June 2021 was £315,000.

 

During the year ended 30 June 2021, the fair value of the estimated deferred consideration for Cornelian Asset Managers Group Limited (Note 6) was revalued by £60,000 due to a change in the estimated timing of when the consideration will be payable. During the year ended 30 June 2021, the Group revalued the deferred consideration by £60,000 due to a change in the estimated timing of when the consideration will be payable and paid £2,000,000 to the vendors of Cornelian. During the year ended 30 June 2021, the Group recognised a finance cost of £286,000 in relation to the Cornelian deferred consideration. The fair value of the Cornelian deferred consideration at 30 June 2021 was £5,922,000 (FY20: £7,576,000).

 

During the year ended 30 June 2021, the final payment was made in relation to the acquisition of Levitas totalling £421,000 (FY20: £919,000). Full details of the Levitas acquisition are disclosed in Note 13 of the 2015 Annual Report and Accounts. The fair value of the Levitas deferred consideration at 30 June 2021 was £nil.

 

 

12. Provisions

	Client compensation £'000	Exceptional costs of resolving legacy matters £'000	FSCS levy £'000	Leasehold dilapidations £'000	Total £'000
At 1 July 2019	100	701	928	366	2,095
Charge to the Consolidated statement of comprehensive income	266	-	2,171	381	2,818
Additions on acquisition of subsidiary	-	-	-	103	103
Utilised during the year	(328)	(93)	(1,598)	(470)	(2,489)
At 30 June 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
Analysed as:
Amounts falling due within one year	-	600	1,245	134	1,979
Amounts falling due after more than one year	-	-	-	279	279
Total provisions	-	600	1,245	413	2,258

 

 

 

a.   Client compensation

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

 

b.   Exceptional costs of resolving legacy matters

Following a review into legacy matters arising from the former Spearpoint business, which was acquired by the Group in 2012, a provision was recognised for costs of resolving these including associated expenses in the years ended 30 June 2017 and 30 June 2018. These matters relate to a number of discretionary portfolios formerly managed by Spearpoint, now managed by Brooks Macdonald Asset Management (International) Limited, and a Dublin-based fund, for which Spearpoint acted as investment manager. The amount utilised during the year represented a goodwill payment made to a client of £8,000. The amount remaining at 30 June 2021 of £600,000 relates to the remaining goodwill offers yet to be accepted by clients. During the prior year ended 30 June 2020, a contingent liability was recognised in relation to potential claims related to the legacy matters (Note 14), which is still recognised as at 30 June 2021.

 

c.   FSCS levy

Following confirmation by the FSCS in April 2021 of its final industry levy for the 2021/22 scheme year, the Group has made a provision of £1,245,000 (FY20: £1,501,000) 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.

 

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

	2021 £'000	20201 £'000
Operating profit	20,756	10,245
Adjustments for:
Amortisation of intangible assets	7,682	5,327
Depreciation of property, plant and equipment	1,045	2,028
Depreciation of right-of-use assets	1,614	1,256
Other losses/(gains) - net	1,438	4,519
(Increase)/decrease in receivables	(2,333)	2,642
Increase/(decrease) in payables	3,765	(202)
(Decrease)/increase in provisions	(269)	431
Increase/(decrease) in other non-current liabilities	218	(384)
Share-based payments charge	2,991	3,571
Net cash inflow from operating activities	36,907	29,433

 

 

 

 

 

 

 

 

 

 

 

 

1      The cash held by subsidiary entities acquired has been recognised in cash flows from investing activities on the Consolidated statement of cash flows. In the prior year, this had been classified as cash generated from operations and therefore has been changed to reflect the correct classification. The changes made to the prior year numbers are that acquisition of subsidiaries, net of cash acquired has been increased by £6,655,000, working capital movement in receivables has been increased by £1,948,000, working capital movement in payables has been reduced by £1,246,000 and net assets acquired in business combination has been decreased by £7,357,000.

 

14. Guarantees and contingent liabilities

In the normal course of business, the Group is exposed to certain legal issues which, in the event of a dispute, could develop into litigious proceedings and in some cases may result in contingent liabilities. Similarly, a contingent liability may arise in the event of an unexpected finding in respect of the Group's tax affairs which could result in a financial outflow to the relevant tax authorities.

 

A claim for unspecified losses has been made by a client against Brooks Macdonald Financial Consulting Limited, a subsidiary of the Group, in relation to alleged negligent financial advice. The claimant has not yet advised the quantum of their claim so it is not possible to reliably estimate the potential impact of a ruling in their favour. There remains significant uncertainty surrounding the claim and the Group's legal advice indicates that it is not probable that the claim will be upheld; therefore, no provision for any liability has been recognised at this stage.

 

Brooks Macdonald Asset Management Limited, a subsidiary company of the Group, has an agreement with the Royal Bank of Scotland plc to guarantee settlement for trading with CREST stock on behalf of clients. The Group holds client assets to fund such trading activity.

Additional levies by the Financial Services Compensation Scheme may give rise to further obligations based on the Group's income in the current or previous years. Nevertheless, the ultimate cost to the Group of these levies remains uncertain and is dependent upon future claims resulting from institutional failures.

 

During the prior year ended 30 June 2020, a small number of clients rejected goodwill offers made by Brooks Macdonald Asset Management (International) Limited in connection with the exceptional costs of resolving legacy matters (Note 12(b)), which were released from the provision. It is possible that one or more of these clients might issue claims against Brooks Macdonald Asset Management (International) Limited but no such claims have been issued as at 30 June 2021. As a result, it is not possible to estimate the potential outcome of claims or to assess the quantum of any liability with any certainty at this stage.

 

 

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 related parties		Amounts owed to related parties
	2021 £'000	2020 £'000	2021 £'000	2020 £'000
Brooks Macdonald Asset Management Limited	-	-	-	22,641
Brooks Macdonald Asset Management (International) Limited	246	14	-	-
Brooks Macdonald Retirement Services (International) Limited	-	29	-	-
Brooks Macdonald Financial Consulting Limited	-	-	2,753	2,638

 

 

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.

 

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 2021 or 2020. Statutory financial statements for 2020 have been delivered to the Registrar of Companies. Statutory financial statements for 2021 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditor has reported on both the 2021 and 2020 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	16 September 2021
Ex-dividend date for final dividend	23 September 2021
Record date for final dividend	24 September 2021
Annual General Meeting	28 October 2021
Final dividend payment date	5 November 2021