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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Brooks | AQSE:BRK.GB | Aquis Stock Exchange | Ordinary Share | GB00B067N833 | Ordinary Shares 1p |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 1,780.00 | 1,660.00 | 1,900.00 | 1,780.00 | 1,780.00 | 1,780.00 | 0.00 | 06:56:52 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMBRK
RNS Number : 3787K
Brooks Macdonald Group PLC
21 September 2016
BROOKS MACDONALD GROUP PLC
ANNUAL REPORT FOR THE YEARED 30 JUNE 2016
Brooks Macdonald Group plc ("Brooks Macdonald" or the "Group"), the integrated investment management group, today announces its audited results for the year ended 30 June 2016.
Hot Features
Premium
Year ended Year ended
30.06.2016 30.06.2015 Increase
Total funds under management
("FUM") GBP8.30bn GBP7.41bn 12%
Revenue GBP81.4m GBP77.7m 5%
Underlying pre-tax profit* GBP15.5m GBP15.1m 3%
Underlying earnings per
share* 87.92p 91.33p (4%)
Pre-tax profit GBP15.9m GBP11.4m 39%
Earnings per share 94.41p 68.30p 38%
Proposed final dividend 23.0p 20.5p 12%
Total dividends 35.0p 30.5p 15%
*Excludes acquisition costs, finance costs of deferred consideration, changes in fair value of deferred consideration and amortisation of intangible assets.
Business Highlights:
-- In Brooks Macdonald's 25(th) year of operation, it reached GBP8.3bn of discretionary FUM. -- Substantially, all of the growth of discretionary FUM was organic:
o Organic growth (net new discretionary business) of GBP863m (11.7%) excluding market growth of GBP25m.
o As a comparison, the WMA Balanced index increased by 4.59% over the year.
-- Property assets under administration, managed by Braemar Estates, of GBP1.10bn (June 2015 GBP1.14bn).
-- Third-party assets under administration are now in excess of GBP270m (June 2015: >GBP255m).
-- A proposed final dividend of 23.0p (2015: 20.5p) per share, resulting in a 15% increase in total dividends proposed for the year of 35.0p (2015: 30.5p).
Commenting on the results and outlook, Chris Macdonald, CEO, said:
"This has been a good year for the business in spite of some significant headwinds from political and market uncertainty.
"Brooks Macdonald has come a long way over the last 25 years; we are well positioned strategically, have a strong balance sheet, are growing our brand, have high-quality staff across the Group, are working with an increasing number of professional intermediaries and are constantly developing our investment offering.
"We have made a good start to the new financial year, with further organic growth in discretionary FUM and look forward with confidence."
An analyst meeting will be held at 9.15 for 9.30am on 21 September at the offices of MHP Communications, 6 Agar Street, London, WC2N 4HN. Please contact Charlie Barker on 020 3128 8540 or at charlie.barker@mhpc.com for further details.
Enquiries to:
Brooks Macdonald Group plc www.brooksmacdonald.com Chris Macdonald, Group Chief 020 7499 6424 Executive Simon Jackson, Group Finance Director Andrew Shepherd, Group Deputy Chief Executive Peel Hunt LLP (Nominated Adviser and Broker) Guy Wiehahn / Adrian Haxby 020 7418 8900 MHP Communications Reg Hoare / Simon Hockridge / Charlie Barker 020 3128 8100
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 established in 1991 and became a member of AIM in 2005, had discretionary funds under management (FUM) of GBP8.30bn on 30 June 2016.
Through its core divisions, Brooks Macdonald offers a range of investment management services to private high-net-worth individuals, pension funds, institutions, charities and trusts. The Group also provides financial planning, as well as offshore fund management and administration services; it also acts as fund manager to regulated OEICs, providing specialist funds in the property and structured return sectors, and manages property assets on behalf of these funds and other clients.
The Group has twelve offices across the UK and the Channel Islands, in London, Edinburgh, Guernsey, Hale, Hampshire, Jersey, Leamington Spa, Manchester, Taunton, Tunbridge Wells and York.
CHAIRMAN'S STATEMENT
Against a backdrop of considerable market and political uncertainty, the group has made good progress. Discretionary funds under management grew organically in all areas of the business and revenues and profits increased while we continued to invest in the business.
Underlying pre-tax profit for the year was GBP15.5m (2015: GBP15.1m), a rise of 3%, although underlying earnings per share have fallen to 87.92p (2015: 91.33p). Statutory pre-tax profits for the year grew by 39% to GBP15.9m (2015: GBP11.4m), the scale of the increase resulting from a reduction in the estimated deferred consideration payable in future years to the vendors of Levitas Investment Management Services Limited.
The board is recommending a final dividend of 23.0p per share which, if approved by shareholders, will result in total dividends for the year of 35.0p. This is an increase of 15% over the total dividends paid the previous year of 30.5p per share. The final dividend will be paid on 28 October 2016 to shareholders on the register at the close of business on 30 September 2016*. We remain cash generative and have a strong balance sheet.
The EU referendum had an effect on our results. In the first half of the financial year we decided to postpone the launch of two new funds. In the second half, investment returns were challenging and in the final quarter investor sentiment was certainly weaker. In spite of these market conditions, our discretionary funds under management grew strongly over the year to over GBP8.30bn (2015: GBP7.41bn), a rise of 12.0%. This compares favourably to the growth of the WMA Balanced index of 4.6%.
We will maintain our investment across the business to sustain our continued growth. This covers investment in research, governance, IT, distribution, marketing and most importantly our staff. Markets have improved since the EU referendum, but sentiment remains volatile. Despite the uncertainties surrounding our exit from the EU and the associated market volatility, we believe the strength of our investment proposition will enable us to deliver good risk-adjusted returns for our clients.
Brooks Macdonald was established twenty-five years ago, with three of its founders continuing to be actively involved in the business: Chris Macdonald, Jon Gumpel and Richard Spencer. From a modest office in Park Street employing a handful of people, the business has grown into a highly successful investment management group with twelve offices and nearly 500 staff. We are proud of Brooks Macdonald's history and confident that we can continue to build on what has been achieved over the last quarter century. The future, we believe, is bright.
Christopher Knight
Chairman
20 September 2016
* The payment timetable disclosed above differs from that reported in the Explanatory Notes to the Annual General Meeting Resolutions (Resolution 3) that have been distributed to shareholders. The dates quoted in this announcement supersede those notes.
CHIEF EXECUTIVE'S REVIEW
Introduction
This has been a good year for the business in spite of some significant headwinds. This would not have been possible without the hard work and dedication of all our staff throughout our twelve offices and I would like to thank them for making these results possible.
In the first six months of the year, we continued to grow discretionary funds under management and our planned move away from advisory work in our International business. In the second half, investment markets remained challenging but organic growth of discretionary funds remained robust and we have made substantive progress in our distribution model.
We have continued with our IT system development, working with three external providers. This is always complex and the time scale for completion has now moved to mid 2017, but I am pleased to report that this still remains on budget. In addition, we have completed our 'brand refresh'. As well as modernising the look and feel of our marketing collateral, this has firmly positioned the business as an Investment Management business, as this remains the key driver of our growth. In line with this strategy, we will be moving our funds and UK asset management business into one brand, Investment Management, in early 2017 (subject to regulatory approvals).
Business review
Our discretionary funds under management rose to over GBP8.3bn, an increase of over GBP880m over the financial year. This represents an increase of 12.0%, of which 11.7% was new business (GBP863m) and 0.3% (GBP25m) investment growth. We concluded no acquisitions in the year and this growth was largely generated internally, predominantly via our work with professional introducers. We continue to work with an increasing number (now over 960) of high-quality professional intermediaries throughout the UK and overseas. Pleasingly, our work with this sector shone through in the Citywire Regional Stars awards, where professional advisers voted Brooks Macdonald their preferred discretionary fund manager in 5 of 6 regions of the UK. We remain highly focussed on providing a high-quality service to this sector and thank them for their continued support.
Our bespoke discretionary portfolio service ('BPS') remains the premium offering for high-net-worth clients. This continues to gain traction with private clients, pension and trust funds. Pension funds (principally Self Invested Personal Pensions - 'SIPPs') and increasingly ISA portfolios remain a substantial opportunity. We remain confident that the need for an incentive to save remains and that tax-efficient wrappers will form a key component of any strategy in this space. On and offshore we now manage over GBP6.4bn via our BPS service.
Our managed portfolio service ('MPS') is for smaller clients and can be accessed as a portfolio or via a unit managed around a series of risk based mandates. Our portfolio assets now exceed GBP617m and units GBP241m. We remain of the view that this will be a strong area of growth in the short, medium and long term.
In addition to risk-rated funds, we manage specialist funds which will also move under our new single brand later in the new financial year. Over the last year and into this financial year, we have streamlined our offering to ensure that we have funds that are of scale. Subject to market conditions, we will also look to launch further new products into the market place.
The full integration of our international business into the group continued. The teams based in the Channel Islands have worked hard to move the business from a blend of advisory and discretionary business towards acting fully as a discretionary manager. This process continues and while the financial results are disappointing, I am pleased with the progress made in expanding our distribution network outside the UK.
We have made a number of management changes in Braemar Estates, our specialist property manager. These started to contribute to growth in the second half. Assets under administration declined marginally over the year (-3.1%).
Our financial planning business continued the trend of the prior year. Consulting work rose while employee benefits had a difficult year. Work generated into our Investment Management business remains robust and we will be looking to launch a pension default fund for our employee-benefit clients early this financial year.
Industry background
Regulatory changes continue apace, with a major focus on MiFID II. This has been postponed until January 2018, but we are ensuring the business is well prepared for the substantial changes around transaction and client reporting.
During the financial year, we have seen further consolidation in our sector. I believe that with the increasingly high costs of providing a quality investment service, back office administration and a robust governance structure, consolidation will continue. We remain firmly committed to remaining independent and will certainly look at acquisition opportunities when they arise.
Strategies for growth
We continue to focus on our core strategies for growth: organic, service and performance development, as well as ongoing investment in the business, in particular on improving our technological delivery. This remains a constant.
Our main strategic focus remains working with quality professional advisers. There were 14,491 Adviser firms in the UK at the end of 2015 (source: APFA) of whom around 2,500 fall into our immediate target market. Currently we work with around one-third of this universe and are excited at the prospect of making further progress here.
Strategic Alliances form a major part of our strategy and I am pleased that the number of firms we have these relationships with has increased to 19. As well as working with over 960 firms in the UK and overseas, we are looking to deepen our relationships with them and have launched a telephone support team to expand our offering to the wider community.
Our regional offices have been a major success for the business since our first office opened outside London in 2005. This has allowed us to service clients and professional advisers from a regional office as well recruiting high-quality staff throughout the UK and Channel Islands.
In addition to recruitment, we are always looking to enhance and expand our range of services. In this financial year, we will look to expand our charity proposition, a Tier 1 service for overseas investors and launch a default fund as above.
With our recent brand refresh, we will also look to continue the development of our brand further. We are developing an exciting social media presence, have just renewed our sponsorship of Middlesex County Cricket Club and have won a number of investment and property awards over the last year. We also remain one of the very few firms with 5-star ratings from Defaqto for 2016.
Summary and outlook
While it has been a challenging year, it has been highly productive. We are well positioned strategically, have a strong balance sheet, are growing our brand, have high-quality staff across the group, are working with an increasing number of professional intermediaries and are constantly developing our investment offering. We have made a good start to the new financial year and can look forward with confidence.
Chris Macdonald
Chief Executive
20 September 2016
STRATEGIC REPORT
The market and our services
We are an independent investment management firm providing a wide range of investment and wealth management services to private clients, pension funds, charities, professional intermediaries and trustees. Our successful business model works to provide bespoke investment solutions with high-quality professional staff delivering outstanding client service, investment excellence and value for money from each of our eight UK based offices and two offshore offices in Jersey and Guernsey. In addition we have a property management business based in Hale and an investment service business based in the City.
A summary of our services
Brooks Macdonald manages GBP8.301 billion for its clients as of 30 June 2016, making us one of the leading private client investment managers. We provide discretionary investment management solutions to private clients, families, charities and trustees. We also provide financial planning advice and employment benefits consultancy to small and medium sized enterprises. Through our funds we provide multi asset and specialist fund products to the retail sector and we have a property estate and building management service for private individuals, institutions and property fund managers.
One of the key performance indicators is the growth in the discretionary funds under management in total across all parts of the group which are reported on a quarterly basis throughout the year. The increase in the year is analysed in the table below.
2016 2015
GBPm GBPm
Opening discretionary
FUM 7,413 6,550
Net new discretionary
business 863 645
Acquisitions - -
Investment growth 25 218
------ ------
Total FUM growth 888 863
Closing FUM 8,301 7,413
------ ------
Organic growth (net
of markets) % 11.6 9.8
Total growth % 12.0 13.2
Group performance
The group's overall performance for the year is detailed in table 1 below.
Table 1
2016 2015
GBPm (unless GBPm (unless
stated) stated)
Total revenue 81.4 77.7
Operating costs (67.8) (65.4)
Net financial income
and gains 2.3 (0.9)
Profit before tax 15.9 11.4
Underlying profit
before tax(1) 15.5 15.1
Earnings per share 94.41p 68.30p
Dividends per share(2) 35.0p 30.5p
Underlying margin(3) 19.1% 19.4%
(1) A reconciliation between underlying
profit before tax and profit before tax
is shown in table 2.
(2) The total interim dividend and the
final dividend proposed for the financial
year.
(3) Underlying profit as a percentage
of total revenue
Total revenue
Total group revenue grew by 5% during the year compared to 12% in the previous year due mainly to a reduction in revenue in the Channel Islands where there was a fall in revenue of over 12% compared to an increase in 2015 of 14%. During the year we decided to more closely align the services in Jersey and Guernsey with the investment management service in the UK and reduced the number of advisory and execution only clients which had a significant impact on the transactional revenue generated in the year. A number of these clients have transferred their funds to a discretionary mandate which we expect will generate a longer term and more consistent revenue stream for the business.
We saw revenue growth during the year of 8% in the investment management business and increased revenues for our funds business, financial planning and estates business over the year.
Operating costs
As in previous years, the major part of the operating costs for the group are in relation to our staff (57%; 2015: 59%) and during the year we saw a small increase in the average number of employees from 467 to 472. Of the total staff costs 24% (2015: 24%) were variable costs. We have continued to invest in our IT systems across all parts of the group, to improve the services offered to our clients. In our investment management business we are working on a large IT project to provide a more fully integrated system which will cover both onshore and offshore clients. We have assembled an internal project team are working with three external software providers and the project has already delivered an improved client portal and a new client relationship management system to work with our professional intermediaries. Once complete during the financial year 2018 the system will provide increased capacity with reduced risk and will deliver operational efficiencies.
We continue to operate in an increasingly regulated environment and we have again strengthened our legal, risk and compliance departments by additional recruitment over the last financial year. In 2016 we have seen the levy paid to the Financial Services Compensation Scheme ('FSCS') stabilise at GBP0.5m (2015: GBP0.5m).
Net financial income and gains
When the group makes an acquisition it typically structures the deal whereby there are deferred payments to the vendors over a number of years against pre-agreed funds under management targets. Where these targets change due to unpredictable variables such as new business, client retention and market movements then the value of the deferred consideration changes and these fair value adjustments are made through the Consolidated Statement of Comprehensive Income.
During the year one of the original FUM targets for Levitas was not achieved, resulting in a reduction in the amount payable to the vendors of the business. Accordingly, as more fully explained in note 22 to the financial statements, there was a fair value reduction of GBP3.3m resulting in a gain to consolidated income.
Included in total net financial income and gains for the year of GBP2.3m is this fair value reduction for Levitas, together with other financial income, costs and the group's share of joint venture results as detailed on the Consolidated Statement of Comprehensive Income and the accompanying notes.
As disclosed more fully in note 16 to the consolidated financial statements, the group has an investment in a student accommodation fund. During the year the shareholders of the fund approved the sale of the underlying property assets, which resulted in an impairment charge of GBP0.3m (2015: GBP0.7m).
Underlying profit before tax
Underlying profit before tax and underlying earnings per share are non GAAP alternative performance measures, considered by the board to be a better reflection of true business performance than looking at the group's results on a statutory basis only. These measures are widely used by research analysts covering the company. Underlying results exclude expenditure falling into the categories explained below and a full reconciliation between underlying profit and the profit attributable to shareholders is provided in the following table.
Table 2: Reconciliation of underlying profit
before tax to statutory profit before tax
2016 2015
GBPm GBPm
Underlying profit before tax 15.5 15.1
Amortisation of intangible
assets (2.6) (2.7)
Finance cost of deferred consideration (0.6) (0.8)
Changes in fair value of deferred
consideration 3.6 (0.1)
Acquisition costs - (0.1)
====== ======
Profit before tax 15.9 11.4
====== ======
Amortisation of intangible assets (note 14)
Client relationship intangible assets are created in the course of acquiring funds under management. The amortisation charge associated with these assets and software represents a significant non-cash item and it has therefore been excluded from underlying profit, which represents largely cash-based earnings.
Finance cost and changes in fair value of deferred consideration
When the group makes acquisitions of both corporate entities and teams of fund managers in the course of acquiring funds under management the typical structure of the acquisition, in order to continue to incentivise and motivate the vendors, is to make deferred payments over a period of time based on the retention and growth in funds under management. The initial estimated fair value of the deferred payments will be based on future projections of funds under management and where the actual payment is different from the original estimates then charges or credits will be made in arriving at the profit before tax. The directors consider that the effect of these changes to the original projected payments can distort the results of a particular period and have therefore excluded them from underlying profit.
Initial estimates of the deferred cash payments are recognised in the financial statements at their present value based on an inherent rate of implied interest. The difference between the discounted present value of deferred consideration and the estimated future cash payment is recognised as a charge over the duration of the deferral period in arriving at profit before tax. The directors consider that this charge, which is a non-cash item, can distort the results of a particular period and have therefore excluded the charge from underlying profit.
Acquisition costs
The acquisition costs in 2015 were incurred in relation to the purchase of Levitas Investment Management Services Limited. There were no acquisitions made during this financial year.
Cash resources and regulatory capital
The group is cash generative and, as detailed in the Consolidated Statement of Cash Flows, there was an increase in cash resources at the year end of GBP0.2m to GBP19.5m (2015: GBP19.3m). The group had no borrowings at 30 June 2016 (2015: GBPnil).
As required under Financial Conduct Authority (FCA) rules and both Jersey and Guernsey Financial Services Commissions we perform a regular Internal Capital Adequacy Assessment Process (ICAAP) and Adjusted Net Liquid Asset (ANLA) calculation which includes performing a range of stress tests to determine the appropriate level of regulatory capital and liquidity that the group needs to hold. Surplus levels of capital are forecast taking into account investment requirements and proposed dividends to ensure that appropriate buffers are maintained. The group's Pillar 3 disclosures are published annually on our website (www.brooksmacdonald.com).
Segmental review
The group reports its results in four key operating segments: Investment management; Financial planning; Funds and property management; and International.
Investment management
The UK based investment management service continues to remain the core part of the group contributing 72% (2015: 70%) of the group turnover. Investment management principally provides discretionary investment management to private investors, pension funds, charities and trusts through BPS and MPS. Despite considerable changes within the industry and volatility within the financial markets we have continued to grow FUM as shown in the table above.
Financial planning
The financial consulting business continues to deliver both fee based financial planning advice to high net-worth families, and employee benefit consultancy to small and medium sized employers throughout the UK. Numbers of clients increased over the course of the year and the division remains a major introducer of new investment management funds to the group. During the year there was further investment in systems and staff and, despite the uncertain economic climate, revenue increased to GBP4.3m (2015: GBP4.1m) resulting in a small loss for the year of GBP0.1m (2015: GBP0.1m).
Funds and property management
It has been another year of growth for the funds business across the range of funds it manages. Total FUM increased by 20% to GBP796m (2015: GBP663m) at 30 June 2016. This growth was achieved both organically through the net new investment across the range of funds with particularly strong flows of new money into the multi asset funds.
The Ground Rents Income Fund performed well during the year with an increase in the net asset value. It was the intention to launch two further property related funds in the second half of the year but due to the result of the EU referendum these were postponed and will be reviewed again during the next financial year.
During the year, as a result of slower than anticipated growth of the Liquid Property Fund, the business recognised an impairment charge against its investment in North Row Capital LLP (NRC), in which it has a 60% share, of GBP0.4m (2015: GBPnil) together with a share of the losses of NRC for the year of GBP0.1m (2015: GBP0.0m).
The estates business had an improved year although the value of assets under management marginally declined to GBP1.10bn (2015: GBP1.14bn). Following a strategic review of the business and some changes to the board, additional revenue streams were identified which saw an increase in turnover of 9% over the previous year despite the fall in the value of assets under management. As a result the estates business broke even for the year compared to a loss of GBP0.4m in 2015.
International
The business saw an increase of FUM during the year of 16% to GBP1.35bn (2015: GBP1.16bn) with new business from a number of sources and new jurisdictions including South Africa and the conversion of previously non-managed advisory and execution clients.
As advised at the half year the planned conversion of advisory accounts to discretionary accounts saw a significant reduction in the transactional income of the business during the year with total revenues for the International business falling by 12%. Whilst the associated costs of the advisory clients have been reduced these have not matched the timing of the loss of revenue and together with increased legal fees in the year, particularly dealing with some legacy issues prior to the acquisition, the profit for the year has fallen to GBP0.5m (2015: GBP1.3m).
The growth in the FUM and the expanded sources of international introductions together with the further rationalisation of the core client proposition in line with that offered in the UK means that the board believes that the business will see an increase in profit in the next financial year.
INDEPENT AUDITORS' REPORT TO THE MEMBERS OF BROOKS MACDONALD GROUP PLC
Report on the group financial statements
Our opinion
In our opinion, Brooks Macdonald Group plc's group financial statements (the 'financial statements'):
-- give a true and fair view of the state of the group's affairs as at 30 June 2015 and of its profit and cash flows for the year then ended;
-- have been properly prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union; and
-- have been prepared in accordance with the requirements of the Companies Act 2006.
What we have audited
The financial statements, included within the Annual Report & Accounts (the 'Annual Report'), comprise:
-- the Consolidated Statement of Financial Position as at 30 June 2016; -- the Consolidated Statement of Comprehensive Income for the year then ended; -- the Consolidated Statement of Cash Flows for the year then ended; -- the Consolidated Statement of Changes in Equity for the year then ended; and
-- the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.
The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by the European Union, and applicable law.
In applying the financial reporting framework, the directors have made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion, the information given in the Strategic Report and the Report of the Directors for the financial year for which the financial statements are prepared is consistent with the financial statements.
Other matters on which we are required to report by exception
Adequacy of information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion, we have not received all the information and explanations we require for our audit. We have no exceptions to report arising from this responsibility.
Directors' remuneration
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors' remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.
Responsibilities for the financial statements and the audit
Our responsibilities and those of the directors
As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) ('ISAs (UK & Ireland)'). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the parent company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
What an audit of financial statements involves
We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
-- whether the accounting policies are appropriate to the group's circumstances and have been consistently applied and adequately disclosed;
-- the reasonableness of significant accounting estimates made by the directors; and -- the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the directors' judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Other matter
We have reported separately on the parent company financial statements of Brooks Macdonald Group plc for the year ended 30 June 2016.
Natasha McMillan (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
20 September 2016
BROOKS MACDONALD GROUP PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2016
Note 2016 2015
GBP'000 GBP'000
Revenue 4 81,399 77,686
Administrative costs (67,794) (65,371)
Realised gain on investment 5 20 540
Other gains and losses 6 2,857 (754)
Operating profit 7 16,482 12,101
Finance income 9 58 86
Finance costs 9 (577) (763)
Share of results of joint venture 17 (107) (4)
Profit before tax 15,856 11,420
Taxation 10 (3,117) (2,269)
Profit for the year attributable
to equity holders of the Company 12,739 9,151
--------- ---------
Other comprehensive income:
Items that may be reclassified
subsequently to profit or loss
Revaluation of available for
sale financial assets 16 (6) -
Revaluation reserve recycled
to profit or loss 16 - 68
Total comprehensive income for
the year 12,733 9,219
--------- ---------
Earnings per share
Basic 11 94.41p 68.30p
Diluted 11 94.07p 68.14p
========= =========
The accompanying notes form an integral part of the consolidated financial statements.
BROOKS MACDONALD GROUP PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June 2016
Note 2016 2015
GBP'000 GBP'000
Assets
Non-current assets
Intangible assets 14 65,849 65,258
Property, plant and equipment 15 3,309 3,539
Available for sale financial
assets 16 1,715 1,532
Investment in joint venture 17 207 628
Trade and other receivables 19 150 -
Deferred tax assets 18 551 709
--------- ---------
Total non-current assets 71,781 71,666
Current assets
Trade and other receivables 19 23,958 21,402
Financial assets at fair value
through profit or loss 20 1,000 3
Cash and cash equivalents 21 19,478 19,274
--------- ---------
Total current assets 44,436 40,679
Total assets 116,217 112,345
--------- ---------
Liabilities
Non-current liabilities
Deferred consideration 22 (5,290) (9,442)
Deferred tax liabilities 18 (3,951) (4,694)
Other non-current liabilities 23 (114) (95)
--------- ---------
Total non-current liabilities (9,355) (14,231)
Current liabilities
Trade and other payables 24 (18,844) (16,894)
Current tax liabilities (2,142) (1,463)
Deferred tax liabilities 18 (84) (119)
Provisions 25 (2,784) (5,474)
--------- ---------
Total current liabilities (23,854) (23,950)
Net assets 83,008 74,164
--------- ---------
Equity
Share capital 27 137 136
Share premium account 27 35,997 35,600
Other reserves 28 5,517 5,101
Retained earnings 28 41,357 33,327
--------- ---------
Total equity 83,008 74,164
--------- ---------
The consolidated financial statements were approved by the Board of Directors and authorised for issue on 20 September 2016, signed on their behalf by:
C A J Macdonald S J Jackson
Chief Executive Finance Director
Company registration number: 4402058
The accompanying notes form an integral part of the consolidated financial statements.
BROOKS MACDONALD GROUP PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2016
Share
Share premium Other Retained
capital account reserves earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 July 2014 135 35,147 4,720 27,456 67,458
--------- --------- ---------- ---------- --------
Comprehensive income
Profit for the year - - - 9,151 9,151
Other comprehensive income:
Revaluation reserve recycled - - 68 - 68
--------- --------- ---------- ---------- --------
Total comprehensive income - - 68 9,151 9,219
Transactions with owners
Issue of ordinary shares 1 453 - - 454
Share-based payments - - 1,315 - 1,315
Share-based payments transfer - - (1,334) 1,334 -
Purchase of own shares by employee
benefit trust - - - (742) (742)
Tax on share options - - 332 - 332
Dividends paid (note 12) - - - (3,872) (3,872)
--------- --------- ---------- ---------- --------
Total transactions with owners 1 453 313 (3,280) (2,513)
Balance at 30 June 2015 136 35,600 5,101 33,327 74,164
--------- --------- ---------- ---------- --------
Comprehensive income
Profit for the year - - - 12,739 12,739
Other comprehensive income:
Revaluation of available for
sale financial asset - - (6) - (6)
Total comprehensive income - - (6) 12,739 12,733
Transactions with owners
Issue of ordinary shares 1 397 - - 398
Share-based payments - - 943 - 943
Share-based payments transfer - - (806) 806 -
Purchase of own shares by employee
benefit trust - - - (1,143) (1,143)
Tax on share options - - 285 - 285
Dividends paid (note 12) - - - (4,372) (4,372)
--------- --------- ---------- ---------- --------
Total transactions with owners 1 397 422 (4,709) (3,889)
Balance at 30 June 2016 137 35,997 5,517 41,357 83,008
--------- --------- ---------- ---------- --------
The accompanying notes form an integral part of the consolidated financial statements.
BROOKS MACDONALD GROUP PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 June 2016
Note 2016 2015
GBP'000 GBP'000
Cash flow from operating activities
Cash generated from operations 26 17,536 20,094
Taxation paid (2,773) (1,757)
Net cash generated from operating
activities 14,763 18,337
Cash flows from investing activities
Purchase of property, plant
and equipment 15 (751) (1,558)
Purchase of intangible assets 14 (3,265) (1,879)
Purchase of available for sale
financial assets 16 (500) (250)
Acquisition of subsidiary companies,
net of cash acquired 13 - 37
Deferred consideration paid 22 (3,901) (9,218)
Interest received 9 58 86
Purchase of financial assets
at fair value through profit
or loss 20 (1,000) (40)
Proceeds of sale of property,
plant and equipment 3 -
Proceeds of sale of financial
assets at fair value through
profit or loss 20 - 263
Investment in joint venture 17 (86) (400)
Net cash used in investing activities (9,442) (12,959)
Cash flows from financing activities
Proceeds of issue of shares 398 454
Purchase of own shares by employee
benefit trust 28 (1,143) (742)
Dividends paid to shareholders 12 (4,372) (3,872)
-------- ---------
Net cash used in financing activities (5,117) (4,160)
Net increase in cash and cash
equivalents 204 1,218
Cash and cash equivalents at
beginning of year 19,274 18,056
-------- ---------
Cash and cash equivalents at
end of year 21 19,478 19,274
-------- ---------
The accompanying notes form an integral part of the consolidated financial statements.
BROOKS MACDONALD GROUP PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 30 June 2016
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 and related professional advice to private high net worth individuals, charities and trusts. The group also provides financial planning as well as offshore fund management and administration services and acts as fund manager to regulated OEICs, providing specialist funds in the property and structured return sectors and managing property assets on behalf of these funds and other clients.
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 72 Welbeck Street, London, W1G 0AY.
2. Principal accounting policies
The general accounting policies applied in the preparation of these financial statements are set out below. These policies have been applied consistently to all years presented, unless otherwise stated.
a) Basis of preparation
The group's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) interpretations, as adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared on the historical cost basis, except for the revaluation of available for sale financial assets 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) Basis of consolidation
The group's financial statements are a consolidation of the financial statements of the Company and its subsidiaries. The underlying financial statements of the subsidiaries are prepared for the same reporting year as the Company, using consistent accounting policies. Subsidiaries and structured entities are all entities controlled by the Company, deemed to exist where the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of the subsidiaries are included from the date on which control is transferred to the group to the date that control ceases.
All intercompany transactions and balances between group companies are eliminated on consolidation.
3. Segmental information
For management purposes the group's activities are organised into four operating divisions: Investment management, Financial planning, Funds and property management and International. The group's other activity, offering nominee and custody services to clients, is included within Investment management. These divisions are the basis on which the group reports its primary segmental information. In accordance with IFRS 8 'Operating Segments', disclosures are required to reflect the information which the Board 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 to the group Board of Directors.
Revenues and expenses are allocated to the business segment that originated the transaction. Revenues and expenses that are not directly originated by a particular business segment are reported as unallocated. Sales between segments are carried out at arm's length. Centrally incurred expenses are allocated to business segments on an appropriate pro-rata basis. Segmental assets and liabilities comprise operating assets and liabilities, those being the majority of the balance sheet.
Funds Total
Investment Financial and property
management planning management International
Year ended 30 June 2016 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Total segment revenue 58,949 4,387 6,896 11,605 81,837
Inter segment revenue (238) (136) (64) - (438)
------------ ---------- -------------- -------------- --------
External revenue 58,711 4,251 6,832 11,605 81,399
------------ ---------- -------------- -------------- --------
Segment result 17,825 (60) (624) 453 17,594
Unallocated items:
Changes in fair value
of deferred consideration 3,343
Other unallocated items (5,081)
--------
Profit before tax 15,856
Taxation (3,117)
--------
Profit for the year 12,739
--------
Funds Total
Investment Financial and property
management planning management International
Year ended 30 June 2015 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Total segment revenue 54,464 4,191 6,044 13,200 77,899
Inter segment revenue (101) (69) (43) - (213)
------------ ---------- -------------- -------------- --------
External revenue 54,363 4,122 6,001 13,200 77,686
------------ ---------- -------------- -------------- --------
Segment result 15,774 (68) (564) 1,315 16,457
Unallocated items:
Changes in fair value
of deferred consideration (302)
Other unallocated items (4,735)
--------
Profit before tax 11,420
Taxation (2,269)
--------
Profit for the year 9,151
--------
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.
2016 2015
GBP'000 GBP'000
United Kingdom 69,794 64,486
Channel Islands 11,605 13,200
Total revenue 81,399 77,686
-------- --------
b) Major clients
The group is not reliant on any one client or group of connected clients for the generation of revenues.
4. Revenue
2016 2015
GBP'000 GBP'000
Fee income 69,273 66,443
Financial services commission 125 235
Advisory and other income 12,001 11,008
-------- --------
Total revenue 81,399 77,686
-------- --------
5. Realised gain on investment
During the year ended 30 June 2016, the group realised an additional gain of GBP20,000 (2015: GBP540,000) on final disposal of its investment in Sancus Holdings Limited through the voluntary winding up of the company (note 16).
6. Other gains and losses
Other gains and losses represent the net changes in the fair value of the group's financial instruments recognised in the Consolidated Statement of Comprehensive Income.
2016 2015
GBP'000 GBP'000
Impairment of available for
sale financial assets (note
16) (311) (718)
Impairment of investment in
joint venture (note 17) (400) -
Loss from changes in fair value
of financial assets at fair
value through profit or loss
(note 20) (3) (252)
Gain from changes in fair value
of deferred consideration (note
22) 3,571 216
Other gains and losses 2,857 (754)
-------- --------
7. Operating profit
Operating profit is stated after charging:
2016 2015
GBP'000 GBP'000
Staff costs (note 8) 38,716 38,558
Acquisition costs (see below) - 120
Auditors' remuneration (see
below) 380 280
Financial Services Compensation
Scheme Levy (see below) 475 510
Depreciation (note 15) 969 990
Amortisation (note 14) 2,674 2,708
-------- --------
A more detailed analysis of auditors' remuneration is provided below:
2016 2015
GBP'000 GBP'000
Fees payable to the Company's
auditor for the audit of the
consolidated group and parent
company financial statements 56 61
Fees payable to the Company's
auditor and its associates
for other services:
- Audit of the Company's subsidiaries
pursuant to legislation 230 185
- Audit-related assurance services 70 34
- Other advisory services 24 -
Total auditors' remuneration 380 280
-------- --------
Acquisition costs
Administrative costs for the year ended 30 June 2016 include no directly attributable business acquisition costs (2015: GBP120,000).
Financial Services Compensation Scheme levies
Administrative costs for the year ended 30 June 2016 include a charge of GBP475,000 (2015: GBP510,000) in respect of the Financial Services Compensation Scheme ('FSCS') levy. This includes the group's levy for the 2016/17 scheme year of GBP470,000.
8. Employee information
a) Staff costs
2016 2015
GBP'000 GBP'000
Wages and salaries 33,491 32,670
Social security costs 3,053 3,129
Other pension costs 1,145 1,331
Share-based payments 1,027 1,428
-------- --------
Total staff costs 38,716 38,558
-------- --------
Pension costs relate entirely to a defined contribution scheme.
b) Number of employees
The average monthly number of employees during the year, including directors, was as follows:
2016 2015
Professional staff 190 183
Administrative staff 282 284
----- -----
Total staff 472 467
----- -----
c) Key management compensation
The compensation of the key management personnel of the group, defined as the group Board of Directors including both the executives and non-executives, is set out below.
2016 2015
GBP'000 GBP'000
Short-term employee benefits 2,466 2,434
Post-employment benefits 25 25
Share-based payments 445 346
-------- --------
Total compensation 2,936 2,805
-------- --------
d) Directors' emoluments
Further details of directors' emoluments are included within the Remuneration Committee report.
2016 2015
GBP'000 GBP'000
Salaries and bonuses 2,209 2,209
Non-executive directors'
fees 234 208
Benefits in kind 23 17
-------- --------
2,466 2,434
Pension contributions 25 25
Amounts receivable under
long term incentive schemes 445 378
Total directors' remuneration 2,936 2,837
-------- --------
The aggregate amount of gains made by directors on the exercise of share options during the year was GBP109,000 (2015: GBP913,000). Retirement benefits are accruing to one director (2015: six) under a defined contribution pension scheme.
The remuneration of the highest paid director during the year was as follows:
2016 2015
GBP'000 GBP'000
Remuneration and benefits
in kind 500 528
Amounts receivable under
long term incentive schemes 93 68
-------- --------
Total remuneration 593 596
-------- --------
The amount of gains made by the highest paid director on the exercise of share options during the year was GBP25,000 (2015: GBP90,000).
9. Finance income and finance costs
2016 2015
GBP'000 GBP'000
Finance income
Bank interest on deposits 58 86
Total finance income 58 86
-------- --------
Finance costs
Bank interest payable - 3
Finance cost of deferred consideration 577 760
-------- --------
Total finance costs 577 763
-------- --------
10. Taxation
The tax charge on profit on ordinary activities for the year was as follows:
2016 2015
GBP'000 GBP'000
UK Corporation Tax at 20.00%
(2015: 20.75%) 3,262 2,776
Under / (over) provision in
prior years 448 (231)
-------- --------
Total current tax 3,710 2,545
Deferred tax credits (259) (276)
Effect of change in tax rate
on deferred tax (334) -
-------- --------
Income tax expense 3,117 2,269
-------- --------
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:
2016 2015
GBP'000 GBP'000
Profit on ordinary activities
before tax 15,856 11,420
Profit on ordinary activities
multiplied by the standard
rate of tax in the UK of 20.00%
(2015: 20.75%) 3,171 2,370
Tax effect of:
- Lower tax rates in other
countries in which the group
operates (77) (255)
- Disallowable expenses (91) 385
- Change in rate of Corporation
Tax applicable to deferred
tax (334) -
- Under provision / (over provision)
in prior years 448 (231)
Tax charge for the year 3,117 2,269
-------- --------
The deferred tax credits totalling GBP259,000 (2015: GBP276,000) represent a charge of GBP185,000 (2015: GBP28,000 charge) arising from the share option reserve at the balance sheet date, a credit of GBP35,000 (2015: GBP117,000 charge) relating to accelerated capital allowances and a credit of GBP409,000 (2015: GBP421,000) arising from the amortisation of acquired client relationship contracts.
On 1 April 2016, the standard rate of Corporation Tax in the UK was reduced to 20%. As a result the effective rate of Corporation Tax applied to the taxable profit for the year ended 30 June 2016 is 20.00% (2015: 20.75%).
In addition to the change in the rate of UK Corporation Tax disclosed above, the Finance (No.2) Act 2015, which was substantively enacted in October 2015, will further reduce the main rate of UK Corporation Tax to 19% in 2017 and 18% in 2020. Deferred tax assets and liabilities are calculated at the rate that is expected to be in force when the temporary differences unwind, but limited to the extent that such rates have been substantively enacted. The tax rate used to determine the deferred tax assets and liabilities is therefore 18% (2015: 20%) and will be reviewed in future years subject to new legislation.
11. Earnings per share
The directors believe that underlying earnings per share provide a truer reflection of the group's performance in the year. Underlying earnings per share are calculated based on 'underlying earnings', which is defined as earnings before acquisition costs, finance costs of deferred consideration, changes in the fair value of deferred consideration and amortisation of intangible assets. 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:
2016 2015
GBP'000 GBP'000
Earnings attributable to ordinary
shareholders 12,739 9,151
Acquisition costs (note 7) - 120
Finance cost of deferred consideration
(note 9) 577 760
Changes in fair value of deferred
consideration (note 22) (3,571) 70
Amortisation (note 14) 2,674 2,708
Tax impact of adjustments (556) (571)
-------- --------
Underlying earnings attributable
to ordinary shareholders 11,863 12,238
-------- --------
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:
2016 2015
Number of Number of
shares shares
Weighted average number of
shares in issue 13,493,316 13,399,031
Effect of dilutive potential
shares issuable on exercise
of employee share options 48,220 30,996
----------- -----------
Diluted weighted average number
of shares in issue 13,541,536 13,430,027
----------- -----------
Earnings per share for the year attributable to equity holders of the Company were:
2016 2015
p p
Based on reported earnings:
Basic earnings per share 94.41 68.30
Diluted earnings per share 94.07 68.14
------ ------
Based on underlying earnings:
Basic earnings per share 87.92 91.33
Diluted earnings per share 87.60 91.12
------ ------
12. Dividends
Amounts recognised as distributions to equity holders of the Company in the year were as follows:
2016 2015
GBP'000 GBP'000
Final dividend paid for the year ended
30 June 2015 of 20.5p (2014: 19.0p) per
share 2,758 2,535
Interim dividend paid for the year ended
30 June 2016 of 12.0p (2015: 10.0p) per
share 1,614 1,337
-------- --------
Total dividends 4,372 3,872
-------- --------
Final dividend proposed for the year
ended 30 June 2016 of 23.0p (2015: 20.5p)
per share 3,101 2,757
The interim dividend of 12.0p (2015: 10.0p) per share was paid on 26 April 2016.
A final dividend for the year ended 30 June 2016 of 23.0p (2015: 20.5p) per share was declared by the Board of Directors on 20 September 2016 and is subject to approval by the shareholders at the Company's annual general meeting. It will be paid on 28 October 2016 to shareholders who are on the register at the close of business on 30 September 2016. In accordance with IAS 10 'Events After the Reporting Period', this dividend has not been included as a liability in these financial statements.
13. Business combinations
On 31 July 2014, the group exercised its option to acquire the entire share capital of Levitas Investment Management Services Limited ('Levitas'). Full details of the acquisition are disclosed in note 13 of the 2015 Annual Report and Accounts. There have been no adjustments to the goodwill recognised in relation to the acquisition of Levitas.
14. Intangible assets
Contracts
Acquired acquired
client with
Computer relationship fund
Goodwill software contracts managers Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 July 2014 24,793 411 32,747 3,048 60,999
Additions - 1,405 - 474 1,879
Additions on acquisition
of subsidiaries at fair
value 11,213 - - - 11,213
At 30 June 2015 36,006 1,816 32,747 3,522 74,091
Additions - 3,265 - - 3,265
At 30 June 2016 36,006 5,081 32,747 3,522 77,356
--------- ---------- -------------- ---------- --------
Accumulated amortisation
At 1 July 2014 - 269 3,771 2,085 6,125
Amortisation charge - 129 2,167 412 2,708
At 30 June 2015 - 398 5,938 2,497 8,833
Amortisation charge - 132 2,177 365 2,674
At 30 June 2016 - 530 8,115 2,862 11,507
--------- ---------- -------------- ---------- --------
Net book value
At 1 July 2014 24,793 142 28,976 963 54,874
At 30 June 2015 36,006 1,418 26,809 1,025 65,258
--------- ---------- -------------- ---------- --------
At 30 June 2016 36,006 4,551 24,632 660 65,849
--------- ---------- -------------- ---------- --------
a) Goodwill
Goodwill acquired in a business combination is allocated at acquisition to the cash generating units ('CGUs') that are expected to benefit from that business combination. The carrying amount of goodwill at 30 June 2016 comprises GBP3,550,000 in respect of the Braemar Group Limited ('Braemar') CGU, GBP21,243,000 in respect of the Brooks Macdonald Asset Management (International) Limited, Brooks Macdonald Retirement Services (International) Limited and DPZ (collectively 'Brooks Macdonald International') CGU and GBP11,213,000 in respect of the Levitas Investment Management Services Limited ('Levitas') CGU.
Goodwill is reviewed annually for impairment and its recoverability has been assessed at 30 June 2016 by comparing the carrying amount of the CGUs to their expected recoverable amount, estimated on a value-in-use basis. The value-in-use of each CGU has been calculated using pre-tax discounted cash flow projections based on the most recent budgets approved by the relevant subsidiary company boards of directors, covering a period of up to five years. Cash flows are then extrapolated beyond the forecast period using an expected long-term growth rate.
Based on the value-in-use calculation, at 30 June 2016 the calculated recoverable amount of the Brooks Macdonald International CGU was GBP43,172,000, 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 8.45% has been used, based on the group's assessment of the risk-free rate of interest and specific risks relating to Brooks Macdonald International. Annual earnings growth rates of between 23% and 65% are forecast over the next five financial years, the period covered by the most recent forecasts, which reflect historic actual growth and planned management actions and are considered to be achievable given current market and industry trends. The 2% long-term growth rate applied is considered prudent in the context of the long-term average growth rate for the funds, investment management and financial planning industries in which the CGU operates.
In relation to the Levitas CGU, based on the value-in-use calculation the calculated recoverable amount at 30 June 2016 was GBP17,910,000, indicating that there is no impairment. The key underlying assumptions of the calculation are the discount rate, the growth in funds under management of the Levitas funds and the long-term growth rate of the business. A pre-tax discount rate of 8.45% has been used, based on the group's assessment of the risk-free rate of interest and specific risks relating to Levitas. Annual funds under management growth rates of between 20% and 48% are forecast in the next five financial years, the period covered by the most recent forecasts, which reflect historic actual growth and planned management activities and are considered to be achievable given current market and industry trends. The 2% long-term growth rate applied is considered prudent in the context of the long-term average growth rate for the funds industry in which the CGU operates.
The key assumptions inherent in the value-in-use calculations for the Braemar CGU were similarly a pre-tax discount rate of 8.45%, annual revenue growth rates ranging from 12% to 20% and a long-term growth rate of 2%.
Significant headroom exists in the calculations of the respective recoverable amounts of these CGUs over the carrying amounts of the goodwill allocated to them. On this basis, the directors have concluded that there is no impairment. The directors consider that no reasonably foreseeable change in any of the key assumptions would result in an impairment of goodwill, given the margin by which the estimated recoverable amounts of the CGUs exceed the carrying amounts of the goodwill allocated to each.
b) Computer software
Software costs are amortised over an estimated useful life of four years on a straight line basis.
c) Acquired client relationship contracts
This asset represents the fair value of future benefits accruing to the group from acquired client relationship contracts. The amortisation of client relationships is charged to the Consolidated Statement of Comprehensive Income on a straight line basis over their estimated useful lives (15 to 20 years).
d) Contracts acquired with fund managers
This asset represents the fair value of the future benefits accruing to the group from contracts acquired with fund managers. Payments made to acquire such contracts are stated at cost and amortised on a straight line basis over an estimated useful life of five years.
15. Property, plant and equipment
Equipment
Motor Fixtures and leasehold
vehicles and fittings improvements Total
GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 July 2014 35 2,087 5,814 7,936
Additions 25 69 1,528 1,622
Disposals - (64) - (64)
At 30 June 2015 60 2,092 7,342 9,494
Additions - 19 732 751
Disposals (27) - - (27)
At 30 June 2016 33 2,111 8,074 10,218
---------- -------------- --------------- --------
Accumulated depreciation
At 1 July 2014 13 959 3,993 4,965
Depreciation charge 15 307 668 990
At 30 June 2015 28 1,266 4,661 5,955
Disposals (15) - - (15)
Depreciation charge 9 232 728 969
At 30 June 2016 22 1,498 5,389 6,909
---------- -------------- --------------- --------
Net book value
At 1 July 2014 22 1,128 1,821 2,971
At 30 June 2015 32 826 2,681 3,539
---------- -------------- --------------- --------
At 30 June 2016 11 613 2,685 3,309
---------- -------------- --------------- --------
16. Available for sale financial assets
2016 2015
GBP'000 GBP'000
At beginning of year 1,532 2,182
Additions 500 250
Disposals - (250)
Loss from changes in fair value (6) -
Accumulated loss on revaluation
reserve recycled - 68
Impairment loss (311) (718)
At end of year 1,715 1,532
-------- --------
The group holds investments of 1,426,793.64 class B ordinary shares, representing an interest of 10.88%, in Braemar Group PCC Limited Student Accommodation Cell ('Student Accommodation Fund'); 750,000 zero dividend preference shares in GLI Finance Limited ('GLIF'), a listed company incorporated in Guernsey; and 500,000 redeemable preference shares in an unlisted company incorporated in the UK.
The Student Accommodation Fund is promoted by Brooks Macdonald Funds Limited, a subsidiary of the group. The shareholders of the fund approved a resolution in May 2016 to sell the underlying property portfolio of the fund to a third party. The shares will subsequently be compulsorily redeemed out of the remaining net assets of the fund following the sale, although this process had not been completed at 30 June 2016. The group has therefore estimated the fair value of the group's investment at 30 June 2016 at GBP471,000 (2015: GBP782,000) based on the most recent information made available to investors about the consideration payable for the assets of the fund and the expected net asset value per share after adjusting for the costs associated with the sale. An impairment loss of GBP311,000 (2015: GBP718,000) was recognised in the Consolidated Statement of Comprehensive Income during the year, reflecting this perceived permanent diminution of value of the group's shareholding.
During the year, the group realised an additional gain of GBP20,000 (2015: GBP540,000) on the final distribution of proceeds from the voluntary liquidation of Sancus Holdings Limited ('SHL'), an unlisted company incorporated in Guernsey. The disposal of the group's investment in SHL was recognised in the year ended 30 June 2015 and the gain is included within realised gain on investment in the Consolidated Statement of Comprehensive Income. Further details are disclosed in note 16 to the 2015 Annual Report and Accounts.
At 30 June 2016, the fair value of the group's GLIF preference shareholding was GBP744,000 (2015: GBP750,000), based on their bid price on the London Stock Exchange. The reduction in fair value of GBP6,000 (2015: GBPnil) is recognised within other comprehensive income in the Consolidated Statement of Comprehensive Income.
During the year, the group acquired 500,000 redeemable preference shares in an unlisted company with a par value of GBP1 at a cost of GBP500,000. The preference shares are redeemable at par any time after five years from the date of issue (8 April 2016) and bear an entitlement to a fixed preferential dividend of 8% per annum of the nominal value of the shares. The fair value of the preference shares has been estimated at GBP500,000 based on a discounted cash flow analysis.
The table below provides an analysis of the financial instruments that, subsequent to initial recognition, are measured at fair value. These are grouped into the following levels within the fair value hierarchy, based on the degree to which the inputs used to determine the fair value are observable:
-- Level 1 - derived from quoted prices in active markets for identical assets or liabilities at the measurement date;
-- Level 2 - derived from inputs other than quoted prices included within level 1 that are observable, either directly or indirectly; and
-- Level 3 - derived from inputs that are not based on observable market data.
Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Braemar Group PCC Limited Student
Accommodation Cell - - 471 471
Unlisted redeemable preference
shares - - 500 500
GLIF preference shares 744 - - 744
-------- -------- -------- --------
Total 744 - 971 1,715
-------- -------- -------- --------
During the year, the Student Accommodation Fund investment was transferred from level 2 to level 3. As no active market exists for the shares and there has been no recent announcement of the net asset value of the fund, the group has applied valuation techniques that are not based on observable market data.
17. Investment in joint venture
Brooks Macdonald Funds Limited, a subsidiary of Brooks Macdonald Group plc, holds a 60% interest in North Row Capital LLP, a UK Limited Liability Partnership. The group has joint control over the partnership, with the remaining interest owned by two individual partners who developed the investment approach behind the IFSL North Row Liquid Property Fund. The fund was launched in February 2014 and offers investors liquid exposure to global real estate markets.
2016 2015
GBP'000 GBP'000
At beginning of year 628 232
Working capital advanced in
the year 86 400
Impairment loss (400) -
Share of loss of joint venture (107) (4)
-------- --------
At end of year 207 628
-------- --------
An impairment loss of GBP400,000 was recognised during the year (2015: GBPnil) to reduce the carrying amount of the group's investment in North Row Capital LLP to its estimated recoverable amount. The expense is included within other gains and losses on the Consolidated Statement of Comprehensive Income. Based on the most recent forecasts, the future cash flows from the partnership will accumulate slower than originally anticipated and as a result it will take longer for the group to realise a cash return on its investment in the joint venture.
18. 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.
2016 2015
GBP'000 GBP'000
Deferred tax assets
Deferred tax assets to be
settled after more than 12
months 190 207
Deferred tax assets to be
settled within 12 months 361 502
-------- --------
Total deferred tax assets 551 709
-------- --------
Deferred tax liabilities
Deferred tax liabilities to
be settled after more than
12 months (3,951) (4,694)
Deferred tax liabilities to
be settled within 12 months (84) (119)
Total deferred tax liabilities (4,035) (4,813)
-------- --------
The gross movement on the deferred income tax account during the year was as follows:
2016 2015
GBP'000 GBP'000
At 1 July (4,104) (4,308)
Credit to the Statement of
Comprehensive Income (note
10) 593 276
Credit recognised in other
comprehensive income - -
Credit / (charge) recognised
in equity 27 (72)
Additions on acquisition of
subsidiaries - -
-------- --------
At 30 June (3,484) (4,104)
-------- --------
The change in deferred income tax assets and liabilities during the year was as follows:
Share-based
payments
GBP'000
Deferred tax assets
At 1 July 2014 809
Charge to the Statement of
Comprehensive Income (28)
Charge to equity (72)
------------
At 30 June 2015 709
Charge to the Statement of
Comprehensive Income (185)
Charge to equity 27
------------
At 30 June 2016 551
------------
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.
Available
Accelerated for sale Intangible
capital financial asset
allowances assets amortisation Total
GBP'000 GBP'000 GBP'000 GBP'000
Deferred tax liabilities
At 1 July 2014 2 - 5,115 5,117
Credit to the Statement of
Comprehensive Income 117 - (421) (304)
Charge to other comprehensive
income - - - -
------------ ----------- -------------- --------
At 30 June 2015 119 - 4,694 4,813
Additions on acquisition of
subsidiaries - - - -
Debit/ (credit) to the Statement
of Comprehensive Income (35) - (743) (778)
Charge to other comprehensive
income - - - -
------------ ----------- -------------- --------
At 30 June 2016 84 - 3,951 4,035
------------ ----------- -------------- --------
19. Trade and other receivables
2016 2015
GBP'000 GBP'000
Non-current assets
Loans receivable 150 -
Total non-current trade and
other receivables 150 -
-------- --------
Current assets
Trade receivables 5,939 5,854
Other receivables 2,518 3,426
Prepayments and accrued income 15,501 12,122
-------- --------
Total current trade and other
receivables 23,958 21,402
-------- --------
At 30 June 2016 there was a loan receivable outstanding, issued by Brooks Macdonald Asset Management (International) Limited to a third party for GBP150,000 (2015: GBP150,000). The loan is now repayable after more than one year from the reporting date. At 30 June 2015 the loan was included as a current asset within other receivables. No impairment was recognised during the year (2015: GBPnil).
20. Financial assets at fair value through profit or loss
2016 2015
GBP'000 GBP'000
At beginning of year 3 478
Additions 1,000 40
Disposals - (263)
Loss from change in fair value (3) (252)
At end of year 1,000 3
-------- --------
These investments are classified as Level 1 as defined in note 16.
21. Cash and cash equivalents
2016 2015
GBP'000 GBP'000
Cash at bank 19,437 19,240
Cash held in employee benefit
trust 41 34
Total cash and cash equivalents 19,478 19,274
-------- --------
Cash and cash equivalents are distributed across a range of financial institutions with high credit ratings in accordance with the group's treasury policy. Cash at bank comprises current accounts and immediately accessible deposit accounts.
22. Deferred consideration
Deferred consideration is split between non-current liabilities (see below) and provisions within current liabilities (note 25) 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:
2016 2015
GBP'000 GBP'000
At 1 July 13,826 11,236
Added on acquisitions during
the year - 11,264
Finance cost of deferred consideration 577 760
Fair value adjustments (3,571) (216)
Payments made during the year (3,901) (9,218)
At 30 June 6,931 13,826
-------- --------
Analysed as:
Amounts falling due within
one year 1,641 4,384
Amounts falling due after more
than one year 5,290 9,442
-------- --------
Total deferred consideration 6,931 13,826
-------- --------
No additions to deferred consideration (2015: GBP11,264,000) were recognised in the year. Payments totalling GBP3,901,000 (2015: GBP9,218,000) were made during the year, representing the final payment of GBP524,000 to the vendor of JPAM Limited ('JPAM'); the final payment of GBP2,130,000 to vendors of DPZ; and a further payment of GBP1,247,000 to vendors of Levitas.
A reduction in the fair value of deferred consideration of GBP3,571,000 (2015: GBP216,000) was recognised during the year, with a corresponding gain recognised within other gains and losses on the Consolidated Statement of Comprehensive Income. This included an adjustment to reduce the fair value of deferred consideration in respect of Levitas by GBP3,343,000. The amount payable is based on the incremental growth in FUM of the TM Levitas funds, measured at annual intervals. As forecast growth was not achieved during year, the FUM forecast was subsequently revised and the estimated future deferred consideration payments reduced accordingly. Adjustments were also made to reduce the fair value of the deferred consideration attributable to DPZ by GBP225,000 and JPAM by GBP3,000 to the amount of the final payments made to the vendors.
Deferred consideration is classified as Level 3 within the fair value hierarchy, as defined in note 16.
Amounts falling due after more than one year from the reporting date are presented in non-current liabilities as shown below:
2016 2015
GBP'000 GBP'000
At 1 July 9,442 2,943
Added on acquisitions during
the year - 11,264
Finance cost of deferred consideration 498 482
Changes in fair value of deferred
consideration (3,343) -
Transfer to current liabilities (1,307) (5,247)
-------- --------
At 30 June 5,290 9,442
-------- --------
During the year, no deferred consideration was recognised on acquisitions (2015: GBP11,264,000 was recognised in relation to the acquisition of Levitas). An amount of GBP1,307,000 (2015: GBP5,247,000), representing deferred consideration payable in respect of the acquisition of Levitas, was transferred to provisions within current liabilities. A range of final outcomes for the expected total deferred consideration payable cannot be estimated as the future value of the funds under management is dependent on several unpredictable variables, including client retention and market movements.
23. Other non-current liabilities
Other non-current liabilities relate to employer's National Insurance contributions arising from share option awards under the LTIS scheme.
2016 2015
GBP'000 GBP'000
At 1 July 95 115
Additional liability in respect
of LTIS awards 76 74
Transfer to current liabilities (57) (94)
-------- --------
At 30 June 114 95
-------- --------
The additional liability was recognised during the year of GBP76,000 (2015: GBP74,000) in respect of existing LTIS awards, granted in previous years, that are expected to vest in the future. During the year, an amount of GBP57,000 (2015: GBP94,000) was transferred to current liabilities, reflecting awards that are expected to vest within the next 12 months.
24. Trade and other payables
2016 2015
GBP'000 GBP'000
Trade payables 4,870 2,854
Other taxes and social security 2,509 2,580
Other payables 219 1,429
Accruals and deferred income 11,246 10,031
-------- --------
Total trade and other payables 18,844 16,894
-------- --------
Included within accruals and deferred income in 2016 is an accrual of GBP179,000 (2015: GBP282,000) in respect of employer's National Insurance contributions arising from share option awards under the LTIS.
The options have been valued using a Black Scholes model based on the market price of the Company's shares at the grant date. The total charge to the Consolidated Statement of Comprehensive Income for the year for all Phantom Share Option Schemes and employer's National Insurance contributions arising from share option awards under the LTIS was GBP84,000 (2015: GBP114,000).
25. Provisions
Client Deferred
compensation consideration FSCS levy Total
GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2014 503 8,293 351 9,147
Charge to the Statement
of Comprehensive Income 400 - 510 910
Added on acquisitions during
the year - 2,304 - 2,304
Finance cost of deferred
consideration - 278 - 278
Fair value adjustments - (216) - (216)
Transfer from non-current
liabilities - 2,943 - 2,943
Utilised during the year (202) (9,218) (472) (9,892)
-------------- --------------- ---------- --------
At 30 June 2015 701 4,384 389 5,474
Charge to the Statement
of Comprehensive Income 125 - 475 600
Added on acquisitions during
the year - - - -
Finance cost of deferred
consideration - 79 - 79
Fair value adjustments - (228) - (228)
Transfer from non-current
liabilities - 1,307 - 1,307
Utilised during the year (153) (3,901) (394) (4,448)
-------------- --------------- ---------- --------
At 30 June 2016 673 1,641 470 2,784
-------------- --------------- ---------- --------
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.
b) Deferred consideration
Deferred consideration has been included within provisions as a current liability to the extent that it is due for payment within one year of the reporting date. The amount outstanding at 30 June 2016 was GBP1,641,000 (2015: 4,384,000) and relates entirely to the Levitas acquisition.
An amount of GBP1,307,000 (2015: GBP2,943,000) was transferred from non-current liabilities, representing payments made during the year and provisions for amounts falling due within one year of the reporting date. Provisions of GBP3,901,000 (2015: GBP9,218,000) were utilised during the year on payment of GBP524,000 to the vendor of JPAM, GBP2,130,000 to the vendors of DPZ, and GBP1,247,000 to vendors of Levitas.
c) FSCS levy
Following confirmation by the FSCS in April 2016 of its final industry levy for 2016/17, the group has made a provision of GBP470,000 (2015: GBP502,000) for its estimated share.
26. Reconciliation of operating profit to net cash inflow from operating activities
2016 2015
GBP'000 GBP'000
Operating profit 16,482 12,101
Adjustments for:
Depreciation of property,
plant and equipment 969 990
Loss on sale of fixed assets 9 -
Amortisation of intangible
assets 2,674 2,708
Other gains and losses (2,857) 1,004
(Increase) / decrease in receivables (2,706) 67
Increase in payables 1,950 1,693
Increase in provisions 53 236
Increase / (decrease) in non-current
liabilities 19 (20)
Share-based payments 943 1,315
-------- --------
Net cash inflow from operating
activities 17,536 20,094
-------- --------
In the year ended 30 June 2015, the group obtained control of Levitas. The net cash outflow resulting from this business combination is presented in note 13(c) on page 42 of the 2015 Annual Report and Accounts.
27. Share capital and share premium account
The movements in share capital and share premium during the year were as follows:
Share
Number Exercise Share premium
of shares price capital account Total
p GBP'000 GBP'000 GBP'000
At 1 July 2014 13,592,175 135 35,147 35,282
Shares issued:
- on exercise 155.5 -
of options 29,500 290.5 - 50 50
- to Sharesave 916.0 -
Scheme 38,545 1,054.0 1 403 404
At 30 June
2015 13,660,220 136 35,600 35,736
Shares issued:
- on exercise 215.0 -
of options 19,400 290.5 - 53 53
- to Sharesave 1,054.0
Scheme 29,550 - 1,386.0 1 344 345
At 30 June
2016 13,709,170 137 35,997 36,134
----------- --------- --------- --------
The total number of ordinary shares issued and fully paid at 30 June 2016 was 13,709,170 (2015: 13,660,220) with a par value of 1p per share.
Shares issued on exercise of options and to Sharesave Scheme members resulted in a GBP1,000 increase in share capital in the year ended 30 June 2016 (2015: GBP1,000).
Employee Benefit Trust
The group established an Employee Benefit Trust ('EBT') on 3 December 2010 to acquire ordinary shares in the Company to satisfy awards under the group's Long Term Incentive Scheme ('LTIS') and other share-based payment schemes. At 30 June 2016, the EBT held 228,208 (2015: 207,532) 1p ordinary shares in the Company, acquired for a total consideration of GBP3,376,000 (2015: GBP2,803,000) with a market value of GBP3,774,000 (2015: GBP3,668,000). They are classified as treasury shares in the Consolidated Statement of Financial Position, their cost being deducted from retained earnings within shareholders' equity.
28. Other reserves and retained earnings
Other reserves are comprised of the following balances:
2016 2015
GBP'000 GBP'000
Share option reserve 5,331 4,909
Merger reserve 192 192
Available for sale reserve (6) -
Total other reserves 5,517 5,101
-------- --------
The movements in other reserves during the year were as follows:
2016 2015
GBP'000 GBP'000
Share option reserve
At beginning of the year 4,909 4,596
Share-based payments 943 1,315
Transfer to retained earnings (806) (1,334)
Tax on share-based payments 285 332
-------- --------
At end of the year 5,331 4,909
-------- --------
Available for sale reserve
At beginning of the year - (68)
Revaluation of available for
sale financial assets (6) -
Recycling of reserve due to
impairment - 68
At end of the year (6) -
-------- --------
The movements in retained earnings during the year were as follows:
2016 2015
GBP'000 GBP'000
At beginning of the year 33,327 27,456
Profit for the financial year 12,739 9,151
Purchase of own shares by
Employee Benefit Trust (1,143) (742)
Transfer from share option
reserve 806 1,334
Dividends paid (4,372) (3,872)
At end of the year 41,357 33,327
-------- --------
29. Events since the end of the year
The group disposed of its entire holding of GLIF zero dividend preference shares in July 2016 for proceeds of GBP735,000, representing a total realised loss on disposal of GBP15,000.
The sale of the underlying property portfolio of the Student Accommodation Fund completed on 1 July 2016 and the listing of the cell's ordinary shares on the Channel Islands Securities Exchange was cancelled on 5 July 2016. The final net asset value of the fund had not been determined at the date of signing these financial statements but is expected to available by the end of September 2016, with final payment of the redemption monies anticipated in October 2016.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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September 21, 2016 02:00 ET (06:00 GMT)
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