Brooks Macdonald Group PLC Final Results - Replacement (4352B)

TIDMBRK

RNS Number : 4352B

Brooks Macdonald Group PLC

20 September 2018

BROOKS MACDONALD GROUP PLC

CORRECTION: Final Results for the year ended 30 June 2018

This announcement replaces the announcement of Final Results for the year ended 30 June 2018 that was issued at 7am on 20 September 2018 (RNS Number 3279B). In the Chairman's Statement on page 5, in the last line of the sixth paragraph, the dividend record date for payment of the final dividend has been corrected to 28 September 2018. All other information is unchanged.

20 September 2018

BROOKS MACDONALD GROUP PLC

Final Results for the year ended 30 June 2018

Delivered market-leading growth in funds under management, crossing the GBP100m revenue threshold

Brooks Macdonald Group plc ("Brooks Macdonald" or "the Group"), the AIM listed wealth management group, today announces its audited results for the year ended 30 June 2018.

Financial Highlights

 
                                     Year ended     Year ended    Change 
                                     30.06.2018     30.06.2017 
 
 Total discretionary funds under 
  management ("FUM")                 GBP12.4bn      GBP10.5bn     18.7% 
 Revenue, continuing operations      GBP101.6m       GBP88.8m     14.4% 
 

Underlying Results*

 
 Underlying profit before tax     GBP18.0m   GBP17.0m    6.1% 
 Underlying profit margin          17.7%      19.1%     -1.4ppt 
 Underlying earnings per share     117.7p     105.1p     12.0% 
 

Statutory Results

 
 Statutory profit before tax     GBP6.7m    GBP8.0m    -16.4% 
 Statutory earnings per share     39.4p      43.0p     -8.2% 
 
 Net cash                        GBP30.9m   GBP32.2m   -3.9% 
 

Dividends

 
 Proposed final dividend    30.0p   26.0p   15.4% 
 Total dividend             47.0p   41.0p   14.6% 
 

*Adjustments are in respect of the amortisation of intangible assets, finance cost and changes in fair value of deferred consideration, impairment of carrying value of goodwill (Levitas) and legacy matters provision (Spearpoint). All figures quoted as "underlying" are for continuing operations only, i.e., excluding the impact of the operation and disposal of Braemar Estates; "statutory" figures include all operations

Business Highlights

-- Strong organic growth (net new discretionary business) of 13% (GBP1.4bn) and above benchmark investment performance contributing to 19% (GBP2.0bn) increase in FUM to GBP12.4bn, reflecting strength of offering and relationships:

o Strong growth in BPS and MPS, 17% and 23% respectively

o BMI reached GBP1.7bn FUM with 6% organic growth, up from 1% in FY17 (FY17 FUM: GBP1.5bn)

o Funds grew 32% to GBP1.5bn FUM (FY17: GBP1.2bn) with the Defensive Capital Fund moving over GBP0.5bn and our third party investment solution funds now at GBP0.6bn

-- 14% increase in revenue, crossing the GBP100m threshold. All four businesses made good contributions, with revenue yield stabilising in second half of financial year

-- Underlying profit before tax increased by 6.1% to GBP18.0m, while underlying profit margin fell from 19.1% to 17.7%. This included the impact of the GBP4m spend on our risk management and operational framework. GBP2m of that spend was a one-off investment, without which the underlying profit margin would have been 19.7%, reflecting both material revenue growth and renewed cost discipline

-- Statutory profit before tax affected by the previously announced GBP5.5m increase in provision for resolving legacy matters (FY17: GBP6.5m), a GBP2.5m write-down of capitalised software assets (FY17: zero), GBP2.4m of amortisation of acquired client relationships (FY17: GBP2.5m), and a net GBP1.3m charge related to the deferred consideration for the Levitas transaction (FY17: GBP2.0m gain)

-- Total dividend increased by 15% to 47.0p (FY17: 41.0p) reflecting the Board's continued confidence in the strength of the underlying business and commitment to a progressive dividend policy

-- Successful delivery of additional FY18 investment to strengthen foundations and meet regulatory demands

o Delivered major regulatory projects including MiFID II and GDPR

o Upgraded risk management and operational framework

o Strengthened management team, enhancing functional capability

o Sale of Braemar Estates, our property management business

-- Continued focus on delivering high service levels meeting the needs of clients and advisers. Emphasis of non-client activity has now moved to driving effectiveness and efficiency from the business, improving processes and building a scalable operating model to support future growth and deliver medium-term margin improvement

-- Channel Islands legacy issues resolution progressing, continuing to work with all stakeholders, including relevant regulators

-- Macroeconomic uncertainty affecting investor sentiment over the summer, but we remain confident in the strength of our client and adviser relationships and our core offerings.

Caroline Connellan, Chief Executive of Brooks Macdonald, commented:

"I am pleased that we have maintained strong business performance while also making good progress on regulatory change and strengthening our foundations for future growth. Our net new business of 13% is again the highlight of our results, reflecting the strength of our client and adviser relationships. This, coupled with above benchmark investment performance, drove FUM to GBP12.4bn at the year end.

"In parallel, we have improved our underlying profit margin excluding one-off risk-related expenditure, which is particularly pleasing given the level of regulatory and additional functional spend. Looking ahead, we recognise we have more to do, and our focus is now turning to ensuring we are easy to do business with and to achieving higher profit margins in the medium term.

"After a strong year and in line with the industry, we're seeing some impact of macroeconomic uncertainty on investor sentiment as we move into the new financial year. However, the fundamental opportunity for our business model remains strong and we remain confident in our positioning and ability to build on our success to date."

Analysis of discretionary fund flows over the year

 
                                  FY18                             FY17 
                    -------------------------------  ------------------------------- 
 GBP000m             UKIM    Funds    BMI    Total    UKIM    Funds    BMI    Total 
                    ------  ------  ------  -------  ------  ------  ------  ------- 
 
 Opening FUM         7,768   1,159   1,529   10,456   6,158    796    1,348   8,301 
                    ------  ------  ------  -------  ------  ------  ------  ------- 
 Net new business     913     355     98     1,365     643     290     17      951 
                    ------  ------  ------  -------  ------  ------  ------  ------- 
 Performance          507     22      66      594      968     72      163    1,203 
                    ------  ------  ------  -------  ------  ------  ------  ------- 
 Closing FUM         9,187   1,535   1,693   12,414   7,768   1,159   1,529   10,456 
                    ------  ------  ------  -------  ------  ------  ------  ------- 
 Organic growth 
  %                  11.8%   30.6%   6.4%    13.1%    10.4%   36.5%   1.3%    11.5% 
                    ------  ------  ------  -------  ------  ------  ------  ------- 
 Total growth 
  %                  18.3%   32.4%   10.7%   18.7%    26.2%   45.5%   13.4%   25.9% 
                    ======  ======  ======  =======  ======  ======  ======  ======= 
 

An analyst meeting will be held at 9.15 for 9.30am on Thursday, 20 September at the offices of MHP Communications, 6 Agar Street, London, WC2N 4HN. Please contact Robert Collett-Creedy on

020 3128 8147 or e-mail [e-mail] for further details.

Enquiries to:

 
 Brooks Macdonald Group plc 
  Caroline Connellan, Chief Executive 
  Ben Thorpe, Finance Director                                                                          020 7499 6424 
 Peel Hunt LLP (Nominated Adviser and Broker) 
  Guy Wiehahn / Adrian Haxby                                                                            020 7418 8900 
 MHP Communications                                                                                     020 3128 8540 
  Reg Hoare / Simon Hockridge / Charlie Barker                                                        [e-mail] 
  / Robert Collett-Creedy 
 

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 (FUM) of GBP12.4bn as at 30 June 2018.

Brooks Macdonald offers a range of investment management services to private high net worth individuals, pension funds, institutions, charities and trusts. The Group also provides financial planning as well as offshore investment management and acts as fund manager to regulated OEICs providing specialist funds in the property and structured return sectors.

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

www.brooksmacdonald.com / @BrooksMacdonald

LEI: 213800WRDF8LB8MIEX37

CHAIRMAN'S STATEMENT

I am pleased to report that the Group continues to make strong progress.

Our funds under management increased during the financial year from GBP10.5bn to GBP12.4bn, an increase of 18.7%. Our revenues have exceeded GBP100m for the first time, and after absorbing GBP4m of additional cost in our risk management and operational framework (GBP2m one-off, GBP2m ongoing) we have reported an increase in underlying profit before tax from GBP17.0m to GBP18.0m. Underlying earnings per share have risen 12.0% from 105.1p to 117.7p, partly driven by a reduced tax charge due to a research and development credit.

Statutory profit before tax has fallen from GBP8.0m in FY17 to GBP6.7m in FY18, the reduction principally due to a write down of capitalised software assets and a charge related to the deferred consideration for the Levitas transaction. Statutory earnings per share were 39.4p (FY17: 43.0p).

I am pleased to highlight that our investment performance continues to be ahead of the Asset Risk Consultants ("ARC") Private Client Index benchmarks across all risk mandates, over 1, 3 and 5 years.

We opened an office in Wales during the financial year, underscoring the importance of our regional network which is responsible for over half of the Group's UK FUM.

The Board has recommended a final dividend of 30.0p (FY17: 26.0p) which, subject to approval by shareholders, will result in total dividends for the year of 47.0p (FY17: 41.0p). This represents an increase of 14.6% on the previous year and reaffirms the Board's confidence in the strength of the business and our commitment to a progressive dividend policy. The final dividend will be paid on 2 November 2018 to shareholders on the register at the close of business on 28 September 2018.

There have been several changes to the Board during the last year. Chris Macdonald retired as a non-executive director in March but remains an adviser to the business he co-founded twenty seven years ago. Ben Thorpe has joined us as Finance Director since the year end, succeeding Simon Jackson who resigned in April. We have been pleased to appoint two non-executive directors - David Stewart, a former Chief Executive of the Coventry Building Society, who joined the Board in May, and John Linwood, a former Chief Technology Officer for the BBC, whose appointment takes effect today.

In Caroline Connellan's first full year as Chief Executive, we have maintained strong commercial performance and strengthened our business for future growth. We have invested in risk management and delivered major regulatory projects. In parallel we have upgraded our functional capability more broadly, adding key skills to the leadership team to complement our existing client focused leadership and investment expertise. We recognise that there is more to do to take Brooks Macdonald to a position where we can fully realise economies of scale which are commensurate with our growth, and Caroline and her team will continue to drive forward that programme of work.

Looking ahead, there is material uncertainty in the UK's macroeconomic outlook, especially given that the nature of the UK's future relationship with the EU remains unclear with only six months left before Brexit. Further, global geopolitical risks, in particular the emerging risk of trade wars, are weighing on market sentiment, and we remain cautious in our external outlook. However, we are confident that the Group is well positioned for most scenarios, supported by a strong balance sheet with net cash of GBP30.9m at year end. We expect to deliver both enhanced profit margins in the medium term and strong future growth driven by our continued focus on meeting client and adviser expectations and our robust investment performance.

Christopher Knight

Chairman

CHIEF EXECUTIVE'S REVIEW

Introduction

I am pleased that my first full year as Chief Executive of Brooks Macdonald has seen the business continue its market-leading levels of organic growth which is testament to the strength of our core offerings and our client and adviser relationships. During the year, we have also invested to support future growth, driven a renewed focus on cost discipline and taken steps to ensure a strong pipeline of growth opportunities. I would like to thank all our teams, who have worked hard in these areas throughout the year, while maintaining focus on supporting our clients and advisers.

We have reinforced our strong foundations through developing a clear articulation of the guiding principles underpinning our client-centric culture, by ensuring that the benefits of our Group Centralised Investment Process are delivered consistently to all our clients, and undertaking a review of how we best serve our major strategic adviser partners, present and future, building on the strength of our existing relationships. We have taken the first steps to achieve our medium-term goal of increasing margins through cost discipline, made progress in addressing the Channel Islands legacy matters and upgraded the Group's functional capabilities, both through senior appointments and the investment in our risk and operational framework. As announced at the half year, we completed the sale of Braemar Estates, our Property Management business, in line with the emphasis on our core offerings and margin improvement.

Looking forward, our focus remains on meeting client and adviser needs and delivering market-leading levels of organic growth, with work underway to enhance our offering. For example, our revamped Court of Protection service and our Responsible Investing proposition will be launched in the coming months.

Our core business is discretionary fund management and financial planning, both in the UK and internationally through our Channel Islands subsidiary. Building on our improved cost discipline, we are now moving to develop our operating model to make Brooks Macdonald easier to deal with for both clients and advisers, make it easier for our people to perform their roles efficiently and effectively, and deliver increased value from our growth. This will involve re-engineering of core processes, eliminating duplication and accumulated inefficiencies, and capturing digital opportunities to support our current offering. We recognise that what we have achieved this year is only a first step and there is some way to go - but we have made a good start and we are confident of delivering the full potential inherent in the Brooks Macdonald business over the coming years.

Growth in funds under management, revenue and underlying profit

At the start of 2018 the 'goldilocks' environment seen in the second half of 2017 was called into question as the effects of quantitative tightening from the US Federal Reserve began to be felt. This shortage of USD liquidity led to several bouts of volatility, initially catalysed by inflation concerns in February then concerns about the viability of emerging market debt burdens in May. The corporate earnings backdrop however has been strong and this has supported sentiment. These earnings, together with largely range bound equity markets, have brought equity valuations closer to their longer term averages in the US as well as the rest of the world. In light of this we have retained our weightings to equity sectors, particularly our preferred themes of Technology and Healthcare, whilst making some changes to the non-equity portion of the portfolio. We have cut our exposure to the UK commercial property sector given the lower yields and possibility of higher volatility from the asset class should we see a downturn in the UK economic outlook. In addition we have gradually been reducing our exposure to corporate credit in favour of gilts as we have concerns over the deteriorating quality of this asset class at a time when spreads are very low and leverage is rising.

Against this backdrop, the Group maintained momentum throughout the financial year, achieving annual growth in our discretionary funds under management of 18.7%, to stand at a new record of GBP12.4bn at 30 June 2018 (FY17: GBP10.5bn). Of the GBP2.0bn increase, GBP1.4bn was net new business (13.1% of opening FUM) and GBP0.6bn came from investment performance (5.7%, compared to a 4.2% increase in the MSCI Wealth Management Association ("WMA") UK Private Investor Balanced Index over the year).

Revenue crossed the GBP100m threshold for the first time, reaching GBP101.5m (FY17: GBP88.8m), with all four businesses contributing strongly. Revenue yield in our core UK Investment Management business stabilised over the financial year after declining in the second half of FY17 and into early FY18.

Underlying profit before tax for the year was GBP18.0m (FY17: GBP17.0m), an increase of 6.1% on the previous year, representing an underlying profit margin of 17.7% (FY17: 19.1%). The margin decline was driven by the one-off GBP2m investment in our risk management and operational framework, without which the margin would have been 19.7%. This increase has been achieved while absorbing an increased level of regulatory and functional spend. Underlying earnings per share increased by 12.0% to 117.7p (FY17: 105.1p). While this is a strong result for the underlying business, statutory profit before tax for the year fell by 16.4% to GBP6.7m (FY17: GBP8.0m) held back by a write-down in the value of software intangible assets, as well as a reduction in the fair value of the deferred consideration relating to the Levitas business. A full reconciliation of underlying and statutory profit can be found in the strategic report.

Review of business performance

UK Investment Management ("UKIM") continues to be our largest and most profitable business. Over the year, we maintained strong new business flows, despite a short setback in the markets around March which temporarily affected investor sentiment. UKIM profit margins were affected by the costs of regulatory change and investment in our risk management and operational framework. Our success in maintaining market-leading levels of organic growth is driven by the strength of our relationships with advisers and we continue to work to maintain and improve these through high service levels and ongoing enhancements to our offering. The level of penetration of the adviser community by discretionary fund managers remains low and we are confident that regulatory and commercial trends mean that the flow of firms looking to outsource investment management will remain strong.

Our Centralised Investment Process continues to deliver consistently strong investment performance, notably during the brief market setback earlier this year. Our portfolios across all risk mandates are delivering above benchmark returns according to ARC private client indices over one, three and five year periods. In May this year we were, for the third consecutive year, awarded the prestigious industry Gold Standard Award for service in discretionary fund management and we were once again proud to receive five star ratings from Defaqto for each of the main discretionary offerings: our Bespoke Portfolio Service ("BPS"), direct Managed Portfolio Service ("MPS") and our platform MPS. In addition, we came top for adviser satisfaction across the 14 aspects of service covered in the survey.

We were successful at the Citywire Regional Star Awards in 2018, with professional advisers voting our York, Hampshire and Leamington Spa offices as winners of their respective geographical categories. We thank all our adviser partners for their continued support.

BPS is a premium and fully personalised service for private clients, charities and pension funds, and remains our principal offering, representing GBP7.7bn of FUM in the UK (62.0% of Group FUM). The pension opportunity, in particular Self-Invested Personal Pensions ("SIPPs"), continues to be significant, as does the growth of Individual Savings Accounts ("ISAs") and our AIM Portfolio Service. In line with the industry we have seen a reduction in demand for Defined Benefit transfers in recent months as the sector adjusts to the servicing and suitability assessment demands of the product. However, although not reaching the highs of recent years, we expect this to improve over time, given the ongoing and growing need for individuals to seek financial planning advice before and through retirement.

MPS consists of ten model portfolios with distinct risk profiles and objectives, and is available to those investing smaller amounts, allowing our investment management capabilities to be accessed by a wider range of individuals through their financial advisers. Assets in the UK now stand at GBP1.5bn (FY17: GBP1.2bn), which accounts for 12.0% of total FUM, having seen rapid growth (22.9%) over the year. These assets are held either directly with us or through a third party platform, with platform assets seeing particularly strong growth in the year. We expect asset accumulation in MPS to continue as the popularity of model multi-asset portfolios continues to grow due to their lower charges and ease of access.

Our Funds business grew to GBP1.5bn FUM, an increase of 32.4% over the year (FY17: GBP1.2bn). We have now completed the previously announced move of this business into UK Investment Management, with the exception of our property funds (the Ground Rent Income Fund and UK Agricultural Land Fund) and we will report on that basis going forward. The IFSL Brooks Macdonald Defensive Capital Fund, within the targeted absolute return sector, had another strong year with 38.1% growth in FUM and our Multi-Asset Funds also saw 20.4% growth during the year. The fastest growing part of our Funds business in this year was our third party investment solution funds, which grew by 50.9%. We expect this white labelling approach to be a major focus for growth going forward as we explore new routes to bring the benefits of our Centralised Investment Process to advisers in a way that best suits their business model.

Our International business based in the Channel Islands delivered net organic growth well up on last year at 6.4% (FY17: 1.3%). Since the financial year end, the business has experienced an increase in attrition, as expected following the departure of one of our client-facing teams.

Financial Planning also had a good year, with revenue slightly below last year's record levels. We continue to focus on delivering a comprehensive independent financial planning service to private clients and on seeking new opportunities to support future growth, robustly managing any perceived channel conflict.

Legacy matters arising from the former Spearpoint business

We announced in July 2017 our decision to deal proactively with certain legacy matters arising from the former Spearpoint business which we acquired in 2012. These matters relate to both a number of discretionary portfolios formerly managed by Spearpoint, now managed by our Jersey office, and a Dublin-based fund, for which Spearpoint acted as investment manager. While we accept no legal liability in these matters, we have a deep commitment to treating customers fairly and seeking to protect our clients' best interests. We developed a plan to resolve these matters and accordingly we made a GBP6.5m provision in the financial results for the year to 30 June 2017.

As subsequently announced with our interim results in March 2018, it became apparent that the calculation of the goodwill offers for the discretionary portfolio clients was affected by quality issues with data derived from legacy systems. To ensure that the calculation was fair to clients, we therefore initiated a comprehensive review of the data sources, calculations and methodology, requiring extensive use of third party expertise to extract the data, and to provide advice and quality assurance. Having concluded this review, we issued final goodwill offer letters by the end of March 2018. 75% of the clients receiving a goodwill offer have now accepted, with these acceptances accounting for 66% of the offers by value.

In parallel, we have been in extensive and prolonged discussions with the Board of the Dublin-based fund, seeking to deal with the matter proactively. A goodwill proposal for the fund's shareholders was made to the directors. We have made some progress but we have been unable to reach agreement with the directors as yet. We remain committed to reaching a settlement on terms in line with the initial goodwill proposal and we continue to engage with the directors. Throughout the discussion, our focus has been on treating customers fairly and seeking to protect the fund's shareholders' best interests.

The effect of movements in the expected total cost of goodwill offers and associated expenses is an increase of GBP5.5m from the previous provision to GBP12.0m. We provided for the additional amount as an exceptional item in the financial report for the six months to 31 December 2017; as such, it reduces statutory profit but does not affect underlying profit. To date, GBP5.8m of the provision has been utilised.

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

Delivering our strategy

We have worked over this year to refine our strategy in the context of the market opportunity and external trends, and will continue to build out over comings months. Our strategy is based on three pillars:

   --      Build on a foundation of success, leveraging our strengths; 

-- Focus our business to deliver increased value from our future growth, through greater efficiency and effectiveness, delivering improved profit margins over the medium term;

-- Seek new opportunities for growth, continuing to grow FUM organically with new segments, propositions and partnerships.

For the business to remain competitive, maximise the opportunity from our market positioning and deliver greater value to shareholders, successful delivery across all three pillars is critical. We see several phases in delivering the strategy, with the emphasis across the three pillars changing as we move forward.

Our success to date has been built on our commitment to the adviser community and strength of relationships, our consistent investment performance and our client-centric culture. In the past year, as a first phase, we have reinforced these foundations through a series of actions. We have built functional capability and bolstered the leadership team, complementing the existing client and investment management expertise which has brought the business to where it is today. Secondly, we have articulated the guiding principles which underpin our client-centric, "can do" culture. We have placed further emphasis on ensuring the benefits of our Centralised Investment Process are delivered consistently to all our clients. We have upgraded our risk management and operational framework, in parallel with delivering a demanding regulatory change agenda. And we have driven greater cost discipline through the business. All of this has contributed to the improved margin (excluding one-offs) we have delivered in FY18.

The changes we have made so far have resulted in a stronger platform to support future growth but we recognise there is more to do to ensure we are easy to do business with and to deliver increased value from our franchise. We are moving into a phase of driving for efficiency and effectiveness - streamlining processes, eliminating duplication and making sure the overall business is scalable, enabling us to capture economies of scale commensurate with our growth and delivering increased profit margins in the medium term. In parallel, we will expand the pipeline of growth opportunities through product proposition development, deepening and widening our adviser relationships, capturing digital opportunities to support our current offering, and identifying opportunities in new or under-served client segments where can leverage our expertise and proposition.

Outlook

We are pleased to report another strong year, and we look forward to building on our success to date and continuing to position the business to deliver sustainable growth into the future. Throughout this journey we remain focused on meeting the needs of our clients and advisers, while delivering business efficiency and effectiveness to improve margins in the medium term and achieve increased value from our growth opportunities.

We have started our new financial year dealing with the industry-wide impact of macroeconomic uncertainty and regulatory trends. Notwithstanding our relative short-term caution around markets and client sentiment, we are confident in the strength of our client and adviser relationships and our core offerings.

Finally, I would like to reiterate my thanks to everyone at Brooks Macdonald for their passion, energy and commitment to our business.

Caroline Connellan

Chief Executive

STRATEGIC REPORT

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 through our three businesses:

-- UK Investment Management (including Funds) - providing discretionary fund management services and open-ended investment company products to clients and their introducers as well as other discretionary managers from 10 offices across the UK

-- Financial Planning - providing wealth management services to UK clients from our London office

-- International - providing discretionary fund management and wealth management services to clients and their introducers across Europe, South Africa and the UAE from offices in Jersey and Guernsey.

[1] In the segmental reporting (note 1), four business are listed with funds shown separately. However, this is an historic view, since the funds business has now integrated into UK Investment Management from 1 July 2018 and will not be reported separately going forward.

Our services

Brooks Macdonald manages GBP12.4 billion for its clients as of 30 June 2018, 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 to high net-worth individuals and families, and through our funds we provide multi-asset and specialist fund products to the retail sector.

UK Investment Management

Within our UK Investment Management business, we have six distinct service lines:

   --      Bespoke Portfolio Service 

BPS is our flagship offering, designed for clients who want an individual investment portfolio constructed to meet their specific requirements. The investment manager maintains a detailed knowledge of the client's investment requirements, including their risk appetite, allowing the manager to construct focused, efficient portfolios supporting the delivery of risk-adjusted investment returns appropriate to the client's needs. The range of investments includes unit trusts, open-ended investment companies, exchange-traded funds, investment trusts and cash, as well as individual equity and bond securities. Investment managers for BPS service follow our Group-level Centralised Investment Process, which is based on the three key principles of our investment philosophy:

o Using a proven active investment process - we have central asset allocation and investment committees which combine strategic and tactical approaches to asset allocation with rigorous individual security selection, leveraging the broad expertise and experience of the Committee members as well as the in-depth knowledge of our specialist sector research teams

o Effective risk management - we seek to produce strong "risk-adjusted" returns, not just generating profits but also working to limit the potential for losses. We have embedded qualitative and quantitative risk controls into our investment process

o Maintaining a portfolio focus - we give our individual investment managers a level of discretion in managing client portfolios to their individual mandates, within defined boundaries set by our investment and asset allocation committees, ensuring that the benefit of the centralised investment process is delivered to all our clients.

   --      AIM Portfolio Service 

Our AIM Portfolio Service ("APS") provides clients with access to a carefully selected portfolio of AIM-listed companies, with preference given to companies that we judge to have attractive long-term investment potential. We restrict our investment universe to companies that we believe qualify for Business Property Relief ("BPR"), allowing investors to benefit from Inheritance Tax ("IHT") exemptions. As APS portfolios are typically invested in a concentrated group of small-to-medium sized UK companies, we consider APS to be "high risk". While APS is monitored and overseen by the central investment committee, it does not follow the Centralised Investment Process.

   --      Managed Portfolio Service 

Managed Portfolio Service ("MPS") provides a choice of investment into a range of risk-managed model portfolios, each investing in an array of different assets. Each model portfolio is designed to achieve specific investment objectives within a specific risk profile. MPS portfolios are managed by a dedicated team of investment managers, applying our Centralised Investment Process.

   --      Multi-Asset Funds 

Our Multi-Asset Fund ("MAF") range allows investors to gain access to our discretionary management expertise and proven Centralised Investment Process through a pooled fund solution. We offer a range of four risk-managed multi-asset funds: Defensive Income, Cautious Growth, Balanced and Strategic Growth. By differing their levels of equity exposure, the range caters for both investors seeking capital growth and more cautious investors looking to generate income while preserving their capital.

   --      Third Party Funds 

We design specific investment propositions for advisers and intermediaries who are looking for investment solutions meeting specific investment objectives for their clients. These are delivered in pooled fund formats to which we provide investment management, leveraging our broad investment management and asset allocation expertise. This capability and the associated intellectual capital were developed initially to support the Levitas relationship.

   --      Specialist funds 

We also provide investment management to a small number of specialist funds. The largest is our highly successful Defensive Capital Fund ("DCF") which has grown to GBP543 million at 30 June 2018. We also provide investment management to the Ground Rent Income Fund (FUM at 30 June 2018 GBP103 million) and the UK Agricultural Land Fund (FUM at 30 June 2018 GBP4 million).

Financial Planning

Our Financial Planning business provides wealth management services to high net worth individuals and families. We provide independent "whole of market" financial advice, enabling clients to build, manage and protect their wealth. Our service is advice-driven, rather than product-driven, providing clients with a coherent, affordable strategy, aimed at achieving their long-term goals. In addition to our financial planning service, we work in collaboration with other professional advisers, such as solicitors, accountants and wealth managers, to help them provide a comprehensive service to their clients. We provide a comprehensive fee-based service, encompassing both financial advice and mortgage services.

International

Our International business, based in the Channel Islands, has a similar range of investment management and financial planning services. The services are designed to meet the particular requirements of the offshore and international markets and the investment management follows our Group-level Centralised Investment Process. We provide a comprehensive range of investment services to private clients, trusts and advisers, available in sterling, euros or US dollars:

   --      International Bespoke Portfolio Service 
   --      International Managed Portfolio Service 
   --      International Multi-Asset Funds (also available in Singapore dollars) 

-- Single-strategy solutions, which invest directly in the traditional asset classes of bonds and equities for ultra high net worth clients, with higher entry thresholds. Our Corporate Bond Strategy invests in a diversified portfolio of investment-grade bonds to provide a balance of income, security and liquidity, while the Direct Equity Strategy is structured to provide capital appreciation and income growth through direct investment in high quality stocks.

The International business also has a financial planning arm, Brooks Macdonald Retirement Services, where we provide a comprehensive service for private clients who require wider planning around their investments, also focusing on financial protection, pensions and investments.

Group performance

Results

The Group's underlying profit before tax increased by 6.1% in the year to GBP18.0m (FY17: GBP17.0m). Total revenue increased 14.4% to GBP101.6m (FY17: GBP88.8m). Total underlying costs increased by 16.4% to GBP83.7m (FY17: GBP71.9m). Underlying earnings per share was 117.7p (FY17: 105.1p), an increase of 12.0%. The Group's underlying profit margin fell to 17.7% (FY17: 19.1%).

Profit before tax from continuing operations fell 22.0% to GBP6.2m (FY17: GBP7.9m) and underlying adjustments increased by 29.7% to GBP11.8m (FY17: GBP9.1m). Statutory basic earnings per share from continuing operations fell 15.7% to 35.5p (FY17: 42.1p). Statutory profit before tax fell 16.4% to GBP6.7m (FY17: GBP8.0m) which includes profit from discontinued operations which was GBP0.5m (FY17: GBP0.1m).

 
 Table 1 
                                                2018   2017 restated(1) 
                                        GBPm (unless       GBPm (unless 
                                             stated)            stated) 
 Total revenue                                 101.6               88.8 
 Underlying costs                             (83.7)             (71.9) 
 Underlying net finance income                   0.1                0.1 
 Underlying profit before tax(2)                18.0               17.0 
 Underlying margin(3)                          17.7%              19.1% 
 
 Underlying adjustments                       (11.8)              (9.1) 

                                       -------------  ----------------- 
 Profit before tax from continuing 
  operations                                     6.2                7.9 
 
 Profit from discontinued operations             0.5                0.1 
 
 Statutory profit before tax                     6.7                8.0 
 
 Taxation                                      (1.3)              (2.2) 
 
 Profit after tax                                5.4                5.8 
                                       -------------  ----------------- 
 
 Underlying basic earnings per 
  share(4)                                    117.7p             105.1p 
 Basic earnings per share from 
  continuing operations                        35.5p              42.1p 
 Statutory basic earning per 
  share                                        39.4p              43.0p 
 Dividends per share(5)                        47.0p              41.0p 
 
 (1) Prior periods have been restated to separate the results 
  of discontinued operations, consistent with the presentation 
  in the current period. 
  (2) A reconciliation between underlying profit before tax 
  and profit before tax is shown in Table 2 
  (3) Underlying profit as a percentage of total revenue 
  (4) Underlying earnings per share for comparative periods 
  have been restated to include software amortisation and exclude 
  discontinued operations, consistent with the treatment in 
  the current period 
  (5) The total interim dividend and the final dividend for 
  the financial year 
 

Underlying performance measures

We use underlying profit before tax, underlying costs, underlying earnings per share and underlying margin to measure and report on the financial performance of the Group, in order to aid comparability between periods. These underlying measures are used by both the Board and management for planning and reporting, whilst also providing useful insight for investors and analysts.

The underlying profit figure is calculated based on statutory profit before tax adjusted to exclude any items of income or expense that are infrequent or unusual and exclude the impact of discontinued operations. These items are considered to be outside the ordinary course of business.

Other adjusted-for items of income or expense may recur from one period to the next. Although they recur over multiple periods they are the result of events or decisions which the directors consider to be outside the ordinary course of business. Income or expenditure adjusted for historically has included impairment of carrying value of intangible assets and changes in fair value of deferred consideration and contingent consideration which are not considered to be reflective of the Group's underlying business performance. Provisions made to cover costs of resolving legacy matters are also adjusted for on this basis.

Additionally, the amortisation expense of acquired client relationships and contracts acquired with fund managers is an expense which investors and analysts typically add back when considering profit before tax or earnings per share ratios.

In previous years, the amortisation expense of software was excluded when calculating underlying profit. This has now become material and continuing in nature resulting in the amortisation expense of software now included when calculating underlying profit.

Funds Under Management

As at 30 June 2018, discretionary FUM totalled GBP12,414m (FY17: GBP10,456m). Over the year, FUM grew by GBP1,958m (18.7%). Of this, GBP1,365m (13.1%) was net new business and GBP594m (5.7%) was investment performance. As a comparison, the MSCI WMA Private Investor Balanced Index grew by 4.2% over the year.

 
                                      2018     2017 
                                      GBPm     GBPm 
 
 Opening discretionary FUM          10,456    8,301 
 
 Net new discretionary business      1,365      951 
 Investment growth                     594    1,204 
                                   -------  ------- 
 Total FUM growth                    1,958    2,155 
 
 Closing FUM                        12,414   10,456 
                                   -------  ------- 
 
 Organic growth (net of markets) 
  %                                   13.1     11.5 
 Total growth %                       18.7     25.9 
 

Revenue

Total Group revenue grew by 14.4% (FY17: 12.7%), passing the GBP100m threshold at GBP101.6m (FY17: GBP88.8m).

Portfolio management fees and associated transactional income increased by 13.6% to GBP87.9m (FY17: GBP77.4m). Fee income increased in line with FUM. However, the first half of the year saw slower transactional volumes due to lower portfolio turnover rates with activity stabilising in the second half of the financial year.

Fund management fees increased 42.1% to GBP7.8m (FY17: GBP5.5m) due to higher average FUM as the business continued to build scale.

Advisory fees and financial services commission was flat at GBP5.7m (FY17: GBP5.8m).

Underlying costs

Underlying costs increased by GBP11.8m (16.4%) to GBP83.7m (FY17: GBP71.8m). These costs represent 82.4% (FY17: 80.8%) of income and increased in the year due to our focus on enhancing and embedding our risk management framework, strengthening the leadership team and delivering key regulatory requirements (MiFiD II and GDPR).

The largest driver of underlying costs are our permanent staff and during the year we saw an increase in the average number of employees from 452 (Restated to exclude employees of discontinued operations) to 470 (4.0%) and we finished the year with 480 employees (full time equivalent). We continue to operate in an increasingly regulated environment and in particular strengthened our risk, compliance and change functions. The Group operates an annual review cycle for salaries and benefits with annual inflationary and performance based increases being effective from August each year.

There was an increase in the number of temporary staff working to assist in the successful delivery of our regulatory and strategic change agenda. In addition to this we also saw higher recruitment costs relating to the now complete build out of our executive leadership team and the changing composition of the Board with two additional Non-Executive directors joining the Board. Variable staff costs continued to be tightly controlled at a Group level with the majority of the increase in the year due to client facing teams.

Non staff related costs include costs relating to information technology, property, deprecation, custody and dealing, marketing and the use of professional advisers and delivery partners. They now also include the cost of software amortisation which was historically reported outside of underlying performance measures. Prior year comparatives have been restated for this change.

In order to accelerate the delivery of our risk management and controls framework we saw higher costs relating to external delivery partners in the year. We also had higher property costs as we opened a new office Cardiff and absorbed above inflationary increases in business rates. We further invested in the core IT platform to enhance resilience and meet business and regulatory requirements.

Underlying profit before tax

Underlying profit before tax excludes expenditure and income falling into the categories explained below and a 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 
 
                                                     2018   2017 restated* 
                                                     GBPm             GBPm 
 
 Underlying profit before tax                        18.0             17.0 
 Exceptional costs of resolving legacy 
  matters                                           (5.5)            (6.5) 
 Software impairment                                (2.5)                - 
 Amortisation of client relationship 
  contracts and contracts acquired with 
  fund managers                                     (2.4)            (2.5) 
 Changes in fair value of deferred consideration    (1.2)              2.2 
 Finance cost of deferred consideration             (0.2)            (0.3) 
 Disposal costs                                     (0.1)                - 
 Impairment of carrying value of goodwill               -            (2.0) 
 Results of discontinued operations                   0.5              0.1 
 Statutory profit before tax                          6.7              8.0 
                                                   ======  =============== 
 * Underlying profit before tax for 2017 has been restated to 
  include software amortisation and exclude discontinued operations, 
  consistent with the treatment in the current period. 
 Note that rounded numbers are used above, see note 3 in the 
  financial statements for detailed amounts 
 

Exceptional costs of resolving legacy matters

As detailed in note 22 to the consolidated financial statements we have continued to deal with two legacy matters arising from the former Spearpoint business in the Channel Islands which we acquired in 2012. These matters relate to the investment management of a number of discretionary client portfolios and a Dublin-based fund and we have decided to make a further provision of GBP5.5m (FY17: GBP6.5m) in order to resolve them. Progress has been made and two thirds of the offer by value have now been accepted and the Group continues to work with all stakeholders and the relevant regulators to move matters forward. The Group also continues to be in dialogue with the directors of the Dublin based fund. The Board consider that this is an exceptional item relating to historic matters and its impact on statutory profit does not give a true reflection of the underlying performance of the Group.

Software impairment (note 12)

FY18 includes an impairment of GBP2.5m relating to software intangible assets (FY17: GBPnil). As part of the year end process we conducted a review of our software assets as at 30 June 2018 and concluded that one component was now obsolete post implementation of the Group common operating platform.

Amortisation of client relationship contracts and contracts acquired with fund managers (note 12)

As explained in notes 2(d) and 2(m), client relationship intangible assets and contracts acquired with fund managers are created in the course of acquiring funds under management. The total amortisation charge for the year of GBP2.4m (FY17: GBP2.5m) associated with these intangible assets have been excluded from underlying profit as the directors consider these costs can distort the results of a particular period.

Finance cost and changes in fair value of deferred consideration (note 19)

The Group acquired Levitas in 2014 which involved acquiring funds under management and in order to continue to incentivise and motivate the vendors, the sale proceeds included 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 were based on future projections of funds under management and where the actual payment is different from the original estimates then charges or credits are 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.

Impairment in carrying value of goodwill (note 12)

Goodwill is reviewed annually for impairment based on the carrying value of the asset compared to its expected recoverable amount. The value in use of each of the three cash generating units exceeds their expected recoverable amounts and therefore there was no impairment loss recognised in the year. In the year ended 30 June 2017, an impairment charge of GBP2.0m was recognised in relation to the goodwill associated with the Levitas acquisition. Further details are provided in note 12 to the consolidated financial statements.

In the event of an impairment loss, 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.

Discontinued operations (note 9)

As explained in note 9 the Group disposed of two subsidiaries during the year: Braemar Estates (Residential) Limited and Braemar Facilities Management Limited ("discontinued operations"). As a result, the loss of the discontinued operations and gain recognised on disposal has been split out in the Group's financial statements for both the years ended 30 June 2018 and 2017. The sale proceeds included an element of contingent consideration receivable based on certain performance criteria. Initial estimates of the contingent consideration are recognised in the financial statements at their discounted present value based on an inherent rate of implied interest. As a result, the directors consider that the results of discontinued operations are not part of the Group's underlying business and therefore the Group's underlying profit excludes: the loss from discontinued operations, gain on disposal, disposal costs, finance income of contingent consideration and changes in fair value of contingent consideration.

Segmental review

For the year ended 30 June 2018, the Group reported its results in four key operating segments: Investment Management; Financial Planning; Funds and International. From 1 July 2018 the Funds business has been integrated into the Investment Management segment.

Investment Management

The UK based Investment Management service continues to remain the core part of the Group, contributing 73.7% (FY17: 71.7%) of the Group revenue. 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.

Financial Planning

The Financial Planning business continues to deliver both fee based financial advice to high net-worth families, and employee benefit consultancy to small and medium sized employers throughout the UK. The division remains a major introducer of new investment management funds to the Investment Management segment of the Group. The segment broke even for the year (FY17: profit GBP0.3m).

Funds

The Funds business continues to grow in scale as total FUM increased by 32.4% to GBP1,534m (FY17: GBP1,159m) at 30 June 2018. This growth was achieved organically through net new investment across the range of funds with the Defensive Capital Fund now over GBP500m FUM and investment solutions successfully grew by 50.9% to GBP587m.

International

The business saw an increase of FUM during the year of 10.7% to GBP1,693m (FY17: GBP1,529m) with new business from a number of sources and the first strategic alliance with an overseas introducer in Dubai together with increased flows from South Africa.

Revenue in the year increased by 12.6% which has driven an increase in underlying profit to GBP1.4m (FY17: GBP0.4m).

We have continued to deal proactively with certain legacy matters where the former Spearpoint business acted as investment manager to a number of discretionary clients and to a Dublin based fund. During the year it became apparent that the calculation of the goodwill offers for the discretionary portfolio clients was affected by quality issues with data derived from legacy systems. To ensure that the calculation was fair to clients, we therefore initiated a comprehensive review of the data sources, calculations and methodology, requiring extensive use of third party expertise to extract the data, and to provide advice and quality assurance. As a result we have made an additional provision during the year of GBP5.5m (FY17: GBP6.5m) in order to resolve these matters, resulting in a statutory loss before tax for the year of GBP4.5m (FY17: GBP6.6m loss).

Group and consolidation adjustments

The costs charged through this segment represent the costs of running the Group's parent company, including the costs of the Board members and other central costs which are not directly related to the trading segments of the Group.

Consolidation adjustments, impairment of goodwill, amortisation of client relationship intangible assets and changes in the fair value of deferred consideration in respect of the Group's assets are included within this segment.

Cash resources and regulatory capital

The Group's financial position remains strong with net assets increasing to GBP88.0m (FY17: GBP85.7m) and tangible net assets (net assets excluding intangibles) up to GBP27.4m (FY17: GBP23.1m). Regulatory capital resources are GBP30.4m (FY17: GBP26.5m) after taking into account deductions for current and non-current deferred tax liabilities of GBP3.0m (FY17: GBP3.4m).

The Group had net cash outflows of GBP1.2m during the year. This includes payments made in relation to the exceptional costs of resolving legacy matters of GBP5.8m (FY17: GBPnil). Total cash resources at the end of the year were GBP30.9m (FY17: GBP32.2m). The Group had no borrowings at 30 June 2018 (FY17: GBPnil).

As required under Financial Conduct Authority ("FCA") rules and those of 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).

PRINCIPAL RISKS

The principal risks identified as having a potential material impact on the Group are detailed below, together with the principal means of mitigation.

Financial risks

The Group's principal financial risks relate to:

Liquidity risk

Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its financial liabilities when they fall due.

The primary objective of the Group's treasury policy is to manage short-term liquidity requirements and to ensure that the Group maintains a surplus of immediately realisable assets over its liabilities, such that all known and potential cash obligations can be met.

Market risk

Interest rate risk

The Group may elect to invest surplus cash balances in short-term cash deposits with maturity dates not exceeding three months. Consequently, the Group has a limited exposure to interest rate risk due to fluctuations in the prevailing level of market interest rates.

Foreign exchange risk

The Group does not have any material exposure to transactional foreign currency risk and therefore no analysis of foreign exchange risk is provided.

Price risk

Price risk is the risk that the fair value of the future cash flows from financial instruments will fluctuate due to changes in market prices (other than those arising from interest rate risk or currency risk). The Group is exposed to price risk through its holdings of equity securities and other financial assets, which are measured at fair value in the Consolidated Statement of Financial Position

Credit risk

The Group may elect to invest surplus cash balances in highly liquid money market instruments with maturity dates not exceeding three months. The difference between the fair value and the net book value of these instruments is not material. To reduce the risk of a counterparty default, the Group deposits the rest of its funds in approved, high quality banks. At 30 June 2018 there was no significant concentration of credit risk in any particular counterparty (FY17: none).

Assets exposed to credit risk recognised on the Consolidated Statement of Financial Position total GBP30,939,000 (FY17: GBP32,183,000), being the Group's total cash and cash equivalents.

Trade receivables with a carrying amount of GBP1,542,000 (FY17: GBP1,723,000) are neither past due nor impaired. Trade receivables have no external credit rating as they relate to individual clients, although the value of investments held in each individual client's portfolio is always in excess of the total value of the receivable. All trade receivables fall due within three months (FY17: three months).

Non-financial risks

The significant non-financial risks faced by the Group have been reviewed by the Committee, which believes they remain broadly the same as in previous years and are as follows:

 
 Reputational risk 
=======================================  =========================================== 
 
 Impact                                   Mitigation 
 The Group has a growing reputation       This risk is minimised by ensuring 
  as a provider of high quality            the Group maintains a culture 
  investment and wealth management         of high ethical and professional 
  services. There is a risk that           standards whilst focussing on 
  significant damage to reputation         delivering a first class service 
  could lead to the loss of existing       to all of our clients and intermediaries. 
  clients as well as impacting             The Group maintains separate, 
  on the ability to attract new            independent Risk and Compliance 
  clients, which would lead to             departments which ensure conformity 
  a fall in financial income. Such         with the regulations of the Group's 
  risk could arise from events             regulators, as well as relevant 
  such as poor investment performance,     statutes, in all of our dealings 
  poor client service or regulatory        with our clients. 
  censure. 
 
 Regulatory risk 
=======================================  =========================================== 
 
 Impact                                   Mitigation 
 The sector in which the Group            The Group monitors compliance 
  operates is heavily regulated            with existing law and regulations 
  and any breach of regulations            and keeps abreast of future changes 
  could lead to fines or disciplinary      to assess the likely business 
  action against the Group or its          impact and to ensure that the 
  staff. There is also a risk of           Group has sufficient resources 
  missing emerging regulations             to implement any necessary changes. 
  and / or misinterpreting existing        The Group continued to invest 
  ones                                     in its Risk and Compliance functions 
                                           during the year and is committed 
                                           to further adding to the capabilities 
                                           of these functions, in order 
                                           to meet the challenges posed 
                                           by future regulatory changes. 
 
 People risk 
=======================================  =========================================== 
 
 Impact                                   Mitigation 
 Our business is dependent on             To minimise this risk, the Group 
  client relationships with our            continues to invest in its employees 
  staff. Operating in a competitive        and monitors developments in 
  market there is a risk of loss           the marketplace in which it operates 
  of existing clients due to the           to ensure that the Group continues 
  loss of key investment professionals.    to offer a wide range of relevant 
  The retention of staff who are           services. Recruitment policies 
  not investment professionals             are designed to attract high 
  e.g. those in Group and central          quality staff and the Group regularly 
  functions is also a risk for             reviews and validates its remuneration 
  the organisation.                        packages and contractual arrangements 
                                           and motivation is measured through 
                                           a sentiment index. Structured 
                                           training is also provided by 
                                           the Group's Learning and Development 
                                           team. 
 
 Cyber and data security risk 
---------------------------------------  ------------------------------------------- 
 
 Impact                                   Mitigation 
 The Group holds approximately            The Group's employs firewalls 
  40,000 client records in its             and other technological security 
  systems containing personal data         features to prevent unauthorised 
  and financial data related to            access. User identification and 
  these clients. The Group therefore       password details are required 
  represents a target for hackers          in order to access the Group's 
  and is at risk of attack.                network and systems. Individual 
                                           user access is restricted to 
                                           specific areas of the network 
                                           relevant to the user's role profile. 
                                           As such, any access would be 
                                           limited to specific areas of 
                                           the network. Regular technological 
                                           security checks are undertaken 
                                           to validate the access rights 
                                           of existing users. The IT system 
                                           is duplicated in two remote data 
                                           centres and data is carried over 
                                           secure connections. Data records 
                                           are updated to provide a recovery 
                                           point and objective of one hour. 
 
 Outsourcing risk 
=======================================  =========================================== 
 
 Impact                                   Mitigation 
 Where key systems are provided           Due diligence takes place prior 
  by outsourced providers, there           to the commencement of any outsourcing 
  is a risk of failure of the third        or material supplier relationship, 
  party or external supplier. There        to maintain a robust procurement 
  are further risks in the on-boarding     process and good contract governance. 
  of outsourcing partners and ongoing      The Group keeps key outsourcing 
  support from them. The Group's           partners under review and has 
  most significant outsourcing             in place procedures to regularly 
  risk relates to its IT network           assess the performance of such 
  infrastructure, which is provided        suppliers as well as identifying 
  by an outsourced service provider.       suitable and viable alternatives. 
                                           The Group has required that its 
                                           outsourced IT service provider 
                                           agrees contracts with third-party 
                                           services providers that would 
                                           allow for contracts to be novated 
                                           immediately to Brooks Macdonald 
                                           in the event of a business failure 
                                           of the outsourced service provider. 
 
 Operational risk 
---------------------------------------  ------------------------------------------- 
 
 Impact                                   Mitigation 
 There is a risk that the Group           The Group's Risk Management Framework 
  suffers a loss resulting from            comprises ongoing monitoring, 
  inadequate systems or controls,          the application of detective 
  failed internal processes or             and preventative controls and 
  human error.                             reporting of operational incidents 
                                           by both the first and second 
                                           line teams. The risk function 
                                           works with businesses to conduct 
                                           risk and control assessments 
                                           that identify operational risks 
                                           and auditors and third party 
                                           consultancies provide further 
                                           assurance. 
 
 Portfolio mandate risk 
---------------------------------------  ------------------------------------------- 
 
 Impact                                   Mitigation 

 There is a risk that the Group           The Group uses a centralised 
  breaches investment objectives           investment proposition through 
  or client specified restrictions         which asset allocation is determined 
  for its discretionary investment         for a range of risk profiles. 
  management clients.                      Investment managers have some 
                                           flexibility within the asset 
                                           allocation model but are monitored 
                                           to ensure individual portfolios 
                                           do not fall outside the model. 
                                           Portfolios are also monitored 
                                           by a dedicated team using specialist 
                                           portfolio risk management tools. 
 
 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group financial statements in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union and Company financial statements in accordance with IFRSs as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group and Company for that period. In preparing the financial statements, the directors are required to:

   --      select suitable accounting policies and then apply them consistently; 

-- state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements and IFRSs as adopted by the European Union have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements;

   --      make judgements and accounting estimates that are reasonable and prudent; and 

-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.

The directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

The directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' confirmations

In the case of each director in office at the date the Directors' Report is approved:

-- so far as the director is aware, there is no relevant audit information of which the Group and Company's auditors are unaware; and

-- they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the Group and Company's auditors are aware of that information.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 30 June 2018

 
                                                Note       2018     2017 restated(*) 
                                                        GBP'000              GBP'000 
 
 Revenue                                         2      101,556               88,794 
 Administrative costs                                  (91,703)             (80,878) 
 Realised gain on investments                    3            -                    4 
 Other gains and losses                          4      (3,643)                  266 
 
 Operating profit                                5        6,210                8,186 
 
 
 Finance income                                  7          128                   56 
 Finance costs                                   7        (152)                (263) 
 Share of results of joint venture                            -                 (45) 
 
 Profit before tax                                        6,186                7,934 
 
 
 Taxation                                        8      (1,328)              (2,230) 
 Profit for the period from continuing 
  operations                                              4,858                5,704 
 
 Profit from discontinued operations             9          536                  110 
                                                      ---------  ------------------- 
 Profit for the period attributable 
  to equity holders of the Company                        5,394         5,814 
 
 Other comprehensive (expense) / income: 
 
 Items that may be reclassified subsequently 
  to profit or loss 
 Revaluation of available for sale 
  financial assets                               14         (2)                    3 
 Revaluation reserve recycled to profit 
  or loss                                        14           -                    6 
 
 Total other comprehensive (expense) 
  / income                                                  (2)                    9 
 
  Total comprehensive income for the 
   year                                                   5,392                5,823 
                                                      ---------  ------------------- 
 
 
 Earnings per share 
 Basic                                           10       39.4p                43.0p 
 Diluted                                         10       39.3p                42.8p 
                                                      =========  =================== 
 
 

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

* Prior periods have been restated to separate the results of discontinued operations, consistent with the presentation in the current period. Refer to note 9 for details of the results of discontinued operations.

Brooks Macdonald Funds Limited, a subsidiary of Brooks Macdonald Group plc, held a 60% interest in North Row Capital LLP, a UK Limited Liability Partnership. The investment was fully impaired in the year ended 30 June 2017 and the partnership was dissolved in April 2018.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 30 June 2018

 
                                           Note       2018       2017 
                                                   GBP'000    GBP'000 
 Assets 
 
 Non-current assets 
 Intangible assets                          12      60,556     62,648 
 Property, plant and equipment              13       3,996      3,203 
 Available for sale financial assets        14       1,578        658 
 Deferred tax assets                        15       1,176      1,271 
                                                 ---------  --------- 
 Total non-current assets                           67,306     67,780 
 
 Current assets 
 Trade and other receivables                16      26,019     22,693 
 Financial assets at fair value through 
  profit or loss                            17       1,267      1,185 
 Cash and cash equivalents                  18      30,939     32,183 
                                                 ---------  --------- 
 Total current assets                               58,225     56,061 
 
 Total assets                                      125,531    123,841 
                                                 ---------  --------- 
 
 Liabilities 
 
 Non-current liabilities 
 Deferred consideration                     19     (1,479)    (1,720) 
 Deferred tax liabilities                   15     (2,565)    (3,415) 
 Other non-current liabilities              20       (157)      (157) 
                                                 ---------  --------- 
 Total non-current liabilities                     (4,201)    (5,292) 
 
 Current liabilities 
 Trade and other payables                   21    (23,291)   (21,169) 
 Current tax liabilities                           (1,325)    (2,082) 
 Deferred tax liabilities                   15       (425)          - 
 Provisions                                 22     (8,332)    (9,592) 
                                                 ---------  --------- 
 Total current liabilities                        (33,373)   (32,843) 
 
 Net assets                                         87,957     85,706 
                                                 ---------  --------- 
 
 Equity 
 Share capital                              24         138        138 
 Share premium account                      24      38,404     37,101 
 Other reserves                             25       3,114      6,480 
 Retained earnings                          25      46,301     41,987 
                                                 ---------  --------- 
 Total equity                                       87,957     85,706 
                                                 ---------  --------- 
 
 

The consolidated financial statements were approved by the Board of directors and authorised for issue on 19 September 2018, signed on their behalf by:

C M Connellan B L Thorpe

Chief Executive Finance Director

Company registration number: 4402058

The accompanying notes form an integral part of the consolidated financial statements

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 30 June 2018

 
                                              Share 
                                   Share    premium       Other    Retained      Total 
                                 capital    account    reserves    earnings     equity 
                                 GBP'000    GBP'000     GBP'000     GBP'000    GBP'000 
 
 Balance at 1 July 2016              137     35,997       5,517      41,357     83,008 
                               ---------  ---------  ----------  ----------  --------- 
 
 Comprehensive income 
 Profit for the year                   -          -           -       5,814      5,814 
 Other comprehensive 
  income: 
  Revaluation of available 
   for sale financial asset            -          -           3           -          3 
  Revaluation reserve 
   recycled                            -          -           6           -          6 
                               ---------  ---------  ----------  ----------  --------- 
 Total comprehensive 
  income                               -          -           9       5,814      5,823 
 
 Transactions with owners 
 Issue of ordinary shares              1      1,104           -           -      1,105 
 Share-based payments                  -          -       1,237           -      1,237 
 Share-based payments 
  transfer                             -          -       (724)         724          - 
 Purchase of own shares 
  by employee benefit 
  trust                                -          -           -       (786)      (786) 
 Tax on share options                  -          -         441           -        441 
 Dividends paid (note 
  11)                                  -          -           -     (5,122)    (5,122) 
                               ---------  ---------  ----------  ----------  --------- 
 Total transactions with 
  owners                               1      1,104         954     (5,184)    (3,125) 
 
 Balance at 30 June 2017             138     37,101       6,480      41,987     85,706 
                               ---------  ---------  ----------  ----------  --------- 
 
  Comprehensive income 
 Profit for the year 
  from continuing operations           -          -           -       4,858        4,858 
 Loss for the year from 
  discontinued operations              -          -           -       (326)        (326) 
 Gain on disposal of 
  discontinued operations              -          -           -         862          862 
 Other comprehensive 
  income: 
  Revaluation of available 
   for sale financial asset            -          -         (2)           -        (2) 
 Total comprehensive 
  income                               -          -         (2)       5,394      5,392 
 
 Transactions with owners 
 Issue of ordinary shares              -      1,303           -           -      1,303 
 Share-based payments                  -          -       1,669           -      1,669 
 Share-based payments 
  transfer                             -          -     (4,763)       4,763          - 
 Tax on share options                  -          -       (270)           -      (270) 
 Dividends paid (note 
  11)                                  -          -           -     (5,843)    (5,843) 
                               ---------  ---------  ----------  ----------  --------- 
 Total transactions with 
  owners                               -      1,303     (3,364)     (1,080)    (3,141) 
 
 Balance at 30 June 2018             138     38,404       3,114      46,301     87,957 
                               ---------  ---------  ----------  ----------  --------- 
 
 

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 30 June 2018

 
                                              Note      2018      2017 
                                                     GBP'000   GBP'000 
 Cash flow from operating activities 
 Cash generated from operations                23     13,610    24,521 
 Taxation paid                                       (2,673)   (3,186) 
 Net cash generated from operating 
  activities                                          10,937    21,335 
 
 Cash flows from investing activities 
 Purchase of property, plant and equipment     13    (1,829)     (892) 
 Purchase of intangible assets                 1     (5,069)   (2,651) 
 Purchase of available for sale financial 
  assets                                       14          -       (5) 
 Deferred consideration paid                   19    (1,852)   (1,580) 
 Proceeds from sale of subsidiaries            9       1,005         - 
 Finance income                                7         102        56 
 Proceeds of sale of property, plant 
  and equipment                                            -        13 
 Proceeds of sale of available for 
  sale asset                                   14          -     1,219 
 Investment in joint venture                               -       (1) 
 Cash flows from investing activities 
  of discontinued operations                   9           2        14 
 Net cash used in investing activities               (7,641)   (3,827) 
 
 Cash flows from financing activities 
 Proceeds of issue of shares                           1,303     1,105 
 Purchase of own shares by employee 
  benefit trust                                            -     (786) 
 Dividends paid to shareholders                11    (5,843)   (5,122) 
                                                    --------  -------- 
 Net cash used in financing activities               (4,540)   (4,803) 
 
 
 Net (decrease) / increase in cash 
  and cash equivalents                               (1,244)    12,705 
 
 Cash and cash equivalents at beginning 
  of year                                             32,183    19,478 
                                                    --------  -------- 
 Cash and cash equivalents at end 
  of year                                      18     30,939    32,183 
                                                    --------  -------- 
 
 

The accompanying notes form an integral part of the consolidated financial statements

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2018

   1.     Segmental information 

For management purposes the Group's activities are organised into four operating divisions: Investment Management, Funds, Financial Planning 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 to the Group board of directors, which is the Group's chief operating decision maker. In accordance with IFRS 8 'Operating Segments', disclosures are required to reflect the information which the Board of directors uses internally for evaluating the performance of its operating segments and allocating resources to those segments. The information presented in this note is consistent with the presentation for internal reporting.

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 Group and consolidation adjustments. 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 Statement of Financial Position.

 
                                                                                                     Group & 
                                           Investment             Financial                    consolidation 
                                           Management     Funds    Planning   International      adjustments     Total 
 Year ended 30 June                                                                                  GBP'000   GBP'000 
  2018                                        GBP'000   GBP'000     GBP'000         GBP'000 
 
 Total segment revenue                         75,746     7,824       4,962          14,170                -   102,702 
 Inter segment revenue                          (832)         -       (314)               -                -   (1,146) 
                                         ------------  --------  ----------  --------------  ---------------  -------- 
 External revenue                              74,914     7,824       4,648          14,170                -   101,556 
                                         ------------  --------  ----------  --------------  ---------------  -------- 
 
 Underlying profit 
  / (loss) before 
  tax                                          17,790     3,141         (5)           1,448          (4,356)    18,018 
 
            Finance cost of 
             deferred consideration                 -         -           -               -            (152)     (152) 
            Finance income 
             of contingent 
             consideration                          -        26           -               -                -        26 
            Changes in fair 
             value of deferred 
             consideration                          -         -           -               -          (1,191)   (1,191) 
            Changes in fair 
             value of contingent 
             consideration                          -      (16)           -               -                -      (16) 
 Amortisation of 
  client relationships 
  and contracts acquired 
  with fund managers                            (890)         -           -           (420)          (1,051)   (2,361) 
 Software impairment                          (2,518)         -           -               -                -   (2,518) 
 Disposal costs                                     -         -           -               -             (89)      (89) 
 Exceptional costs 
  of resolving legacy 

  matters                                           -      -          -             (5,531)                -   (5,531) 
                                         ------------  --------  ----------  --------------  ---------------  -------- 
 Profit / (loss) 
  before tax                                   14,382     3,151         (5)         (4,503)          (6,839)     6,186 
 
 Taxation                                                                                                      (1,328) 
                                                                                                              -------- 
 Profit for the year from continuing operations                                                                  4,858 
                                                                                                              -------- 
 
 Profit from discontinued operations                                                                               536 
                                                                                                              -------- 
 Profit for the year attributable to equity holders of the 
  Company                                                                                                        5,394 
                                                                                                              -------- 
 
 
                                                                                                  Group & 
                                        Investment             Financial                    consolidation 
                                        Management     Funds    Planning   International      adjustments     Total 
 Year ended 30 June                                                                               GBP'000 
  2017 restated*                           GBP'000   GBP'000     GBP'000         GBP'000                    GBP'000 
 
            Total segment revenue           66,038     5,505       5,211          12,583                -    89,337 
            Inter segment revenue            (321)         -       (222)               -                -     (543) 
                                      ------------  --------  ----------  --------------  ---------------  -------- 
            External revenue                65,717     5,505       4,989          12,583                -    88,794 
                                      ------------  --------  ----------  --------------  ---------------  -------- 
 
            Underlying profit 
             / (loss) before 
             tax(1)                         19,903       459         269             379          (4,022)    16,988 
 
            Finance cost of 
             deferred consideration              -         -           -               -            (263)     (263) 
            Changes in fair 
             value of deferred 
             consideration                       -         -           -               -            2,230     2,230 
            Amortisation of 
             client relationships 
             and contracts acquired 
             with fund managers            (1,004)         -           -           (433)          (1,098)   (2,535) 
            Goodwill impairment                  -         -           -               -          (1,986)   (1,986) 
            Exceptional costs 
             of resolving legacy 
             matters                             -         -           -         (6,500)                -   (6,500) 
            Profit / (loss) 
             before tax                     18,899       459         269         (6,554)          (5,139)     7,934 
 
            Taxation                                                                                        (2,230) 
                                                                                                           -------- 
 Profit for the year from continuing operations                                                               5,704 
                                                                                                           -------- 
 
 Profit from discontinued operations                                                                            110 
                                                                                                           -------- 
 Profit for the period attributable to equity holders of the 
  Company                                                                                                     5,814 
                                                                                                           -------- 
 
 *re-presented to show the restated segmental underlying profit before 
  tax and a reconciliation between underlying profit and statutory profit 
  by segment. 
  [1] Underlying profit before tax has been restated to include computer 
  software amortisation and exclude discontinued operations, consistent 
  with the treatment in the current period. 
 
   2.     Revenue 
 
                                                             2018              2017 restated* 
                                                          GBP'000                     GBP'000 
 
            Portfolio management fee income                87,908                      77,352 
            Financial services commission                     151                          94 
            Advisory fees                                   5,673                       5,843 
            Fund management fees                            7,824                       5,505 
            Total revenue                                 101,556                      88,794 
                                              -------------------  -------------------------- 
 
            * Restated to exclude revenue from discontinued operations (note 
             9). 
 
   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.

 
                       2018      2017 
                    GBP'000   GBP'000 
 
 United Kingdom      87,386    76,211 
 Channel Islands     14,170    12,583 
 Total revenue      101,556    88,794 
                   --------  -------- 
 
 
   b)   Major clients 

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

   3.     Realised gain on investments 

During the year ended 30 June 2018, the Group had no realised gains on investments. In the year ended 30 June 2017, the Group realised a gain of GBP4,000 on the final disposal of its investment in Sancus Holding Limited through the voluntary winding up of the company.

   4.     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.

 
                                                                           2018                 2017 
                                                                        GBP'000              GBP'000 
 
            Impairment of goodwill (note 12)                                  -              (1,986) 
            Impairment of investment in joint venture                         -                (163) 
            Impairment of software (note 12)                            (2,518)                    - 
            Gain from changes in fair value of financial 
             assets at fair value through profit 
             or loss (note 17)                                               82                  185 
            Loss from changes in fair value of contingent 
             consideration receivable (note 9)                             (16)                    - 
            (Loss) / gain from changes in fair value 
             of deferred consideration payable (note 
             19)                                                        (1,191)                2,230 
            Other (losses) / gains                                      (3,643)                  266 
                                                            -------------------  ------------------- 
 
 
   5.     Operating profit 

Operating profit is stated after charging:

 
                                                                        2018                 2017 
                                                                     GBP'000              GBP'000 
 
            Staff costs (note 6)                                      48,490               45,679 
            Auditors' remuneration (see below)                           842                  420 
            Financial Services Compensation Scheme 
             Levy (see below)                                            664                  459 
            Depreciation (note 13)                                     1,186                  989 
            Amortisation of computer software (note 
             12)                                                       1,518                1,328 
            Amortisation of client relationships 
             and contracts acquired with fund managers 
             (note 12)                                                 2,362                2,535 
            Impairment of goodwill (note 12)                               -                1,986 
            Exceptional cost of resolving legacy 
             matters (note 22)                                         5,531                6,500 
                                                         -------------------  ------------------- 
 
 

A more detailed analysis of auditors' remuneration is provided below:

 
                                                                      2018                 2017 
                                                                   GBP'000              GBP'000 
 
            Fees payable to the Company's auditors 
             for the audit of the consolidated Group 
             and parent company financial statements                   257                  102 
            Fees payable to the Company's auditors 
             and its associates for other services: 
            - Audit of the Company's subsidiaries 
             pursuant to legislation                                   143                  138 
            - Audit-related assurance services                         181                  179 
            - Assurance services                                         -                    1 
            - Other non-audit services                                 261                    - 
            Total auditors' remuneration                               842                  420 
                                                       -------------------  ------------------- 
 
 

Financial Services Compensation Scheme levies

Administrative costs for the year ended 30 June 2018 include a charge of GBP664,000 (FY17: GBP459,000) in respect of the Financial Services Compensation Scheme ("FSCS") levy. This comprises the Group's estimated levy for the 2018/19 scheme year of GBP689,000 and a net rebate of GBP25,000 for the 2017/18 scheme year.

   6.     Employee information 
   a)   Staff costs 
 
                             2018      2017 
                          GBP'000   GBP'000 
 
 Wages and salaries        40,861    38,912 
 Social security costs      4,652     4,197 
 Other pension costs        1,327     1,312 
 Share-based payments       1,650     1,258 
                         --------  -------- 
 Total staff costs         48,490    45,679 
                         --------  -------- 
 
 

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:

 
                                             2018   2017 
 
 Professional staff                           170    165 
 Administrative staff                         300    287 
                                            -----  ----- 
 Total staff from continuing operations       470    452 
                                            -----  ----- 
 
 Total staff from discontinued operations      20     48 
 
 Total staff                                  490    500 
                                            -----  ----- 
 
   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.

 
                                    2018      2017 
                                 GBP'000   GBP'000 
 
 Short-term employee benefits      2,666     2,571 
 Post-employment benefits             55        33 
 Share-based payments                483       320 
                                --------  -------- 
 Total compensation                3,204     2,924 
                                --------  -------- 
 
 
   d)   Directors' emoluments 

Further details of directors' emoluments are included within the Remuneration Committee.

 
                                          2018      2017 
                                       GBP'000   GBP'000 
 
 Salaries and bonuses                    2,279     2,262 
 Non-Executive directors' fees             372       282 
 Benefits in kind                           15        27 
                                      --------  -------- 
                                         2,666     2,571 
 Pension contributions                      55        33 
 Amounts receivable under long term 
  incentive schemes                        483       320 
 Total directors' remuneration           3,204     2,924 
                                      --------  -------- 
 
 

The aggregate amount of gains made by directors on the exercise of share options during the year was GBP643,000 (FY17: GBP161,000). Retirement benefits are accruing to two directors (FY17: two) under a defined contribution pension scheme.

The remuneration of the highest paid director during the year was as follows:

 
                                          2018      2017 
                                       GBP'000   GBP'000 
 
 Remuneration and benefits in kind         807       368 
 Amounts receivable under long term 
  incentive schemes                         83        68 
                                      --------  -------- 
 Total remuneration                        890       436 
                                      --------  -------- 
 

The amount of gains made by the highest paid director on the exercise of share options during the year was GBP83,000 (FY17: GBPnil).

   7.     Finance income and finance costs 
 
                                                                        2018              2017 restated* 
                                                                     GBP'000                     GBP'000 
            Finance income 
 
            Dividend income                                               50                          43 
            Finance income of contingent consideration                    26                           - 
             (note 9) 
            Bank interest on deposits                                     52                          13 
            Total finance income                                         128                          56 
                                                         -------------------  -------------------------- 
 
            Finance costs 
 
            Finance cost of deferred consideration                       152                         263 
                                                         -------------------  -------------------------- 
            Total finance costs                                          152                         263 
                                                         -------------------  -------------------------- 
 
 

*Restated to exclude finance income from discontinued operations (note 9).

   8.     Taxation 

The tax charge on profit for the year was as follows:

 
                                                2018      2017 
                                             GBP'000   GBP'000 
 
 UK Corporation Tax at 19.00% (FY17: 
  19.75%)                                      3,396     3,648 
 (Over) / under provision in prior years       (613)       167 
                                            --------  -------- 
 Total current tax                             2,783     3,815 
 Deferred tax credits                          (600)   (1,026) 
 Research and development tax credit           (855)     (433) 
 Effect of change in tax rate on deferred 
  tax                                              -     (126) 
                                            --------  -------- 
 Income tax expense                            1,328     2,230 
                                            --------  -------- 
 
 

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:

 
                                                      2018      2017 
                                                   GBP'000   GBP'000 
 
 Profit before taxation from continued 
  operations                                         6,186     7,934 
 Profit before taxation from discontinued 
  operations                                           536       110 
                                                  --------  -------- 
 Profit before taxation                              6,722     8,044 
                                                  --------  -------- 
 
 Profit multiplied by the standard rate 
  of tax in the UK of 19.00% (FY17: 19.75%)          1,277     1,590 
 
 Tax effect of: 
 - Overseas tax losses not available for 
  UK tax purposes                                      454       955 
 - Disallowable expenses                               717       149 
 - Impairment charges                                  535       424 
 - Non-taxable income                                (187)     (433) 
 - Losses utilised (no deferred tax thereon)             -      (63) 
 - Research and development tax credit               (855)     (433) 
 - Change in rate of Corporation Tax applicable 
  to deferred tax                                        -     (126) 
 - (Over) / under provision in prior years           (613)       167 
 Tax charge for the year                             1,328     2,230 
                                                  --------  -------- 
 
 

Non-taxable income includes the gain from changes in fair value of deferred consideration.

During the year, the Group made a claim for research and development tax relief in relation to qualifying expenditure on software development incurred in the years ended 30 June 2016 and 30 June 2017. This resulted in a reduction in the Corporation Tax liabilities in the respective years, and a repayment of GBP855,000 (FY17: GBP433,000) due from HMRC. The Group will consider whether claims can also be made for qualifying expenditure incurred in the year ended 30 June 2018 and thereafter in due course.

The deferred tax credits for the year arise from:

 
                                                    2018      2017 
                                                 GBP'000   GBP'000 
 
 Share option reserve                                  1       194 
 Accelerated capital allowances                        8        84 
 Amortisation of acquired client relationship 
  contracts                                          425       409 
 Unused overseas trading losses                      166       339 
 Deferred tax credits                                600     1,026 
                                                ========  ======== 
 
 

On 1 April 2017, the standard rate of Corporation Tax in the UK was reduced to 19.00%. As a result the effective rate of Corporation Tax applied to the taxable profit for the year ended 30 June 2018 is 19.00% (FY17: 19.75%).

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 to 17% 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 17% (FY17: 17%) and will be reviewed in future years subject to new legislation.

   9.     Discontinued operations 

On 1 December 2017, the Group disposed of its Property Management division, comprising the wholly owned subsidiaries Braemar Estates (Residential) Limited and Braemar Facilities Management Limited ('the disposal group'). Profit from discontinued operations is disclosed separately in the Consolidated Statement of Comprehensive Income, being the results of the disposal group to 1 December 2017 and the gain on disposal.

 
                                                   2018      2017 
                                                GBP'000   GBP'000 
 
 (Loss) / profit of discontinued operations       (326)       110 
 Gain on disposal of discontinued operations        862         - 
 Profit from discontinued operations                536       110 
                                               ========  ======== 
 
   a)   Profit or loss of discontinued operations 

The results of discontinued operations for the period prior to disposal on 1 December 2017 are shown below.

 
                                                  2018      2017 
                                               GBP'000   GBP'000 
 
 Revenue                                         1,195     2,922 
 Administrative costs                          (1,523)   (2,826) 
 Operating (loss) / profit                       (328)        96 
 
 Finance income                                      2        14 
                                              --------  -------- 
 (Loss) / profit before tax                      (326)       110 
 
 Taxation                                            -         - 
                                              --------  -------- 
 (Loss) / profit of discontinued operations      (326)       110 
 
   b)   Gain on disposal of discontinued operations 

The gain on disposal of discontinued operations is the total consideration received or receivable less the fair value of the net assets of the disposal group. The gain is recognised in the Consolidated Statement of Comprehensive Income during the year ended 30 June 2018.

 
                                           GBP'000   GBP'000 
 Consideration received or receivable 
 Initial consideration received                966 
 Additional consideration received              39 
 Fair value of contingent consideration 
  (note 14)                                    913 
 Total disposal consideration                          1,918 
 
 Fair value of net assets                    (459) 
 Fair value of goodwill (see note 
  12)                                        (230) 
 Fair value of acquired client 
  relationship contracts                     (367) 
                                          -------- 
 Total net assets on disposal                        (1,056) 
 
 Gain on disposal of discontinued 
  operations                                             862 
                                                    -------- 
 
 

Initial cash consideration of GBP966,000 was received on completion, and a further GBP39,000 was received post completion. Additional cash consideration will also be receivable, contingent on the disposal group generating revenue equal to or in excess of a 'target' revenue amount during the period 1 July 2017 to 30 June 2019. On disposal, all conditions were expected to be met. Therefore the maximum contingent consideration of GBP966,000 was recognised at its fair value of GBP913,000 based on the discounted forecast cash flows in the half yearly financial report for the six months ended 31 December 2017. This gain is presented within profit from discontinued operations in the Consolidated Statement of Comprehensive Income for the year ended 30 June 2018.

There was a reduction of GBP16,000 in the fair value of contingent consideration since the disposal date as a result of a downward revision to the forecast revenue provided by management of the buyer. Finance income of GBP26,000 was recognised in the year ended 30 June 2018 in relation to the discounting of the contingent consideration receivable (note 7). The performance criteria for the year ended 30 June 2018 were met and full receipt of the first contingent consideration receivable of GBP483,000 was received in September 2018.

Disposal costs of GBP89,000 were incurred during the year ended 30 June 2018 in relation to the sale.

10. 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 finance costs of deferred consideration, changes in the fair value of deferred consideration, goodwill impairment, amortisation of client relationships and contracts acquired with fund managers, finance income from contingent consideration, exceptional costs of resolving legacy matters, business disposal costs and profit or loss from discontinued operations. The tax effect of these adjustments has also been considered.

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

 
                                                       2018   2017 restated 
                                                    GBP'000         GBP'000 
 
 Earnings from continued operations                   4,858           5,704 
 Profit from discontinued operations                    536             110 
                                                   --------  -------------- 
 Earnings attributable to ordinary shareholders       5,394           5,814 
 Goodwill impairment (note 12)                            -           1,986 
 Software impairment (note 12)                        2,518 
 Disposal costs (note 9)                                 89               - 
 Finance cost of deferred consideration 
  (note 19)                                             152             263 
 Finance income of contingent consideration 
  (note 9)                                             (26)               - 
 Changes in fair value of deferred consideration 
  (note 19)                                           1,191         (2,230) 
 Changes in fair value of contingent 
  consideration (note 9)                                 16               - 
 Amortisation of acquired client relationship 
  contracts (note 12)                                 2,156           2,200 
 Amortisation of contracts acquired with 
  fund managers (note 12)                               206             335 
 Exceptional costs of resolving legacy 
  matters (note 22)                                   5,531           6,500 
 Tax impact of adjustments                            (588)           (525) 
 Underlying profit from discontinued 
  operations (note 9)                                 (536)           (110) 
                                                   --------  -------------- 
 Underlying earnings attributable to 
  ordinary shareholders(1)                           16,103          14,233 
                                                   --------  -------------- 
 
 

(1) Underlying earnings for comparative periods have been restated to include software amortisation and exclude discontinued operations, consistent with the treatment in the current period.

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:

 
                                                    2018         2017 
                                               Number of    Number of 
                                                  shares       shares 
 
 Weighted average number of shares in 
  issue                                       13,677,910   13,537,222 
 Effect of dilutive potential shares 
  issuable on exercise of employee share 
  options                                         28,318       59,872 
                                             -----------  ----------- 
 Diluted weighted average number of shares 
  in issue                                    13,706,228   13,597,094 
                                             -----------  ----------- 
 
 

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

 
                                       2018     2017 
                                          p        p 
 Based on reported earnings: 
 Basic earnings per share from: 
 - Continuing operations               35.5     42.1 
 - Discontinued operations              3.9      0.9 
                                     ------  ------- 
 Total basic earnings per share        39.4     43.0 
 
 
 Diluted earnings per share from: 
 - Continuing operations               35.4     42.0 
 - Discontinued operations              3.9      0.8 
                                     ------  ------- 
 Total Diluted earnings per share      39.3     42.8 
 
 Based on underlying earnings(1) : 
 Basic earnings per share             117.7    105.1 
 Diluted earnings per share           117.5    104.7 
                                     ------  ------- 
 

(1) Underlying earnings for comparative periods have been restated to include software amortisation and exclude discontinued operations, consistent with the treatment in the current period.

11. Dividends

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

 
                                                                        2018                 2017 
                                                                     GBP'000              GBP'000 
 
 Final dividend paid for the year ended 
  30 June 2017 of 26.0p 
  (FY16: 23.0p) per share                                              3,524                3,101 
 Interim dividend paid for the year ended 
  30 June 2018 of 17.0p 
  (FY17: 15.0p) per share                                              2,319                2,021 
                                                         -------------------  ------------------- 
 Total dividends                                                       5,843                5,122 
                                                         -------------------  ------------------- 
 
            Final dividend proposed for the year ended 
             30 June 2018 of 30.0p (FY17: 26.0p) per 
             share                                                     4,116                3,524 
 
 

The interim dividend of 17.0p (FY17: 15.0p) per share was paid on 19 April 2018.

A final dividend for the year ended 30 June 2018 of 30.0p (FY17: 26.0p) per share was declared by the Board of directors on 19 September 2018 and is subject to approval by the shareholders at the Company's annual general meeting. It will be paid on 2 November 2018 to shareholders who are on the register at the close of business on 28 September 2018. 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.

12. 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 2016           36,006       5,081          32,747       3,522    77,356 
 Additions                     -       2,651               -           -     2,651 
 Adjustment in 
  respect of prior 
  periods                      -           -             (2)         (1)       (3) 
 At 30 June 2017          36,006       7,732          32,745       3,521    80,004 
 Additions                     -       5,069               -           -     5,069 
 Disposals                 (230)        (77)           (584)           -     (891) 
 Reclassification 
  to Property, Plant 
  and Equipment                -       (943)               -           -     (943) 
 Impairment                    -     (4,013)               -           -   (4,013) 
 At 30 June 2018          35,776       7,768          32,161       3,521    79,226 
                       ---------  ----------  --------------  ----------  -------- 
 
 Accumulated amortisation 
  and impairment 
 
 At 1 July 2016                -         530           8,115       2,862    11,507 
 Amortisation charge           -       1,328           2,200         335     3,863 
 Impairment                1,986           -               -           -     1,986 
 At 30 June 2017           1,986       1,858          10,315       3,197    17,356 
 Amortisation charge           -       1,518           2,156         206     3,880 
 Disposals                     -        (63)           (217)           -     (280) 
 Reclassification 
  to Property, Plant 
  and Equipment                -       (791)               -           -     (791) 
 Impairment                    -     (1,495)               -           -   (1,495) 
 At 30 June 2018           1,986       1,027          12,254       3,403    18,670 
                       ---------  ----------  --------------  ----------  -------- 
 
 Net book value 
 
 At 1 July 2016           36,006       4,551          24,632         660    65,849 
 At 30 June 2017          34,020       5,874          22,430         324    62,648 
                       ---------  ----------  --------------  ----------  -------- 
 At 30 June 2018          33,790       6,741          19,907         118    60,556 
                       ---------  ----------  --------------  ----------  -------- 
 
 
   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 2018 comprises GBP3,320,000 (FY17: GBP3,550,000) in respect of the Braemar Group Limited ("Braemar") CGU, GBP21,243,000 (FY17: 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 GBP9,227,000 (FY17: GBP9,227,000) 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 2018 by comparing the carrying amount of the CGUs to their expected recoverable amount, estimated on a value-in-use basis. The value-in-use of each CGU has been calculated using pre-tax discounted cash flow projections based on the most recent budgets approved by the relevant subsidiary company boards of directors, covering a period of five years. Cash flows are then extrapolated beyond the forecast period using an expected long-term growth rate.

Based on a value-in-use calculation, the recoverable amount of the Brooks Macdonald International CGU at 30 June 2018 was GBP29,676,000, 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 10% 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 up to 13% 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 2018 was GBP12,659,000, 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 11% 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 9% and 15% 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. At 30 June 2017, the recoverable amount of the Levitas CGU was GBP9,319,000, which was lower than the carrying amount of the CGU being GBP11,305,000 indicating that it should be impaired. An impairment loss of GBP1,986,000 was recognised against the goodwill attributable to the Levitas CGU in the year ended 30 June 2017. For further details on the impairment, please see note 13 in the Brooks Macdonald Group plc Annual Report & Accounts for the year ended 30 June 2017.

Based on a value-in-use calculation, the recoverable amount of the Braemar CGU at 30 June 2018 was GBP38,667,000, 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 funds business and the long-term growth rate. Annual funds under management growth rates of between 3% and 38% for the various funds are forecast in the next five financial years, the period covered by the most recent forecasts, which reflect historic actual growth and planned management activities and are considered to be 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.

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.

During the year ended 30 June 2018, GBP230,000 of goodwill attributable to the Braemar CGU was disposed of. This reflects the amount of goodwill within the Braemar CGU that is attributable to the disposal group, which was previously included within this CGU. Refer to note 9 for details of the disposal.

   b)   Computer software 

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

During the year, the Group impaired an item of computer software with a net book value of GBP2,518,000 that is no longer in use and does not provide any further economic benefit to the Group.

   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.

13. Property, plant and equipment

 
                                                                   Equipment 
                                                   Fixtures    and leasehold 
                             Motor vehicles    and fittings     improvements     Total 
                                    GBP'000         GBP'000          GBP'000   GBP'000 
 Cost 
 
 At 1 July 2016                          33           2,111            8,074    10,218 
 Additions                                -              52              840       892 
 Disposals                             (25)               -                -      (25) 
 At 30 June 2017                          8           2,163            8,914    11,085 
 Additions                                -              43            1,786     1,829 
 Disposals                              (8)            (53)              (3)      (64) 
 Reclassification from 
  intangible assets                       -               -              943       943 
 At 30 June 2018                          -           2,153           11,640    13,793 
                            ---------------  --------------  ---------------  -------- 
 
 Accumulated depreciation 
 
 At 1 July 2016                          22           1,498            5,389     6,909 
 Disposals                             (16)               -                -      (16) 
 Depreciation charge                      2             196              791       989 
 At 30 June 2017                          8           1,694            6,180     7,882 
 Disposals                              (8)            (53)              (1)      (62) 
 Depreciation charge                      -             178            1,008     1,186 
 Reclassification from 
  intangible assets                       -               -              791       791 
 At 30 June 2018                          -           1,819            7,978     9,797 
                            ---------------  --------------  ---------------  -------- 
 
 
 Net book value 
 
 At 1 July 2016                          11             613            2,685     3,309 
 At 30 June 2017                          -             469            2,734     3,203 
                            ---------------  --------------  ---------------  -------- 
 At 30 June 2018                          -             334            3,662     3,996 
                            ---------------  --------------  ---------------  -------- 
 
 

14. Available for sale financial assets

 
                                                    2018      2017 
                                                 GBP'000   GBP'000 
 
 At beginning of year                                658     1,715 
 Additions                                           913         5 
 Finance income of contingent consideration           26         - 
 Reclassification of loan (non-cash transfer)          -       150 
 Net (loss) / gain from changes in fair 
  value                                             (19)         1 
 Accumulated profit on revaluation reserve 
  recycled                                             -         6 
 Disposals                                             -   (1,219) 
 At end of year                                    1,578       658 
                                                --------  -------- 
 
 

At 1 July 2017, the Group held an investment of 500,000 redeemable GBP1 preference shares in an unlisted company incorporated in the UK, GBP150,000 preference share capital in an unlisted company incorporated in the Channel Islands and an offshore bond with market value at that date of GBP8,000. The preference shares carry an entitlement to a fixed preferential dividend at a rate of eight per cent per annum.

During the year ended 30 June 2018, the Group disposed of two subsidiary companies, Braemar Estates (Residential) Limited and Braemar Facilities Management Limited. The Group recognised a corresponding contingent consideration receivable in respect of deferred consideration receivable by the Group from the purchaser at its fair value of GBP923,000, including finance income from deferred consideration of GBP26,000 and reduction in fair value of GBP16,000. Full details of the disposal are set out in note 9.

At 30 June 2018, the offshore bond had a market value of GBP5,000 (FY17: GBP8,000), with the loss from changes in fair value of GBP2,000 for the year ended 30 June 2018 being recognised in other comprehensive income (FY17: GBP3,000 gain).

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 1    Level 2   Level 3     Total 
                                    GBP'000    GBP'000   GBP'000   GBP'000 
 
 At 1 July 2017                           -          -       658       658 
 Additions                                -          -       913       913 
 Finance income of contingent 
  consideration                           -          -        26        26 
 Reclassification of loan 
  (non cash transfer)                     -          -         -         - 
 Net loss from changes 
  in fair value                           -          -      (19)      (19) 
 Revaluation reserve recycled             -          -         -         - 
 Disposals                                -          -         -         - 
 At 30 June 2018                          -          -     1,578     1,578 
                                  ---------  ---------  --------  -------- 
 
 Comprising: 
 Offshore bond                            -          -         5         5 
 Unlisted redeemable preference 
  shares                                  -          -       650       650 
 Contingent consideration 
  receivable                              -          -       923       923 
 Total                                    -          -     1,578     1,578 
                                  ---------  ---------  --------  -------- 
 
 

Unlisted preference shares are valued using a perpetuity income model which is based upon the preference dividend cash flows. Offshore bonds are valued using the value of the underlying securities, some of which are illiquid and therefore prices are not readily available in the market. Contingent consideration receivable is valued using the net present value of the expected amount receivable based off management revenue forecasts for Braemar Estates (Residential) Limited and Braemar Facilities Management Limited (see note 9).

A 1% reduction in the value of available for sale financial assets would result in a GBP16,000 reduction to total comprehensive income.

15. 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.

 
                                                2018      2017 
                                             GBP'000   GBP'000 
 Deferred tax assets 
 
 Deferred tax assets to be settled after 
  more than 12 months                            444       688 
 Deferred tax assets to be settled within 
  12 months                                      732       583 
                                            --------  -------- 
 Total deferred tax assets                     1,176     1,271 
                                            --------  -------- 
 
 Deferred tax liabilities 
 
 Deferred tax liabilities to be settled 
  after more than 12 months                  (2,565)   (3,415) 
 Deferred tax liabilities to be settled 
  within 12 months                             (425)         - 
 Total deferred tax liabilities              (2,990)   (3,415) 
                                            --------  -------- 
 
 

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

 
                                                2018      2017 
                                             GBP'000   GBP'000 
 
 At 1 July                                   (2,144)   (3,484) 
 Credit to the Statement of Comprehensive 
  Income                                         600     1,152 
 (Charge) / credit recognised in equity        (270)       188 
 At 30 June                                  (1,814)   (2,144) 
                                            --------  -------- 
 
 

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

 
                                              Trading 
                                               losses   Accelerated 
                               Share-based    carried       capital 
                                  payments    forward    allowances     Total 
                                   GBP'000    GBP'000       GBP'000   GBP'000 
 Deferred tax assets 
 
 At 1 July 2016                        551          -             -       551 
 Credit to the Statement of 
  Comprehensive Income                 193        339             -       532 
 Credit to equity                      188          -             -       188 
                              ------------  =========  ============  ======== 
 At 30 June 2017                       932        339             -     1,271 
 Credit to the Statement of 
  Comprehensive Income                   1        166             8       175 
 Charge to equity                    (270)          -             -     (270) 
                              ------------  =========  ============  ======== 
 At 30 June 2018                       663        505             8     1,176 
                              ------------  =========  ============  ======== 
 
 

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            Intangible 
                                              allowances    asset amortisation      Total 
                                                 GBP'000               GBP'000    GBP'000 
 Deferred tax liabilities 
 
 At 1 July 2016                                       84                 3,951        4,035 
 Credit to the Statement of Comprehensive 
  Income                                            (84)                 (536)        (620) 
                                            ============  ====================  =========== 
 At 30 June 2017                                       -                 3,415        3,415 
 Credit to the Statement of Comprehensive 
  Income                                               -                 (425)        (425) 
 At 30 June 2018                                       -                 2,990        2,990 
                                            ------------  --------------------  ----------- 
 
 
 

16. Trade and other receivables

 
                                                 2018      2017 
                                              GBP'000   GBP'000 
 
 Trade receivables                              1,542     1,723 
 Other receivables                              1,481     1,187 
 Prepayments and accrued income                22,996    19,783 
                                             --------  -------- 
 Total current trade and other receivables     26,019    22,693 
                                             --------  -------- 
 
 

17. Financial assets at fair value through profit or loss

 
                                      2018      2017 
                                   GBP'000   GBP'000 
 
 At beginning of year                1,185     1,000 
 Gain from change in fair value         82       185 
 At end of year                      1,267     1,185 
                                  --------  -------- 
 
 

These investments are classified as Level 1 as defined in note 14.

18. Cash and cash equivalents

 
                                           2018      2017 
                                        GBP'000   GBP'000 
 
 Cash at bank                            30,884    32,128 
 Cash held in employee benefit trust         55        55 
                                       --------  -------- 
 Total cash and cash equivalents         30,939    32,183 
                                       --------  -------- 
 
 

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.

19. Deferred consideration

Deferred consideration payable is split between non-current liabilities (see below) and provisions within current liabilities (note 22) 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:

 
                                              2018      2017 
                                           GBP'000   GBP'000 
 
 At 1 July                                   3,384     6,931 
 Finance cost of deferred consideration        152       263 
 Fair value adjustments                      1,191   (2,230) 
 Payments made during the year             (1,852)   (1,580) 
 At 30 June                                  2,875     3,384 
                                          --------  -------- 
 
 Analysed as: 
 
 Amounts falling due within one year         1,396     1,664 
 Amounts falling due after more than 
  one year                                   1,479     1,720 
                                          --------  -------- 
 Total deferred consideration                2,875     3,384 
                                          --------  -------- 
 
 

No additions to deferred consideration payable were recognised in the year. Payments totalling GBP1,852,000 (FY17: GBP1,580,000) were made during the year to the vendors of Levitas. Full details of the Levitas acquisition are disclosed in note 13 of the 2015 Annual Report and Accounts.

A total increase in the fair value of deferred consideration of GBP1,191,000 (FY17: reduction of GBP2,230,000) was recognised during the year in respect of Levitas, with a corresponding gain recognised within other gains and losses in the Consolidated Statement of Comprehensive Income. The amount payable is based on the incremental growth in FUM of the TM Levitas funds, measured at annual intervals. The actual growth in FUM for the current year exceeded the expectations and the FUM forecast was subsequently revised and the estimated future deferred consideration payments increased accordingly.

Deferred consideration is classified as Level 3 within the fair value hierarchy, as defined in note 14.

Amounts falling due after more than one year from the reporting date are presented in non-current liabilities as shown below:

 
                                              2018      2017 
                                           GBP'000   GBP'000 
 
 At 1 July                                   1,720     5,290 
 Finance cost of deferred consideration        152       263 
 Fair value adjustments                      1,191   (2,230) 
 Transfer to current liabilities           (1,584)   (1,603) 
                                          --------  -------- 
 At 30 June                                  1,479     1,720 
                                          --------  -------- 
 

An amount of GBP1,584,000 (FY17: GBP1,603,000), 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.

20. Other non-current liabilities

Other non-current liabilities relate to employer's National Insurance contributions arising from share option awards under the LTIS scheme.

 
                                               2018      2017 
                                            GBP'000   GBP'000 
 
 At 1 July                                      157       114 
 Additional liability in respect of LTIS 
  awards                                         63        51 
 Transfer to current liabilities               (63)       (8) 
                                           --------  -------- 
 At 30 June                                     157       157 
                                           --------  -------- 
 
 

The additional liability was recognised during the year of GBP63,000 (FY17: GBP51,000) in respect of existing LTIS awards, granted in previous years, that are expected to vest in the future. During the year, an amount of GBP63,000 (FY17: GBP8,000) was transferred to current liabilities, reflecting awards that are expected to vest within the next 12 months.

21. Trade and other payables

 
                                       2018      2017 
                                    GBP'000   GBP'000 
 
 Trade payables                       4,762     3,025 
 Other taxes and social security      2,501     2,345 
 Other payables                         531       361 
 Accruals and deferred income        15,497    15,438 
                                   --------  -------- 
 Total trade and other payables      23,291    21,169 
                                   --------  -------- 
 
 

Included within accruals and deferred income in 2018 is an accrual of GBP255,000 (FY17: GBP366,000) in respect of employer's National Insurance contributions arising from share option awards under the LTIS. Accruals and deferred income in 2017 included an accrual of GBP307,000 in respect of redundancy costs relating to the closure of the Guernsey back office in September 2018.

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 employer's National Insurance contributions arising from share option awards under the LTIS was nil (FY17: GBP228,000).

22. Provisions

 
                                              Exceptional 
                                                 costs of 
                                                resolving         Deferred 
                    Client compensation    legacy matters    consideration   FSCS levy     Total 
                                GBP'000           GBP'000          GBP'000     GBP'000   GBP'000 
 
 At 1 July 2016                     673                 -            1,641         470     2,784 
 Charge to the 
  Statement of 
  Comprehensive 
  Income                            208             6,500                -         621     7,329 
 Transfer from 
  non-current 
  liabilities                         -                 -            1,603           -     1,603 
 Utilised during 
  the year                         (74)                 -          (1,580)       (470)   (2,124) 
                   --------------------  ----------------  ---------------  ----------  -------- 
 At 30 June 2017                    807             6,500            1,664         621     9,592 
 Charge to the 
  Statement of 
  Comprehensive 
  Income                          (407)             5,531                -         627     5,816 
 Transfer from 
  non-current 
  liabilities                         -                 -            1,584           -     1,584 
 Utilised during 
  the year                        (378)           (5,806)          (1,852)       (559)   (8,660) 
                   --------------------  ----------------  ---------------  ----------  -------- 
 At 30 June 2018                     22             6,225            1,396         689     8,332 
                   --------------------  ----------------  ---------------  ----------  -------- 
 
 
   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 of GBP5,531,000 (FY17: GBP6,500,000) was recognised for costs of resolving these including associated expenses. 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.

   c)   Deferred consideration 

Deferred consideration has been included within provisions as a current liability to the extent that it is due for payment within one year of the reporting date. The amount outstanding at 30 June 2018 was GBP1,396,000 (FY17: GBP1,664,000) and relates entirely to the Levitas acquisition. The amount of deferred consideration included within provisions is due to be settled in November 2018. Subsequent annual payments will be made in November of each year until the final payment in November 2020, with the final amount being calculated in November 2018.

An amount of GBP1,584,000 (FY17: GBP1,603,000) 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 GBP1,852,000 (FY17: GBP1,580,000) were utilised during the year on payment to the vendors of Levitas.

   d)   FSCS levy 

Following confirmation by the FSCS in April 2018 of its final industry levy for 2018/19, the Group has made a provision of GBP689,000 (FY17: GBP621,000) for its estimated share. This includes a supplementary levy of GBP132,000 (FY17: GBP100,000) that is expected to be raised in early 2019.

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

 
                                                    2018      2017 
                                                 GBP'000   GBP'000 
 
 Operating profit 
 - Continuing operations                           6,210     8,186 
 - Discontinued operations (note 9)                (328)        96 
                                                --------  -------- 
 Operating profit                                  5,882     8,282 
 
 Adjustments for: 
 Depreciation of property, plant and 
  equipment                                        1,186       989 
 Loss / (Gain) on sale of fixed assets                 -       (4) 
 Gain on sale of available for sale financial 
  assets                                               -       (4) 
 Available for sale reserve recycled                   -         6 
 Amortisation of intangible assets                 3,880     3,863 
 Other gains and losses                            3,643     (266) 
 (Increase) / decrease in receivables            (3,323)     1,265 
 Increase in payables                              2,122     2,325 
 (Decrease) / increase in provisions               (992)     6,785 
 Increase in non-current liabilities                   -        43 
 Discontinued operations                           (457)         - 
 Share-based payments                              1,669     1,237 
                                                --------  -------- 
 Net cash inflow from operating activities        13,610    24,521 
                                                --------  -------- 
 
 

24. 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 2016      13,709,170                          137     35,997    36,134 
 Shares issued: 
 - on exercise of 
  options                11,857   290.5 - 1,452.0          -        103       103 
 - to Sharesave                         1,172.0 - 
  Scheme                 72,373           1,400.0          1      1,001     1,002 
 At 30 June 2017     13,793,400                          138     37,101    37,239 
 Shares issued: 
 - on exercise of 
  options                27,838   290.5 - 1,452.0          -        210       210 
 - to Sharesave                         1,237.0 - 
  Scheme                 81,795           1,738.0          -      1,093     1,093 
 At 30 June 2018     13,903,033                          138     38,404    38,542 
                    -----------                    ---------  ---------  -------- 
 
 

The total number of ordinary shares issued and fully paid at 30 June 2018 was 13,903,033 (FY17: 13,793,400) with a par value of 1p per share.

There were no shares issued on exercise of options and to Sharesave Scheme members in share capital in the year ended 30 June 2018 (FY17: 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. At 30 June 2018, the EBT held 164,582 (FY17: 243,465) 1p ordinary shares in the Company, acquired for a total consideration of GBP2,699,000 (FY17: GBP3,816,000) with a market value of GBP3,263,000 (FY17: GBP5,820,000). They are classified as treasury shares in the Consolidated Statement of Financial Position, their cost being deducted from retained earnings within shareholders' equity.

25. Other reserves and retained earnings

Other reserves are comprised of the following balances:

 
                                  2018      2017 
                               GBP'000   GBP'000 
 
 Share option reserve            2,921     6,285 
 Merger reserve                    192       192 
 Available for sale reserve          1         3 
 Total other reserves            3,114     6,480 
                              --------  -------- 
 
 
   a)   Share option reserve 

The share option reserve represents the cumulative charge to the Consolidated Statement of Comprehensive Income for the Group's equity settled share-based payment schemes

   b)   Merger reserve 

The merger reserve arises when the consideration and nominal value of the shares issued during a merger and the fair value of assets transferred during the business combination differ.

   c)   Available for sale reserve 

The available for sale reserve reflects the changes in fair value of available for sale assets. Upon sale of the corresponding asset, the accumulated gain or loss is recycled through the Consolidated Statement of Comprehensive Income as a gain or loss on disposal.

The movements in other reserves during the year were as follows:

 
                                                   2018      2017 
                                                GBP'000   GBP'000 
 Share option reserve 
 At beginning of the year                         6,285     5,331 
 Share-based payments                             1,669     1,237 
 Transfer to retained earnings                  (4,763)     (724) 
 Tax on share-based payments                      (270)       441 
                                               --------  -------- 
 At end of the year                              2,921      6,285 
                                               --------  -------- 
 
 
 Available for sale reserve 
 At beginning of the year                             3       (6) 
 Revaluation of available for sale financial 
  assets                                            (2)         3 
 Recycling of reserve due to impairment               -         6 
 At end of the year                                   1         3 
                                               --------  -------- 
 
 

The movements in retained earnings during the year were as follows:

 
                                                  2018      2017 
                                               GBP'000   GBP'000 
 
 At beginning of the year                       41,987    41,357 
 Profit for the financial year                   4,858     5,704 
 Profit from discontinued operations               536       110 
 Purchase of own shares by Employee Benefit 
  Trust                                              -     (786) 
 Transfer from share option reserve              4,763       724 
 Dividends paid                                (5,843)   (5,122) 
 At end of the year                             46,301    41,987 
                                              --------  -------- 
 
 

26. Events since the end of the year

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

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END

FR FMGZLMGFGRZM

(END) Dow Jones Newswires

September 20, 2018 07:43 ET (11:43 GMT)