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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Brooks Macdonald Group Plc | LSE:BRK | London | Ordinary Share | GB00B067N833 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 1,797.50 | 1,755.00 | 1,880.00 | 5,952 | 08:00:43 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Mgmt Invt Offices, Open-end | -52.92M | -64.45M | -3.9624 | -4.54 | 292.36M |
From Apr 2019 to Apr 2024
TIDMBRK
RNS Number : 3611R
Brooks Macdonald Group PLC
21 September 2017
21 September 2017
BROOKS MACDONALD GROUP PLC
Final Results for the year ended 30 June 2017
Strong momentum maintained with 26% FUM growth - investing to support future growth
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 2017.
Financial Highlights
Hot Features
Premium
Year Year Change
ended ended
30.06.2017 30.06.2016
Total discretionary funds
under management ("FUM") GBP10.5bn GBP8.3bn 25.9%
Revenue GBP91.7m GBP81.4m 12.7%
Underlying Results*
Underlying profit margin 20.1% 19.1% 1.0ppt Underlying profit before tax GBP18.4m GBP15.5m 18.6% Underlying earnings per share 115.8p 87.9p 31.7%
Statutory Results
Statutory profit before tax GBP8.0m GBP15.9m -49.3% Statutory earnings per share 43.0p 94.4p -54.5% Net cash GBP32.2m GBP19.5m 65.2%
Dividends
Proposed final dividend 26p 23p 13.0% Total dividend 41p 35p 17.1%
*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)
Caroline Connellan, Chief Executive of Brooks Macdonald, commented:
"I am encouraged by the strong underlying results we are reporting for the year, with FUM reaching GBP10.5bn and underlying profitability up by 19%, reflecting the strength of our core offering and relationships. We are making progress on the initiatives I outlined in July, to invest in our risk and operational framework and to proactively deal with certain legacy matters. In addition, to support the focus on our core business and our drive to improve margins, today we have announced the sale of Braemar Estates, our property management business.
As we look to the future and build on our success to date, my focus is on positioning the business to capture the significant growth opportunities open to us. We will continue to enhance the services we offer and improve business efficiency while responding to the rapidly changing competitive and regulatory environment, and the increasing influence of technology.
I am confident that these actions will result in a much stronger platform to deliver sustainable long-term growth, upholding our commitment to protect our clients' best interests and supporting our relationships with key intermediaries.
We have started our new financial year with positive momentum and look forward with confidence, notwithstanding our relative caution around markets and client sentiment."
Business Highlights:
-- 19% increase in underlying profit before tax; all four business segments reported underlying profit before tax
-- Statutory profit before tax fell principally due to the previously announced GBP6.5m legacy matters provision
-- Total dividend increased by 17% to 41p (2016: 35p) reflecting the Board's continued confidence in the strength of the business and commitment to a progressive dividend policy
-- Sale of Braemar Estates, our property management business, announced separately today for GBP1.9m in line with our focus on our core offerings and to improve the Group's margin
-- 26% increase in discretionary FUM which passed the GBP10bn milestone; good momentum continues:
o Organic growth (net new discretionary business) of GBP1bn (11.5% increase)
o Investment performance of GBP1.2bn (14.5% increase); as a comparison, the FTSE UK Private Investor Balanced Index increased by 10.5% over the year
-- Increased FUM in all discretionary investment management segments:
o Strong growth in BPS and MPS offerings
o BMI passed GBP1.53bn with 13.3% growth (2016: GBP1.35bn)
o Funds grew 46% to exceed GBP1.2bn FUM (2016: GBP796m); Defensive Capital Fund now exceeds GBP425m
-- Investing for now and to support future growth:
o IT system development delivered as planned
o Investment in risk management and operational framework reflecting increased scale of business and categorisation as an IFPRU significant firm
o Proactively dealing with certain legacy matters arising from the former Spearpoint business, reflecting commitment to treating customers fairly and supporting relationships with professional intermediaries
-- Expansion of our distribution capabilities, enhancing our reach in the UK and internationally:
o Added two new strategic alliances with professional intermediaries, including the first internationally
o Expanded regional footprint with new investment management office opening in Cardiff
-- Strong investment management performance and high levels of service recognised:
o Portfolios across all risk mandates achieving above-benchmark returns according to Asset Risk Consultants (ARC)
o Awarded the prestigious industry Gold Standard Award for service in discretionary fund management
o Received five star ratings from Defaqto for each of our main discretionary offerings
o Our Leamington Spa and Tunbridge Wells offices were winners of their respective geographical categories in the Citywire Regional Star Awards in 2017
Funds Flow
2017 2016
-------------- ------------------------------- ------------------------------
GBP000m IM Funds BMI Total IM Funds BMI Total
------ ------ ------ ------- ------ ------ ------ ------
Opening
FUM 6,157 796 1,348 8,301 5,589 663 1,161 7,413
-------------- ------ ------ ------ ------- ------ ------ ------ ------
Net new
business 643 291 17 951 551 152 160 863
-------------- ------ ------ ------ ------- ------ ------ ------ ------
Performance 968 72 164 1,204 17 -19 27 25
-------------- ------ ------ ------ ------- ------ ------ ------ ------
Closing
FUM 7,768 1,159 1,529 10,456 6,157 796 1,348 8,301
-------------- ------ ------ ------ ------- ------ ------ ------ ------
Organic
growth % 10.4% 36.6% 1.3% 11.5% 9.9% 22.9% 13.8% 11.6%
-------------- ------ ------ ------ ------- ------ ------ ------ ------
Total growth
% 26.2% 45.6% 13.4% 25.9% 10.2% 20.1% 16.1% 12.0%
-------------- ------ ------ ------ ------- ------ ------ ------ ------
An analyst meeting will be held at 9.15 for 9.30am on Thursday, 21 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 brooks@mhpc.com for further details.
Enquiries to:
Brooks Macdonald Group plc www.brooksmacdonald.com Caroline Connellan, Chief Executive 020 7499 6424 Simon Jackson, Finance Director Andrew Shepherd, Deputy Chief Executive Peel Hunt LLP (Nominated Adviser and Broker) Guy Wiehahn / Adrian Haxby 020 7418 8900 MHP Communications Reg Hoare / Simon Hockridge / Giles Robinson / Charlie Barker 020 3128 8540
Notes to editors
Brooks Macdonald Group plc, through its various subsidiaries, provides wealth and 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 GBP10.5bn as at 30 June 2017.
The Group has ten offices across the mainland UK and two in the Channel Islands including London, Cardiff, Edinburgh, Guernsey, Hale, Hampshire, Jersey, Leamington Spa, Manchester, Taunton, Tunbridge Wells and York.
CHAIRMAN'S STATEMENT
I am pleased to report another year of strong progress.
Caroline Connellan joined Brooks Macdonald as Chief Executive in April succeeding Chris Macdonald, who remains on the board in a non-executive capacity. Caroline brings more than 20 years' experience in the financial services industry, most recently as Head of UK Premier and Wealth at HSBC. She joins the group at an exciting point in its development.
Our discretionary funds under management grew substantially during the year, surpassing the significant milestone of GBP10bn in April 2017 and reaching GBP10.5bn as at 30 June 2017 (2016: GBP8.3bn), an increase of 25.9%. This compares to a 10.5% increase in the FTSE UK Private Investor Balanced Index and represents a combination of investment performance (14.5%) and continued organic growth (11.5%).
Underlying profit before tax for the year was GBP18.4m (2016: GBP15.5m), an increase of 18.6% on the previous year, representing an underlying profit margin of 20.1% (2016: 19.1%). Underlying earnings per share also increased by 31.7% to 115.76p (2016: 87.92p). Statutory profit before tax for the year fell by 49.3% to GBP8.0m (2016: GBP15.9m), predominantly due to the decision to deal proactively with certain legacy matters arising from the former Spearpoint business, as explained in the Chief Executive's Review. We have announced the sale of Braemar Estates, our property management division, which will enable us to focus on our core businesses.
The board has recommended a final dividend of 26.0p (2016: 23.0p) which, subject to approval by shareholders, will result in total dividends for the year of 41.0p (2016: 35.0p). This represents an increase of 17.1% 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 27 October 2017 to shareholders on the register at the close of business on 29 September 2017.
Richard Spencer and Simon Wombwell are not seeking re-election to the board at this year's AGM, although both will continue as key members of the Group Executive Committee, as Chief Investment Officer and Head of UK Distribution respectively. This will reduce the board to nine, made up of five non-executive directors and four executive directors, a board composition in line with current corporate governance practice.
The financial services industry is going through an unprecedented period of regulatory change, which will have a profound impact on businesses throughout the sector. We recognise the demands this places on the business and consequently will be increasing investment in regulatory and risk management capabilities as outlined in the Chief Executive's Review below. This will provide a strong foundation, positioning the business for future growth.
The result of the EU referendum in 2016 and the subsequent UK General Election in June 2017 have begun to impact on the UK's macroeconomic outlook and uncertainty surrounding the nature of the UK's future relationship with the EU will persist over the next eighteen months as negotiations with the EU continue. We have already seen a fall in consumer spending. These factors, combined with the global geopolitical risks that have recently begun to weigh on market sentiment, cause us to remain cautious in our external outlook. Nevertheless, the Group is well-positioned to weather any turbulence, with a strong balance sheet (net cash GBP32.2m (2016: GBP19.5m)). We are confident that the Group will continue to prosper and deliver high standards of service to our clients as well as value for our shareholders through our investment to support future growth.
Christopher Knight
Chairman
CHIEF EXECUTIVE'S REVIEW
Introduction
Having taken over as Chief Executive of Brooks Macdonald in April 2017, I am delighted to present my first report covering a year when we have continued to deliver strong underlying Group performance, although statutory profit has fallen principally as a result of the previously announced provision for legacy matters. As a result of the hard work and dedication of all our staff under Chris Macdonald's prior leadership, I have joined a business that is well positioned in the market and I intend to build on this strong foundation.
Since my arrival I have had the opportunity to visit each of our offices, meeting many of the advisers we partner with as well as spending time with our people, listening and learning about the business first-hand. I have been particularly impressed by our culture with its strong emphasis on client relationships and service. This has been fundamental to our growth to date and it will remain central to our success going forward. I would like to thank everyone at Brooks Macdonald for making me feel welcome and Chris for his support during the handover.
Discretionary fund management is our core business and we will be looking for opportunities to grow it further, including enhancing our offering and service levels, as well as continuing to adapt - given the fast changing external environment - to retain our strong market position. We have already announced additional investment in our regulatory and risk management capabilities to build a stronger platform both now and for delivering sustainable growth in the future. Pursuing greater efficiency in the business is another of my priorities in order to continue to improve our margins. This focus on our core offering and our drive to improve margins has also led to the agreed sale of Braemar Estates, our property management business, expected to complete by the calendar year end.
Growth in funds under management and underlying profit
A conducive market environment for risk assets continued through the year with interest rates across the developed world at highly accommodative levels and inflation subdued. There were bouts of volatility stemming from political risk including the negotiations around Brexit, and the UK, US and French elections, although any equity market sell-off was short lived. Bond returns were more mixed with the US Federal Reserve's decision to increase US interest rates weighing on sentiment. Within the UK, equities with international earnings benefitted from sterling weakness whilst those with a domestic focus underperformed as real wages fell. With heightened valuations across equity markets, geo-political risks and central banks tapering asset purchases, we reduced our overweight position in equities and rebalanced client portfolios accordingly. Within the non-equity space we have reduced our bond holdings given the uncertainty over future interest rate levels and central bank policies.
Against this backdrop, the Group maintained momentum throughout the financial year, achieving annual growth in our discretionary funds under management ("FUM") of 25.9%, to stand at GBP10.5bn at 30 June 2017 (2016: GBP8.3bn). Of the GBP2.2bn increase, GBP1.0bn (11.5%) was net new business and GBP1.2bn (14.5%) was investment performance. As a comparison, the FTSE UK Private Investor Balanced Index increased by 10.5% over the year.
Underlying profit before tax for the year was GBP18.4m (2016: GBP15.5m), an increase of 18.6% on the previous year, representing an underlying profit margin of 20.1% (2016: 19.1%). Underlying earnings per share also increased by 31.7% to 115.76p (2016: 87.92p). While this is a strong result for the underlying business, statutory profit before tax for the year fell by 49.3% to GBP8.0m (2016: GBP15.9m) predominantly due to the provision for legacy matters detailed below, as well as amortisation and an impairment to the goodwill recorded for the Levitas business, although the latter is more than offset by a reduction in deferred consideration. A full reconciliation of underlying and statutory profit can be found in the Strategic Report, and segmental information on underlying and statutory profit is given in note 1 to the consolidated financial statements.
Review of business performance and development
UK Investment Management continues to be our largest and most profitable segment. We have maintained strong new business flows, largely driven by our close relationships with advisers. We remain confident in the growth opportunity and believe there continues to be significant scope to increase the breadth and depth of our adviser relationships and benefit from the continuing trend of professional intermediaries outsourcing investment management.
We continue to add value through our centralised investment process, with portfolios across all risk mandates achieving above-benchmark returns according to Asset Risk Consultants (ARC) private client indices over one, three and five year periods. In November we were, for the second 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. We were successful at the Citywire Regional Star Awards in 2017, with professional advisers voting for our Leamington Spa and Tunbridge Wells offices as winners of their respective geographical categories. We thank our adviser partners for their continued support.
Our UK BPS, a premium and fully personalised offering to private clients, charities and pension funds now represents GBP6.5bn (62.3% of FUM) and remains our principal offering. The pension opportunity, in particular Self-Invested Personal Pensions ("SIPPs"), continues to be significant, as does the growth of ISAs and our AIM Portfolio Service. We expect to be able to offer Lifetime ISAs to clients shortly.
Our UK MPS, consisting of ten portfolios with distinct risk profiles and objectives, is available to those investing smaller amounts and allows our investment management capabilities to be accessed by a wider range of individuals through their financial advisers. Assets now exceed GBP1.2bn (11.6% of FUM), held either directly with us or through a platform. Our MPS proposition has seen rapid growth throughout the year, a trend that we expect to continue as the popularity of model multi-asset portfolios continues to grow.
As a Group, we have maintained the focus on our Strategic Alliances which form a major part of our approach to the adviser market. We are pleased that we have completed two further Strategic Alliances, including our first international partnership with Abacus Financial Consultants based in the UAE. In the UK, we were co-founders of the DFM Alliance, a joint initiative with other leading discretionary fund managers offering advisers a platform for improving client outcomes through information, education and collaboration. We have also continued to invest in our geographic footprint of offices across the UK to deliver high service levels to our local adviser partners and I am delighted to confirm that we opened a new office in Cardiff in July 2017, allowing us to access new growth opportunities in a region we have not previously been able to serve fully.
Our Funds business passed the GBP1bn milestone of FUM, enjoying its most successful year to date and generating a profit for the first time. It remains our intention to complete the previously announced move of the Funds business into Investment Management this financial year, subject to regulatory approval. The IFSL Brooks Macdonald Defensive Capital Fund, within the targeted absolute return sector, celebrated an impressive seventh anniversary year, with FUM reaching GBP393m as at 30 June 2017 (2016: GBP223m) and now over GBP425m. The fund received several positive ratings in 2017, including an Elite Rating by FundCalibre and Five Crowns by Financial Express (FE) Crown Fund Ratings based on its performance. Our Multi-Asset Funds also saw significant growth during the year. Earlier this year, the partners of North Row Capital LLP, in which the Group held a 60% stake, decided to terminate the fund, resulting in an impairment loss of GBP0.2m (2016: GBP0.4m).
Our International business based in the Channel Islands delivered good growth, with discretionary FUM increasing by 13.4% from GBP1.3bn to GBP1.5bn over the past year and having doubled since acquisition in 2012. Whilst we have seen local professional intermediary relationships impacted to some extent by the legacy matters referred to below, the successful restructuring of BM Retirement Services International ("BMRSI") to a restricted financial planning business in the Channel Islands, the expansion of our distribution efforts to include international advisers and our work to build business flow from South Africa have all borne fruit this past year. We have now largely completed the move away from advisory work and our discretionary fund management offering has performed well, winning the award for Best International Discretionary Fund Manager at the International Fund and Product Awards. Together with the actions we are taking to deal proactively with the legacy matters, we start the coming year in a stronger position.
Financial Planning also had a strong year, driven in part by a number of one-off pension advice opportunities, generating record revenue and profits. We continue to focus on delivering a comprehensive independent financial planning service to private clients and on seeking new opportunities to support future growth.
Sale of our Property Management business
We recently completed a review of Braemar Estates and have taken the decision to sell the business, enabling us to focus more closely on our core offerings. This will allow us to operate with a more streamlined business and will contribute over time to improved margins. We exchanged contracts on 20 September 2017 and on completion of the sale, which is expected by the calendar year end, the Group's property management division will cease to exist. Investment management of the Ground Rents Income Fund will be retained by Funds.
In the financial year completed, Braemar Estates represented 3.2% of the Group's revenue (GBP2.9m), 0.7% of its underlying profit (GBP126,000), 1.4% of its statutory profit (GBP112,000) and -0.6% of its net assets (Braemar has net liabilities of GBP0.5m). The sale price is GBP1.9m, with an initial 50% to be paid on completion and the remainder deferred, payable over a two-year period from the completion date.
Legacy matters arising from the former Spearpoint business
As announced in July, following a detailed review, we decided to deal proactively with certain legacy matters arising from the former Spearpoint business which we acquired in 2012. These matters relate to a number of discretionary portfolios formerly managed by Spearpoint, now managed by our International business, and a Dublin-based fund, for which Spearpoint acted as investment manager. While we accept no legal liability, we have a deep commitment to treating customers fairly and seeking to protect our clients' best interests. We believe that by taking this action it will assist us in building stronger relationships with professional intermediaries in the Channel Islands and their clients. We are now in contact with the relevant parties. We anticipate that this action will cost GBP6.5m and have made a provision for it accordingly. As this is an exceptional cost it is not included in our underlying profit for the year.
Investment in our infrastructure
Our IT system development was delivered as planned at the end of June 2017. This involved the migration of data from two legacy systems in the Channel Islands on to a common platform shared with our UK portfolio management business. As part of this process we consolidated our two back office functions into one, based in the City of London, to serve all clients of the Group moving forwards. As a consequence, our Guernsey-based back office will close in September, resulting in the redundancy of the impacted staff. The redundancy costs were provided for in the financial year completed. Some further post migration work remains, which will complete by the calendar year end.
We are continuing to review the opportunity to align and simplify processes and take further actions to deliver economies of scale as the Group grows. We will continue to invest further in our infrastructure to support our investment teams, to enhance our service to clients and to facilitate the ease of interactions with the intermediaries we work with, as well as delivering broader efficiencies. The appointment of a Chief Operating Officer will be an important step in ensuring we can grow our business materially and sustainably, whilst pursuing greater efficiency and progressively improving our margins.
Investing in our risk management framework
The investment management industry is currently experiencing a period of significant regulatory change and the Group has been preparing for the introduction of MiFID II, Senior Managers and Certification Regime ("SMCR") and the General Data Protection Regulation ("GDPR"), amongst other changes. Extension of the SMCR to investment firms is expected in 2018, with the Group included within the 'Enhanced Regime' as we are now categorised as a significant investment firm for prudential purposes under FCA rules. This categorisation has also increased the regulatory reporting requirements for the Group more broadly.
Given this context and to position the business for future growth, it is important that we now invest more broadly in our regulatory and risk management capabilities. We announced in July an increase in our capabilities, including the appointment of a Chief Risk Officer, to provide the support needed to our investment teams and ensure that we can continue to meet and exceed the expectations of our clients and regulators, as well as the aforementioned plan to appoint a Chief Operating Officer. This will result in a much stronger platform for delivering sustainable growth in the future. These investments are expected to result in additional operating expenditure of approximately GBP4m in the next financial year, of which approximately GBP2m will recur in subsequent years.
Outlook
As we continue to invest in the Group, I look forward to building on our success to date and positioning the business to deliver growth into the future. To achieve this, our principal focus will be on delivering value for our clients and partners through enhancing the services we provide, improving business efficiency and continuing to adapt to the fast changing competitive and regulatory environment.
During the financial year we have seen further consolidation across the sector given the need for investment in technology and in response to regulatory changes. We expect this to continue as companies seek scale and cost savings. We strongly believe in our future as an independent discretionary fund manager and will continue to look at acquisition opportunities when they arise, to complement our organic growth plans.
We have started our new financial year with positive momentum and we look forward with confidence notwithstanding our relative caution around markets and client sentiment.
I would like to reiterate my thanks to everyone at Brooks Macdonald for their welcome, and for their hard work and commitment to the business.
Caroline Connellan
Chief Executive
STRATEGIC REPORT
The market and our services
We are an independent investment management firm providing a wide range of investment and wealth management services to private clients, pension funds, charities, professional intermediaries and trustees. Our successful business model works to provide bespoke investment solutions with high-quality professional staff delivering outstanding client service, investment excellence and value for money from each of our nine UK based offices and two offshore offices in Jersey and Guernsey. In addition we have a property management business based in Hale and an investment service business based in the City of London.
A summary of our services
Brooks Macdonald managed GBP10.5 billion for its clients as of 30 June 2017, 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 families and employment benefits consultancy to small and medium sized enterprises. Through our funds we provide multi asset and specialist fund products to the retail sector and we have a property management service for private individuals, institutions and property fund managers.
A breakdown of the split of the discretionary funds under management ("FUM") is shown in the table below:
2017 2016 Change
GBP'000 GBP'000 GBP'000 %
Investment Management
(UK) 7,768 6,160 1,608 20.7%
Investment Management
(Channel Islands) 1,529 1,350 179 11.7%
Funds 1,159 796 363 31.3%
One of the key performance indicators is the growth in the discretionary funds under management in total across all parts of the Group which are reported on a quarterly basis throughout the year. The increase in the year is analysed in the table below.
2017 2016
GBPm GBPm
Opening discretionary
FUM 8,301 7,413
Net new discretionary
business 951 863
Investment growth 1,204 25
------- ------
Total FUM growth 2,155 888
Closing FUM 10,456 8,301
------- ------
Organic growth (net
of markets) % 11.5 11.6
Total growth % 25.9 12.0
Group performance
The Group's overall performance for the year is detailed in table 1 below.
Table 1
2017 2016
GBPm (unless GBPm (unless
stated) stated)
Total revenue 91.7 81.4
Operating costs (83.7) (67.8)
Net financial income
and gains 0.0 2.3
Statutory profit before
tax 8.0 15.9
Underlying profit
before tax(1) 18.5 15.5
Underlying earnings
per share 115.76p 94.41p
Dividends per share(2) 41.0p 35.0p
Underlying margin(3) 20.1% 19.1%
(1) A reconciliation between underlying
profit before tax and profit before tax
is shown in table 2.
(2) The total interim dividend and the
final dividend proposed for the financial
year.
(3) Underlying profit as a percentage
of total revenue
Total revenue
Total Group revenue grew by 12.7% during the year compared to 4.8% in 2016, reflecting the strong growth in FUM within the Investment Management segment of the Group together with increased revenue in both the Financial Planning and Funds and Property Management segments as highlighted in more detail in note 1 to the consolidated financial statements.
Operating costs
As in previous years, the major component of the Group's operating costs is our staff, comprising 54.6% of administrative expenses (2016: 57.1%). During the year we saw an increase in the average number of employees from 472 to 500. Of the total staff costs, 30.8% (2016: 27.2%) were variable costs. We have continued to invest in our IT systems across all parts of the Group, to support our investment teams and to enhance the service offered to our clients. At the end of the year we delivered our large IT project to provide a common portfolio management platform across both the UK and Channel Islands, involving the migration of data from two legacy systems. The new system will provide increased consistency and capacity across the Group and with the planned closure of our Guernsey-based back office in September 2018 it will enable us to deliver further operational efficiencies. Some additional post migration work remains to be completed over the course of the next financial year and we will continue to take additional action to align and simplify processes so that we benefit from further economies of scale.
We continue to operate in an increasingly regulated environment and we have again strengthened our legal, risk and compliance departments by additional recruitment over the last financial year. In 2017, we saw the costs of the levy paid to the Financial Services Compensation Scheme ("FSCS") stabilise at GBP0.5m (2016: GBP0.5m).
Net financial income and gains
When the Group makes an acquisition it typically structures the deal whereby there are deferred payments to the vendors over a number of years against pre-agreed funds under management targets. Where these targets change due to unpredictable variables such as new business, client retention and market movements then the value of the deferred consideration changes and these fair value adjustments are made through the Consolidated Statement of Comprehensive Income.
During the year one of the original FUM targets for Levitas was not achieved, resulting in a reduction in the amount payable to the vendors of the business. Accordingly, as more fully explained in note 19 to the consolidated financial statements, there was a fair value reduction of GBP2.2m (2016: GBP3.6m) resulting in a gain to consolidated income. As well as a reduction in the deferred consideration payable, this lower level of FUM has resulted in an impairment charge of GBP2.0m to the carrying value of goodwill in respect of Levitas as detailed in note 11 to the consolidated financial statements.
As disclosed more fully in note 14 to the consolidated financial statements, the partners of North Row Capital LLP, in which the Group held a 60% interest, decided to terminate the fund resulting in an impairment loss of GBP0.2m (2016: GBP0.4m).
Included in the total net financial income and gains for the year is both the fair value reduction for Levitas and the impairment charge to goodwill, together with other financial income, costs and the Group's share of joint venture results as detailed on the Consolidated Statement of Comprehensive Income and the accompanying notes.
Underlying profit before tax
Underlying profit before tax and underlying earnings per share are non GAAP alternative performance measures, considered by the board to be a better reflection of true business performance than looking at the Group's results on a statutory basis only. These measures are widely used by research analysts covering the Company. Underlying results exclude expenditure falling into the categories explained below and a full reconciliation between underlying profit and the profit attributable to shareholders is provided in the following table.
Table 2: Reconciliation of underlying profit
before tax to statutory profit before tax
2017 2016
GBPm GBPm
Underlying profit before tax 18.4 15.5
Amortisation of intangible
assets (3.9) (2.6)
Finance cost of deferred consideration (0.2) (0.6)
Changes in fair value of deferred
consideration 2.2 3.6
Impairment of carrying value (2.0) -
of goodwill
Exceptional costs of resolving (6.5) -
legacy matters
Statutory profit before tax 8.0 15.9
====== ======
Amortisation of intangible assets (note 11)
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 GBP3.9m (2016: GBP2.6m) associated with these and other intangible assets has been excluded from underlying profit as the directors consider these costs can distort the results of a particular period. During the year the Group completed a large software project in order to provide a more fully integrated investment management system covering both the onshore and offshore businesses, with an improved client portal and client relationship management system. This resulted in an increase in the software amortisation charge of GBP1.2m as part of the overall increase in amortisation of intangible assets for the year of GBP1.3m.
Finance cost and changes in fair value of deferred consideration
When the Group makes acquisitions of both corporate entities and teams of fund managers in the course of acquiring funds under management the typical structure of the acquisition, in order to continue to incentivise and motivate the vendors, is to make deferred payments over a period of time based on the retention and growth in funds under management. The initial estimated fair value of the deferred payments will be based on future projections of funds under management and where the actual payment is different from the original estimates then charges or credits will be made in arriving at the profit before tax. The directors consider that the effect of these changes to the original projected payments can distort the results of a particular period and have therefore excluded them from underlying profit.
Initial estimates of the deferred cash payments are recognised in the financial statements at their present value based on an inherent rate of implied interest. The difference between the discounted present value of deferred consideration and the estimated future cash payment is recognised as a charge over the duration of the deferral period in arriving at profit before tax. The directors consider that this charge, which is a non-cash item, can distort the results of a particular period and have therefore excluded the charge from underlying profit.
Impairment in carrying value of goodwill
As explained in note 11 to the consolidated financial statements, goodwill is reviewed annually for impairment based on the carrying value of the asset compared to its expected recoverable amount. As a result of a lower level of FUM in Levitas, resulting in reduction in the deferred consideration as detailed above, there has been an impairment to the carrying value of GBP2.0m due to a reduction in the estimated value-in-use of the business. 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.
Exceptional costs of resolving legacy matters
As detailed in note 22 to the consolidated financial statements we have decided 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 provision of GBP6.5m in order to resolve them. 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.
Cash resources and regulatory capital
The Group is cash generative and, as detailed in the Consolidated Statement of Cash Flows, there was an increase in cash resources at the year end of GBP12.7m to GBP32.2m (2016: GBP19.5m). The Group had no borrowings at 30 June 2017 (2016: 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).
Segmental review
The Group reports its results in four key operating segments: Investment Management; Financial Planning; Funds and Property Management; and International.
Investment management
The UK based investment management service continues to remain the core part of the Group contributing 71.7% (2016: 72.1%) 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 part of the Group and it was the growth in this area which was the major contributor to the 19% increase in revenue and the profit for the year of GBP0.3m compared to the previous year's loss of GBP0.1m.
Funds and property management
The funds business continues to grow in scale with total FUM increased by 45.6% to GBP1,159m (2016: GBP796m) at 30 June 2017. This growth was achieved organically through net new investment across the range of funds with the Defensive Capital Fund now over GBP400m FUM.
The Property Management business had another improved year with an increase in revenue of 16.4% over the previous year and reported a profit for the year compared to breakeven in 2016.
International
The business saw an increase of FUM during the year of 13.4% to GBP1.5bn (2016: GBP1.3bn) 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 8.4% although increased legal costs continuing to deal with some legacy matters and the closure costs of GBP0.3m associated with the transfer of the operations department from Guernsey to London have resulted in a fall in underlying profit to GBP0.5m (2016: GBP0.8m).
Following the results of a review we have decided 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. As well as these issues consuming management time, the Group was incurring associated costs, so in order to treat our clients fairly and to protect their best interests we have made a provision during the year of GBP6.5m in order to resolve these matters, resulting in a statutory loss before tax for the year of GBP6.6m (2016: GBP0.4m profit).
Since the acquisition of the Channel Islands business discretionary FUM have grown from GBP0.6bn to over GBP1.5bn at 30 June 2017 and following the satisfactory resolution of the former Spearpoint matters the board believes that the business will see an increase in profit in the next financial year.
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, the with costs of running the plc 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 Company's assets are included within this segment.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2017
Note 2017 2016
GBP'000 GBP'000
Revenue 2 91,716 81,399
Administrative costs (83,704) (67,794)
Realised gain on investments 3 4 20
Other gains and losses 4 266 2,857
Operating profit 5 8,282 16,482
Finance income 7 70 58
Finance costs 7 (263) (577)
Share of results of joint
venture 14 (45) (107)
Profit before tax 8,044 15,856
Taxation 8 (2,230) (3,117)
Profit for the year attributable
to equity holders of the
Company 5,814 12,739
--------- ---------
Other comprehensive income
/ (expense):
Items that may be reclassified
subsequently to profit or
loss
Revaluation of available
for sale financial assets 13 3 (6)
Revaluation reserve recycled
to profit or loss 13 6 -
Total comprehensive income
for the year 5,823 12,733
--------- ---------
Earnings per share
Basic 9 42.95p 94.41p
Diluted 9 42.76p 94.07p
========= =========
The accompanying notes form an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June 2017
Note 2017 2016
GBP'000 GBP'000
Assets
Non-current assets
Intangible assets 11 62,648 65,849
Property, plant and equipment 12 3,203 3,309
Available for sale financial
assets 13 658 1,715
Investment in joint venture 14 - 207
Trade and other receivables 16 - 150
Deferred tax assets 15 1,271 551
--------- ---------
Total non-current assets 67,780 71,781
Current assets
Trade and other receivables 16 22,693 23,958
Financial assets at fair
value through profit or
loss 17 1,185 1,000
Cash and cash equivalents 18 32,183 19,478
--------- ---------
Total current assets 56,061 44,436
Total assets 123,841 116,217
--------- ---------
Liabilities
Non-current liabilities
Deferred consideration 19 (1,720) (5,290)
Deferred tax liabilities 15 (3,415) (3,951)
Other non-current liabilities 20 (157) (114)
--------- ---------
Total non-current liabilities (5,292) (9,355)
Current liabilities
Trade and other payables 21 (21,169) (18,844)
Current tax liabilities (2,082) (2,142)
Deferred tax liabilities 15 - (84)
Provisions 22 (9,592) (2,784)
--------- ---------
Total current liabilities (32,843) (23,854)
Net assets 85,706 83,008
--------- ---------
Equity
Share capital 24 138 137
Share premium account 24 37,101 35,997
Other reserves 25 6,480 5,517
Retained earnings 25 41,987 41,357
--------- ---------
Total equity 85,706 83,008
--------- ---------
The consolidated financial statements were approved by the board of directors and authorised for issue on 20 September 2017, signed on their behalf by:
C M Connellan S J Jackson
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 2017
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 2015 136 35,600 5,101 33,327 74,164
--------- --------- ---------- ---------- --------
Comprehensive income
Profit for the year - - - 12,739 12,739
Other comprehensive
income:
Revaluation reserve
recycled - - (6) - (6)
--------- --------- ---------- ---------- --------
Total comprehensive
income - - (6) 12,739 12,733
Transactions with owners
Issue of ordinary shares 1 397 - - 398
Share-based payments - - 943 - 943
Share-based payments
transfer - - (806) 806 -
Purchase of own shares
by employee benefit
trust - - - (1,143) (1,143)
Tax on share options - - 285 - 285
Dividends paid (note
10) - - - (4,372) (4,372)
--------- --------- ---------- ---------- --------
Total transactions with
owners 1 397 422 (4,709) (3,889)
Balance at 30 June 2016 137 35,997 5,517 41,357 83,008
--------- --------- ---------- ---------- --------
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
10) - - - (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
--------- --------- ---------- ---------- --------
The accompanying notes form an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 June 2017
Note 2017 2016
GBP'000 GBP'000
Cash flow from operating
activities
Cash generated from operations 24,521 17,536
Taxation paid (3,186) (2,773)
Net cash generated from
operating activities 21,335 14,763
Cash flows from investing
activities
Purchase of property, plant
and equipment 12 (892) (751)
Purchase of intangible assets 11 (2,651) (3,265)
Purchase of available for
sale financial assets 13 (5) (500)
Deferred consideration paid 19 (1,580) (3,901)
Finance income 7 70 58
Purchase of financial assets
at fair value through profit
or loss 17 - (1,000)
Proceeds of sale of property,
plant and equipment 13 3
Proceeds of sale of available
for sale asset 13 1,219 -
Investment in joint venture 14 (1) (86)
Net cash used in investing
activities (3,827) (9,442)
Cash flows from financing
activities
Proceeds of issue of shares 1,105 398
Purchase of own shares by
employee benefit trust (786) (1,143)
Dividends paid to shareholders 10 (5,122) (4,372)
-------- --------
Net cash used in financing
activities (4,803) (5,117)
Net increase in cash and
cash equivalents 12,705 204
Cash and cash equivalents
at beginning of year 19,478 19,274
-------- --------
Cash and cash equivalents
at end of year 18 32,183 19,478
-------- --------
The accompanying notes form an integral part of the consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 30 June 2017
1. Segmental information
For management purposes the Group's activities are organised into four operating divisions: Investment Management, Financial Planning, Funds and Property Management and International. The Group's other activity, offering nominee and custody services to clients, is included within Investment management. These divisions are the basis on which the Group reports its primary segmental information 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 balance sheet.
Funds Group
Investment Financial and Property & consolidation
Management Planning Management International adjustments Total
Year ended 30 GBP'000 GBP'000
June 2017 GBP'000 GBP'000 GBP'000 GBP'000
Total segment
revenue 66,038 5,211 8,483 12,583 - 92,315
Inter segment
revenue (321) (222) (56) - - (599)
------------ ---------- -------------- -------------- ----------------- --------
External revenue 65,717 4,989 8,427 12,583 - 91,716
------------ ---------- -------------- -------------- ----------------- --------
Underlying profit
before tax 21,134 275 587 452 (4,022) 18,426
Finance cost
of deferred
consideration - - - - (263) (263)
Changes in fair
value of deferred
consideration - - - - 2,230 2,230
Amortisation
of intangible
assets (2,235) (6) (18) (506) (1,098) (3,863)
Goodwill impairment - - - - (1,986) (1,986)
Exceptional
costs of resolving
legacy matters - - - (6,500) - (6,500)
------------ ---------- -------------- -------------- ----------------- --------
Profit before
tax 18,899 269 569 (6,554) (5,139) 8,044
Taxation (2,230)
Profit for the
year 5,814
--------
Funds Group
Investment Financial and Property & consolidation
Management Planning Management International adjustments Total
Year ended 30 GBP'000
June 2016* GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Total segment
revenue 58,949 4,387 6,896 11,605 - 81,837
Inter segment
revenue (238) (136) (64) - - (438)
------------ ---------- -------------- -------------- ----------------- --------
External revenue 58,711 4,251 6,832 11,605 - 81,399
------------ ---------- -------------- -------------- ----------------- --------
Underlying profit
before tax 19,100 (57) (558) 800 (3,749) 15,536
Finance cost
of deferred
consideration - - - (78) (499) (577)
Changes in fair
value of deferred
consideration 3 - - 225 3,343 3,571
Amortisation
of intangible
assets (1,252) (3) (33) (576) (810) (2,674)
Profit before
tax 17,851 (60) (591) 371 (1,715) 15,856
Taxation (3,117)
Profit for the
year 12,739
--------
*re-presented to show the segmental underlying profit
before tax and a reconciliation between underlying
profit and statutory profit by segment.
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.
2017 2016
GBP'000 GBP'000
United Kingdom 79,133 69,794
Channel Islands 12,583 11,605
Total revenue 91,716 81,399
-------- --------
b) Major clients
The Group is not reliant on any one client or group of connected clients for the generation of revenues.
2. Revenue
2017 2016*
GBP'000 GBP'000
Portfolio management fee income 77,352 69,273
Financial services commission 94 125
Advisory fees 5,843 5,067
Fund management fees 5,505 4,322
Property management fees 2,922 2,510
-------- --------
Total revenue 91,716 81,399
-------- --------
*Comparative information has been re-presented
to bring the prior year headings in line with
the current year.
3. Realised gain on investments
During the year ended 30 June 2017, the Group realised a net gain of GBP4,000 (2016: GBP20,000) on disposal of investments. This comprised of a gain of GBP13,000 on the investment in the Braemar Group PCC Limited Student Accommodation Cell and a loss of GBP9,000 on the investment in GLI Finance Limited redeemable preference shares. The GBP20,000 gain in the year ended 30 June 2016 related to the final disposal of the Group's investment in Sancus Holdings 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.
2017 2016
GBP'000 GBP'000
Impairment of goodwill (note
11) (1,986) -
Impairment of available for
sale financial assets (note
13) - (311)
Impairment of investment in
joint venture (note 14) (163) (400)
Gain / (loss) from changes
in fair value of financial
assets at fair value through
profit or loss (note 17) 185 (3)
Gain from changes in fair value
of deferred consideration (note
19) 2,230 3,571
Other gains and losses 266 2,857
-------- --------
5. Operating profit
Operating profit is stated after charging:
2017 2016
GBP'000 GBP'000
Staff costs (note 6) 45,679 38,716
Auditors' remuneration (see
below) 420 380
Financial Services Compensation
Scheme Levy (see below) 459 475
Depreciation (note 12) 989 969
Amortisation (note 11) 3,863 2,674
Impairment of goodwill (note 1,986 -
11)
Exceptional cost of resolving 6,500 -
legacy matters (note 22)
-------- --------
A more detailed analysis of auditors' remuneration is provided below:
2017 2016
GBP'000 GBP'000
Fees payable to the Company's
auditors for the audit of the
consolidated Group and parent
company financial statements 102 56
Fees payable to the Company's
auditors and its associates
for other services:
- Audit of the Company's subsidiaries
pursuant to legislation 138 230
- Audit-related assurance services 179 70
- Other services 1 24
Total auditors' remuneration 420 380
-------- --------
Financial Services Compensation Scheme levies
Administrative costs for the year ended 30 June 2017 include a charge of GBP459,000 (2016: GBP475,000) in respect of the Financial Services Compensation Scheme ("FSCS") levy. This comprises the Group's estimated levy for the 2017/18 scheme year of GBP621,000 and a net rebate of GBP162,000 for the 2016/17 scheme year.
6. Employee information
a) Staff costs
2017 2016
GBP'000 GBP'000
Wages and salaries 38,912 33,491
Social security costs 4,197 3,053
Other pension costs 1,312 1,145
Share-based payments 1,258 1,027
-------- --------
Total staff costs 45,679 38,716
-------- --------
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:
2017 2016
Professional staff 191 190
Administrative staff 309 282
----- -----
Total staff 500 472
----- -----
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.
2017 2016
GBP'000 GBP'000
Short-term employee benefits 2,571 2,466
Post-employment benefits 33 25
Share-based payments 320 445
-------- --------
Total compensation 2,924 2,936
-------- --------
d) Directors' emoluments
Further details of directors' emoluments are included within the Remuneration Committee report.
2017 2016
GBP'000 GBP'000
Salaries and bonuses 2,262 2,209
Non-executive directors'
fees 282 234
Benefits in kind 27 23
-------- --------
2,571 2,466
Pension contributions 33 25
Amounts receivable under
long term incentive schemes 320 445
Total directors' remuneration 2,924 2,936
-------- --------
The aggregate amount of gains made by directors on the exercise of share options during the year was GBP161,000 (2016: GBP109,000). Retirement benefits are accruing to one director (2016: one) under a defined contribution pension scheme.
The remuneration of the highest paid director during the year was as follows:
2017 2016
GBP'000 GBP'000
Remuneration and benefits
in kind 368 500
Amounts receivable under
long term incentive schemes 68 93
-------- --------
Total remuneration 436 593
-------- --------
The amount of gains made by the highest paid director on the exercise of share options during the year was nil (2016: GBP25,000).
7. Finance income and finance costs
2017 2016
GBP'000 GBP'000
Finance income
Dividend income 43 -
Bank interest on deposits 27 58
Total finance income 70 58
-------- --------
Finance costs
Finance cost of deferred consideration 263 577
-------- --------
Total finance costs 263 577
-------- --------
8. Taxation
The tax charge on profit for the year was as follows:
2017 2016
GBP'000 GBP'000
UK Corporation Tax at 19.75%
(2016: 20.00%) 3,648 3,262
Under provision in prior years 167 448
-------- --------
Total current tax 3,815 3,710
Deferred tax credits (1,026) (259)
Research and development tax
credit (433) -
Effect of change in tax rate
on deferred tax (126) (334)
-------- --------
Income tax expense 2,230 3,117
-------- --------
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:
2017 2016
GBP'000 GBP'000
Profit before taxation 8,044 15,856
Profit multiplied by the standard
rate of tax in the UK of 19.75%
(2016: 20.00%) 1,590 3,171
Tax effect of:
- Lower tax rates in other
countries in which the Group
operates - (77)
- Overseas tax losses not available 955 -
for UK tax purposes
- Disallowable expenses 149 238
- Impairment charges 424 143
- Non-taxable income (433) (472)
- Losses utilised (no deferred
tax thereon) (63) -
- Research and development
tax credit (433) -
- Change in rate of Corporation
Tax applicable to deferred
tax (126) (334)
- Under provision in prior
years 167 448
Tax charge for the year 2,230 3,117
-------- --------
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 2014 and 30 June 2015. This resulted in a reduction in the Corporation Tax liabilities in the respective years, and a repayment of GBP433,000 (2016: GBPnil) from HMRC. The Group will consider whether claims can also be made for qualifying expenditure incurred in the year ended 30 June 2016 and thereafter in due course.
The deferred tax credits for the year arise from:
2017 2016
GBP'000 GBP'000
Share option reserve 194 (185)
Accelerated capital allowances 84 35
Amortisation of acquired client
relationship contracts 409 409
Unused overseas trading losses 339 -
Deferred tax credits 1,026 259
======== ========
On 1 April 2017, the standard rate of Corporation Tax in the UK was reduced to 19%. As a result the effective rate of Corporation Tax applied to the taxable profit for the year ended 30 June 2017 is 19.75% (2016: 20.00%).
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% (2016: 18%) and will be reviewed in future years subject to new legislation.
9. 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 intangible assets and the exceptional costs of resolving legacy matters. 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:
2017 2016
GBP'000 GBP'000
Reported earnings attributable
to ordinary shareholders 5,814 12,739
Goodwill impairment (note 11) 1,986 -
Finance cost of deferred consideration
(note 19) 263 577
Changes in fair value of deferred
consideration (note 19) (2,230) (3,571)
Amortisation of intangible
assets (note 11) 3,863 2,674
Exceptional costs of resolving
legacy matters (note 22) 6,500 -
Tax impact of adjustments (525) (556)
-------- --------
Underlying earnings attributable
to ordinary shareholders 15,671 11,863
-------- --------
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:
2017 2016
Number of Number of
shares shares
Weighted average number of
shares in issue 13,537,222 13,493,316
Effect of dilutive potential
shares issuable on exercise
of employee share options 59,872 48,220
----------- -----------
Diluted weighted average number
of shares in issue 13,597,094 13,541,536
----------- -----------
Earnings per share for the year attributable to equity holders of the Company were:
2017 2016
p p
Based on reported earnings:
Basic earnings per share 42.95 94.41
Diluted earnings per share 42.76 94.07
------- ------
Based on underlying earnings:
Basic earnings per share 115.76 87.92
Diluted earnings per share 115.25 87.60
------- ------
10. Dividends
Amounts recognised as distributions to equity holders of the Company in the year were as follows:
2017 2016
GBP'000 GBP'000
Final dividend paid for the year
ended 30 June 2016 of 23.0p
(2015: 20.5p) per share 3,101 2,758
Interim dividend paid for the
year ended 30 June 2017 of 15.0p
(2016: 12.0p) per share 2,021 1,614
-------- --------
Total dividends 5,122 4,372
-------- --------
Final dividend proposed for the
year ended 30 June 2017 of 26.0p
(2016: 23.0p) per share 3,524 3,101
The interim dividend of 15.0p (2016: 12.0p) per share was paid on 21 April 2017.
A final dividend for the year ended 30 June 2017 of 26.0p (2016: 23.0p) per share was declared by the board of directors on 20 September 2017 and is subject to approval by the shareholders at the Company's annual general meeting. It will be paid on 27 October 2017 to shareholders who are on the register at the close of business on 29 September 2017. 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.
11. 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 2015* 36,006 1,816 32,747 3,522 74,091
Additions - 3,265 - - 3,265
At 30 June 2016 36,006 5,081 32,747 3,522 77,356
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
--------- ---------- -------------- ---------- --------
Accumulated amortisation
and impairment
At 1 July 2015 - 398 5,938 2,497 8,833
Amortisation
charge - 132 2,177 365 2,674
At 30 June 2016 - 530 8,115 2,862 11,507
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
--------- ---------- -------------- ---------- --------
Net book value
At 1 July 2015 36,006 1,418 26,809 1,025 65,258
At 30 June 2016 36,006 4,551 24,632 660 65,849
--------- ---------- -------------- ---------- --------
At 30 June 2017 34,020 5,874 22,430 324 62,648
--------- ---------- -------------- ---------- --------
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 2017 comprises GBP3,550,000 in respect of the Braemar Group Limited ("Braemar") CGU, GBP21,243,000 in respect of the Brooks Macdonald Asset Management (International) Limited, Brooks Macdonald Retirement Services (International) Limited and DPZ (collectively "Brooks Macdonald International") CGU and 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 2017 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 Levitas CGU at 30 June 2017 was GBP9,319,000. This was lower than the carrying amount of the CGU, reflecting both a reduction in forecast funds under management growth and an increase in the discount rate applied, indicating that it should be impaired. An impairment loss of GBP1,986,000 (2016: GBPnil) has been recognised against the goodwill attributable to the CGU and is shown in the Consolidated Statement of Comprehensive Income within other gains and losses.
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 10% (2016: 8%) has been used, based on the Group's assessment of the risk-free rate of interest and specific risks pertaining to Levitas. Annual funds under management growth rates of between 5% and 18% 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, which are considered to be achievable given current market and industry trends. A 2% long-term growth rate is applied to cash flows beyond the forecast period and is considered prudent in the context of the long-term average growth rate for the funds industry in which the CGU operates.
Reasonably possible changes in the key assumptions and the impact of these changes on the calculated recoverable amount are:
-- A 1% change in the pre-tax discount rate would result in a GBP1,041,000 change in the recoverable amount.
-- A 10% change in the forecast funds under management would result in a GBP630,000 change in the recoverable amount.
-- A 0.5% change in the long-term average growth rate would result in a GBP489,000 change in the recoverable amount.
As the Levitas CGU has been impaired in the year, any future adverse change in any of the key assumptions would cause the CGU's carrying amount to exceed its recoverable amount, and an additional impairment would then be recognised.
Based on a value-in-use calculation, the recoverable amount of the Brooks Macdonald International CGU at 30 June 2017 was GBP42,043,000, 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 between 18% and 48% 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.
The key assumptions inherent in the value-in-use calculations for the Braemar CGU were a pre-tax discount rate of 11%, annual revenue growth rates ranging from 10% to 28% and a long-term growth rate of 2%.
Headroom exists in the calculations of the respective recoverable amounts of the Brooks Macdonald International and Braemar CGUs over the carrying amounts of the goodwill allocated to them. On this basis, the directors have concluded that there is no impairment. The directors consider that no reasonably foreseeable change in any of the key assumptions would result in an impairment of goodwill, given the margin by which the estimated recoverable amounts of the CGUs exceed the carrying amounts of the goodwill allocated to each.
b) Computer software
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.
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.
12. Property, plant and equipment
Equipment
Motor Fixtures and leasehold
vehicles and fittings improvements Total
GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 July 2015 60 2,092 7,342 9,494
Additions - 19 732 751
Disposals (27) - - (27)
At 30 June 2016 33 2,111 8,074 10,218
Additions - 52 840 892
Disposals (25) - - (25)
At 30 June 2017 8 2,163 8,914 11,085
---------- -------------- --------------- --------
Accumulated depreciation
At 1 July 2015 28 1,266 4,661 5,955
Disposals (15) - - (15)
Depreciation charge 9 232 728 969
At 30 June 2016 22 1,498 5,389 6,909
Disposals (16) - - (16)
Depreciation charge 2 196 791 989
At 30 June 2017 8 1,694 6,180 7,882
---------- -------------- --------------- --------
Net book value
At 1 July 2015 32 826 2,681 3,539
At 30 June 2016 11 613 2,685 3,309
---------- -------------- --------------- --------
At 30 June 2017 - 469 2,734 3,203
---------- -------------- --------------- --------
13. Available for sale financial assets
2017 2016
GBP'000 GBP'000
At beginning of year 1,715 1,532
Additions 5 500
Reclassification of loan (non-cash
transfer) 150 -
Net gain / (loss) from changes
in fair value 1 (6)
Accumulated loss on revaluation
reserve recycled 6 -
Disposals (1,219) -
Impairment loss - (311)
At end of year 658 1,715
-------- --------
At 1 July 2016, the Group held investments of 1,426,793.64 class B ordinary shares, representing an interest of 10.88% in Braemar Group PCC Limited Student Accommodation Cell ("Student Accommodation fund"); 750,000 zero dividend preference shares in GLI Finance Limited ("GLIF"), an AIM-listed company incorporated in Guernsey; and 500,000 redeemable preference shares in an unlisted company incorporated in the UK.
The Student Accommodation Fund was promoted by Brooks Macdonald Funds Limited, a subsidiary of the Company. In May 2017 the shareholders of the fund approved a resolution to sell the underlying property portfolio of the fund to a third party and in the year ended 30 June 2017 the shares were compulsorily redeemed by the fund. A gain of GBP13,000 was realised on receipt of the final redemption monies of GBP484,000. During the year, the Group also disposed of its holding in GLIF at a market value of GBP735,000, realising a loss of GBP9,000. The net gain of GBP4,000 has been recognised in the Consolidated Statement of Comprehensive Income for the year ended 30 June 2017 within realised gain on investments (note 3). In addition, accumulated losses of GBP6,000 in respect of GLIF were realised upon disposal and the revaluation reserve was recycled through Other Comprehensive Income.
During the year ended 30 June 2017, the Group acquired an offshore bond at a cost of GBP5,000. A revaluation gain due to a change in the fair market value of the bond of GBP3,000 was recognised within Other Comprehensive Income.
The Group also converted an existing loan of GBP150,000, issued by Brooks Macdonald Asset Management (International) Limited to a third party, into redeemable preference share capital during the year. The loan was previously included within trade and other receivables as a non-current asset and has been reclassified as an available for sale financial asset. The preference shares carry an entitlement to a fixed preferential dividend at a rate of 8% per annum.
In the year ended 30 June 2016 an impairment loss of GBP311,000 was recognised in relation to the investment in the Student Accommodation Fund, reflecting the permanent diminution in the net asset value of the fund. No impairment losses were recognised in the Consolidated Statement of Comprehensive Income during the year ended 30 June 2017.
The table below provides an analysis of the financial instruments that, subsequent to initial recognition, are measured at fair value. These are grouped into the following levels within the fair value hierarchy, based on the degree to which the inputs used to determine the fair value are observable:
-- Level 1 - derived from quoted prices in active markets for identical assets or liabilities at the measurement date;
-- Level 2 - derived from inputs other than quoted prices included within level 1 that are observable, either directly or indirectly; and
-- Level 3 - derived from inputs that are not based on observable market data.
Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2016 744 - 971 1,715
Additions - - 5 5
Reclassification of
loan (non cash transfer) - - 150 150
Net (loss) / gain from
changes in fair value (15) - 16 1
Revaluation reserve
recycled 6 - - 6
Disposals (735) - (484) (1,219)
At 30 June 2017 - - 658 658
-------- -------- -------- --------
Comprising:
Offshore bond - - 8 8
Unlisted redeemable
preference shares - - 650 650
Total - - 658 658
-------- -------- -------- --------
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.
A 1% reduction in the value of available for sale financial assets would result in a GBP7,000 reduction to total comprehensive income.
14. Investment in joint venture
Brooks Macdonald Funds Limited, a subsidiary of Brooks Macdonald Group plc, holds a 60% interest in North Row Capital LLP, a UK Limited Liability Partnership. The Group has joint control over the partnership, with the remaining interest owned by two individual partners who developed the investment approach behind the IFSL North Row Liquid Property Fund. The fund was launched in February 2014 and offers investors liquid exposure to global real estate markets.
2017 2016
GBP'000 GBP'000
At beginning of year 207 628
Working capital advanced in
the year 1 86
Impairment loss (163) (400)
Share of loss of joint venture (45) (107)
-------- --------
At end of year - 207
-------- --------
During the year ended 30 June 2017, the carrying amount of the Group's investment in North Row Capital LLP has been further reduced to an estimated recoverable amount of GBPnil by recognising an impairment loss of GBP163,000 (2016: GBP400,000) against the investment in joint venture. The expense is included within other gains and losses in the Condensed Consolidated Statement of Comprehensive Income. The impairment arose as the forecast future cash flows from the partnership were estimated to accumulate slower than originally anticipated and as a result the Group will not realise a return on its investment in the joint venture.
The partners decided to terminate the fund and the application was approved by the FCA on 17 March 2017. Clients were informed on 24 March 2017. Dealing within the Fund was suspended on 25 April 2017 and the final report and financial statements for the Fund are to be prepared by 30 September 2017.
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.
2017 2016
GBP'000 GBP'000
Deferred tax assets
Deferred tax assets to be settled
after more than 12 months 688 190
Deferred tax assets to be settled
within 12 months 583 361
-------- --------
Total deferred tax assets 1,271 551
-------- --------
Deferred tax liabilities
Deferred tax liabilities to
be settled after more than
12 months (3,415) (3,951)
Deferred tax liabilities to
be settled within 12 months - (84)
Total deferred tax liabilities (3,415) (4,035)
-------- --------
The gross movement on the deferred income tax account during the year was as follows:
2017 2016
GBP'000 GBP'000
At 1 July (3,484) (4,104)
Credit to the Statement of
Comprehensive Income 1,152 593
Credit recognised in equity 188 27
At 30 June (2,144) (3,484)
-------- --------
The change in deferred income tax assets and liabilities during the year was as follows:
Trading
losses
Share-based carried
payments forward Total
GBP'000 GBP'000 GBP'000
Deferred tax assets
At 1 July 2015 709 - 709
Charge to the Statement
of Comprehensive Income (185) - (185)
Charge to equity 27 - 27
------------ ========= ========
At 30 June 2016 551 - 551
Charge to the Statement
of Comprehensive Income 193 339 532
Charge to equity 188 - 188
------------ ========= ========
At 30 June 2017 932 339 1,271
------------ ========= ========
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 Intangible
capital asset
allowances amortisation Total
GBP'000 GBP'000 GBP'000
Deferred tax liabilities
At 1 July 2015 119 4,694 4,813
Credit to the Statement
of Comprehensive
Income (35) (743) (778)
============ ============== ========
At 30 June 2016 84 3,951 4,035
Credit to the Statement
of Comprehensive
Income (84) (536) (620)
At 30 June 2017 - 3,415 3,415
------------ -------------- --------
16. Trade and other receivables
2017 2016
GBP'000 GBP'000
Non-current assets
Loans receivable - 150
Total non-current trade and
other receivables - 150
-------- --------
Current assets
Trade receivables 1,723 5,939
Other receivables 1,187 2,518
Prepayments and accrued income 19,783 15,501
-------- --------
Total current trade and other
receivables 22,693 23,958
-------- --------
At 30 June 2016 there was a non-current loan receivable outstanding, issued by Brooks Macdonald Asset Management (International) Limited to a third party for GBP150,000. During the year the loan was converted into redeemable preference shares and has been re-classified as an available for sale financial asset (note 13).
17. Financial assets at fair value through profit or loss
2017 2016
GBP'000 GBP'000
At beginning of year 1,000 3
Additions - 1,000
Gain / (loss) from change in
fair value 185 (3)
At end of year 1,185 1,000
-------- --------
These investments are classified as Level 1 as defined in note 13.
18. Cash and cash equivalents
2017 2016
GBP'000 GBP'000
Cash at bank 32,128 19,437
Cash held in employee benefit
trust 55 41
Total cash and cash equivalents 32,183 19,478
-------- --------
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 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:
2017 2016
GBP'000 GBP'000
At 1 July 6,931 13,826
Finance cost of deferred consideration 263 577
Fair value adjustments (2,230) (3,571)
Payments made during the year (1,580) (3,901)
At 30 June 3,384 6,931
-------- --------
Analysed as:
Amounts falling due within
one year 1,664 1,641
Amounts falling due after more
than one year 1,720 5,290
-------- --------
Total deferred consideration 3,384 6,931
-------- --------
No additions to deferred consideration were recognised in the year. Payments totalling GBP1,580,000 (2016: GBP3,901,000) 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 reduction in the fair value of deferred consideration of GBP2,230,000 (2016: GBP3,571,000) was recognised during the year, all in respect of Levitas (2016: GBP3,343,000), 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. As forecast growth was not achieved during year, the FUM forecast was subsequently revised and the estimated future deferred consideration payments reduced accordingly. Adjustments made in the year ended 30 June 2016 also included a reduction in the fair value of the deferred consideration attributable to DPZ by GBP225,000 and to JPAM by GBP3,000, to the amount of the final payments made to the vendors. The deferred consideration relating to these acquisitions was fully paid as at 30 June 2016.
Deferred consideration is classified as Level 3 within the fair value hierarchy, as defined in note 13.
Amounts falling due after more than one year from the reporting date are presented in non-current liabilities as shown below:
2017 2016
GBP'000 GBP'000
At 1 July 5,290 9,442
Finance cost of deferred consideration 263 498
Fair value adjustments (2,230) (3,343)
Transfer to current liabilities (1,603) (1,307)
-------- --------
At 30 June 1,720 5,290
-------- --------
During the year, no deferred consideration was recognised on acquisitions. An amount of GBP1,603,000 (2016: GBP1,307,000), 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.
2017 2016
GBP'000 GBP'000
At 1 July 114 95
Additional liability in respect
of LTIS awards 51 76
Transfer to current liabilities (8) (57)
-------- --------
At 30 June 157 114
-------- --------
The additional liability was recognised during the year of GBP51,000 (2016: GBP76,000) in respect of existing LTIS awards, granted in previous years, that are expected to vest in the future. During the year, an amount of GBP8,000 (2016: GBP57,000) was transferred to current liabilities, reflecting awards that are expected to vest within the next 12 months.
21. Trade and other payables
2017 2016
GBP'000 GBP'000
Trade payables 3,025 4,870
Other taxes and social security 2,345 2,509
Other payables 361 219
Accruals and deferred income 15,438 11,246
-------- --------
Total trade and other payables 21,169 18,844
-------- --------
Included within accruals and deferred income in 2017 is an accrual of GBP366,000 (2016: GBP179,000) in respect of employer's National Insurance contributions arising from share option awards under the LTIS and an accrual of GBP307,000 (2016: GBPnil) in respect of redundancy costs relating to the closure of the Guernsey back office.
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 GBP228,000 (2016: GBP84,000).
22. Provisions
Exceptional
costs
of resolving
Client legacy Deferred
compensation matters consideration FSCS levy Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2015 701 - 4,384 389 5,474
Charge to the Statement
of Comprehensive
Income 125 - - 475 600
Finance cost of
deferred consideration - - 79 - 79
Fair value adjustments - - (228) - (228)
Transfer from non-current
liabilities - - 1,307 - 1,307
Utilised during
the year (153) - (3,901) (394) (4,448)
-------------- -------------- --------------- ---------- --------
At 30 June 2016 673 - 1,641 470 2,784
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
-------------- -------------- --------------- ---------- --------
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 GBP6,500,000 (2016: GBPnil) 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 2017 was GBP1,664,000 (2016: GBP1,641,000) and relates entirely to the Levitas acquisition. The amount of deferred consideration included within provisions is due to be settled in November 2017. 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 GBP1,603,000 (2016: GBP1,307,000) 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 GBP1,580,000 (2016: GBP3,901,000) were utilised during the year on payment of GBP1,580,000 to the vendors of Levitas (2016: GBP1,247,000 to the vendors of Levitas; GBP524,000 to the vendor of JPAM; and GBP2,130,000 to the vendors of DPZ).
d) FSCS levy
Following confirmation by the FSCS in April 2017 of its final industry levy for 2017/18, the Group has made a provision of GBP621,000 (2016: GBP470,000) for its estimated share. This includes a supplementary levy of GBP100,000 that is likely to be raised in January 2018.
23. Reconciliation of operating profit to net cash inflow from operating activities
2017 2016
GBP'000 GBP'000
Operating profit 8,282 16,482
Adjustments for:
Depreciation of property, plant
and equipment 989 969
(Gain) / Loss on sale of fixed
assets (4) 9
Gain on sale of available for
sale financial assets (4) -
Available for sale reserve
recycled 6 -
Amortisation of intangible
assets 3,863 2,674
Other gains and losses (266) (2,857)
Decrease / (increase) in receivables 1,265 (2,706)
Increase in payables 2,325 1,950
Increase in provisions 6,785 53
Increase in non-current liabilities 43 19
Share-based payments 1,237 943
-------- --------
Net cash inflow from operating
activities 24,521 17,536
-------- --------
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 2015 13,660,220 136 35,600 35,736
Shares issued:
- on exercise 215.0 -
of options 19,400 290.5 - 53 53
- to Sharesave 1,054.0
Scheme 29,550 - 1,386.0 1 344 345
At 30 June
2016 13,709,170 137 35,997 36,134
Shares issued:
- on exercise 290.5 -
of options 11,857 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
----------- --------- --------- --------
The total number of ordinary shares issued and fully paid at 30 June 2017 was 13,793,400 (2016: 13,709,170) with a par value of 1p per share.
Shares issued on exercise of options and to Sharesave Scheme members resulted in a GBP1,000 increase in share capital in the year ended 30 June 2017 (2016: 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 2017, the EBT held 243,465 (2016: 228,208) 1p ordinary shares in the Company, acquired for a total consideration of GBP3,816,000 (2016: GBP3,376,000) with a market value of GBP5,820,000 (2016: GBP3,774,000). 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:
2017 2016
GBP'000 GBP'000
Share option reserve 6,285 5,331
Merger reserve 192 192
Available for sale reserve 3 (6)
Total other reserves 6,480 5,517
-------- --------
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:
2017 2016
GBP'000 GBP'000
Share option reserve
At beginning of the year 5,331 4,909
Share-based payments 1,237 943
Transfer to retained earnings (724) (806)
Tax on share-based payments 441 285
-------- --------
At end of the year 6,285 5,331
-------- --------
Available for sale reserve
At beginning of the year (6) -
Revaluation of available for
sale financial assets 3 (6)
Recycling of reserve due to
impairment 6 -
At end of the year 3 (6)
-------- --------
The movements in retained earnings during the year were as follows:
2017 2016
GBP'000 GBP'000
At beginning of the year 41,357 33,327
Profit for the financial year 5,814 12,739
Purchase of own shares by Employee
Benefit Trust (786) (1,143)
Transfer from share option
reserve 724 806
Dividends paid (5,122) (4,372)
At end of the year 41,987 41,357
-------- --------
26. Events since the end of the year
Since the end of the financial year, the Group has agreed to dispose of the entire share capital of two subsidiary companies, Braemar Estates (Residential) Limited and Braemar Facilities Management Limited, to Rendall & Rittner Limited. The disposal exchanged on 20 September 2017 and is expected to complete on 1 December 2017. Consideration will comprise an initial amount payable on completion plus a deferred amount payable over a two-year period from the completion date.
Braemar Estates (Residential) Limited provides property management and advisory services and its subsidiary, Braemar Facilities Management Limited, provides on-site management services to some of the units managed by its parent. Both subsidiaries are included within the Funds and Property Management reporting segment (see note 1).
This information is provided by RNS
The company news service from the London Stock Exchange
END
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