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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% | 1,970.00 | 1,935.00 | 1,960.00 | 1,980.00 | 1,930.00 | 1,975.00 | 19,063 | 16:35:28 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Mgmt Invt Offices, Open-end | -52.92M | -64.45M | -3.9624 | -4.88 | 314.72M |
From May 2019 to May 2024
TIDMBRK
RNS Number : 2332Z
Brooks Macdonald Group PLC
17 September 2020
17 September 2020
BROOKS MACDONALD GROUP PLC
Final results for the year ended 30 June 2020
Strong financial performance with record revenue, profit and margin
Now a more robust business, confident and ambitious, ready to move on to the next stage of our strategy
Brooks Macdonald Group plc ("Brooks Macdonald" or "the Group") today announces its audited results for the year ended 30 June 2020.
Hot Features
Premium
Year ended Year ended Change
30.06.2020 30.06.2019(1)
Total discretionary funds under
management ("FUM") continuing operations GBP13.7bn GBP13.1bn 4.1%
Revenue, continuing operations GBP108.6m GBP105.7m 2.7%
Underlying results(2)
Underlying profit before tax GBP23.0m GBP20.7m 11.1% Underlying profit margin 21.2% 19.6% +1.6ppt Underlying earnings per share 123.7p 123.5p 0.2%
Statutory results
Statutory profit before tax GBP10.0m GBP7.9m 26.6% Statutory earnings per share 43.1p 42.6p 1.2% Net cash GBP50.2m GBP34.6m 45.1%
Dividends
Proposed final dividend 32.0p 32.0p - Total dividend 53.0p 51.0p 3.9%
1 Comparative figures have been restated to reflect the correct recognition of the Authorised Corporate Director fees and associated costs in respect of one of the Group's managed OEICs and the correct VAT treatment on the fees recognised on the Managed Portfolio Service offered through third party platforms as detailed in the Financial review.
2 The underlying figures represent the results for the Group's continuing activities excluding certain adjusting items as listed in the Financial review. These represent an alternative performance measure for the Group. A reconciliation between the Group's statutory and underlying profit before tax is also included in the Financial review.
Caroline Connellan, CEO of Brooks Macdonald, commented:
"I am delighted with our strong financial performance and the continued disciplined execution of our strategy, particularly given the context of a challenging year with the unprecedented backdrop of COVID-19. We increased our profit margin, delivered record revenue and underlying profit, and announced two high-quality acquisitions. This has been made possible by the actions we have taken over recent years as well as our "protect to thrive" approach through COVID-19, allowing us to operate successfully in this uncertain and ever-changing world. I would like to thank the advisers we work with, and our clients, for their continued support and our people for their dedication and hard work.
"We are now nearing the completion of the strategy we announced in 2017, having done what we said we would do and delivered the outcomes we promised. We are now a more robust business, confident in our vision for Brooks Macdonald as the leading investment manager for intermediaries, leveraging our strengths. We are working to deliver best-in-class adviser experience and client service levels, to complement our compelling investment proposition and robust investment performance.
"The short-term outlook is uncertain, driven by both the progress of the pandemic and events surrounding Brexit. Nonetheless, the fundamental opportunity for Brooks Macdonald remains strong, we are uniquely positioned in the market and confident about what the future holds."
Financial highlights
-- Underlying profit margin up from 19.6% to 21.2%, in line with the Group's commitment to increase profit margin in the medium term
-- Record Group revenue of GBP108.6m, underlying profit of GBP23.0m, and year-end FUM of GBP13.7bn
-- Strong overall investment performance for the financial year to 30 June of 1.0%, protecting our clients' wealth in volatile markets, well ahead of the MSCI PIMFA Private Investor Balanced Index which declined by 3.5% over the same period
-- Improved underlying profit in all three segments, including International which is delivering increased momentum in its profitability
-- Total dividend increased by 3.9% to 53.0p (FY19: 51.0p) reflecting the Board's continued confidence in the strength of the underlying business and commitment to a progressive dividend policy, and continuing the Group's record of increasing the dividend every year since beginning trading on AIM in 2005
-- Committed to delivering top quartile underlying profit margin over the medium term
Strategic progress
-- Nearing completion of the strategy announced in 2017, to deliver improved returns from a sustainable and scalable business, achieving year-on-year improvements in profit margin:
o Reinforced the foundations of the business, exiting non-core activities
o Improved our proposition, launching Responsible Investment and Decumulation services, and invested in our people and infrastructure
o Increased efficiency and effectiveness, through cost discipline, process improvement and centralisation of client operations
o Complemented our organic growth strategy by announcing two high-quality acquisitions, both meeting the Group's strict acquisition criteria - strong businesses, good strategic and cultural fit, high levels of EPS accretion
-- Been through a period of change, emerging a more robust business ready to capitalise on the significant growth opportunities we see ahead
-- Moving to a new stage of our strategy, based on our vision for Brooks Macdonald as the leading investment manager for intermediaries, with best-in-class adviser experience and client service levels, complemented by our robust Centralised Investment Process and compelling investment proposition
-- Committed to driving value creation through organic growth, service and operational excellence and further selective high-quality acquisitions
-- Strategy enabled by our people and culture, focused on attracting, engaging and retaining the best talent in the industry
-- In advanced discussions on a partnership agreement with a leading wealth management technology and services provider to support the transformation of the adviser experience and client service levels.
Conference call and investor presentation details
There will be a presentation for analysts and investors at 9:30am today via webcast and conference call. For details please contact MHP Communications on +44 (0)20 3128 8147 or r.collett-creedy@mhpc.com
Presentation slides will be available from 7:00 a.m. today by going to the Investor Relations section of Brooks Macdonald's website using the following link:
https://www.brooksmacdonald.com/investor-relations
Enquiries to:
Brooks Macdonald Group plc Caroline Connellan, CEO Ben Thorpe, Group Finance Director 020 7659 3492 Peel Hunt LLP (Nominated Adviser and Broker) Adrian Trimmings / Rishi Shah / John Welch 020 7418 8900 MHP Communications 020 3128 8540 Reg Hoare / Simon Hockridge / Charlie Barker brooks@mhpc.com
Notes to editors
Brooks Macdonald Group plc, through its various subsidiaries, provides leading investment management services in the UK and internationally. The Group, which was founded in 1991 and began trading on AIM in 2005, had Discretionary Funds under Management of GBP13.7 billion as at 30 June 2020.
Brooks Macdonald offers a range of investment management services to private high net worth individuals, pension funds, institutions, charities and trusts. The Group also provides financial planning as well as offshore investment management and acts as fund manager to two regulated OEICs (the IFSL Brooks Macdonald Fund and the SVS Cornelian Investment Funds) providing a range of risk-managed multi-asset funds and a specialised absolute return fund.
The Group has twelve offices across the UK and the Channel Islands including London, East Anglia, Hampshire, Leamington Spa, Leeds, Manchester, Taunton, Tunbridge Wells, Scotland, Wales, Jersey and Guernsey.
www.brooksmacdonald.com / @BrooksMacdonald
LEI: 213800WRDF8LB8MIEX37
Chairman's statement
Introduction
I am pleased to report that, despite the challenging backdrop of continued Brexit uncertainty in the first half of our financial year, and then the COVID-19 pandemic in the second half, Brooks Macdonald has had another strong year. The Group has delivered further improvement in underlying profit and underlying profit margin in line with our medium-term commitments. Strong investment performance in extremely volatile markets and our acquisition of Cornelian Asset Managers resulted in us finishing the year with a new record closing FUM figure of GBP13.7 billion. This was despite the impact on client sentiment of ongoing macroeconomic uncertainty and outflows of mainly lower margin business as a result of the Group's focus on business quality.
Caroline Connellan and her team have continued their disciplined execution of the Group's strategy with a highlight being the announcement of two acquisitions meeting our strict criteria - first Cornelian in November and then Lloyds Banking Group's Channel Islands wealth management and funds business in June, complementing our organic growth strategy.
Our Centralised Investment Process continues to deliver robust performance particularly through the more recent volatile markets, underpinning our mission to protect and enhance our clients' wealth. Overall investment performance of 1.0% for the financial year to June was well ahead of the MSCI PIMFA Private Investor Balanced Index which declined by 3.5% over the same period.
The Group and our people responded well to the pandemic and the lockdown, moving quickly and smoothly to working remotely, leveraging our flexible working policies and the strong infrastructure we already had in place. Caroline prioritised the wellbeing and safety of our people while ensuring that the Group was able to support advisers and clients in volatile markets, for example increasing the frequency of contact with regular webinars and investment bulletins.
While the pandemic raised challenges, it also creates opportunities for firms willing to be positive in their actions, as with our Lloyds Channel Islands acquisition. Brooks Macdonald emerged from the lockdown a stronger organisation, well placed to take advantage of opportunities as they arise.
Delivering our strategy
We are now nearing completion of the strategy announced in 2017, having done what we said we would do and delivered the promised outcomes. We reinforced the foundations of the business, upgrading our risk management and operational framework and strengthening senior management. We increased the value of the business by enhancing what we do and how we do it, delivering the improvement in margin we had committed. We maintained focus on our clients and advisers, including revamping and launching a series of new offerings, including Court of Protection, Responsible Investment Service and Decumulation.
We drove greater efficiency and effectiveness, particularly with the changes in processes, centralisation of our client operations and headcount reduction announced in January 2019. We used the savings to invest in our talent and capabilities, with a number of key hires and development programmes at leadership and management levels, and in improvements in our digital infrastructure.
We are now moving into a new stage of our strategy, where we look to deliver further improvements in returns, building on the sustainable and scalable business model we are putting in place. Our vision for Brooks Macdonald is as the leading investment manager for intermediaries and we will work with our adviser network - present and future - to ensure we understand what they need from us.
A core element of our strategy will be to transform our adviser experience and client service levels. We are working with a leading wealth management technology and service company to deliver this transformation and we are close to agreement on a partnership, which will include material upgrade of our investment administration and operations activities.
We will look to create further value for shareholders through continued organic growth, service and operational excellence, and selective high-quality acquisitions. This will be underpinned by actions to further improve our successful Centralised Investment Process, to add to our investment proposition, and to deliver market-leading adviser experience and levels of client service. This will be complemented by a continuing focus on our people and on the culture of the firm, underpinned by our Guiding Principles.
Performance overview
The Group continues to make strong progress - our funds under management increased during the financial year from GBP13.1 billion to GBP13.7 billion, an increase of 4.1%. Our revenue growth was 2.7%, bringing the full year total to GBP108.6 million, a new high for the Group, despite the impact of lower markets at the end of our third quarter driven by the pandemic. We maintained our cost discipline, putting us in a strong position to deal with the uncertain environment. The increase in underlying profit before tax, of 11.1%, is ahead of both FUM and revenue growth, resulting in a figure of GBP23.0 million (FY19: GBP20.7 million).
Statutory profit before tax rose 26.6% to GBP10.0 million (FY19: GBP7.9 million). Statutory diluted EPS from continuing operations rose 1.2% to 43.1p (FY19: 42.6p), with growth constrained by the issue of 2.1 million ordinary shares in relation to the Cornelian acquisition.
Dividend
The Board has recommended a final dividend of 32.0p (FY19: 32.0p) which, subject to approval by shareholders at the AGM, will result in total dividends for the year of 53.0p (FY19: 51.0p). This represents an increase of 3.9% on the previous year and reaffirms the Board's confidence in the strength of the business even in the context of the COVID-19 pandemic, and our commitment to a progressive dividend policy. The final dividend will be paid on 6 November 2020 to shareholders on the register at the close of business on 25 September 2020.
Board changes
There have been several changes to the Board during the financial year and in the post-close period. Colin Harris had completed 9 years' service and therefore, in line with the UK Corporate Governance Code, did not seek re-election at last year's Annual General Meeting. He left the Board with effect from 31 October 2019. On 1 May 2020, we announced that David Stewart was taking up the role of CEO of LSL Property Services plc and would accordingly leave the Group Board on 31 July 2020. I thank Colin and David for their contributions to the Group.
On 9 June 2020 we announced that Dagmar Kershaw would join the Board with effect from 1 July 2020. On 16 July 2020 we announced the appointment of Robert Burgess effective 1 August 2020. We welcome Dagmar and Robert to the Board.
Governance and regulatory
The Group follows the UK Corporate Governance Code and this is our first full year of reporting against the 2018 Code. We have continued to keep abreast of regulatory change, where the major activity this year was the implementation of the Senior Managers and Certification Regime ("SM&CR") which went live on 9 December 2019. We also continued to embed the changes related to MiFID II and GDPR. The Group maintained high standards of compliance throughout the lockdown period.
Looking ahead
The macroeconomic outlook is highly uncertain in the short term, given the pandemic and the continuing negotiations on our post-Brexit relations with the EU, which will both have an impact on the economy, markets and client sentiment. We are positive that the fundamental opportunity for Brooks Macdonald remains strong, driven by demographic and policy trends as well as increasing adviser demand for outsourced investment management, where we will continue to work to be the partner of choice. The Group continues to have a strong balance sheet and supportive shareholders. I am confident that we will continue to create value for both shareholders and other stakeholders through organic growth, service and operational excellence, alongside selective high quality acquisitions.
Alan Carruthers
Chairman
16 September 2020
CEO's review
Introduction
I am delighted with what we have achieved this year ("FY20") in both financial performance and strategy delivery. We have continued to execute our strategy with discipline and rigour, not only taking the actions we said we would, but also achieving the outcomes we promised, including the continuing improvement in our underlying profit margin. In parallel, we delivered robust investment performance, despite volatile markets, protecting our clients' wealth.
These have been unprecedented times with the impact of Brexit and then the COVID-19 pandemic causing widespread disruption and anxiety. Many have been affected by the recent uncertainty and, throughout, our priority has been to support our people and deliver for advisers and clients. When the COVID-19 pandemic led to lockdown, our flexible working approach and adaptable technology setup meant we were able to move to a remote working model seamlessly. We significantly increased our focus on the health and wellbeing of our people, providing reassurance and stability, allowing us to continue to operate at our best for those we serve in this uncertain and ever-changing world.
Given the challenges we have all faced, I would like to thank the advisers we work with and our clients for their continuing support, which we do not take for granted. I also want to thank all the people who work for Brooks Macdonald. What we have achieved over the past year has only been possible because of their continued passion, commitment and hard work - regardless of whether that work was in one of our offices or at home during lockdown. I am hugely grateful for all that they have done and continue to do.
As we move into a new stage of our strategy, I am confident that the actions we have taken over recent times have resulted in a more robust business, and I am excited by the potential for Brooks Macdonald going forward. We have a bold vision for Brooks Macdonald as the leading investment manager for intermediaries, leveraging our strengths and unique position in the market.
Delivering our strategy
Our current strategy was agreed by the Board in November 2017 to deliver improved returns from a sustainable and scalable business. Since then, through each phase, we have done what we said we would do - reinforcing the foundations of the business, improving our proposition for advisers and clients, increasing efficiency and effectiveness, and investing in our people and our infrastructure. We have delivered improving underlying profit and profit margins year-on-year and, in the last 9 months, we have complemented our organic growth strategy with two high-quality, value-enhancing acquisitions.
As we near completion of the strategy we laid out in 2017, what we have delivered has made Brooks Macdonald a more robust business. We have been through a period of change to set the business up for the future and in parallel have delivered strong financial performance. Despite the near-term external headwinds, we are ready to capitalise on the significant growth opportunities we see ahead.
We are now pivoting from a focus on preserving value towards value creation, moving into a new ambitious stage of our strategy. We look forward with confidence, building on what we have delivered over the past three years and leveraging our strengths, with our vision of Brooks Macdonald as the leading investment manager for intermediaries. To enable this, a core element of our strategy, alongside our robust Centralised Investment Process and our compelling investment proposition, is to transform our adviser experience and client service levels to be best in class. Our digital experience for advisers and clients - complementing our face-to-face relationships - will be market-leading, including automated onboarding, full adviser and client portal functionality, and bespoke reporting. We are working with a leading wealth management technology and services company to deliver this transformation and we are close to agreement on a partnership to materially upgrade our operations activities.
Continuing the trajectory of the improving financial results we have delivered over the last three years, we will aim for top quartile underlying profit margin over the medium term. We are committed to driving value creation through a return to organic growth, market-leading service and operational excellence, and further selective high-quality acquisitions.
Financial performance
FY20 was another year of strong financial performance for Brooks Macdonald. We increased our underlying profit margin, up 1.6 points to 21.2% (FY19: 19.6%), in line with our commitment. We also delivered record revenue and underlying profit levels of GBP108.6m and GBP23.0m respectively (FY19: GBP105.7m and GBP20.7m respectively).
Our year-end closing FUM reached a new high, up 4.1% to GBP13.7bn (FY19: GBP13.1bn), driven by GBP1.2 billion from the acquisition of Cornelian Asset Managers and GBP0.1 billion in investment performance which was partially offset by GBP0.8 billion of net outflows, related to the Group's focus on business quality and the proactive actions we took to position the business for future success.
Revenue grew by 2.7% to GBP108.6 million (FY19: GBP105.7 million), and underlying profit before tax by 11.1% to GBP23.0 million (FY19: GBP20.7 million). Statutory profit before tax was also up strongly, increasing 26.6% from GBP7.9 million to GBP10.0 million. A full reconciliation of underlying and statutory profit is given in the Financial review.
We also announced two high-quality and value-enhancing acquisitions - Cornelian, announced in November and completed in February, and the Channel Islands wealth management and funds business of Lloyds Banking Group, which we announced in June and expect to complete before the end of the calendar year.
Despite the challenging headwinds and reflecting the strength of the Group today, we took a "protect to thrive" approach through COVID-19 making the health and wellbeing of our people our first priority, while providing reassurance to our advisers and clients (see Our response to COVID-19 after the CEO's review) and continuing to deliver against our strategic priorities. Our approach has allowed us to operate successfully and we are emerging as a stronger organisation, excited and optimistic about what the future holds.
Investment performance and market conditions
Our investment performance through FY20 was strong, at 1.0% compared to a decline of 3.5% in the MSCI PIMFA Private Investor Balanced Index. This maintained our position of being ahead of ARC benchmarks for almost all risk profiles over 1, 3, 5 and 10 years.
Investment performance in FY20 was all the more creditable given the exceptionally difficult markets, with Brexit uncertainty in the first half being replaced by the COVID-19 pandemic in the second.
This has further demonstrated the value of active investment management in protecting our clients' wealth in difficult times.
During the first half of the financial year markets were broadly constructive but with bouts of instability around Brexit deadlines, Sino-US relations and a German manufacturing slump.
This environment was disrupted by the rise of COVID-19 which led to widespread volatility in financial markets and the economy. After the March lows, the rebound in equities has been driven by three factors: the relative attraction of equities versus the low yields of safe haven assets, investors looking ahead to greener economic pastures and ultra-accommodative global monetary and fiscal policy which is expected to supercharge the recovery.
Both anecdotally via investor surveys, and looking at money market fund AUM, there is significant investor cash still on the side-lines and we believe the desire to achieve a positive real yield will drive reallocations into equities helping to support valuations.
Review of business performance
Robin Eggar took over as sole Head of UK Investment Management ("UKIM"), our largest and most profitable business, in January 2020. He and his team have continued to deliver for advisers and clients across the UK, supporting an increase in underlying profit. The enhancements we have made in our offering have delivered positive organic flows in our specialised Bespoke Portfolio Service ("BPS") variants - Court of Protection, Responsible Investment Service, and Decumulation - and in our Managed Portfolio Service ("MPS"), particularly our relaunched Platform MPS, as well as initial traction in our business-to-business BM Investment Solutions offering. Overall, we saw good momentum in inflows, growing through the last three quarters of the year, with full year inflows holding up well, at over 90% of FY19 levels.
This achievement was despite a weakening in net flows in BPS and Funds which were affected by the impact on client sentiment of ongoing macroeconomic uncertainty and outflows of mainly lower margin business as a result of the Group's focus on business quality and actions taken to position the business for future success. As examples, during the year we moved our office from York to Leeds, to access a larger group of advisers and greater pools of wealth, and the Group's investment management agreement for the Grosvenor Consulting funds was terminated.
The mandate came to an end when we were unable to reach a satisfactory commercial arrangement with Grosvenor for the purchase of the sponsorship company attached to the funds. This accounted for GBP244 million of FUM corresponding to annualised revenues of circa GBP0.6 million.
Andrew Shepherd continued to lead the reinvigoration of our International business, evidenced by improving commercial performance, and reinforced by the announcement in June of the acquisition of Lloyds Banking Group's Channel Islands wealth management and funds business. In FY20, robust investment performance did not fully offset improving albeit slightly negative net flows, resulting in an overall FUM decline of 1.6%. International improved its underlying profit margin to 18.7% and the team has a clear plan to bring margins to UKIM levels in the medium term, with progress toward that target accelerated by the Lloyds transaction.
Financial Planning, our in-house Independent Financial Adviser, made good progress in its restructuring under the leadership of Adrian Keane-Munday. In FY20, he and his team succeeded in materially reducing its underlying loss margin and they continue to see a positive client response to the changes they are making.
Client need and demand for financial advice and high-quality investment management remains strong, driven by underlying demographics and increasing policy onus on the individual to save for retirement. We continue to see a strong opportunity both to build relationships with more advisers and to extend our relationships with our current advisers, thereby returning over time to strong organic net flows. Our confidence in the opportunity is based both on feedback from the advisers in our network and from broader survey data which show more advisers planning to outsource and those who already do, planning to outsource more.
People
We have continued to invest in our people throughout the year, supporting the talent we have in the business and bringing in new high-quality hires. We aim to attract and retain the best talent in the industry, and, over the year, we have taken on key hires across our adviser and client facing teams and built further functional capability. We have continued to hire through lockdown with over 30 hires joining us since March. Notably, Lynsey Cross, formerly COO of Amtrust International and CEO of specialist insurer ANV Group before that, was fully onboarded to the Group remotely as Chief Operating Officer, effective 1 May 2020.
While we are always looking for individuals who complement our current skills, today we have a full and talented team in place to deliver our strategy. The teams across our business represent a powerful mix of those with long-standing Brooks Macdonald experience and those who have joined us more recently, with fresh ideas and different expertise.
We communicate frequently with our people and also gather their feedback through town halls, more informal sessions and Group-wide employee engagement surveys. It is pleasing to see that the focus we have put on our people agenda has led to a significant increase in engagement metrics over the year. As a result, we are emerging from lockdown with stronger engagement, creating a stronger organisation, better able to capture the opportunities ahead.
Outlook
We have executed our strategy with discipline over the past three years, and Brooks Macdonald is now a more robust business for it, ambitious for the future. I am excited by our bold vision for the company as the leading investment manager for intermediaries. We are uniquely positioned with our focus on advisers and trustees, and we will leverage our strengths in this area. We will build on our success to date - driving organic growth, ensuring service and operational excellence, particularly through our planned partnership to transform the adviser experience and client service levels, and seeking selective high-quality acquisitions. We will also continue to deliver strong financial performance with improving margins.
The fundamental potential for Brooks Macdonald remains strong, despite the short-term headwinds and impact on client sentiment from both the pandemic and renewed Brexit uncertainty. The disruption caused by COVID-19 has reinforced the importance of high-quality financial advice and investment management and we are well positioned to help clients, and advisers, realise their ambitions and secure their futures. The disruption has created a window of opportunity for bold strategic moves, we have a strong team and are well positioned for the future.
I would like to finish by reiterating my thanks to the advisers we work with and our clients for their continuing support, as well as to our people. It has been a year of many challenges, but also many positives, and we are emerging stronger from lockdown. I look forward with confidence to what we can achieve together.
Caroline Connellan
CEO
16 September 2020
Our response to COVID-19
Since mid-March, the COVID-19 pandemic has caused widespread disruption. Our response was to adopt a "protect to thrive" approach, making the health and wellbeing of our people our first priority, while reassuring advisers and clients. This enabled us to move seamlessly to remote working and to continue to deliver for our advisers and clients in volatile markets. We stepped up our support with more frequent contact, particularly aimed at advisers, including daily investment bulletins and regular webinars on thematic topics relevant to investing in such an unprecedented economic environment. We continued active management of client portfolios and again delivered robust investment performance, protecting our clients' wealth.
Our "protect to thrive" approach included a commitment during lockdown of no redundancies and no furlough. We had frequent communication with our people including regular wellbeing "pulse" surveys to track how they were feeling, which allowed us to understand what was important to them, and respond to their needs and concerns, getting positive feedback. Our pre-existing flexible working approach and robust technology support for working outside the office meant we had comprehensive homeworking capabilities from day one of lockdown. Throughout the pandemic we have worked as close to normal as possible.
Alongside the challenges, the pandemic has also created opportunities. We have been able to move to a different approach to engage with advisers and clients - more virtual and more frequent - which has worked well. We have fast-tracked a number of process improvements and reduced our reliance on paper with increasing use of digital. Looking forward, we believe the disruption caused by the pandemic is creating opportunities for players willing to do things differently.
Since the financial year end, we have started reopening our offices reflecting our desire, as a relationship business, to start bringing our people together again and, in time, to meet face to face with advisers and clients. We have worked hard to ensure our workplaces are safe and are encouraging our teams, where appropriate, to start returning to the office while still benefitting from the flexibility of home working. Enabling a balance of office and home working allows us to move forward in a way that is right for our people, to perform as a business, and to play our part in helping the economy to recover.
Our strategy
We are nearing completion of the strategy we announced in 2017. We have done what we said we would do and delivered the promised outcomes. Now we are moving into a new stage of our strategy, pivoting from value preservation to value creation.
We have done what we said we would do
We reinforced the foundations of the business and took immediate actions to improve profit margins. We exited non-core businesses and upgraded our risk and operational management framework. We strengthened the senior management, both by developing and promoting internal talent and by bringing in key hires, particularly in the functional and back office areas to complement the existing adviser- and client-facing expertise. We tightened cost discipline and launched a comprehensive people strategy aimed at attracting and retaining the best people in industry.
We maintained and strengthened the business's focus on our clients and advisers, with propositions like our new Decumulation and Responsible Investment Service and our revamped Court of Protection offering.
We also started considering selective, high-quality acquisitions to complement our organic growth. We established strict criteria for acquisitions - quality businesses, good strategic and cultural fit, and compelling economics - and announced two excellent deals meeting these criteria. We announced the acquisition of Cornelian Asset Managers, the Edinburgh-based investment manager, in November and completed the acquisition in February. Integration is now largely complete. Then in June we announced the acquisition of Lloyds Banking Group's Channel Islands wealth management and funds business, supporting the reinvigoration of our International business.
Objectives of Phase 2
of 2017 strategy Progress in FY20
----------------------------- -------------------------------------------------------------
Maintaining focus on
clients and advisers * Through the pandemic and the lockdown, continued to
deliver for our advisers and clients. Stepped up the
frequency of support contact, from daily investment
briefings to regular webinars covering important
investment topics
* Increased focus on providing Investment Solutions for
advisers who are looking for solutions tailored to
their needs and preferences. Appointed an Investment
Solutions Director to lead the effort
----------------------------- -------------------------------------------------------------
Efficiency and effectiveness,
easier to do business * Continued improving client and investment
with administration and operations processes, new
centralised Client Operations team
* Implemented new client portal, myBM
----------------------------- -------------------------------------------------------------
Targeted investment
* Invested in technology upgrades, e.g. cyber security
* Rolled out infrastructure and staff support, which
enabled remote working to work smoothly
* Funded two acquisitions in the year with support of
shareholders
* Invested in people, both through development of our
existing talent and bringing in
* selective high-quality hires
----------------------------- -------------------------------------------------------------
Looking forward
Our vision for Brooks Macdonald is as the leading investment manager for intermediaries. A core element of that will be to transform our adviser experience and client service levels. As part of this, the digital experience delivered for advisers and clients - complementing our face-to-face relationships - will be market-leading with, for example, automated onboarding, full adviser and client portal functionality, and bespoke reporting. We are working with a leading wealth management technology and service company to deliver this transformation and we are close to agreement on a partnership to materially upgrade our operations activities.
In parallel, we will maintain and enhance our robust Centralised Investment Process, delivering consistent strong investment returns for clients. We will continue to seek new opportunities for growth, looking to grow FUM organically with new segments and partnerships, further adding to our compelling overall investment proposition. We have added specialised products to our Bespoke Portfolio Service and we are broadening and deepening our offering in model portfolios, funds and unitised solutions, and in our business-to-business Investment Solutions offering, where we tailor our products and services to the needs and requirements of advisers.
Our go-forward value creation strategy has been approved by the Board, and is based on the three value drivers of strong organic growth, driving towards service and operational excellence, and selective high-quality acquisitions. We will deliver further improvements in returns, building on the sustainable and scalable business model we are putting in place.
Organic growth
-- Maintain and enhance our Centralised Investment Process, delivering consistent investment returns for clients
-- Continue to add to our compelling investment proposition in specialised bespoke portfolios, model portfolios and fund/unitised solutions, and in business-to-business solutions for advisers, all supported by a high-impact Take To Market strategy
-- Deliver market-leading adviser experience and client service levels, through our planned partnership with world-class wealth management technology and service company, and related improvements
Service and operational excellence
-- Continue high levels of cost discipline, freeing up investment into service differentiators -- Complete roll-out of new client administration processes -- Benefit from efficiencies of new technology and services partnership
Selective high-quality acquisitions
-- Criteria are high-quality businesses, good strategic and cultural fit, compelling economics -- Leverage the scalability of the platform we are putting in place
This is all underpinned by our investment in people and culture with the objective of attracting, engaging and retaining the best talent in the industry.
Financial review
Review of results for the year
The Group had a strong year, delivering record income and underlying profit against the backdrop of political and macroeconomic uncertainty pre-Christmas, which was then further exacerbated by the market disruption caused by the outbreak of the COVID-19 pandemic. Our disciplined approach to the management of the firm's financial resources means we entered the crisis well placed and the payment of the interim dividend in April 2020, reaffirmed the resilience of our business model and our confidence in the future opportunity. This disciplined management, combined with the successful acquisition and integration of Cornelian have led to the delivery of both record profits and an improved underlying profit margin, which increased from 19.6% to 21.2%.
The table below shows the Group's financial performance for the year ended 30 June 2020 with comparative periods and provides a reconciliation between the underlying results, which the Board considers to be a more appropriate reflection of the Group's performance, and the statutory results. A breakdown of the underlying adjustments is shown further down in the Financial review.
Group financial results summary
FY20 FY19 Change
restated
GBPm GBPm %
------------------------------------------------------- ------ ---------- -------
Revenue 108.6 105.7 2.7
Fixed staff costs (39.8) (37.1) 7.3
Variable staff costs (10.8) (15.5) (30.3)
------------------------------------------------------- ------ ---------- -------
Total staff costs (50.6) (52.6) (3.8)
FSCS levy (2.2) (1.2) 83.3
Non-staff costs (32.8) (31.2) 5.1
------------------------------------------------------- ------ ---------- -------
Total non-staff costs (35.0) (32.4) 8.0
------------------------------------------------------- ------ ---------- -------
Total underlying costs (85.6) (85.0) 0.7
------------------------------------------------------- ------ ---------- -------
Underlying profit before tax 23.0 20.7 11.1
Underlying adjustments (13.0) (12.4) 4.8
------------------------------------------------------- ------ ---------- -------
Statutory profit before tax from continuing operations 10.0 8.3 20.5
Loss from discontinued operations - (0.4) (100.0)
------------------------------------------------------- ------ ---------- -------
Statutory profit before tax 10.0 7.9 26.6
Taxation (3.6) (2.4) 50.0
------------------------------------------------------- ------ ---------- -------
Statutory profit after tax 6.4 5.5 16.4
------------------------------------------------------- ------ ---------- -------
Underlying profit margin before tax 21.2% 19.6% 1.6ppt
Underlying diluted earnings per share 123.7p 123.5p 0.2
Statutory profit margin before tax from continuing
operations 9.2% 7.9% 1.3ppt
Statutory profit margin before tax 9.2% 7.5% 1.7ppt
Statutory diluted earnings per share from continuing
operations 43.1p 42.6p 1.2
Dividends per share 53.0p 51.0p 3.9
------------------------------------------------------- ------ ---------- -------
Restatement of comparative figures
The Group's results for FY19 have been restated in respect of the following two matters which have come to light during the finalisation of the Group's results for the year ended 30 June 2020 which have been reflected in the Consolidated financial statements. These are explained in brief below and further details provided in Note 4 to the Consolidated financial statements.
ACD fees and associated costs
FY19 figures have been restated in respect of the recognition of the Authorised Corporate Director ("ACD") fees and associated costs for one of the regulated OEICs managed by the Group. In prior years these were recognised on a grossed-up basis in revenue and non-staff costs respectively. During FY20, the accounting was corrected to only recognise the investment management fees due to the Group from the ACD under the Investment Management Agreements. This adjustment has no impact on the underlying and statutory profits before tax.
VAT on Platform MPS
The Group has been undergoing a review of its Managed Portfolio Service ("MPS"), with a view to seeking a ruling from HMRC that MPS is not subject to VAT. When conducting this review, it was noted that the fees received on MPS offered through third party platforms (Platform MPS) were in part not being correctly accounted for and historically treated as exempt from VAT. As a result, income derived from this service was overstated, the VAT liability arising on the fees collected was understated and consequently the Group has under-recovered its entitlement to input VAT credit. Since previously reported revenue from Platform MPS was overstated, it was concluded that the error required correction in the Consolidated financial statements. Accordingly, the Group recognised a prior year adjustment of GBP0.4 million in respect of FY17 and FY18 and restated the results for FY19 by GBP0.3 million.
Revenue
The Group's total revenue for FY20 increased by 2.7% to GBP108.6 million (Restated FY19: GBP105.7 million). This was driven by higher average FUM levels, particularly in H1 and the contribution from the Cornelian activities during the latter four months of the year (GBP3.1 million). FUM related revenue increased by 2.4% in line with the increase in average FUM on the quarterly billing dates. The overall yield remained stable at 79.2bps. Non-FUM related revenue increased by 8.1% to GBP6.7 million (FY19 GBP6.2 million) due to higher levels of third party-administration fees.
Revenue, yields and average FUM
Revenue Yield Average FUM
-------------------- ------------------- ----------------------
FY20 FY19 Change FY20 FY19 Change FY20 FY19 Change
GBPm GBPm % bps bps % GBPm GBPm %
-------------------------- ----- ----- ------ ---- ----- ------ ------ ------ ------
BPS fees 53.2 53.0 0.4 67.9 67.5 0.6
BPS non-fees 18.8 18.3 2.7 24.1 23.4 3.0
-------------------------- ----- ----- ------ ---- ----- ------ ------ ------ ------
Total BPS 72.0 71.3 1.0 92.0 90.9 1.2 7,830 7,847 (0.2)
MPS 8.0 7.8 2.6 46.8 48.9 (4.3) 1,709 1,596 7.1
-------------------------- ----- ----- ------ ---- ----- ------ ------ ------ ------
UKIM discretionary 80.0 79.1 1.1 83.9 83.8 0.1 9,539 9,443 1.0
Funds 6.4 6.9 (7.2) 47.7 45.0 6.0 1,341 1,534 (12.6)
-------------------------- ----- ----- ------ ---- ----- ------ ------ ------ ------
Total UKIM excluding
Cornelian 86.4 86.0 0.5 79.4 78.3 1.4 10,880 10,977 (0.9)
Cornelian(1) 3.1 - - 73.8 - - 420 - -
-------------------------- ----- ----- ------ ---- ----- ------ ------ ------ ------
Total UKIM including
Cornelian 89.5 86.0 4.1 79.2 78.3 1.1 11,300 10,977 2.9
International 12.4 13.5 (8.1) 79.0 85.0 (7.1) 1,569 1,589 (1.3)
-------------------------- ----- ----- ------ ---- ----- ------ ------ ------ ------
Total FUM related revenue 101.9 99.5 2.4 79.2 79.2 - 12,869 12,566 2.4
Financial Planning -
UK 3.8 3.6 5.6
Financial Planning -
International 1.0 1.1 (9.1)
Other income 1.9 1.5 26.7
-------------------------- ----- ----- ------
Total non-FUM related
revenue 6.7 6.2 8.1 Total Group revenue 108.6 105.7 2.7 -------------------------- ----- ----- ------ ---- ----- ------ ------ ------ ------
1. Average FUM for Cornelian time weighted to four months for the purposes of the yield calculation.
BPS fee yield increased marginally to 67.9bps (FY19: 67.5bps) given the continued shift to "all in" fees. BPS non-fee income increased to 24.0bps (FY19 23.3bps) primarily due to higher interest income in H1, however this was somewhat offset by the lowering of the Bank of England base rate in H2. MPS saw a slight increase in income to GBP8.0 million (Restated FY19 GBP7.8 million) due to growth in platform MPS and this was after the restatement of FY19 for the VAT related error detailed above. Overall MPS yield dropped slightly due to the mix of business in MPS in custody. Funds income was down GBP0.5 million primarily due to the exit of the Grosvenor Funds business in H1, as we failed to agree terms to buy the fund given our focus on value and strict acquisition criteria.
International income dropped by 8.1% (GBP1.1 million) to GBP12.4 million (FY19: 13.5 million) due to average FUM being down by 1.3% and lower FX related transaction income. The drop in average FUM was primarily due to the prior year's exits and the business put in a much-improved net flows performance, although it remained marginally negative in the year.
The successful acquisition and integration of Cornelian meant income increased by GBP3.1 million over the final four months of the year.
Financial Planning (UK) income increased by 5.6% year on year to GBP3.8 million as the impact of new business and the recent repricing initiative started coming through. Third-party administration fees and other income were up 26.7% to GBP1.9 million largely driven by the repricing of this business to better reflect the actual costs of servicing. The third-party administration business is currently in wind down as we simplify the business and focus on our core offering.
Underlying costs
Total underlying costs have gone up marginally by 0.7% to GBP85.6 million (Restated FY19: GBP85.0 million). The underlying costs of Cornelian in the period were GBP1.7 million, therefore excluding Cornelian underlying costs fell to GBP83.9 million or by 1.3%. The Group continues to focus on cost discipline and had adopted a "save to spend" approach to costs, with efficiency targets being set each year as part of the annual planning cycle. These benefits are then reinvested into the client and adviser experience or to offset inflationary increases elsewhere. The Group did not utilise any of the Government COVID-19 related schemes in the year. Being a relationship led business, our staff are our key resource and we took the decision early on to adopt a "protect to thrive" approach to our staff and we have not used the Government furlough scheme or made anyone redundant since the beginning of the COVID-19 pandemic.
Staff costs
Total staff costs fell by GBP2.0 million or 3.8% during the year due to full year benefit of last year's efficiency and effectiveness programme coming through and this was after the inclusion of additional GBP0.7 million of staff costs from Cornelian. The fixed staff increase of 7.3% to GBP39.8 million was driven by last year's changes to investment manager compensation, where we removed variable commission payments and replaced them with higher base salaries and higher discretionary bonus opportunities, inflationary pay increases to the rest of staff and the addition of Cornelian. The Group also continued to invest in talent, strengthening the highly skilled and experienced teams across the business and laying down strong foundations to deliver on our growth agenda whilst enabling us to better serve our clients and advisers. Variable staff costs fell by 30.3% to GBP10.8 million due to the changes in compensation for investment managers, however the cash bonus pool and share based payment charge for the year were broadly flat given the challenging macroeconomic background and our focus on protecting the jobs.
Non-staff costs
Non-staff costs amounted to GBP35.0 million, an increase of 8.0% on the prior year including the addition of GBP1.0 million for Cornelian non-staff costs. Therefore, excluding Cornelian non-staff costs increased by GBP1.6 million or 4.9%. The bulk of this increase, GBP1.1 million was driven by the FSCS levy which increased by 83.3% on the prior year, now reaching GBP2.0 million for FY20 (FY19: GBP1.2 million) with a further GBP0.2 million related to a prior year levy true up. The FSCS levy is becoming an ever more prominent cost driver across the sector and at such levels is not considered directly commensurate to the Group's regulated activities. Brooks Macdonald is a member of the FSCS working group established by the Investment Association and we continue to engage in discussing alternative ways of structuring and charging the levy in future years. The other contributors to this increase include higher IT spend as we invest in cyber security risk mitigation, and higher insurance and audit costs although these were in part offset by lower travel and entertainment spend in the second half due to the COVID-19 related lockdown.
Combined, the above gave rise to an underlying profit before tax of GBP23.0 million, representing an increase of 11.1% on the previous year and resulting in a profit margin of 21.2% (Restated FY19: 19.6%) delivering on our strategic objective of incremental progression in margin and the delivery of operational gearing.
The statutory profit before tax from continuing operations is also higher compared to the prior year at GBP10.0 million (Restated FY19: GBP8.3 million) giving rise to a statutory profit margin of 9.2% compared to 7.9% reported in FY19 (as restated). The underlying adjustments for the year of GBP13.0 million, comprising one-off costs, are broadly in line with the quantum of adjustments recognised in the prior year (FY19: GBP12.4 million) although the mix has changed, with a significant portion of the items now being related to acquisitions and the growth agenda, rather than last year's restructuring costs. A breakdown of the underlying adjustments together with an explanation of each item is included further down in the Financial review.
FUM movement in the year
FY20 FY19
GBPm GBPm
---------------------------------------------- ------ ------
Opening FUM 13,147 12,312
Organic net new business (774) 409
FUM acquired in the year(1) 1,181 -
Investment performance 131 426
---------------------------------------------- ------ ------
Total FUM growth 538 835
---------------------------------------------- ------ ------
Closing FUM 13,685 13,147
---------------------------------------------- ------ ------
Organic net new business (5.9%) 3.3%
Total FUM growth 4.1% 6.8%
---------------------------------------------- ------ ------
Investment performance in the year 1.0% 3.5%
MSCI PIMFA Private Investor Balanced Index(2) (3.5%) 2.2%
---------------------------------------------- ------ ------
1. Closing value of Cornelian Asset Managers Limited's FUM as at 31 March 2020.
2. Capital-only index.
Over the course of the year, FUM increased by GBP0.5 billion or 4.1%. This includes the assets acquired from Cornelian in February 2020 of GBP1.2 billion and positive investment performance of GBP0.1 billion, partly offset by organic net outflows of GBP0.8 billion. The net outflows were partly driven by softer client sentiment in the light of the macroeconomic uncertainty during the first half and market volatility arising from the outbreak of the COVID-19 pandemic in the latter part of the year, and the effect of outflows of mainly lower margin business as a result of the Group's focus on efficiency and business quality and the actions taken to support medium term value creation. Overall investment performance for the year to June of 1.0% was well ahead of the MSCI PIMFA Private Investor Balanced Index which declined by 3.5% over the same period.
As noted below, within UKIM, and including the impact of the acquired Cornelian assets, the BPS core offering remained stable over the year closing at GBP8.2 billion and we have seen decent growth in our MPS (6.1%) and Funds (29.5%) business. Within our International business, we have seen much reduced outflows, with a slight net inflow position during the last quarter as the business regains momentum.
Closing FUM by service and segment
The table below shows the closing FUM broken down by segment and by our key services within UKIM at 30 June 2020 and comparative periods.
FY20 FY19 Change
GBPm GBPm %
-------------- ------ ------ ------
BPS 8,247 8,254 (0.1)
MPS 1,809 1,705 6.1
Funds 2,051 1,584 29.5
-------------- ------ ------ ------
UKIM total 12,107 11,543 4.9
International 1,578 1,604 (1.6)
-------------- ------ ------ ------
Total FUM 13,685 13,147 4.1
-------------- ------ ------ ------
Segmental analysis
The Group reports its results across three key operating segments, UK Investment Management ("UKIM"), International and Financial Planning. The tables below provide a breakdown of the annual performance broken down by these segments, with comparatives. The results of Cornelian since acquisition have been included in the UKIM segment.
Group and
UK Investment Financial consolidation
FY20 (GBPm) Management International Planning adjustments Total
------------------------------------ ------------- ------------- --------- -------------- ------
Revenue 91.4 13.4 3.8 - 108.6
Direct costs (42.0) (8.0) (3.2) (32.4) (85.6)
------------------------------------ ------------- ------------- --------- -------------- ------
Operating contribution 49.4 5.4 0.6 (32.4) 23.0
Indirect cost recharges (24.2) (2.9) (1.9) 29.0 -
------------------------------------ ------------- ------------- --------- -------------- ------
Underlying profit/(loss) before tax 25.2 2.5 (1.3) (3.4) 23.0
------------------------------------ ------------- ------------- --------- -------------- ------
Underlying profit/(loss) before tax
margin 27.6% 18.7% (34.2%) N/A 21.2%
------------------------------------ ------------- ------------- --------- -------------- ------
Group and
UK Investment Financial consolidation
FY19 (Restated)(1) (GBPm) Management International Planning adjustments Total
------------------------------------ ------------- ------------- --------- -------------- ------
Revenue 87.5 14.6 3.6 - 105.7
Direct costs (43.9) (9.2) (2.9) (29.0) (85.0)
------------------------------------ ------------- ------------- --------- -------------- ------
Operating contribution 43.6 5.4 0.7 (29.0) 20.7
Indirect cost recharges (19.2) (3.2) (2.5) 24.9 -
------------------------------------ ------------- ------------- --------- -------------- ------
Underlying profit/(loss) before tax 24.4 2.2 (1.8) (4.1) 20.7
------------------------------------ ------------- ------------- --------- -------------- ------
Underlying profit/(loss) before tax
margin 27.9% 15.1% (50.0%) N/A 19.6%
------------------------------------ ------------- ------------- --------- -------------- ------
1. Comparative segmental results have been restated to reflect the correct recognition of the Authorised Corporate Director fees and associated costs in respect of one of the Group's managed OEICs and the correct VAT treatment on the revenues recognised on the Managed Portfolio Service offered through third party platforms.
All three business segments reported an improvement in performance during the year compared to FY19. UKIM and Financial Planning recognised an increase in revenues during the period, up by 4.5% and 5.6% respectively.
Financial planning made decent progress against its three-year plan to return to profitability with further improvements expected in FY21.
International reported a decline in revenues of 8.2% driven by the marginal decrease in average FUM noted above and lower foreign exchange related transactional income. The business reinvigoration under Andrew Shepherd's leadership continues to progress well and the recent acquisition of the Lloyds Banking Group's Channel Islands wealth management and fund business will provide further positive momentum over the year ahead.
Reconciliation between underlying and statutory profits
Underlying profit before tax is considered by the Board to be a more accurate reflection of the Group's performance when compared to the statutory results as this excludes income and expense categories which are deemed of a non-recurring nature or a non-cash operating item. Reporting at an underlying basis is also considered more appropriate for external analyst coverage and peer group benchmarking allowing a more accurate like-for-like comparison. A reconciliation between underlying and statutory profit before tax for the year ended 30 June 2020 with comparatives is shown in the table below:
FY20 FY19
restated
GBPm GBPm
------------------------------------------------------------- ----- ---------
Underlying profit before tax 23.0 20.7
Goodwill impairment (4.5) (4.8)
Acquisitions related costs:
Deal structuring and legal costs (2.8) -
Integration and staff retention costs (1.4) -
Amortisation of client relationships and contracts acquired
with fund managers (2.9) (2.2)
Head office relocation costs (1.2) -
Changes in fair value of consideration and related disposals (0.2) 0.2
Restructuring charge - (3.3)
Client relationship contracts impairment - (2.3)
------------------------------------------------------------- ----- ---------
Total underlying adjustments 13.0 12.4
------------------------------------------------------------- ----- ---------
Statutory profit before tax from continuing operations 10.0 8.3
Loss from discontinued operations - (0.4)
------------------------------------------------------------- ----- ---------
Statutory profit before tax 10.0 7.9
------------------------------------------------------------- ----- ---------
Goodwill impairment (GBP4.5 million charge)
Goodwill is reviewed annually for impairment based on the carrying value of the asset compared to its expected recoverable amount. The impairment charge recognised in the year relates to the Levitas transaction. Last year, the Group entered into a new five-year partnership with the distributor of the Levitas fund that carried a lower fund sponsorship fee, the aim of this reduction was to enhance FUM flows and deepen the relationship. Unfortunately for reasons beyond our control, the anticipated inflows have not been forthcoming and in fact the fund has recorded net outflows in the period therefore impacting its rate of growth and future cash flows. This partnership is still active and FUM flows could improve in due course, however given current market conditions and the situation at our partner firm, we have reassessed the carrying value of this intangible asset. As a result, the associated goodwill carrying value is no longer supported and triggered an impairment charge in the year. Refer to Note 9 to the Consolidated financial statements for more details.
Acquisitions related costs (GBP4.2 million charge)
i. Deal and structuring and legal costs (GBP2.8 million charge)
These represent costs incurred in relation to the acquisition of Cornelian Asset Managers Group Limited announced on 22 November 2019 and the acquisition of the Lloyds Banking Group's International Channel Islands wealth management and funds business announced on 24 June 2020. The costs incurred include corporate finance services, legal fees and due diligence fees.
ii. Integration and staff retention costs (GBP1.4 million charge)
These comprise the costs incurred in integrating the Cornelian acquisition which completed on 28 February 2020 into the Brooks Macdonald business including migration of client accounts, IT, systems and processes. It also includes payments made to key Cornelian employees who are being retained by the Group for a short period of time to assist with the integration of the businesses.
The above costs are being excluded from the Group's underlying performance as they were one-off in nature.
Amortisation of client relationship contracts and contracts acquired with fund managers (GBP2.9 million charge)
These intangible assets are created in the course of acquiring funds under management and are amortised over their useful life, which has been assessed to range between 5 and 20 years. The charge for the year includes the newly acquired investment management contracts arising on the Cornelian transaction. This amortisation charge has been excluded from the underlying profit since it is a significant non-cash item. Refer to Note 9 to the Consolidated financial statements for more details.
Head office relocation costs (GBP1.2 million charge)
The Group's previous London offices based in Welbeck Street and Bevis Marks have been relocated to a single site at 21 Lombard Street in the City of London. As a result of the move, dual running costs were incurred on the three locations until the office leases for Bevis Marks and Welbeck Street came to an end in March 2020. The dual running costs and other costs associated with the move have been excluded from underlying profit in view of their one-off nature.
Changes in fair value of consideration and related disposals (GBP0.2 million charge)
This comprises the fair value measurement arising on deferred payments and receipts from previous acquisitions and disposals carried out by the Group, together with their associated net finance costs and costs of disposal where applicable.
FY19 - Restructuring charge
This relates to the efficiency and effectiveness programme announced in January 2019. The Group identified a range of opportunities to streamline and remove duplication from core processes. The headcount reduction resulted in redundancy costs, payment in lieu of notice, settlement and other restructuring-related costs. These have been excluded from underlying earnings in view of their one-off nature.
FY19 - Client relationship contracts impairment
This impairment charge relates to the value of Spearpoint client relationships following the previously disclosed loss of a client-facing team. Refer to Note 9 to the Consolidated financial statements for more details.
Taxation
The Group's corporation tax charge on underlying profits for the period was GBP4.6 million (Restated FY19: GBP3.6 million) representing an effective tax rate of 20.0% (Restated FY19: 17.8%). The increase in the effective tax rate is largely due to an intangible asset impairment recognised in the prior period which is not allowable for tax purposes. The effective tax charge for the current year also includes the recognition of deferred tax on the acquired client-relationship intangible assets as part of the Cornelian transaction. Details on taxation are provided in Note 5 of the Consolidated financial statements.
Earnings per share
The Group's basic statutory earnings per share for the year ended 30 June 2020 was 43.2p (Restated FY19: 39.7p). On an underlying basis, diluted earnings per share of 123.7p is broadly flat on the prior year (Restated FY19: 123.5p) largely due to a higher weighted average number of shares in issue during FY20 following the share placing carried out by the Group in November 2019 and the shares issued as part of the Cornelian acquisition at the completion date on 28 February 2020. Details on the basic and diluted earnings per share are provided in Note 7 of the Consolidated financial statements.
Dividend
The Group has a progressive dividend policy growing dividends in line with underlying earnings. The Board recognises the importance of dividends to shareholders and the benefit of providing sustainable shareholder returns. In determining the level of dividend in any year the Board considers a number of factors such as the level of retained earnings, future cash commitments, statutory profit cover, capital and liquidity requirements and the level of profit retention required to sustain the growth of the Group.
Considering the Group's strong balance sheet and the current macroeconomic uncertainty, the Board has proposed a final dividend of 32.0p per share (FY19: 32.0p). Taking into account the interim dividend of 21.0p per share (H1 FY19: 19.0p), this results in a total dividend for the year of 53.0p per share (FY19: 51.0p), an overall increase of 3.9%. Refer to Note 8 to the Consolidated financial statements for more details. The recommended dividend is subject to shareholders' approval, which will be sought at the Company's Annual General Meeting on 27 October 2020.
Financial position and regulatory capital
The Group's financial position remains strong with net assets of GBP123.5 million at 30 June 2020 (Restated FY19: GBP86.9 million) and tangible net assets (net assets excluding intangibles) up to GBP39.7 million (Restated FY19: GBP36.7 million). As at 30 June 2020, the Group had regulatory capital resources of GBP46.6 million (Restated FY19: GBP39.0 million). The own funds calculation take into account the respective years' profit after tax as these are deemed to be verified at the date of publication of the annual results. The Group continues to be well capitalised with a total capital ratio of 20.7% over our Pillar I risk exposure requirement.
FY20 FY19
restated
GBPm GBPm
----------------------------------------------------------- ------ ---------
Share capital 0.1 0.1
Share premium 78.0 39.1
Other reserves 6.4 4.6
Retained earnings 39.0 43.1
----------------------------------------------------------- ------ ---------
Total equity 123.5 86.9
Intangible assets (net book value) (83.8) (50.2)
Deferred tax liabilities associated with intangible assets 6.9 2.3
----------------------------------------------------------- ------ ---------
Tier 1 Capital 46.6 39.0
----------------------------------------------------------- ------ ---------
Own funds 46.6 39.0
----------------------------------------------------------- ------ ---------
Brooks Macdonald Asset Management Limited, the Group's main operating subsidiary, is an IFPRU 125k Limited Licence Firm regulated by the Financial Conduct Authority ("FCA"). In view of this, the Group is classified as a regulated group and subject to the same regime. As required under FCA rules, and those of both the Jersey and Guernsey Financial Services Commission, the Group assesses its regulatory capital and liquidity on an ongoing basis through the Internal Capital Adequacy Assessment Process ("ICAAP") and Adjusted Net Liquid Asset ("ANLA") assessments, which include performing a range of stress tests and scenario analysis to determine the appropriate level of regulatory capital and liquidity that the Group needs to hold. Surplus levels of capital and liquidity are forecast, taking into account known outflows and proposed dividends to ensure that the Group maintains sufficient capital and liquidity at all times.
The FY19 ICAAP review was conducted for the period ended 30 June 2019 and signed off by the Board in December 2019. Regulatory capital forecasts are performed monthly and take into account expected dividends and intangible asset acquisitions and disposals as well as budgeted and forecast trading results.
The Group's Pillar III disclosures are published annually on the Group's website ( www.brooksmacdonald.com ) and provide further details about the Group's regulatory capital resources and requirements. The Group monitors a range of capital and liquidity statistics on a daily and monthly basis.
Cash flow and capital expenditure
The Group continues to have strong levels of cash generation from continuing operations. Total cash resources at the end of the year were GBP50.2 million (FY19: GBP34.6 million). The Group had no borrowings at 30 June 2020 (FY19: GBPnil).
During the year ended 30 June 2020, GBP1.7 million was capitalised on leasehold fit out works, office furniture and equipment as part of the fit out of the Group's new head office at 21 Lombard Street, London. Moreover, GBP1.6 million was spend during the year on the further development of the Group's adviser and client portal, risk systems and the core operational platform.
Financial outlook
The current outlook is highly uncertain given the ongoing impact of the COVID-19 pandemic, however the Group is well placed to continue its success. We have proven the resilience of the Group's business model and operating platform and this gives us a high degree of confidence in our ability to deliver for shareholders, advisers and clients in the months and years ahead. The continued growth in our core business profitability, combined with the successful integration of Cornelian and the acquisition of Lloyd's Channel Islands wealth management and funds business will allow us to continue to grow earnings, whilst investing in further enhancements to the adviser and client experience. The Group remains focused on the delivery of improved growth in organic net flows whilst actively looking for further high quality, accretive acquisitions.
Ben Thorpe
Group Finance Director
16 September 2020
Risks
Taking a dynamic approach to risk management
Over the past year, the Group has continued in its commitment to invest in compliance and risk management capabilities. Furthermore, the Group has sustained its focus on embedding the risk management framework, through greater business collaboration, streamlined analytics and enhanced governance reporting. This has led to efficient, data driven and evidenced based risk management, whilst facilitating the transition to an agile and dynamic approach to identifying, assessing, managing and monitoring risks. Not only has this proven valuable to the Group's acquisition of Cornelian Asset Managers and the Lloyd's offshore wealth and funds business, but also during the COVID-19 pandemic. Overall, the Group remains well capitalised and liquid with significant buffers above all regulatory requirements.
How we manage risk
The Group Risk Management Framework ("RMF")
Risk management starts with oversight through an appropriate governance structure using a board and committee structure, with individual and collective roles and delegated authorities and a set of core policies to provide guidance to staff.
Effective risk management relies on insight through robust and timely management information. We manage our risks by learning lessons from past events such as errors, breaches, near misses and complaints, by conducting point-in-time risk assessments in the present and attempting to predict what the future risk landscape might look like through our suite of key indicators.
The risk management methodology within the Group's risk management framework consists of the following six interlinked steps:
Risk identification. This takes place through regular business monitoring and periodic reviews, including risk mapping exercises and the risks arising from change or new products and services.
Risk appetite. Once we have identified risks, we set an appetite for each material risk. This defines the amount of risk that the Board is prepared to accept in order to deliver its business objectives. Risk appetite reflects culture, strategic goals and the existing operating and control environment.
Risk analysis. Having set the risk appetite, we can assess the impact and probability of each material risk against the agreed risk appetite. This can include the quantification of capital risk as part of the Internal Capital Adequacy Assessment Process ("ICAAP").
Assess controls. We also assess the effectiveness of controls in reducing the probability of a risk occurring or, should it materialise, in mitigating its impact.
Additional actions. Where differences exist between our risk appetite and the current residual risk profile, we take action either: to accept, avoid or transfer part or all of those risks which are outside our risk appetite; or to reconsider the risk appetite.
Reporting. Ongoing reporting of risks to senior management provides insight to inform decision-making and allocation of resources to achieve business objectives.
Overarching Risk Appetite Statement
-- The Group's Overarching Risk Appetite ("ORAS"), as defined by the Board, sets out the acceptable level of current & emerging risk we are willing to take to achieve our strategic business objectives. It provides a framework to allow the Group to effectively balance the risk and reward relationship in decision making.
-- Clients, both existing and prospective, are at the heart of everything we do. As such, we will operate a sustainable business that conducts itself in a reputable and prudent manner, taking into account the interests of our clients through providing products and services suited to their needs and risk profile, which demonstrate value for money.
-- As the business continues to grow through sustainable organic growth and strategic value-adding acquisitions, the ORAS will help ensure our key stakeholder obligations are met, supported by internal policies and regulatory requirements. We commit to using this framework to ensure we make strategic and business decisions that do not exceed our overarching risk appetite.
-- In all of the Group's decisions and operations, we balance risk versus reward and we consider the following three dimensions:
Client Outcome
-- We will put client interests at the heart of everything we do to ensure appropriate client outcomes.
Control Environment
-- We will, at all times, operate within our risk appetite, operational risk parameters and regulatory framework, ensuring a robust control and oversight environment.
Financial Performance and Resources
-- We will optimise profitability and use resources efficiently to drive financial performance.
-- We will, at all times, maintain adequate capital and liquid assets to meet financial and funding obligations as they fall due.
-- We will invest in the development and wellbeing of our employee.
Key risks
We have identified our risks at Group and business line levels to help manage our key risks in a consistent and uniform way with oversight from relevant Committees and Boards.
Group level risks
Key risks identified
by risk management Change since Rationale for
Definition framework last year change
--------------------- ---------------------------------------------------------- ------------ ---------------------
1. Credit risk Unchanged None
The risk of loss * Cash deposits with external banks
arising
from a client or
counterparty * Client credit risk
failing to meet their
financial obligations
to a Brooks Macdonald * Counterparty credit risk
entity as and when
they
fall due. * Custodian-related credit risk
* Indirect counterparty risk in respect of referrals
--------------------- ---------------------------------------------------------- ------------ ---------------------
2. Liquidity risk Decreasing The Group has
The risk that assets * Corporate cash deposited with external banks sufficient liquidity
are resources
insufficiently liquid significantly
and/or Brooks * Client cash deposited with external banks (CASS above its Minimum
Macdonald rules) Liquidity
does not have Requirement.
sufficient Since the last
financial resources * Failed trades Annual Report,
available the Group has
to meet liabilities developed a robust
as * Indirect liquidity risk associated with client Liquidity Risk
they fall due, or can portfolios Management Framework,
secure such resources including adequate
only at excessive contingency funding
cost. * Indirect liquidity risks associated with dealing arrangements
Liquidity risk also
includes
the risk that the * Indirect risk in respect of the liquidity of
Group individual holdings in a fund
is unable to meet
regulatory
prudential liquidity * Indirect risk in respect of the overall liquidity of
ratios. our funds
--------------------- ---------------------------------------------------------- ------------ ---------------------
3. Market risk Increasing Given the COVID-19
The risk that arises * Failed trades pandemic, markets
from and most asset
fluctuations in the classes have
value * Indirect market risk associated with advising on exhibited
of, or income arising client portfolios significant
from, movements in volatility.
equity, This could continue
bonds, or other * Indirect market risks associated with dealing as long as there
traded is a risk of a
markets, interest second wave of
rates * Indirect market risk associated with managing client the virus
or foreign exchange portfolios
rates
that has a financial
impact.
--------------------- ---------------------------------------------------------- ------------ ---------------------
Business level risks
Key risks identified
by risk management Change since Rationale for
Definition framework last year change
------------------------------- ------------------------------------------- ------------ ------------------------
4. Business and strategic Unchanged None
risk * Adviser concentration
The risk of having an
inadequate business model
or making strategic decisions * Business growth
that may result in lower
than anticipated profit
or losses or exposes the * Extreme market events
Group to unforeseen risks.
* Investment performance
* Product governance
* UK political risk
------------------------------- ------------------------------------------- ------------ ------------------------
5. Conduct risk Decreasing Over the past
The risk of causing detriment * Client service year the group
to clients, stakeholders has been working
or the integrity of the on several initiatives
wider market because of * Investment performance to promote good
inappropriate execution risk culture and
of Brooks Macdonald's awareness. Furthermore,
business activities. * Suitability and conduct risk the Group has
developed enhanced
Management Information
to measure conduct
risk.
------------------------------- ------------------------------------------- ------------ ------------------------
6. Operational risk Decreasing The Group has
The risk of loss arising * Data quality enhanced its processes,
from inadequate or failed including improved
internal processes, people documentation
and systems, or from external * Cyber of all key processes.
events. It includes legal Incident management
and fraud risk but not has been enhanced
strategic, reputational * IT infrastructure and capability throughout the
and business risks. year.
* Key suppliers and outsourcing
* Operational maturity
* People
* Resilience and BCP
------------------------------- ------------------------------------------- ------------ ------------------------
7. Prudential risk Decreasing The Group has
The risk of loss arising * Prudential requirements capital resources
from inadequate or failed significantly
internal processes, people above its Minimum
and systems, or from external Capital Requirement.
events. It includes legal
and fraud risk but not
strategic, reputational
and business risks.
------------------------------- ------------------------------------------- ------------ ------------------------
8. Legal and regulatory Unchanged None
risk * Extreme reputational risk
Legal and regulatory risk
is defined as the risk
of exposure to legal or * Financial crime
regulatory penalties,
financial forfeiture and
material loss due to failure * Governance
to act in accordance with
industry laws and regulations.
* Legacy issues
* Regulatory, tax and legal compliance
------------------------------- ------------------------------------------- ------------ ------------------------
New and emerging risks
Definition Context -------------------------------- ----------------------------------------------------- 9. Acquisition risk (New) There has been an increase in the M&A activity The potential financial, in the wider financial planning and wealth reputational, operational management sectors. As this continues, it has and client-related risks the potential to materially impact the Brooks arising from the failure Macdonald operating model but it also provides to realise value from an opportunity for inorganic growth for BM. acquisitions within a Furthermore, given the recent acquisitions reasonable timeframe and made by the Group, there is a heightened integration the failure to properly risk, including the failure to realise synergies. integrate the acquired company in a timely manner and within the target budget. -------------------------------- ----------------------------------------------------- 10. Change Management In line with our growth agenda, the Group is risk (Emerging) undertaking a strategic review of the end to The potential financial, end operating model and client journey, to reputational, operational cater for shifting client demand and sectoral and client-related risks changes. arising from the poor implementation of material projects or change initiatives. -------------------------------- ----------------------------------------------------- 11. Pandemic risk (Emerging) Given our agile operating model, strong capital The potential financial, and liquidity position, the Group has continued reputational, operational to provide a high level of service to our clients and client-related risks and advisers, whilst ensuring the wellbeing arising from the continued and safety of our staff. global impact of COVID-19 and any potential subsequent waves. -------------------------------- -----------------------------------------------------
Consolidated statement of comprehensive income
For the year ended 30 June 2020
2020 2019
restated(1)
Note GBP'000 GBP'000
----------------------------------------------------- ---- -------- -------------
Revenue 4 108,558 105,650
Administrative costs (93,794) (90,546)
Other gains/(losses) - net (4,519) (6,928)
----------------------------------------------------- ---- -------- -------------
Operating profit 10,245 8,176
Finance income 261 227
Finance costs (454) (94)
----------------------------------------------------- ---- -------- -------------
Profit before tax from continuing operations 10,052 8,309
Taxation on continuing operations 5 (3,626) (2,454)
----------------------------------------------------- ---- -------- -------------
Profit for the period from continuing operations 6,426 5,855
Loss from discontinued operations - (395)
----------------------------------------------------- ---- -------- -------------
Profit for the period attributable to equity holders
of the Company 6,426 5,460
Other comprehensive income - -
Total comprehensive income for the year 6,426 5,460
----------------------------------------------------- ---- -------- -------------
Earnings per share(2)
Basic 7 43.2p 39.7p
Diluted 7 43.1p 39.6p
----------------------------------------------------- ---- -------- -------------
1. See Note 4 for details regarding the restatement as a result of the Authorised Corporate Director ("ACD") fees and associated costs and also the output VAT on Platform MPS.
2. The comparative weighted average number of shares and therefore basic and diluted earnings per share have been restated for the effect of the share placing issued in November 2019.
Consolidated statement of financial position
As at 30 June 2020
30 June 30 June 1 July
2020 2019 2018
restated(1) restated(1)
Note GBP'000 GBP'000 GBP'000
---------------------------------------------- ---- -------- ------------ ------------
Assets
Non-current assets
Intangible assets 9 83,804 50,167 60,556
Property, plant and equipment 3,181 3,177 3,996
Right of use assets 10 6,991 - -
Financial assets at fair value through other
comprehensive income 500 500 -
Available for sale financial assets - - 1,578
Other non-current assets - 94 -
Deferred tax assets 11 1,524 1,223 1,176
---------------------------------------------- ---- -------- ------------ ------------
Total non-current assets 96,000 55,161 67,306
Current assets
Financial assets at fair value through profit
or loss 549 613 1,267
Trade and other receivables 26,081 26,732 26,019 Cash and cash equivalents 50,168 34,590 30,939 ---------------------------------------------- ---- -------- ------------ ------------ Total current assets 76,798 61,935 58,225 ---------------------------------------------- ---- -------- ------------ ------------ Total assets 172,798 117,096 125,531 ---------------------------------------------- ---- -------- ------------ ------------ Liabilities Non-current liabilities Deferred consideration 12 (6,300) (380) (1,479) Lease liabilities 13 (6,659) - - Provisions 14 (219) (278) - Other non-current liabilities (330) (714) (157) Deferred tax liabilities 11 (7,230) (2,278) (2,990) ---------------------------------------------- ---- -------- ------------ ------------ Total non-current liabilities (20,738) (3,650) (4,626) Current liabilities Trade and other payables (22,765) (21,550) (23,722) Current tax liabilities (480) (2,287) (1,325) Lease liabilities 13 (1,275) - - Provisions 14 (3,999) (2,736) (8,332) ---------------------------------------------- ---- -------- ------------ ------------ Total current liabilities (28,519) (26,573) (33,379) ---------------------------------------------- ---- -------- ------------ ------------ Net assets 123,541 86,873 87,526 ---------------------------------------------- ---- -------- ------------ ------------ Equity Share capital 161 139 138 Share premium account 77,982 39,068 38,404 Other reserves 6,398 4,575 3,114 Retained earnings 39,000 43,091 45,870 ---------------------------------------------- ---- -------- ------------ ------------ Total equity 123,541 86,873 87,526 ---------------------------------------------- ---- -------- ------------ ------------
1. See Note 4 for details regarding the restatement as a result of the output VAT on Platform MPS.
The Consolidated financial statements were approved by the Board of Directors and authorised for issue on 16 September 2020, and signed on their behalf by:
Caroline Connellan
CEO
Ben Thorpe
Group Finance Director
Company registration number: 4402058
Consolidated statement of changes in equity
For the year ended 30 June 2020
Share
premium Other Retained Total
Share capital account reserves earnings equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ ------ ------------- -------- --------- --------- --------
Balance at 30 June 2018 138 38,404 3,114 46,301 87,957
------------------------------------ ------ ------------- -------- --------- --------- --------
Adjustment on initial application
of IFRS 9 - - (1) - (1)
Adjustment on restatement(1) 4 - - - (431) (431)
------------------------------------ ------ ------------- -------- --------- --------- --------
Adjusted balance at 1 July
2018 138 38,404 3,113 45,870 87,525
------------------------------------ ------ ------------- -------- --------- --------- --------
Comprehensive income
Profit for the year from continuing
operations - - - 6,123 6,123
Adjustment on restatement(1) 4 - - - (268) (268)
Loss for the year from discontinued
operations - - - (395) (395)
Other comprehensive income - - - - -
------------------------------------ ------ ------------- -------- --------- --------- --------
Total comprehensive income - - - 5,460 5,460
Transactions with owners
Issue of ordinary shares 1 664 - - 665
Share-based payments - - 2,634 - 2,634
Share-based payments exercised - - (1,123) 1,123 -
Purchase of own shares by
Employee Benefit Trust - - - (2,648) (2,648)
Tax on share options - - (49) - (49)
Dividends paid 8 - - - (6,714) (6,714)
------------------------------------ ------ ------------- -------- --------- --------- --------
Total transactions with owners 1 664 1,462 (8,239) (6,112)
Restated balance at 30 June
2019(1) 139 39,068 4,575 43,091 86,873
------------------------------------ ------ ------------- -------- --------- --------- --------
Comprehensive income
Profit for the year - - - 6,426 6,426
Other comprehensive income - - - - -
------------------------------------ ------ ------------- -------- --------- --------- --------
Total comprehensive income - - - 6,426 6,426
Transactions with owners
Issue of ordinary shares 22 38,914 - - 38,936
Share-based payments - - 3,571 - 3,571
Share-based payments exercised - - (1,770) 1,770 -
Purchase of own shares by
Employee Benefit Trust - - - (4,607) (4,607)
Tax on share options - - 22 - 22
Dividends paid 8 - - - (7,680) (7,680)
------------------------------------ ------ ------------- -------- --------- --------- --------
Total transactions with owners 22 38,914 1,823 (10,517) 30,242
Balance at 30 June 2020 161 77,982 6,398 39,000 123,541
------------------------------------ ------ ------------- -------- --------- --------- --------
1. See Note 4 for details regarding the restatement as a result of the output VAT on Platform MPS.
Consolidated statement of cash flows
For the year ended 30 June 2020
2020 2019
Note GBP'000 GBP'000
------------------------------------------------------ ---- -------- --------
Cash flows from operating activities
Cash generated from operations 15 36,088 15,553
Taxation paid (5,865) (2,301)
------------------------------------------------------ ---- -------- --------
Net cash generated from operating activities 30,223 13,252
Cash flows from investing activities
Purchase of intangible assets 9 (1,614) (1,106)
Purchase of property, plant and equipment (1,958) (572)
Consideration paid 6 (27,757) -
Deferred consideration paid 12 (919) (1,251)
Proceeds from sale of discontinued operations 568 593
Interest received 252 198
Finance costs paid (5) -
Proceeds of sale of financial assets at fair value
through profit or loss - 1,234
------------------------------------------------------ ---- -------- --------
Net cash used in investing activities (31,433) (904)
Cash flows from financing activities
Proceeds of issue of shares 38,936 665
Shares issued as consideration 6 (9,000) -
Payment of lease liabilities and initial direct costs (2,111) -
Proceeds of lease reverse premium 1,250 -
Purchase of own shares by Employee Benefit Trust (4,607) (2,648)
Dividends paid to shareholders 8 (7,680) (6,714)
------------------------------------------------------ ---- -------- -------- Net cash generated/(used) in financing activities 16,788 (8,697) Net increase in cash and cash equivalents 15,578 3,651 ------------------------------------------------------ ---- -------- -------- Cash and cash equivalents at beginning of year 34,590 30,939 ------------------------------------------------------ ---- -------- -------- Cash and cash equivalents at end of year 50,168 34,590 ------------------------------------------------------ ---- -------- --------
Notes to the consolidated financial statements
For the year ended 30 June 2020
1. General information
Brooks Macdonald Group plc ("the Company") is the Parent Company of a group of companies ("the Group"), which offers a range of investment management services to private high net worth individuals, pension funds, institutions, charities and trusts. The Group also provides financial planning as well as offshore investment management and acts as fund manager to two regulated Open-Ended Investment Companies ("OEICs") (the IFSL Brooks Macdonald Fund and the SVS Cornelian Investment Funds) providing a range of risk-managed multi-asset funds and a specialised absolute return fund.
The Company is a public limited company, incorporated and domiciled in the United Kingdom under the Companies Act 2006 and listed on AIM. The address of its registered office is 21 Lombard Street, London, EC3V 9AH.
2. Principal accounting policies
The general accounting policies applied in the preparation of these Financial statements are set out below. These policies have been applied consistently to all years presented, unless otherwise stated.
a. Basis of preparation
The Group's Consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and IFRS Interpretations Committee ("IFRS IC") interpretations, as adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRS. The Financial statements have been prepared on the historical cost basis, except for the revaluation of financial assets at fair value through other comprehensive income, financial assets and financial liabilities at fair value through profit or loss and deferred consideration such that they are measured at their fair value.
At the time of approving the Financial statements, after making enquiries and the work performed and actions already taken by the Group in response to the COVID-19 pandemic, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Financial statements.
b. Basis of consolidation
The Group's Financial statements are a consolidation of the financial statements of the Company and its subsidiaries. The underlying financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. Subsidiaries and structured entities are all entities controlled by the Company, deemed to exist where the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of the subsidiaries are included from the date on which control is transferred to the Group to the date that control ceases.
All intercompany transactions and balances between Group companies are eliminated on consolidation.
The Group has interests in structures entities, with one consolidated structured entity, being the Brooks Macdonald Group Employee Benefit Trust. The Group has interests in other structured entities as a result of contractual arrangements arising from the management of assets on behalf of its clients, but are not consolidated as the Group does not commit to financially support its funds, nor guarantee for the repayment of any borrowings.
c. Changes in accounting policies
The Group's accounting policies that have been applied in preparing these Financial statements are consistent with those disclosed in the Annual Report and Accounts for the year ended 30 June 2019, except as explained below.
New accounting standards, amendments and interpretations adopted in the year
In the year ended 30 June 2020, the Group adopted one new standard being IFRS 16 'Leases'. The Group did not adopt any other new standards and amendments issued by the International Accounting Standards Board ("IASB") or interpretations issued by the IFRS IC in the year ended 30 June 2020.
IFRS 16 'Leases'
IFRS 16 removes the classification of leases as either operating leases or finance leases for lessees. The standard introduces a single, on-balance sheet accounting model, which requires:
-- recognition of a right of use asset and corresponding lease liability with respect to all lease arrangements in which the Group is the lessee, except for short-term leases and leases of low value assets;
-- recognition of a depreciation charge on the right of use asset on a straight-line basis over the shorter of the expected life of the asset and the lease term; and
-- recognition of an interest charge arising from the unwinding of the discounted lease liability over the lease term.
Transition
The Group holds property leases in relation to offices which have previously been considered operating leases under IAS 17. On transition to IFRS 16, the Group was permitted to choose from the following transition approaches:
-- full retrospective transition method, whereby IFRS 16 is applied to all its contracts as if it had always applied; or
-- a modified retrospective approach with optional practical expedients.
The Group has chosen to apply IFRS 16 using the modified retrospective approach resulting in no restatement of the comparative information which continues to be reported under IAS 17 and IFRIC 4.
On adoption, lease agreements have given rise to both a right of use ("ROU") asset and a lease liability. For leases previously classified as operating leases at 30 June 2019 under IAS 17, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Group's incremental borrowing rate as at 1 July 2019. ROU assets were measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments on the Group's Consolidated statement of financial position at the date of transition. On 30 June 2019, the Group had prepaid expenses and lease incentive balances in line with IAS 17 on the Consolidated statement of financial position, to be unwound over the life of remaining leases. The prepaid and lease incentive balances at 30 June 2019 have been recognised as a depreciation charge to the ROU asset on day one of the transition to IFRS 16.
The lease liability is subsequently measured by reducing for lease payments made, adjusting the carrying amount to reflect the interest charge and any reassessment or lease modifications.
The ROU assets are subsequently measured at cost, less accumulated depreciation on a straight-line basis over the shorter of the expected life of the asset and the lease term, adjusted for any remeasurements of the lease liability, for example a change in lease term, or payments based on an index. In accordance with IAS 36, ROU assets are assessed for indicators of impairment at the end of each reporting period.
The Group has used the following practical expedients when applying IFRS 16 to leases that were previously classified as operating leases under IAS 17 at 30 June 2019:
-- applied the practical expedient to grandfather the assessment of which contracts are leases and applied IFRS 16 only to those that were previously identified as leases. Contracts not identified as leases under IAS 17 and IFRIC 4 were not reassessed for whether there is a lease. The identification of a lease under IFRS 16 was therefore only applied to contracts entered into (or modified) on or after 1 July 2019;
-- the use of a single discount rate to a portfolio of leases with reasonably similar characteristics;
-- the accounting for operating leases with a remaining lease term of less than 12 months as at 1 July 2019 as short-term leases. The Group recognises the lease payments associated with these leases as an administrative expense in the Consolidated statement of comprehensive income on a straight-line basis over the lease term;
-- the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease; and
-- reliance on previous assessments on whether leases are onerous.
Impact on the relevant extracts from the Consolidated statement of financial position as at 1 July 2019
As reported Restated
30 June 1 July
2019 Adjustments 2019
GBP'000 GBP'000 GBP'000
---------------------------- ----------- ------------- --------
Assets
Right of use assets - 1,555 1,555
Trade and other receivables 26,732 (50) 26,682
---------------------------- ----------- ------------- --------
Total assets 117,096 1,505 118,601
---------------------------- ----------- ------------- --------
Liabilities
Trade and other payables (20,788) 294 (20,494)
Lease liabilities - (1,799) (1,799)
---------------------------- ----------- ------------- --------
Total liabilities (29,524) (1,505) (31,029)
---------------------------- ----------- ------------- --------
Net assets 87,572 - 87,572 ---------------------------- ----------- ------------- -------- Equity Retained earnings 43,790 - 43,790 ---------------------------- ----------- ------------- -------- Total equity 87,572 - 87,572 ---------------------------- ----------- ------------- --------
The adjustments to the Consolidated statement of financial position reflect the initial application of IFRS 16.
The table below presents operating lease commitments disclosed at 30 June 2019 and lease liabilities recognised at 1 July 2019.
GBP'000
---------------------------------------------------------------- -------
Total operating lease commitments disclosed at 30 June 2019 2,930
Exemptions applied:
Leases with remaining lease term of less than 12 months (1,308)
---------------------------------------------------------------- -------
Operating lease liabilities before discounting 1,622
Adjustments:
Rental payments on date of initial application 314
---------------------------------------------------------------- -------
Total lease liabilities before discounting 1,936
Discounted using incremental borrowing rate (137)
---------------------------------------------------------------- -------
Total lease liabilities recognised under IFRS 16 at 1 July 2019 1,799
---------------------------------------------------------------- -------
On transition to IFRS 16 on 1 July 2019, the current lease liability was GBP530,000 and the non-current lease liability was GBP1,269,000.
Impact on financial statements for the year ended 30 June 2020
During the year ended 30 June 2020, the Group recognised an interest charge arising on lease liabilities of GBP304,000 and a depreciation charge on the ROU assets of GBP1,256,000. Included within the interest charge and depreciation charge was GBP236,000 and GBP763,000 respectively for new leases that commenced during the year ended 30 June 2020.
An analysis of ROU assets is presented in Note 10 and lease liabilities presented in Note 13.
The Group applied judgement in calculating the discount rate to be used in computing lease liabilities. The Group performed research into issued corporate debt in the comparable industry given the Group does not have any debt of its own, resulting in estimating its incremental borrowing rate of 4.5% to measure lease liabilities.
Other new standards, amendments and interpretations listed in the table below were newly adopted by the Group but have not had a material impact on the amounts reported in these Financial statements. They may however impact the accounting for future transactions and arrangements.
Standard, Amendment or Interpretation Effective date -------------------------------------------------------------------- -------------- Recognition of deferred tax assets for unrealised losses (amendments to IAS 12) 1 January 2018 Disclosure initiative (amendments to IAS 7) 1 January 2018 Annual improvements to IFRS standards 2014-2016 cycle (IFRS 12) 1 January 2018 -------------------------------------------------------------------- --------------
New accounting standards, amendments and interpretations not yet adopted
A number of new standards, amendments and interpretations, which have not been applied in preparing these Financial statements, have been issued and are effective for annual years beginning after 1 July 2019:
Standard, Amendment or Interpretation Effective date ---------------------------------------------------------------- ----------------- Uncertainty over Income Tax Treatments (IFRIC 23) 1 January 2019 Annual improvements to IFRS standards 2015-2018 cycle (IFRS 3, IFRS 11, IAS 12, IAS 23) 1 January 2019(1) Amendments to IAS 28: Long-term Interest in Associates and Joint Ventures 1 January 2019(1) Amendments to References to the Conceptual Framework in IFRS Standards 1 January 2020(1) Amendment to IFRS 3 Business Combinations 1 January 2020 Amendments to IAS 1 and IAS 8: Definition of Material 1 January 2020(1) Insurance Contracts (IFRS 17) 1 January 2021 ---------------------------------------------------------------- ----------------- 1. Not yet endorsed by the EU.
The impact of these changes is currently being reviewed and there is no intention to early adopt.
d. Critical accounting estimates and judgements
The preparation of financial information requires the use of assumptions, estimates and judgements about future conditions. Use of currently available information and application of judgement are inherent in the formation of estimates. Actual results in the future may differ from those reported. In this regard, the Directors believe that the accounting policies where important estimations are used relate to the measurement of intangible assets, deferred consideration, the estimation of the fair value of share-based payments and client compensation provisions.
There have been no critical judgements required in applying the Group's accounting policies in this period, but there have been the use of important estimations detailed separately below.
The underlying assumptions made are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised only if the revision affects both current and future periods.
Further information about key assumptions and sources of estimation uncertainty is set out below.
Intangible assets
The Group has acquired client relationships and the associated investment management contracts as part of business combinations, through separate purchase or with newly employed teams of fund managers, as described in Note 9. In assessing the fair value of these assets the Group has estimated their finite life based on information about the typical length of existing client relationships. Contracts acquired with fund managers and acquired client relationship contracts are amortised on a straight-line basis over their estimated useful lives, ranging from 5 to 20 years.
Goodwill recognised as part of a business combination is reviewed annually for impairment, or when a change in circumstances indicates that it might be impaired. The recoverable amounts of cash generating units are determined by value in use calculations, which require the use of estimates to derive the projected future cash flows attributable to each unit. Details of the more significant assumptions are given in Note 9.
Deferred consideration
As described in Note 12, the Group has a deferred consideration balance in respect of the acquisition of Levitas Investment Management Services Limited in July 2014 and Cornelian Asset Managers Group Limited in February 2020. Deferred consideration is recognised at its fair value, being an estimate of the amount that will ultimately be payable in future periods. For Levitas, as at 30 June 2020, there is one fixed payment remaining. For Cornelian, the deferred consideration has been calculated allowing for estimated growth in the acquired funds and estimated cost savings, discounted by the estimated interest rate.
Share-based payments
The Group operates various share-based payment schemes in respect of services received from certain employees. Estimating the fair value of these share-based payments requires the Group to apply an appropriate valuation model and determine the inputs to that model. The charge to the Consolidated statement of comprehensive income in respect of share-based payments is calculated using assumptions about the number of eligible employees that will leave the Group and the number of employees that will satisfy the relevant performance conditions. These estimates are reviewed regularly.
Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, where it is probable that it will result in an outflow of economic benefits and can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation.
Where the outflow is not probable or cannot be reliably measured, the potential obligation is disclosed as a contingent liability in the Financial statements.
Insurance recoveries relating to legal fees are recognised when, and only when, it is virtually certain that reimbursement will be received if the corresponding obligation is settled. Reimbursements received are disclosed net in the Consolidated statement of comprehensive income and gross in the Consolidated statement of financial position.
The Group may receive complaints from clients in relation to the services provided. Complaints are assessed on a case-by-case basis and provisions are made where it is judged to be likely that compensation will be paid.
As described in Note 14, the Group has recognised a provision in respect of exceptional costs of resolving legacy matters. The Group has a present obligation relating to a number of discretionary portfolios formerly managed by Spearpoint which was acquired by the Group in 2012 and the provision has been reliably measured at the value of expenditures expected to be required to settle the obligation.
3. Segmental information
For management purposes the Group's activities are organised into three operating divisions: UK Investment Management, International and Financial Planning. The Group's other activity, offering nominee and custody services to clients, is included within UK Investment Management. These divisions are the basis on which the Group reports its primary segmental information to the Executive Committee, which is the Group's chief operating decision-maker. In accordance with IFRS 8 'Operating Segments', disclosures are required to reflect the information which the Board of Directors uses internally for evaluating the performance of its operating segments and allocating resources to those segments. The information presented in this note is consistent with the presentation for internal reporting.
The UK Investment Management segment offers a range of investment management services to private high net worth individuals, pension funds, institutions, charities and trusts. The International segment is based in the Channel Islands and offers a similar range of investment management and financial planning services as the UK Investment Management segment and the Financial planning segment. Financial planning offers wealth management services to high net worth individuals and families, giving independent "whole of market" financial advice enabling clients to build, manage and protect their wealth. The Group segment principally comprises the Group Board's management and associated costs, along with the consolidation adjustments.
Following the acquisition of Cornelian (Note 6), the activities since acquisition have been included in the UK Investment Management segment.
Revenues and expenses are allocated to the business segment that originated the transaction. Sales between segments are carried out at arm's length. Centrally incurred expenses are allocated to business segments on an appropriate pro rata basis.
Group &
UK Investment Financial consolidation
Management International Planning adjustments Total
Year ended 30 June 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- ------------- ------------- --------- -------------- --------
Total revenue 95,950 13,335 3,831 (6) 113,110
Inter segment revenue (4,552) - - - (4,552)
--------------------------------------------- ------------- ------------- --------- -------------- --------
External revenue 91,398 13,335 3,831 (6) 108,558
Underlying administrative costs (42,004) (8,026) (3,161) (32,424) (85,615)
--------------------------------------------- ------------- ------------- --------- -------------- --------
Operating contribution 49,394 5,309 670 (32,430) 22,943
Allocated costs (24,143) (2,890) (1,926) 28,959 -
Net finance income 1 50 - 29 80
--------------------------------------------- ------------- ------------- --------- -------------- --------
Underlying profit/(loss) before tax 25,252 2,469 (1,256) (3,442) 23,023
Goodwill impairment - - - (4,471) (4,471)
Acquisition related costs (1,085) (606) - (2,570) (4,261)
Amortisation of client relationships
and contracts acquired with fund
managers (701) (420) - (1,762) (2,883)
Head office relocation costs (1,166) - - - (1,166)
Finance cost of deferred consideration - - - (145) (145)
Changes in fair value of contingent
consideration - - (54) - (54)
Finance income from contingent consideration - - 7 2 9
Profit mark-up on Group allocated
costs 221 (136) (85) - -
--------------------------------------------- ------------- ------------- --------- -------------- --------
Profit/(loss) before tax 22,521 1,307 (1,388) (12,388) 10,052
Taxation (3,626)
--------------------------------------------- ------------- ------------- --------- -------------- --------
Profit for the period attributable
to equity holders of the Company 6,426
--------------------------------------------- ------------- ------------- --------- -------------- --------
Group &
UK Investment Financial consolidation
Management International Planning adjustments
Year ended 30 June 2020 GBP'000 GBP'000 GBP'000 GBP'000 Total GBP'000
----------------------------------- ------------- ------------- --------- -------------- -------------
Statutory operating (costs)/income
included the following:
Amortisation (3,134) (429) - (1,764) (5,327)
Depreciation (2,937) (324) (3) (120) (3,284)
Interest income 107 87 - 58 252
----------------------------------- ------------- ------------- --------- -------------- -------------
Group &
UK Investment Financial consolidation
Management International planning adjustments Total
Year ended 30 June 2019 restated(1) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- ------------- ------------- --------- -------------- --------
Total revenue 87,749 14,609 3,556 28 105,942
Inter segment revenue (292) - - - (292)
--------------------------------------------- ------------- ------------- --------- -------------- --------
External revenue 87,457 14,609 3,556 28 105,650
Underlying administrative costs (43,832) (9,247) (2,926) (28,996) (85,001)
--------------------------------------------- ------------- ------------- --------- -------------- --------
Operating contribution 43,625 5,362 630 (28,968) 20,649
Allocated costs (19,171) (3,180) (2,469) 24,820 -
Net finance income/(costs) 18 (37) - 28 9
--------------------------------------------- ------------- ------------- --------- -------------- --------
Underlying profit/(loss) before tax 24,472 2,145 (1,839) (4,120) 20,658
Goodwill impairment - - - (4,756) (4,756)
Restructuring charge (1,764) (739) - (762) (3,265)
Client relationship contracts impairment - - - (2,328) (2,328)
Amortisation of client relationships
and contracts acquired with fund
managers (787) (420) - (1,039) (2,246)
Changes in fair value of deferred
consideration - - - 419 419
Finance cost of deferred consideration - - - (94) (94)
Changes in fair value of contingent
consideration - - - (75) (75)
Disposal costs - - (21) (12) (33)
Finance income from contingent consideration - - 5 24 29
--------------------------------------------- ------------- ------------- --------- -------------- --------
Profit/(loss) before tax 21,921 986 (1,855) (12,743) 8,309
Taxation (2,454)
Loss from discontinued operations (395)
--------------------------------------------- ------------- ------------- --------- -------------- --------
Profit for the year attributable
to equity holders of the Company 5,460 --------------------------------------------- ------------- ------------- --------- -------------- --------
1. See Note 4 for details regarding the restatement to the UK Investment Management segment as a result of the Authorised Corporate Director ("ACD") fees and associated costs and also the output VAT on Platform MPS.
Group &
UK Investment Financial consolidation
Management International Planning adjustments Total
Year ended 30 June 2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Statutory operating (costs)/income
included the following:
Amortisation (2,304) (433) (135) (1,539) (4,411)
Depreciation (293) (108) (990) - (1,391)
Interest income 19 118 - 61 198
----------------------------------- ------------- ------------- --------- -------------- --------
4. Revenue
2020 2019
restated
GBP'000 GBP'000
-------------------------------- -------- ---------
Portfolio management fee income 95,108 93,789
Financial services commission 481 479
Advisory fees 4,325 4,509
Fund management fees 8,644 6,873
-------------------------------- -------- ---------
Total revenue 108,558 105,650
-------------------------------- -------- ---------
Portfolio management fee income comprises revenue earnt in the UK Investment Management and International segments (Note 3). The financial services commission and advisory fees are generated by the Financial Planning Segment, and some of this revenue is also generated in the International segment. Fund management fees revenue is earnt in the UK Investment Management segment.
Restatement - ACD fees and associated costs
During the year ended 30 June 2020, the Group noted that the recognition of the Authorised Corporate Director ("ACD") fees and associated costs in respect of the IFSL Brooks Macdonald Funds, one of the regulated OEICs managed by the Group, were not in line with the investment management agreement between the Group and the ACD. The revenue recognised in the Group was grossed up whereby the Annual Management Charge and other associated fees levied by the ACD to the OEICs were recognised as revenue, and the fees that are subsequently paid out from this fee recognised as expenses. The Group has no legal obligation to pay the ACD fees and other fund associated costs; therefore, only the investment management fee paid to the Group for acting as the OEIC's Investment Manager should have been recognised in the Group's books as a revenue item. As a result, for the year ended 30 June 2019, reported revenue and costs were overstated by GBP1,212,000. Accordingly, the Consolidated statement of comprehensive income has been restated by this amount to reflect the correct accounting treatment. There was no impact to total comprehensive income and retained earnings. The restatement has impacted the UK Investment Management segment in Note 3, the Portfolio management fee income in the revenue table above and the revenue generated in the United Kingdom per Note 4(a).
Restatement - VAT on Platform MPS
In the light of recent case law, the Group has been undergoing a review of its Managed Portfolio Service ("MPS"), with a view to seeking a ruling from HMRC that MPS is not subject to VAT. When conducting this review, it was noted that the fees received on MPS offered through third party platforms ("Platform MPS") were not being correctly accounted for and historically treated as exempt from VAT. As a result, income derived from this service was overstated, the VAT liability arising on the fees collected was understated and consequently the Group has under-recovered its entitlement to input VAT credit. Upon identification of this error, the Group notified HMRC of the situation and is currently awaiting a response on the resolution of the matter. Since previously reported revenue from Platform MPS was overstated, the Directors concluded it prudent to rectify the error in these Consolidated financial statements.
Accordingly, the Group recognised a prior year adjustment to reduce revenue by GBP408,000 for the output VAT on platform MPS and reduce administrative costs by GBP77,000 for the entitlement to input VAT credit. The decrease to profit before tax as a result of this restatement for the year ended 30 June 2019 was GBP331,000. This reduction in profit before tax has resulted in the income tax expense to be reduced by GBP63,000. The total reduction to total comprehensive income for the year ended 30 June 2019 was GBP268,000. The restatement has impacted the UK Investment Management segment in Note 3, the Portfolio management fee income in the revenue table above and the revenue generated in the United Kingdom per Note 4(a). The Consolidated statement of financial position at 30 June 2019 was restated to reflect this increase in trade and other payables to recognise the additional VAT liability due to HMRC of GBP331,000 and reduce current tax liabilities by the reduced income tax expense of GBP63,000. The opening balances to the comparative information at 1 July 2018 were also restated to reflect the reduction in retained earnings of GBP431,000 and an increase in trade and other payables of GBP431,000.
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.
2020 2019
restated
GBP'000 GBP'000
---------------- -------- ---------
United Kingdom 95,223 91,041
Channel Islands 13,335 14,609
---------------- -------- ---------
Total revenue 108,558 105,650
---------------- -------- ---------
b. Major clients
The Group is not reliant on any one client or group of connected clients for the generation of revenues.
5. Taxation
The tax charge on profit for the year was as follows:
2020 2019
restated(1)
GBP'000 GBP'000
----------------------------------------------- -------- ------------
UK Corporation Tax at 19% (FY19: 19%) 3,991 4,006
Over provision in prior years (66) (419)
----------------------------------------------- -------- ------------
Total current tax 3,925 3,587
Deferred tax credits (674) (808)
Under provision of deferred tax in prior years 462 -
Research and development tax credit (87) (325)
----------------------------------------------- -------- ------------
Income tax expense 3,626 2,454
----------------------------------------------- -------- ------------
1. See Note 4 for details regarding the restatement as a result of the output VAT on Platform MPS.
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:
2020 2019
restated(1)
GBP'000 GBP'000
--------------------------------------------------------- -------- ------------
Profit before taxation from continued operations 10,052 8,309
Loss before taxation from discontinued operations - (395)
--------------------------------------------------------- -------- ------------
Profit before taxation 10,052 7,914
--------------------------------------------------------- -------- ------------
Profit multiplied by the standard rate of tax in the UK
of 19% (FY19: 19%) 1,910 1,504
Tax effect of amounts which are not deductible (taxable)
in calculating taxable income:
Overseas tax losses not available for UK tax purposes (24) (56)
Disallowable expenses 394 178
Share-based payments (139) 327
Depreciation and amortisation 336 (25)
Impairment charges 850 1,346
Non-taxable income (10) (76)
Research and development tax credit (87) (325)
Under/(over) provision in prior years 396 (419)
--------------------------------------------------------- -------- ------------
Income tax expense 3,626 2,454
--------------------------------------------------------- -------- ------------
1. See Note 4 for details regarding the restatement as a result of the output VAT on Platform MPS.
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 year ended 30 June 2019. This resulted in a reduction in the Corporation Tax liabilities in the respective years, and a repayment of GBP87,000 (FY19: GBP325,000) is due from HM Revenue and Customs. The Group will consider whether claims can also be made for qualifying expenditure incurred in the year ended 30 June 2020 and thereafter in due course.
The deferred tax charges/(credits) for the year arise from:
2020 2019
GBP'000 GBP'000
----------------------------------------------------------- -------- --------
Share option reserve (247) (6)
Accelerated capital allowances (91) (96)
Accelerated capital allowances on research and development (154) -
Amortisation of acquired client relationship contracts (224) (712)
Unused overseas trading losses 42 6
----------------------------------------------------------- -------- --------
Deferred tax credits (674) (808)
----------------------------------------------------------- -------- --------
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 2020 is 19% (FY19: 19%).
It was announced on 11 March 2020 (and substantively enacted on 17 March 2020) that the UK Corporation Tax rate would remain at 19% and not reduce to 17% (the previously enacted rate) from 1 April 2020. As a result, the relevant deferred tax balances have been remeasured. Deferred tax assets and liabilities are calculated at the rate that is expected to be in force when the temporary differences unwind, 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 19% (FY19: 17%) and will be reviewed in future years subject to new legislation.
6. Business combinations
On 28 February 2020, the Group acquired the entire share capital of Cornelian Asset Managers Group Limited ("Cornelian"), an Edinburgh based independent, well-established wealth manager with national distribution reach. Cornelian Asset Managers Group Limited had two wholly owned subsidiaries: Cornelian Asset Managers Limited and Cornelian Asset Managers Nominees Limited, which also formed part of the Group on acquisition.
The acquisition has been accounted for using the acquisition method and details of the purchase consideration are as follows:
Note GBP'000
------------------------------------------------ ----- -------
Cash paid i 22,000
Shares issued ii 9,000
Cash paid for final net assets acquired 5,757
Deferred contingent consideration at fair value iii 7,466
------------------------------------------------ ----- -------
Total purchase consideration 44,223
------------------------------------------------------- -------
i. The Group issued 1,690,141 ordinary shares in November 2019 to fund the cash consideration, based on the share price on 21 November 2020 of GBP18.25 discounted by GBP0.50 to GBP17.75 per share.
ii. The Group issued 453,172 ordinary shares to the previous shareholders of Cornelian Asset Managers Group Limited at a price of GBP19.86 per share, based on the share price at 28 February 2020.
iii. The total cash deferred contingent consideration is GBP8,000,000, payable in up to three instalments in March 2021, October 2021 and March 2022, based on the future value of the funds under management acquired, and cost savings and synergies achieved on integrating the business.
The fair value of the deferred consideration liability has been remeasured at 30 June 2020, and remains unchanged, which assumes the deferred consideration criteria will be met resulting in the full GBP8,000,000 to be paid at the various payment dates. The growth of funds under management ("FUM") has been forecast using a similar growth pattern to that experienced by the rest of the Group. The future value of the FUM is dependent on several unpredictable variables including client retention and market movements. The cost savings and synergies are expected to be yielded in full, which has been forecast based on the Group's five-year Medium-Term Plan ("MTP").
Client relationship intangible assets of GBP25,623,000 were recognised on acquisition in respect of the expected cash inflows and economic benefit from the discretionary and fund-management contracts acquired. Goodwill of GBP16,111,000 was recognised on acquisition in respect of the expected growth in the funds under management and associated cash inflows. The fair value of the assets acquired are the gross contractual amounts and all are considered to be fully recoverable. The fair value of the identifiable assets and liabilities acquired, at the date of acquisition, are detailed in (a) below.
Directly attributable acquisition costs of GBP2,229,000 and integration costs, including staff retention costs of GBP1,426,000 were incurred in the acquisition and integration of Cornelian, which have been charged to administrative costs in the Consolidated statement of comprehensive income but excluded from underlying profit.
a. Net assets acquired through business combination
GBP'000
--------------------------------------------------------- -------
Computer software 87
Property, plant and equipment 74
Financial assets at fair value through profit and loss 543
Trade and other receivables 1,244
Cash and cash equivalents 6,655
Trade and other payables (1,229)
Deferred tax liabilities (17)
--------------------------------------------------------- -------
Total net assets recognised by acquired companies 7,357
--------------------------------------------------------- -------
Fair value adjustments:
Client relationship contracts - discretionary business 18,012
Client relationship contracts - fund-management business 7,611
Deferred tax liabilities (4,868)
--------------------------------------------------------- -------
Net identifiable assets 28,112
Goodwill 16,111
--------------------------------------------------------- -------
Total purchase consideration 44,223
--------------------------------------------------------- -------
The trade and other receivables were recognised at their fair value, being the gross contractual amounts.
b. Impact on reported results from date of acquisition
In the period from acquisition to 30 June 2020, Cornelian earned revenue of GBP3,048,000 and statutory profit before tax of GBP452,000. Had Cornelian been consolidated from 1 July 2019, the Consolidated statement of comprehensive income would show revenue of GBP7,328,000 and statutory profit before tax of GBP1,685,000.
c. Net cash outflow resulting from business combinations
GBP'000
------------------------------------------ -------
Total purchase consideration (Note 6a) 44,223
Less:
Shares issued as consideration (9,000)
Deferred cash consideration at fair value (7,466)
------------------------------------------ -------
Cash paid to acquire Cornelian 27,757
Less cash held by Cornelian (6,655)
------------------------------------------ -------
Net cash outflow - investing activities 21,102
------------------------------------------ -------
7. Earnings per share
The Directors believe that underlying earnings per share provide a truer reflection of the Group's performance in the year. Underlying earnings per share, which is an alternative performance measure, are calculated based on 'underlying earnings', which is also an alternative performance measure and is defined as earnings before finance costs of deferred consideration, finance income of contingent consideration, changes in the fair value of deferred and contingent consideration, goodwill impairment, client relationship contracts impairment, amortisation of client relationships and contracts acquired with fund managers, acquisition related costs, head office relocation costs, restructuring charge, business disposal costs and profit or loss from discontinued operations. The tax effect of these adjustments has also been considered.
Earnings for the year used to calculate earnings per share as reported in these Consolidated financial statements were as follows:
2019
2020 restated(1)
GBP'000 GBP'000
------------------------------------------------------------- -------- ------------
Profit from continued operations 6,426 5,855
Loss from discontinued operations - (395)
------------------------------------------------------------- -------- ------------
Earnings attributable to ordinary shareholders 6,426 5,460
Goodwill impairment (Note 9) 4,471 4,756
Acquisition related costs (Note 6 and 18) 4,261 -
Amortisation of acquired client relationship contracts (Note
9) 2,867 2,144
Head office relocation costs 1,166 -
Finance cost of deferred consideration (Note 12) 145 94
Changes in fair value of contingent consideration 54 75
Amortisation of contracts acquired with fund managers (Note
9) 16 102
Finance income of contingent consideration (9) (29)
Restructuring charge - 3,265
Client relationship contracts impairment (Note 9) - 2,328
Changes in fair value of deferred consideration (Note 12) - (419)
Loss from discontinued operations - 395
Disposal costs - 33
Tax impact of adjustments (939) (1,185)
------------------------------------------------------------- -------- ------------
Underlying earnings attributable to ordinary shareholders 18,458 17,019
------------------------------------------------------------- -------- ------------
1. See Note 4 for details regarding the restatement as a result of the output VAT on Platform MPS.
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:
2020 2019(2)
Number Number
of shares of shares
--------------------------------------------------------- ---------- ----------
Weighted average number of shares in issue 14,870,729 13,730,530
Effect of dilutive potential shares issuable on exercise
of employee share options 46,052 6,211
--------------------------------------------------------- ---------- ----------
Diluted weighted average number of shares in issue 14,916,781 13,736,741
--------------------------------------------------------- ---------- ----------
2. The comparative weighted average number of shares have been restated for the effect of new ordinary shares issued at a discount to their market value as part of the share placing issued in November 2019.
Earnings per share for the year attributable to equity holders of the Company were:
2020 2019
restated(1,2)
p p
--------------------------------- ----- --------------
Based on reported earnings:
Basic earnings per share from:
Continuing operations 43.2 42.5
Discontinued operations - (2.8)
--------------------------------- ----- --------------
Total basic earnings per share 43.2 39.7
Diluted earnings per share from:
Continuing operations 43.1 42.6
Discontinued operations - (3.0)
--------------------------------- ----- --------------
Total diluted earnings per share 43.1 39.6
Based on underlying earnings:
Basic earnings per share 124.1 123.6
Diluted earnings per share 123.7 123.5
--------------------------------- ----- --------------
1. See Note 4 for details regarding the restatement as a result of the output VAT on Platform MPS.
2. The comparative weighted average number of shares and therefore basic and diluted earnings per share have been restated for the effect of new ordinary shares issued at a discount to their market value as part of the share placing issued in November 2019.
8. Dividends
Amounts recognised as distributions to equity holders of the Company in the year were as follows:
2020 2019
GBP'000 GBP'000
------------------------------------------------------------- -------- --------
Final dividend paid for the year ended 30 June 2019 of 32.0p
(FY18: 30.0p) per share 4,382 4,123
Interim dividend paid for the year ended 30 June 2020 of
21.0p (FY19: 19.0p) per share 3,298 2,591
------------------------------------------------------------- -------- --------
Total dividends 7,680 6,714
------------------------------------------------------------- -------- --------
Final dividend proposed for the year ended 30 June 2020
of 32.0p (FY19: 32.0p) per share 5,161 4,378
------------------------------------------------------------- -------- --------
The interim dividend of 21.0p (FY19: 19.0p) per share was paid on 24 April 2020.
A final dividend for the year ended 30 June 2020 of 32.0p (FY19: 32.0p) per share was declared by the Board of Directors on 16 September 2020 and is subject to approval by the shareholders at the Company's Annual General Meeting. It will be paid on 6 November 2020 to shareholders who are on the register at the close of business on 25 September 2020. In accordance with IAS 10 'Events After the Reporting Period', the aggregate amount of the proposed dividend expected to be paid out of retained earnings is not recognised as a liability in these Financial statements.
9. Intangible assets
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 2018 35,776 7,768 32,161 3,521 79,226
Additions - 1,106 - - 1,106
----------------------------------------- -------- --------- ------------- --------- --------
At 30 June 2019 35,776 8,874 32,161 3,521 80,332
Additions 16,111 1,614 25,623 - 43,348
Cost of intangible assets on acquisition
of subsidiary - 1,006 - - 1,006
Disposals - (991) - - (991)
----------------------------------------- -------- --------- ------------- --------- --------
At 30 June 2020 51,887 10,503 57,784 3,521 123,695
----------------------------------------- -------- --------- ------------- --------- --------
Accumulated amortisation and impairment
At 1 July 2018 1,986 1,027 12,254 3,403 18,670
Amortisation charge - 2,165 2,144 102 4,411
Impairment 4,756 - 2,328 - 7,084
----------------------------------------- -------- --------- ------------- --------- --------
At 30 June 2019 6,742 3,192 16,726 3,505 30,165
Amortisation charge - 2,444 2,867 16 5,327
Accumulated amortisation of intangible
assets on acquisition of subsidiary - 919 - - 919
Accumulated amortisation on disposals - (991) - - (991)
Impairment 4,471 - - - 4,471
----------------------------------------- -------- --------- ------------- --------- --------
At 30 June 2020 11,213 5,564 19,593 3,521 39,891 ----------------------------------------- -------- --------- ------------- --------- -------- Net book value At 1 July 2018 33,790 6,741 19,907 118 60,556 At 30 June 2019 29,034 5,682 15,435 16 50,167 ----------------------------------------- -------- --------- ------------- --------- -------- At 30 June 2020 40,674 4,939 38,191 - 83,804 ----------------------------------------- -------- --------- ------------- --------- --------
The amortisation charge of intangible assets is recognised within administrative costs in the Consolidated statement of comprehensive income.
a. Goodwill
Goodwill acquired in a business combination is allocated at acquisition to the cash generating units ("CGUs") that are expected to benefit from that business combination. The carrying amount of goodwill in respect of these CGUs within the operating segments of the Group comprises:
2020 2019
GBP'000 GBP'000
----------------------------------------------------------- -------- --------
Funds
Braemar Group Limited ("Braemar") 3,320 3,320
Levitas Investment Management Services Limited ("Levitas") - 4,471
----------------------------------------------------------- -------- --------
3,320 7,791
International
Brooks Macdonald Asset Management (International) Limited
and Brooks Macdonald Retirement Services (International)
Limited (collectively "Brooks Macdonald International") 21,243 21,243
Cornelian
Cornelian Asset Managers Group Limited ("Cornelian") 16,111 -
----------------------------------------------------------- -------- --------
Total goodwill 40,674 29,034
----------------------------------------------------------- -------- --------
During the year ended 30 June 2020, the Group acquired goodwill of GBP16,111,000 in relation to the acquisition of Cornelian (Note 6).
Goodwill is reviewed annually for impairment and its recoverability has been assessed at 30 June 2020 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.
At the end of the previous financial year, the Group entered into a new five-year partnership agreement in relation to Levitas that carried a lower sponsorship fee, the aim of this reduction was to enhance FUM flows and deepen the relationship with the fund distributor. Unfortunately for reasons beyond the Group's control, the anticipated fund inflows have not been forthcoming and the Levitas fund recorded net outflows during the financial year, impacting its rate of growth and future cash flows. Based on an updated value-in-use calculation, the recoverable amount of the Levitas CGU at 30 June 2020 did not support the goodwill balance of GBP4,471,000.
The key underlying assumption of the recoverable amount calculation is the growth in funds under management of the Levitas funds. Given the fund outflows during the year ended 30 June 2020, flat fund flows have been forecast in the next five financial years, resulting in a small recoverable amount that does not support the goodwill balance. As a result, the Levitas goodwill balance has been fully impaired, recognising an impairment of GBP4,471,000, giving a goodwill balance of GBPnil at 30 June 2020. The five-year partnership is still active and fund flows could improve in due course, however given current market conditions, the situation with the fund distributor, and the need for FUM to grow by GBP584 million over the five-year period, it is prudent to write off the accounting goodwill balance in the Levitas CGU at 30 June 2020.
Based on a value-in-use calculation, the recoverable amount of the Brooks Macdonald International CGU at 30 June 2020 was GBP59,063,000, 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 11% (FY19: 12%) has been used, based on the Group's assessment of the risk-free rate of interest and specific risks relating to Brooks Macdonald International. Annual cash inflow growth rates of up to 35% 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 reasonable in the current market and industry conditions. The 2% long-term growth rate applied is considered prudent in the context of the long-term average growth rate for the funds, investment management and financial planning industries in which the CGU operates.
Sensitivity analysis has been performed and an impairment would arise if the following occurred:
-- An increase of the pre-tax discount rate by 8%. -- A decrease in the perpetuity growth rate by 14%. -- A decrease in the pre-tax cash flows by 48% from the forecasts.
Based on a value-in-use calculation, the recoverable amount of the Braemar CGU at 30 June 2020 was GBP49,461,000, indicating that there is no impairment. A pre-tax discount rate of 11% (FY19: 13%) has been used, based on the Group's assessment of the risk-free rate of interest and specific risks relating to Braemar. The key underlying assumptions of the calculation are the discount rate, the growth in funds under management of the funds business and the long-term growth rate. Annual funds under management growth rates of between 22% and 43% for the various funds are forecast in the next five financial years, the period covered by the most recent forecasts, which reflect historic actual growth and planned management activities and are considered to be reasonable in the current market and industry conditions. The 2% long-term growth rate applied is considered prudent in the context of the long-term average growth rate for the funds industry in which the CGU operates. Sensitivity analysis has not been performed given the vast headroom the recoverable amount provides over the goodwill balance.
At 30 June 2020 headroom exists in the calculations of the respective recoverable amounts of these CGUs over the carrying amounts of the goodwill allocated to them, except for Levitas. On this basis, excluding Levitas, the Directors have concluded that there is no impairment required to the goodwill balances at 30 June 2020.
b. Computer software
Costs incurred on internally developed computer software are initially recognised at cost and when the software is available for use, the costs are amortised on a straight-line basis over an estimated useful life of four years.
During the year ended 30 June 2020, the Group conducted a review of the computer software assets and retired assets from the fixed asset register with a GBPnil net book value, and no longer used in the business. This resulted in disposals of computer software, with cost and accumulated amortisation both totalling GBP991,000.
c. Acquired client relationship contracts
This asset represents the fair value of future benefits accruing to the Group from acquired client relationship contracts. The amortisation of client relationships is charged to the Consolidated statement of comprehensive income on a straight-line basis over their estimated useful lives (6 to 20 years). At 30 June 2020, no impairment indicators were present for the acquired client relationship contract intangible assets.
During the year ended 30 June 2020, the Group acquired client relationship contracts totalling GBP25,623,000, as part of the acquisition of Cornelian (Note 6), which were recognised as separately identifiable intangible assets in the Consolidated statement of financial position. The additions included contracts related to the Cornelian discretionary business of GBP18,012,000, with a useful economic life of 20 years, and GBP7,611,000 related to the Cornelian funds-management business, with a useful economic life of six years.
d. Contracts acquired with fund managers
This asset represents the fair value of the future benefits accruing to the Group from contracts acquired with fund managers. Payments made to acquire such contracts are stated at cost and amortised on a straight-line basis over an estimated useful life of five years. At 30 June 2020, no impairment indicators were present for the contracts acquired with fund managers intangible assets.
10. Right of use assets
Property
GBP'000
--------------------------------------------- --------
Cost
At 30 June 2019 -
Adjustment on initial application of IFRS 16 1,799
--------------------------------------------- --------
At 1 July 2019 1,799
Additions 6,692
--------------------------------------------- --------
At 30 June 2020 8,491
--------------------------------------------- --------
Depreciation
At 30 June 2019 -
Adjustment on initial application of IFRS 16 244
--------------------------------------------- --------
At 1 July 2019 244
Depreciation charge 1,256
--------------------------------------------- --------
At 30 June 2020 1,500
--------------------------------------------- --------
Right of use assets
At 30 June 2019 -
--------------------------------------------- --------
At 30 June 2020 6,991
--------------------------------------------- --------
During the year ended 30 June 2020, the Group adopted IFRS 16 resulting in the recognition of right of use assets and corresponding lease liabilities (Note 13). On transition, amounts previously recognised on the Consolidated statement of financial position at 30 June 2019 for prepaid rental expenses and lease incentive accruals were recognised as depreciation. Further details of the application of IFRS 16 can be found in Note 2(c).
The additions relate to additional leases that commenced during the year ended 30 June 2020. The Group received a lease incentive by way of a reverse lease premium, receiving GBP1,250,000, and paid initial direct costs of GBP77,000 in relation to a new lease during the year. These amounts have been included in the calculation for the additional right of use assets during the period. The Group's right of use assets relates solely to property-related leases.
11. 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.
2020 2019
GBP'000 GBP'000
----------------------------------------------------------- -------- --------
Deferred tax assets
Deferred tax assets to be settled after more than one year 430 524
Deferred tax assets to be settled within one year 1,094 699
----------------------------------------------------------- -------- --------
Total deferred tax assets 1,524 1,223
----------------------------------------------------------- -------- --------
Deferred tax liabilities
Deferred tax liabilities to be settled after more than one
year (6,463) (1,566)
Deferred tax liabilities to be settled within one year (767) (712)
----------------------------------------------------------- -------- --------
Total deferred tax liabilities (7,230) (2,278)
----------------------------------------------------------- -------- --------
The gross movement on the deferred income tax account during the year was as follows:
2020 2019
GBP'000 GBP'000
------------------------------------------------------------- -------- --------
At 1 July (1,055) (1,814)
Additional liability on acquisition of client-relationship
intangible assets (Note 6) (4,868) -
Adjustment on acquisition of business combination (17) -
Credit to the Consolidated statement of comprehensive income 212 808
Credit/(charge) recognised in equity 22 (49)
------------------------------------------------------------- -------- --------
At 30 June (5,706) (1,055)
------------------------------------------------------------- -------- --------
The change in deferred income tax assets and liabilities during the year was as follows:
Trading
losses Accelerated
Share-based carried capital
payments forward allowances Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------- ----------- -------- ----------- --------
Deferred tax assets
At 1 July 2018 663 505 8 1,176
Credit/(charge) to the Consolidated statement
of comprehensive income 6 (6) 96 96
Charge to equity (49) - - (49)
-------------------------------------------------- ----------- -------- ----------- --------
At 30 June 2019 620 499 104 1,223
Adjustment on acquisition of business combination - - (17) (17)
Credit/(charge) to the Consolidated statement
of comprehensive income 247 (42) 91 296
Credit to equity 22 - - 22
-------------------------------------------------- ----------- -------- ----------- --------
At 30 June 2020 889 457 178 1,524
-------------------------------------------------- ----------- -------- ----------- --------
The carrying amount of the deferred tax asset is reviewed at each reporting date and is only recognised to the extent that it is probable that future taxable profits of the Group will allow the asset to be recovered.
Accelerated
capital
allowances
on research Intangible Intangible
& development asset amortisation asset amortisation
GBP'000 GBP'000 GBP'000
----------------------------------------------------------- -------------- ------------------- -------------------
Deferred tax liabilities
At 1 July 2018 - 2,990 2,990
Credit to the Consolidated statement of comprehensive
income - (712) (712)
----------------------------------------------------------- -------------- ------------------- -------------------
At 30 June 2019 - 2,278 2,278
Additional liability on acquisition of client-relationship
intangible assets (Note 6) - 4,868 4,868
Credit to the Consolidated statement of comprehensive
income (154) (224) (378)
Under provision in prior years charged to the Consolidated
statement of comprehensive income 462 - 462
----------------------------------------------------------- -------------- ------------------- -------------------
At 30 June 2020 308 6,922 7,230
----------------------------------------------------------- -------------- ------------------- -------------------
12. Deferred consideration
Deferred consideration payable is split between non-current liabilities (see below) and provisions within current liabilities (Note 14) 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:
2020 2019
GBP'000 GBP'000
--------------------------------------------- -------- --------
At 1 July 1,299 2,875
Additions 7,466 -
Finance cost of deferred consideration 145 94
Fair value adjustments - (419)
Payments made during the year (919) (1,251)
--------------------------------------------- -------- -------- At 30 June 7,991 1,299 --------------------------------------------- -------- -------- Analysed as: Amounts falling due within one year 1,691 919 Amounts falling due after more than one year 6,300 380 --------------------------------------------- -------- -------- Total deferred consideration 7,991 1,299 --------------------------------------------- -------- --------
During the year ended 30 June 2020, the Group acquired Cornelian Asset Managers Group Limited (Note 6) and part of the consideration was deferred over a period of up to two years. The total cash deferred consideration of GBP8,000,000 was recognised at its fair value of GBP7,466,000 on acquisition. The deferred consideration is payable in up to three instalments in March 2021, October 2021 and March 2022 based on the future value of the funds under management acquired, and cost savings and synergies achieved on integrating the business. During the period from acquisition to 30 June 2020, the Group recognised a finance cost of GBP110,000 on the Cornelian deferred consideration. The fair value of the Cornelian deferred consideration at 30 June 2020 was GBP7,576,000.
During the year ended 30 June 2020, payments totalling GBP919,000 (FY19: GBP1,251,000) were made to the vendors of Levitas. Full details of the Levitas acquisition are disclosed in Note 13 of the 2015 Annual Report and Accounts. A total increase in the fair value of deferred consideration of GBPnil (FY19: GBP419,000) was recognised during the year in respect of Levitas. The fair value of the Levitas deferred consideration at 30 June 2020 was GBP415,000.
Deferred consideration is classified as Level 3 within the fair value hierarchy.
Amounts falling due after more than one year from the reporting date are presented in non-current liabilities as shown below:
2020 2019
GBP'000 GBP'000
--------------------------------------- -------- --------
At 1 July 380 1,479
Additions 7,466 -
Finance cost of deferred consideration 145 94
Fair value adjustments - (419)
Transfer to current liabilities (1,691) (774)
--------------------------------------- -------- --------
At 30 June 6,300 380
--------------------------------------- -------- --------
An amount of GBP1,691,000 (FY19: GBP774,000), representing deferred consideration payable in respect of the acquisitions of Cornelian and Levitas, was transferred to provisions within current liabilities (Note 14).
13. Lease liabilities
GBP'000
--------------------------------------------- -------
At 30 June 2019 -
Adjustment on initial application of IFRS 16 1,799
--------------------------------------------- -------
At 1 July 2019 1,799
Additions 7,865
Payments made against lease liabilities (2,034)
Interest on lease liabilities 304
--------------------------------------------- -------
At 30 June 2020 7,934
--------------------------------------------- -------
Analysed as:
Amounts falling due within one year 1,275
Amounts falling due after more than one year 6,659
--------------------------------------------- -------
Total lease liabilities 7,934
--------------------------------------------- -------
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's estimated incremental borrowing rate. Further details of the application of IFRS 16 can be found in Note 2(c).
The additions relate to additional leases that commenced during the year ended 30 June 2020.
14. Provisions
Exceptional
costs of
resolving
Client legacy Deferred Leasehold
compensation matters consideration FSCS levy dilapidations Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------------- ----------- -------------- --------- -------------- --------
At 1 July 2018 22 6,225 1,396 689 - 8,332
Charge to the Consolidated
statement of comprehensive
income 100 - - 1,036 416 1,552
Transfer from non-current
liabilities - - 774 - - 774
Utilised during the year (22) (5,524) (1,251) (797) (50) (7,644)
---------------------------- ------------- ----------- -------------- --------- -------------- --------
At 30 June 2019 100 701 919 928 366 3,014
Charge to the Consolidated
statement of comprehensive
income 266 - - 2,171 381 2,818
Additions on acquisition of
subsidiary - - - - 103 103
Transfer from non-current
liabilities - - 1,691 - - 1,691
Utilised during the year (328) (93) (919) (1,598) (470) (3,408)
---------------------------- ------------- ----------- -------------- --------- -------------- --------
At 30 June 2020 38 608 1,691 1,501 380 4,218
---------------------------- ------------- ----------- -------------- --------- -------------- --------
Analysed as:
Amounts falling due within
one year 38 608 1,691 1,501 161 3,999
Amounts falling due after
more than one year - - - - 219 219
---------------------------- ------------- ----------- -------------- --------- -------------- --------
Total provisions 38 608 1,691 1,501 380 4,218
---------------------------- ------------- ----------- -------------- --------- -------------- --------
a. Client compensation
Client compensation provisions relate to the potential liability arising from client complaints against the Group. Complaints are assessed on a case-by-case basis and provisions for compensation are made where judged necessary. The amount recognised within provisions for client compensation represents management's best estimate of the potential liability. The timing of the corresponding outflows is uncertain as these are made as and when claims arise.
b. Exceptional costs of resolving legacy matters
Following a review into legacy matters arising from the former Spearpoint business, which was acquired by the Group in 2012, a provision was recognised for costs of resolving these including associated expenses in the years ended 30 June 2017 and 30 June 2018. These matters relate to a number of discretionary portfolios formerly managed by Spearpoint, now managed by Brooks Macdonald Asset Management (International) Limited, and a Dublin-based fund, for which Spearpoint acted as investment manager. The amount utilised during the year of GBP93,000 represented goodwill payments made to clients of GBP96,000 and net legal fees credit of GBP3,000. The amount remaining at 30 June 2020 of GBP608,000 relates to the remaining goodwill offers yet to be accepted by clients. During the year ended 30 June 2019, a contingent liability was recognised in relation to potential claims related to the legacy matters (Note 16), which is still recognised as at 30 June 2020.
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 2020 was GBP1,691,000 (FY19: GBP919,000). Deferred consideration was recognised on the acquisition of Cornelian Asset Managers Group Limited (Notes 6 and 12). At 30 June 2020, the current deferred consideration in relation to Cornelian was GBP1,277,000.
Deferred consideration was recognised on the previous acquisition of Levitas, and a final annual payment has now been calculated and is due in November 2020. At 30 June 2020, the current deferred consideration in relation to Levitas was GBP414,000.
An amount of GBP1,691,000 (FY19: GBP774,000) was transferred from non-current liabilities, representing amounts falling due within one year of the reporting date. Provisions of GBP919,000 (FY19: GBP1,251,000) were utilised during the year on payment to the vendors of Levitas.
d. FSCS levy
Following confirmation by the FSCS in April 2020 of its final industry levy for the 2020/21 scheme year, the Group has made a provision of GBP1,501,000 (FY19: GBP928,000) for its estimated share.
e. Leasehold dilapidations
Leasehold dilapidations relate to dilapidation provisions expected to arise on leasehold premises held by the Group, and monies due under the contract with the assignee of leases on the Group's leased properties.
As part of the acquisition of Cornelian Asset Managers Group Limited (Note 6), leasehold dilapidations totalling GBP103,000 were acquired.
15. Reconciliation of operating profit to net cash inflow from operating activities
2020 2019
restated(1)
GBP'000 GBP'000
----------------------------------------------------- -------- ------------
Operating profit/(loss)
Continuing operations 10,245 8,176
Discontinued operations - (724)
----------------------------------------------------- -------- ------------
Operating profit 10,245 7,452
Adjustments for:
Amortisation of intangible assets 5,327 4,411
Depreciation of property, plant and equipment 2,028 1,391
Depreciation of right of use assets 1,256 -
Other (gains)/losses - net 4,519 6,928
Decrease/(increase) in receivables 694 (807)
Increase/(decrease) in payables 1,044 (2,172)
Increase/(decrease) in provisions 431 (4,841)
(Decrease)/increase in other non-current liabilities (384) 557
Share-based payments charge 3,571 2,634
Net assets acquired in business combination 7,357 -
----------------------------------------------------- -------- ------------
Net cash inflow from operating activities 36,088 15,553
----------------------------------------------------- -------- ------------
1. See Note 4 for details regarding the restatement as a result of the output VAT on Platform MPS.
16. Guarantees and contingent liabilities
In the normal course of business the Group is exposed to certain legal issues which, in the event of a dispute, could develop into litigious proceedings and in some cases may result in contingent liabilities. Similarly, a contingent liability may arise in the event of an unexpected finding in respect of the Group's tax affairs which could result in a financial outflow to the relevant tax authorities.
A claim for unspecified losses has been made by a client against Brooks Macdonald Financial Consulting Limited, a subsidiary of the Group, in relation to alleged negligent financial advice. The claimant has not yet advised the quantum of their claim so it is not possible to reliably estimate the potential impact of a ruling in their favour. There remains significant uncertainty surrounding the claim and the Group's legal advice indicates that it is not probable that the claim will be upheld; therefore, no provision for any liability has been recognised at this stage.
Brooks Macdonald Asset Management Limited, a subsidiary company of the Group, has an agreement with the Royal Bank of Scotland plc to guarantee settlement for trading with CREST stock on behalf of clients. The Group holds client assets to fund such trading activity.
Additional levies by the Financial Services Compensation Scheme may give rise to further obligations based on the Group's income in the current or previous years. Nevertheless, the ultimate cost to the Group of these levies remains uncertain and is dependent upon future claims resulting from institutional failures.
During the year ended 30 June 2019, a small number of clients rejected goodwill offers made by Brooks Macdonald Asset Management (International) Limited in connection with the exceptional costs of resolving legacy matters (Note 14(b)), which were released from the provision. It is possible that one or more of these clients might issue claims against Brooks Macdonald Asset Management (International) Limited but no such claims have been issued as at 30 June 2020. As a result, it is not possible to estimate the potential outcome of claims or to assess the quantum of any liability with any certainty at this stage.
17. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, are eliminated on consolidation. The Company's individual financial statements include the amounts attributable to subsidiaries. These amounts are disclosed in aggregate in the relevant company financial statements and in detail in the following table:
Amounts owed by Amounts owed to
related parties related parties
----------------------------------------------------- ------------------ ------------------
2020 2019 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------------- -------- -------- -------- --------
Braemar Group Limited - 661 - -
Brooks Macdonald Asset Management Limited - - 22,641 6,993
Brooks Macdonald Asset Management (International)
Limited 14 - - 24
Brooks Macdonald Retirement Services (International)
Limited 29 - - -
Brooks Macdonald Financial Consulting Limited - - 2,638 11,918
Brooks Macdonald Funds Limited - - - 4,786
Brooks Macdonald Nominees Limited - - - 2,583
Levitas Investment Management Services Limited - 9 - -
----------------------------------------------------- -------- -------- -------- --------
All of the above amounts are interest-free and repayable on demand.
The Group manages a number of collective investment funds that are considered related parties. During the year ended 30 June 2019 the Group disposed of their 563,689 class A units in the IFSL Brooks Macdonald Balanced Fund. These transactions were conducted on an arm's length basis.
18. Events since the end of the year
On 24 June 2020, the Group entered into a binding agreement to acquire the Lloyds Bank International's Channel Islands wealth management and funds business, subject to regulatory approval. Lloyds Channel Islands' wealth management and funds business is expected to bring circa GBP1.0 billion of FUM and is a strong fit for the Group. It brings a high-quality discretionary client base, adds a multi-asset and fixed income fund range to the Group's offering, and increases distribution reach through well-established intermediary relationships.
The total consideration is expected to be up to GBP9,630,000, including GBP2,500,000 of regulatory capital, with initial consideration being up to GBP9,300,000. A contingent cash consideration of up to GBP330,000 will be payable two years after completion depending upon the acquired business meeting certain pre-agreed performance targets relating to the retention of portfolio clients. Completion is expected to take place in the fourth quarter of the 2020 calendar year subject to regulatory approval.
The Group incurred costs amounting to GBP606,000 in relation to the acquisition. These have been recognised in the Consolidated statement of comprehensive income and excluded from underlying profit in view of their non-recurring nature.
At the time of approving these Consolidated financial statements, the transaction has not yet completed. Accordingly, these Consolidated financial statements do not reflect the accounting of the acquisition and this will be performed and recognised as at the completion date.
Finance information
The financial information contained within this preliminary announcement has been extracted from the Group's financial statements, which have been approved by the Board of Directors and agreed with the Company's auditors'.
The financial information set out above does not constitute the Group's statutory financial statements for the years ended 30 June 2020 or 2019. Statutory financial statements for 2019 have been delivered to the Registrar of Companies. Statutory financial statements for 2020 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditor has reported on both the 2020 and 2019 financial statements. Their reports were unqualified.
Forward looking statements
This announcement has been prepared to provide information to shareholders to assess the current position and future potential of Brooks Macdonald Group. It contains certain forward-looking statements with respect to the Group's financial condition, operations, and business opportunities. Forward looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from what is expressed or implied by the statements. Any forward-looking statement is made in good faith based on information available to the Directors as of the date of the statement. Past performance cannot be relied on as a guide to future performance.
Financial calendar
Results announcement 17 September 2020 ------------------------------ ----------------- Ex-dividend date for final dividend 24 September 2020 ------------------------------ ----------------- Record date for final dividend 25 September 2020 ------------------------------ ----------------- Annual General Meeting 27 October 2020 ------------------------------ ----------------- Final dividend payment date 6 November 2020 ------------------------------ -----------------
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END
FR SFFFUMESSEEU
(END) Dow Jones Newswires
September 17, 2020 02:00 ET (06:00 GMT)
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