Source - RNS
RNS Number : 3787K
Brooks Macdonald Group PLC
21 September 2016
 

BROOKS MACDONALD GROUP PLC

 

ANNUAL REPORT FOR THE YEAR ENDED 30 JUNE 2016

 

 

Brooks Macdonald Group plc ("Brooks Macdonald" or the "Group"), the integrated investment management group, today announces its audited results for the year ended 30 June 2016.

 

 

Year ended

Year ended

 

 

30.06.2016

30.06.2015

Increase

 

 

 

 

Total funds under management ("FUM")

£8.30bn

£7.41bn

12%

Revenue

£81.4m

£77.7m

5%

Underlying pre-tax profit*

£15.5m

£15.1m

3%

Underlying earnings per share*

87.92p

91.33p

(4%)

Pre-tax profit

£15.9m

£11.4m

39%

Earnings per share

94.41p

68.30p

38%

Proposed final dividend

23.0p

20.5p

12%

Total dividends

35.0p

30.5p

15%

*Excludes acquisition costs, finance costs of deferred consideration, changes in fair value of deferred consideration and amortisation of intangible assets.

Business Highlights: 

·      In Brooks Macdonald's 25th year of operation, it reached £8.3bn of discretionary FUM.

·      Substantially, all of the growth of discretionary FUM was organic:

Organic growth (net new discretionary business) of £863m (11.7%) excluding market growth of £25m.

As a comparison, the WMA Balanced index increased by 4.59% over the year.

·      Property assets under administration, managed by Braemar Estates, of £1.10bn (June 2015 £1.14bn).

·      Third-party assets under administration are now in excess of £270m (June 2015: >£255m).

·      A proposed final dividend of 23.0p (2015: 20.5p) per share, resulting in a 15% increase in total dividends proposed for the year of 35.0p (2015: 30.5p).

Commenting on the results and outlook, Chris Macdonald, CEO, said:

"This has been a good year for the business in spite of some significant headwinds from political and market uncertainty.

 

"Brooks Macdonald has come a long way over the last 25 years; we are well positioned strategically, have a strong balance sheet, are growing our brand, have high-quality staff across the Group, are working with an increasing number of professional intermediaries and are constantly developing our investment offering.

 

"We have made a good start to the new financial year, with further organic growth in discretionary FUM and look forward with confidence."

 

 

An analyst meeting will be held at 9.15 for 9.30am on 21 September at the offices of MHP Communications, 6 Agar Street, London, WC2N 4HN. Please contact Charlie Barker on 020 3128 8540 or at [email protected] for further details.

 

 

Enquiries to:

 

Brooks Macdonald Group plc

Chris Macdonald, Group Chief Executive

Simon Jackson, Group Finance Director

Andrew Shepherd, Group Deputy Chief Executive

 

www.brooksmacdonald.com

020 7499 6424

Peel Hunt LLP (Nominated Adviser and Broker)

Guy Wiehahn / Adrian Haxby

 

020 7418 8900

MHP Communications

Reg Hoare / Simon Hockridge / Charlie Barker

 

020 3128 8100

 

Notes to editors

 

Brooks Macdonald Group plc, through its various subsidiaries, provides leading investment management services in the UK and internationally.  The Group, which was established in 1991 and became a member of AIM in 2005, had discretionary funds under management (FUM) of £8.30bn on 30 June 2016.

 

Through its core divisions, Brooks Macdonald offers a range of investment management services to private high-net-worth individuals, pension funds, institutions, charities and trusts. The Group also provides financial planning, as well as offshore fund management and administration services; it also acts as fund manager to regulated OEICs, providing specialist funds in the property and structured return sectors, and manages property assets on behalf of these funds and other clients.

 

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

 

 

 

 

 

CHAIRMAN'S STATEMENT

 

Against a backdrop of considerable market and political uncertainty, the group has made good progress. Discretionary funds under management grew organically in all areas of the business and revenues and profits increased while we continued to invest in the business.

 

Underlying pre-tax profit for the year was £15.5m (2015: £15.1m), a rise of 3%, although underlying earnings per share have fallen to 87.92p (2015: 91.33p). Statutory pre-tax profits for the year grew by 39% to £15.9m (2015: £11.4m), the scale of the increase resulting from a reduction in the estimated deferred consideration payable in future years to the vendors of Levitas Investment Management Services Limited.

 

The board is recommending a final dividend of 23.0p per share which, if approved by shareholders, will result in total dividends for the year of 35.0p. This is an increase of 15% over the total dividends paid the previous year of 30.5p per share. The final dividend will be paid on 28 October 2016 to shareholders on the register at the close of business on 30 September 2016*. We remain cash generative and have a strong balance sheet.

 

The EU referendum had an effect on our results. In the first half of the financial year we decided to postpone the launch of two new funds. In the second half, investment returns were challenging and in the final quarter investor sentiment was certainly weaker. In spite of these market conditions, our discretionary funds under management grew strongly over the year to over £8.30bn (2015: £7.41bn), a rise of 12.0%. This compares favourably to the growth of the WMA Balanced index of 4.6%.

 

We will maintain our investment across the business to sustain our continued growth. This covers investment in research, governance, IT, distribution, marketing and most importantly our staff. Markets have improved since the EU referendum, but sentiment remains volatile. Despite the uncertainties surrounding our exit from the EU and the associated market volatility, we believe the strength of our investment proposition will enable us to deliver good risk-adjusted returns for our clients.

 

Brooks Macdonald was established twenty-five years ago, with three of its founders continuing to be actively involved in the business: Chris Macdonald, Jon Gumpel and Richard Spencer. From a modest office in Park Street employing a handful of people, the business has grown into a highly successful investment management group with twelve offices and nearly 500 staff. We are proud of Brooks Macdonald's history and confident that we can continue to build on what has been achieved over the last quarter century. The future, we believe, is bright.

 

 

Christopher Knight

Chairman

 

20 September 2016

 

 

* The payment timetable disclosed above differs from that reported in the Explanatory Notes to the Annual General Meeting Resolutions (Resolution 3) that have been distributed to shareholders. The dates quoted in this announcement supersede those notes.

 

 

 

 

 

CHIEF EXECUTIVE'S REVIEW

 

Introduction

 

This has been a good year for the business in spite of some significant headwinds. This would not have been possible without the hard work and dedication of all our staff throughout our twelve offices and I would like to thank them for making these results possible.

 

In the first six months of the year, we continued to grow discretionary funds under management and our planned move away from advisory work in our International business. In the second half, investment markets remained challenging but organic growth of discretionary funds remained robust and we have made substantive progress in our distribution model.

 

We have continued with our IT system development, working with three external providers. This is always complex and the time scale for completion has now moved to mid 2017, but I am pleased to report that this still remains on budget. In addition, we have completed our 'brand refresh'. As well as modernising the look and feel of our marketing collateral, this has firmly positioned the business as an Investment Management business, as this remains the key driver of our growth. In line with this strategy, we will be moving our funds and UK asset management business into one brand, Investment Management, in early 2017 (subject to regulatory approvals).

 

Business review

 

Our discretionary funds under management rose to over £8.3bn, an increase of over £880m over the financial year. This represents an increase of 12.0%, of which 11.7% was new business (£863m) and 0.3% (£25m) investment growth. We concluded no acquisitions in the year and this growth was largely generated internally, predominantly via our work with professional introducers. We continue to work with an increasing number (now over 960) of high-quality professional intermediaries throughout the UK and overseas. Pleasingly, our work with this sector shone through in the Citywire Regional Stars awards, where professional advisers voted Brooks Macdonald their preferred discretionary fund manager in 5 of 6 regions of the UK. We remain highly focussed on providing a high-quality service to this sector and thank them for their continued support.

 

Our bespoke discretionary portfolio service ('BPS') remains the premium offering for high-net-worth clients. This continues to gain traction with private clients, pension and trust funds. Pension funds (principally Self Invested Personal Pensions - 'SIPPs') and increasingly ISA portfolios remain a substantial opportunity. We remain confident that the need for an incentive to save remains and that tax-efficient wrappers will form a key component of any strategy in this space. On and offshore we now manage over £6.4bn via our BPS service.

 

Our managed portfolio service ('MPS') is for smaller clients and can be accessed as a portfolio or via a unit managed around a series of risk based mandates. Our portfolio assets now exceed £617m and units £241m. We remain of the view that this will be a strong area of growth in the short, medium and long term.

 

In addition to risk-rated funds, we manage specialist funds which will also move under our new single brand later in the new financial year. Over the last year and into this financial year, we have streamlined our offering to ensure that we have funds that are of scale. Subject to market conditions, we will also look to launch further new products into the market place.

 

The full integration of our international business into the group continued. The teams based in the Channel Islands have worked hard to move the business from a blend of advisory and discretionary business towards acting fully as a discretionary manager. This process continues and while the financial results are disappointing, I am pleased with the progress made in expanding our distribution network outside the UK.

 

We have made a number of management changes in Braemar Estates, our specialist property manager. These started to contribute to growth in the second half. Assets under administration declined marginally over the year (-3.1%).

 

Our financial planning business continued the trend of the prior year. Consulting work rose while employee benefits had a difficult year. Work generated into our Investment Management business remains robust and we will be looking to launch a pension default fund for our employee-benefit clients early this financial year.

 

Industry background

 

Regulatory changes continue apace, with a major focus on MiFID II. This has been postponed until January 2018, but we are ensuring the business is well prepared for the substantial changes around transaction and client reporting.

 

During the financial year, we have seen further consolidation in our sector. I believe that with the increasingly high costs of providing a quality investment service, back office administration and a robust governance structure, consolidation will continue. We remain firmly committed to remaining independent and will certainly look at acquisition opportunities when they arise.

 

Strategies for growth

 

We continue to focus on our core strategies for growth: organic, service and performance development, as well as ongoing investment in the business, in particular on improving our technological delivery. This remains a constant.

 

Our main strategic focus remains working with quality professional advisers. There were 14,491 Adviser firms in the UK at the end of 2015 (source: APFA) of whom around 2,500 fall into our immediate target market. Currently we work with around one-third of this universe and are excited at the prospect of making further progress here.

 

Strategic Alliances form a major part of our strategy and I am pleased that the number of firms we have these relationships with has increased to 19. As well as working with over 960 firms in the UK and overseas, we are looking to deepen our relationships with them and have launched a telephone support team to expand our offering to the wider community.

 

Our regional offices have been a major success for the business since our first office opened outside London in 2005. This has allowed us to service clients and professional advisers from a regional office as well recruiting high-quality staff throughout the UK and Channel Islands.

 

In addition to recruitment, we are always looking to enhance and expand our range of services. In this financial year, we will look to expand our charity proposition, a Tier 1 service for overseas investors and launch a default fund as above.

 

With our recent brand refresh, we will also look to continue the development of our brand further. We are developing an exciting social media presence, have just renewed our sponsorship of Middlesex County Cricket Club and have won a number of investment and property awards over the last year. We also remain one of the very few firms with 5-star ratings from Defaqto for 2016.

 

Summary and outlook

 

While it has been a challenging year, it has been highly productive. We are well positioned strategically, have a strong balance sheet, are growing our brand, have high-quality staff across the group, are working with an increasing number of professional intermediaries and are constantly developing our investment offering. We have made a good start to the new financial year and can look forward with confidence.

 

 

Chris Macdonald

Chief Executive

 

20 September 2016

 

 

 

 

 

STRATEGIC REPORT

 

The market and our services

 

We are an independent investment management firm providing a wide range of investment and wealth management services to private clients, pension funds, charities, professional intermediaries and trustees. Our successful business model works to provide bespoke investment solutions with high-quality professional staff delivering outstanding client service, investment excellence and value for money from each of our eight UK based offices and two offshore offices in Jersey and Guernsey. In addition we have a property management business based in Hale and an investment service business based in the City.

 

A summary of our services

 

Brooks Macdonald manages £8.301 billion for its clients as of 30 June 2016, making us one of the leading private client investment managers. We provide discretionary investment management solutions to private clients, families, charities and trustees. We also provide financial planning advice and employment benefits consultancy to small and medium sized enterprises. Through our funds we provide multi asset and specialist fund products to the retail sector and we have a property estate and building management service for private individuals, institutions and property fund managers.

 

One of the key performance indicators is the growth in the discretionary funds under management in total across all parts of the group which are reported on a quarterly basis throughout the year. The increase in the year is analysed in the table below.

 

 

2016

2015

 

£m

£m

 

 

 

Opening discretionary FUM

7,413

6,550

 

 

 

Net new discretionary business

863

645

Acquisitions

-

-

Investment growth

25

218

Total FUM growth

888

863

 

 

 

Closing FUM

8,301

7,413

 

 

 

Organic growth (net of markets) %

11.6

9.8

Total growth %

12.0

13.2

 

Group performance

 

The group's overall performance for the year is detailed in table 1 below.

 

Table 1

 

2016

2015

 

£m (unless stated)

£m (unless stated)

Total revenue

81.4

77.7

Operating costs

(67.8)

(65.4)

Net financial income and gains

2.3

(0.9)

Profit before tax

15.9

11.4

Underlying profit before tax¹

15.5

15.1

Earnings per share

94.41p

68.30p

Dividends per share²

35.0p

30.5p

Underlying margin3

19.1%

19.4%


¹ A reconciliation between underlying profit before tax and profit before tax is shown in table 2.

² The total interim dividend and the final dividend proposed for the financial year.

³ Underlying profit as a percentage of total revenue

 

Total revenue

 

Total group revenue grew by 5% during the year compared to 12% in the previous year due mainly to a reduction in revenue in the Channel Islands where there was a fall in revenue of over 12% compared to an increase in 2015 of 14%. During the year we decided to more closely align the services in Jersey and Guernsey with the investment management service in the UK and reduced the number of advisory and execution only clients which had a significant impact on the transactional revenue generated in the year. A number of these clients have transferred their funds to a discretionary mandate which we expect will generate a longer term and more consistent revenue stream for the business.

 

We saw revenue growth during the year of 8% in the investment management business and increased revenues for our funds business, financial planning and estates business over the year.

 

Operating costs

 

As in previous years, the major part of the operating costs for the group are in relation to our staff (57%; 2015: 59%) and during the year we saw a small increase in the average number of employees from 467 to 472. Of the total staff costs 24% (2015: 24%) were variable costs. We have continued to invest in our IT systems across all parts of the group, to improve the services offered to our clients. In our investment management business we are working on a large IT project to provide a more fully integrated system which will cover both onshore and offshore clients. We have assembled an internal project team are working with three external software providers and the project has already delivered an improved client portal and a new client relationship management system to work with our professional intermediaries. Once complete during the financial year 2018 the system will provide increased capacity with reduced risk and will deliver operational efficiencies.

 

We continue to operate in an increasingly regulated environment and we have again strengthened our legal, risk and compliance departments by additional recruitment over the last financial year. In 2016 we have seen the levy paid to the Financial Services Compensation Scheme ('FSCS') stabilise at £0.5m (2015: £0.5m).

 

Net financial income and gains

 

When the group makes an acquisition it typically structures the deal whereby there are deferred payments to the vendors over a number of years against pre-agreed funds under management targets. Where these targets change due to unpredictable variables such as new business, client retention and market movements then the value of the deferred consideration changes and these fair value adjustments are made through the Consolidated Statement of Comprehensive Income.

 

During the year one of the original FUM targets for Levitas was not achieved, resulting in a reduction in the amount payable to the vendors of the business. Accordingly, as more fully explained in note 22 to the financial statements, there was a fair value reduction of £3.3m resulting in a gain to consolidated income.

 

Included in total net financial income and gains for the year of £2.3m is this fair value reduction for Levitas, together with other financial income, costs and the group's share of joint venture results as detailed on the Consolidated Statement of Comprehensive Income and the accompanying notes.

 

As disclosed more fully in note 16 to the consolidated financial statements, the group has an investment in a student accommodation fund. During the year the shareholders of the fund approved the sale of the underlying property assets, which resulted in an impairment charge of £0.3m (2015: £0.7m).

 

Underlying profit before tax

 

Underlying profit before tax and underlying earnings per share are non GAAP alternative performance measures, considered by the board to be a better reflection of true business performance than looking at the group's results on a statutory basis only. These measures are widely used by research analysts covering the company. Underlying results exclude expenditure falling into the categories explained below and a full reconciliation between underlying profit and the profit attributable to shareholders is provided in the following table.

 

Table 2: Reconciliation of underlying profit before tax to statutory profit before tax

 

 

 

 

2016

2015

 

£m

£m

 

 

 

Underlying profit before tax

15.5

15.1

Amortisation of intangible assets

(2.6)

(2.7)

Finance cost of deferred consideration

(0.6)

(0.8)

Changes in fair value of deferred consideration

3.6

(0.1)

Acquisition costs

-

(0.1)

Profit before tax

15.9

11.4

 

 

 

 

Amortisation of intangible assets (note 14)

 

Client relationship intangible assets are created in the course of acquiring funds under management. The amortisation charge associated with these assets and software represents a significant non-cash item and it has therefore been excluded from underlying profit, which represents largely cash-based earnings.

 

Finance cost and changes in fair value of deferred consideration

 

When the group makes acquisitions of both corporate entities and teams of fund managers in the course of acquiring funds under management the typical structure of the acquisition, in order to continue to incentivise and motivate the vendors, is to make deferred payments over a period of time based on the retention and growth in funds under management. The initial estimated fair value of the deferred payments will be based on future projections of funds under management and where the actual payment is different from the original estimates then charges or credits will be made in arriving at the profit before tax. The directors consider that the effect of these changes to the original projected payments can distort the results of a particular period and have therefore excluded them from underlying profit.

 

Initial estimates of the deferred cash payments are recognised in the financial statements at their present value based on an inherent rate of implied interest. The difference between the discounted present value of deferred consideration and the estimated future cash payment is recognised as a charge over the duration of the deferral period in arriving at profit before tax. The directors consider that this charge, which is a non-cash item, can distort the results of a particular period and have therefore excluded the charge from underlying profit.

 

Acquisition costs

 

The acquisition costs in 2015 were incurred in relation to the purchase of Levitas Investment Management Services Limited. There were no acquisitions made during this financial year.

 

Cash resources and regulatory capital

 

The group is cash generative and, as detailed in the Consolidated Statement of Cash Flows, there was an increase in cash resources at the year end of £0.2m to £19.5m (2015: £19.3m). The group had no borrowings at 30 June 2016 (2015: £nil).

 

As required under Financial Conduct Authority (FCA) rules and both Jersey and Guernsey Financial Services Commissions we perform a regular Internal Capital Adequacy Assessment Process (ICAAP) and Adjusted Net Liquid Asset (ANLA) calculation which includes performing a range of stress tests to determine the appropriate level of regulatory capital and liquidity that the group needs to hold. Surplus levels of capital are forecast taking into account investment requirements and proposed dividends to ensure that appropriate buffers are maintained. The group's Pillar 3 disclosures are published annually on our website (www.brooksmacdonald.com).

 

Segmental review

 

The group reports its results in four key operating segments: Investment management; Financial planning; Funds and property management; and International.

 

Investment management

 

The UK based investment management service continues to remain the core part of the group contributing 72% (2015: 70%) of the group turnover. Investment management principally provides discretionary investment management to private investors, pension funds, charities and trusts through BPS and MPS. Despite considerable changes within the industry and volatility within the financial markets we have continued to grow FUM as shown in the table above.

 

Financial planning

 

The financial consulting business continues to deliver both fee based financial planning advice to high net-worth families, and employee benefit consultancy to small and medium sized employers throughout the UK. Numbers of clients increased over the course of the year and the division remains a major introducer of new investment management funds to the group. During the year there was further investment in systems and staff and, despite the uncertain economic climate, revenue increased to £4.3m (2015: £4.1m) resulting in a small loss for the year of £0.1m (2015: £0.1m).

 

Funds and property management

 

It has been another year of growth for the funds business across the range of funds it manages. Total FUM increased by 20% to £796m (2015: £663m) at 30 June 2016. This growth was achieved both organically through the net new investment across the range of funds with particularly strong flows of new money into the multi asset funds.

 

The Ground Rents Income Fund performed well during the year with an increase in the net asset value. It was the intention to launch two further property related funds in the second half of the year but due to the result of the EU referendum these were postponed and will be reviewed again during the next financial year.

 

During the year, as a result of slower than anticipated growth of the Liquid Property Fund, the business recognised an impairment charge against its investment in North Row Capital LLP (NRC), in which it has a 60% share, of £0.4m (2015: £nil) together with a share of the losses of NRC for the year of £0.1m (2015: £0.0m).

 

The estates business had an improved year although the value of assets under management marginally declined to £1.10bn (2015: £1.14bn). Following a strategic review of the business and some changes to the board, additional revenue streams were identified which saw an increase in turnover of 9% over the previous year despite the fall in the value of assets under management. As a result the estates business broke even for the year compared to a loss of £0.4m in 2015.

 

International

 

The business saw an increase of FUM during the year of 16% to £1.35bn (2015: £1.16bn) with new business from a number of sources and new jurisdictions including South Africa and the conversion of previously non-managed advisory and execution clients.

As advised at the half year the planned conversion of advisory accounts to discretionary accounts saw a significant reduction in the transactional income of the business during the year with total revenues for the International business falling by 12%. Whilst the associated costs of the advisory clients have been reduced these have not matched the timing of the loss of revenue and together with increased legal fees in the year, particularly dealing with some legacy issues prior to the acquisition, the profit for the year has fallen to £0.5m (2015: £1.3m).

 

The growth in the FUM and the expanded sources of international introductions together with the further rationalisation of the core client proposition in line with that offered in the UK means that the board believes that the business will see an increase in profit in the next financial year.

 

 

 

 

 

INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF BROOKS MACDONALD GROUP PLC

 

Report on the group financial statements

 

Our opinion

 

In our opinion, Brooks Macdonald Group plc's group financial statements (the 'financial statements'):

·      give a true and fair view of the state of the group's affairs as at 30 June 2015 and of its profit and cash flows for the year then ended;

·      have been properly prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union; and

·      have been prepared in accordance with the requirements of the Companies Act 2006.

 

What we have audited

 

The financial statements, included within the Annual Report & Accounts (the 'Annual Report'), comprise:

·      the Consolidated Statement of Financial Position as at 30 June 2016;

·      the Consolidated Statement of Comprehensive Income for the year then ended;

·      the Consolidated Statement of Cash Flows for the year then ended;

·      the Consolidated Statement of Changes in Equity for the year then ended; and

·      the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.

 

The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by the European Union, and applicable law.

 

In applying the financial reporting framework, the directors have made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events.

 

Opinion on other matter prescribed by the Companies Act 2006

 

In our opinion, the information given in the Strategic Report and the Report of the Directors for the financial year for which the financial statements are prepared is consistent with the financial statements.

 

Other matters on which we are required to report by exception

 

Adequacy of information and explanations received

 

Under the Companies Act 2006 we are required to report to you if, in our opinion, we have not received all the information and explanations we require for our audit. We have no exceptions to report arising from this responsibility.

 

Directors' remuneration

 

Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors' remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.

 

Responsibilities for the financial statements and the audit

 

Our responsibilities and those of the directors

 

As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.

 

Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) ('ISAs (UK & Ireland)'). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

 

This report, including the opinions, has been prepared for and only for the parent company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

What an audit of financial statements involves

 

We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:

·      whether the accounting policies are appropriate to the group's circumstances and have been consistently applied and adequately disclosed;

·      the reasonableness of significant accounting estimates made by the directors; and

·      the overall presentation of the financial statements.

 

We primarily focus our work in these areas by assessing the directors' judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements.

 

We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.

 

In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

 

Other matter

 

We have reported separately on the parent company financial statements of Brooks Macdonald Group plc for the year ended 30 June 2016.

 

 

Natasha McMillan (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

 

London

20 September 2016

 

 

 

 

 

BROOKS MACDONALD GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 30 June 2016

 

 

Note

2016

2015

 

 

£'000

£'000

 

 

 

 

Revenue

4

81,399

77,686

Administrative costs

 

(67,794)

(65,371)

Realised gain on investment

5

20

540

Other gains and losses

6

2,857

(754)

 

 

 

 

Operating profit

7

16,482

12,101

 

 

 

 

 

 

 

 

Finance income

9

58

86

Finance costs

9

(577)

(763)

Share of results of joint venture

17

(107)

(4)

 

 

 

 

Profit before tax

 

15,856

11,420

 

 

 

 

 

 

 

 

Taxation

10

(3,117)

(2,269)

 

 

 

 

Profit for the year attributable to equity holders of the Company

 

12,739

9,151

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

Items that may be reclassified subsequently to profit or loss

 

 

 

Revaluation of available for sale financial assets

16

(6)

-

Revaluation reserve recycled to profit or loss

16

-

68

 

 

 

 

 

Total comprehensive income for the year

 

12,733

9,219

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

Basic

11

94.41p

68.30p

Diluted

11

94.07p

68.14p

 

 

 

 

 

 

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

 

 

 

 

 

BROOKS MACDONALD GROUP PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 30 June 2016

 

 

Note

2016

2015

 

 

£'000

£'000

Assets

 

 

 

 

 

 

 

Non-current assets

 

 

 

Intangible assets

14

65,849

65,258

Property, plant and equipment

15

3,309

3,539

Available for sale financial assets

16

1,715

1,532

Investment in joint venture

17

207

628

Trade and other receivables

19

150

-

Deferred tax assets

18

551

709

Total non-current assets

 

71,781

71,666

 

 

 

 

Current assets

 

 

 

Trade and other receivables

19

23,958

21,402

Financial assets at fair value through profit or loss

20

1,000

3

Cash and cash equivalents

21

19,478

19,274

Total current assets

 

44,436

40,679

 

 

 

 

Total assets

 

116,217

112,345

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

Deferred consideration

22

(5,290)

(9,442)

Deferred tax liabilities

18

(3,951)

(4,694)

Other non-current liabilities

23

(114)

(95)

Total non-current liabilities

 

(9,355)

(14,231)

 

 

 

 

Current liabilities

 

 

 

Trade and other payables

24

(18,844)

(16,894)

Current tax liabilities

 

(2,142)

(1,463)

Deferred tax liabilities

18

(84)

(119)

Provisions

25

(2,784)

(5,474)

Total current liabilities

 

(23,854)

(23,950)

 

 

 

 

Net assets

 

83,008

74,164

 

 

 

 

Equity

 

 

 

Share capital

27

137

136

Share premium account

27

35,997

35,600

Other reserves

28

5,517

5,101

Retained earnings

28

41,357

33,327

Total equity

 

83,008

74,164

 

 

 

 

 

The consolidated financial statements were approved by the Board of Directors and authorised for issue on 20 September 2016, signed on their behalf by:

 

C A J Macdonald                                                                             S J Jackson

Chief Executive                                                                               Finance Director

 

Company registration number: 4402058

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

 

 

 

 

 

BROOKS MACDONALD GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 30 June 2016

 

 

Share capital

Share premium

account

Other reserves

Retained earnings

Total

 

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

Balance at 1 July 2014

135

35,147

4,720

27,456

67,458

 

 

 

 

 

 

Comprehensive income

 

 

 

 

 

Profit for the year

-

-

-

9,151

9,151

Other comprehensive income:

 

 

 

 

 

Revaluation reserve recycled

-

-

68

-

68

Total comprehensive income

-

-

68

9,151

9,219

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

Issue of ordinary shares

1

453

-

-

454

Share-based payments

-

-

1,315

-

1,315

Share-based payments transfer

-

-

(1,334)

1,334

-

Purchase of own shares by employee benefit trust

-

-

-

(742)

(742)

Tax on share options

-

-

332

-

332

Dividends paid (note 12)

-

-

-

(3,872)

(3,872)

Total transactions with owners

1

453

313

(3,280)

(2,513)

 

 

 

 

 

 

Balance at 30 June 2015

136

35,600

5,101

33,327

74,164

 

 

 

 

 

 

Comprehensive income

 

 

 

 

 

Profit for the year

-

-

-

12,739

12,739

Other comprehensive income:

 

 

 

 

 

Revaluation of available for sale financial asset

-

-

(6)

-

(6)

Total comprehensive income

-

-

(6)

12,739

12,733

 

 

 

 

 

 

Transactions with owners

 

 

 

 

 

Issue of ordinary shares

1

397

-

-

398

Share-based payments

-

-

943

-

943

Share-based payments transfer

-

-

(806)

806

-

Purchase of own shares by employee benefit trust

-

-

-

(1,143)

(1,143)

Tax on share options

-

-

285

-

285

Dividends paid (note 12)

-

-

-

(4,372)

(4,372)

Total transactions with owners

1

397

422

(4,709)

(3,889)

 

 

 

 

 

 

Balance at 30 June 2016

137

35,997

5,517

41,357

83,008

 

 

 

 

 

 

 

 

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

 

 

 

 

 

BROOKS MACDONALD GROUP PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 30 June 2016

 

 

Note

2016

2015

 

 

£'000

£'000

Cash flow from operating activities

 

 

 

Cash generated from operations

26

17,536

20,094

Taxation paid

 

(2,773)

(1,757)

Net cash generated from operating activities

 

14,763

18,337

 

 

 

 

Cash flows from investing activities

 

 

 

Purchase of property, plant and equipment

15

(751)

(1,558)

Purchase of intangible assets

14

(3,265)

(1,879)

Purchase of available for sale financial assets

16

(500)

(250)

Acquisition of subsidiary companies, net of cash acquired

13

-

37

Deferred consideration paid

22

(3,901)

(9,218)

Interest received

9

58

86

Purchase of financial assets at fair value through profit or loss

20

(1,000)

(40)

Proceeds of sale of property, plant and equipment

 

3

-

Proceeds of sale of financial assets at fair value through profit or loss

20

-

263

Investment in joint venture

17

(86)

(400)

Net cash used in investing activities

 

(9,442)

(12,959)

 

 

 

 

Cash flows from financing activities

 

 

 

Proceeds of issue of shares

 

398

454

Purchase of own shares by employee benefit trust

28

(1,143)

(742)

Dividends paid to shareholders

12

(4,372)

(3,872)

Net cash used in financing activities

 

(5,117)

(4,160)

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

204

1,218

 

 

 

 

Cash and cash equivalents at beginning of year

 

19,274

18,056

Cash and cash equivalents at end of year

21

19,478

19,274

 

 

 

 

 

 

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

 

 

 

 

 

BROOKS MACDONALD GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 30 June 2016

 

 

1.      General information

 

Brooks Macdonald Group plc ('the Company') is the parent company of a group of companies ('the group'), which offers a range of investment management services and related professional advice to private high net worth individuals, charities and trusts. The group also provides financial planning as well as offshore fund management and administration services and acts as fund manager to regulated OEICs, providing specialist funds in the property and structured return sectors and managing property assets on behalf of these funds and other clients.

 

The Company is a public limited company, incorporated and domiciled in the United Kingdom under the Companies Act 2006 and listed on AIM. The address of its registered office is 72 Welbeck Street, London, W1G 0AY.

 

 

2.      Principal accounting policies

 

The general accounting policies applied in the preparation of these financial statements are set out below. These policies have been applied consistently to all years presented, unless otherwise stated.

 

a)      Basis of preparation

 

The group's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) interpretations, as adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared on the historical cost basis, except for the revaluation of available for sale financial assets such that they are measured at their fair value.

 

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

 

b)      Basis of consolidation

 

The group's financial statements are a consolidation of the financial statements of the Company and its subsidiaries. The underlying financial statements of the subsidiaries are prepared for the same reporting year as the Company, using consistent accounting policies. Subsidiaries and structured entities are all entities controlled by the Company, deemed to exist where the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of the subsidiaries are included from the date on which control is transferred to the group to the date that control ceases.

 

All intercompany transactions and balances between group companies are eliminated on consolidation.

 

 

3.      Segmental information

 

For management purposes the group's activities are organised into four operating divisions: Investment management, Financial planning, Funds and property management and International. The group's other activity, offering nominee and custody services to clients, is included within Investment management. These divisions are the basis on which the group reports its primary segmental information. In accordance with IFRS 8 'Operating Segments', disclosures are required to reflect the information which the Board uses internally for evaluating the performance of its operating segments and allocating resources to those segments. The information presented in this note is consistent with the presentation for internal reporting to the group Board of Directors.

 

Revenues and expenses are allocated to the business segment that originated the transaction. Revenues and expenses that are not directly originated by a particular business segment are reported as unallocated. Sales between segments are carried out at arm's length. Centrally incurred expenses are allocated to business segments on an appropriate pro-rata basis. Segmental assets and liabilities comprise operating assets and liabilities, those being the majority of the balance sheet.

 

 

Investment management

Financial

planning

Funds and property management

International

 

 

Total

Year ended 30 June 2016

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

Total segment revenue

58,949

4,387

6,896

11,605

81,837

Inter segment revenue

(238)

(136)

(64)

-

(438)

External revenue

58,711

4,251

6,832

11,605

81,399

 

 

 

 

 

 

Segment result

17,825

(60)

(624)

453

17,594

Unallocated items:

 

 

 

 

 

Changes in fair value of deferred consideration

 

 

 

 

3,343

Other unallocated items

 

 

 

 

(5,081)

Profit before tax

 

 

 

 

15,856

Taxation

 

 

 

 

(3,117)

Profit for the year

 

 

 

 

12,739

 

 

 

 

 

 

 

 

Investment management

Financial

planning

Funds and property management

International

 

 

Total

Year ended 30 June 2015

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

Total segment revenue

54,464

4,191

6,044

13,200

77,899

Inter segment revenue

(101)

(69)

(43)

-

(213)

External revenue

54,363

4,122

6,001

13,200

77,686

 

 

 

 

 

 

Segment result

15,774

(68)

(564)

1,315

16,457

Unallocated items:

 

 

 

 

 

Changes in fair value of deferred consideration

 

 

 

 

(302)

Other unallocated items

 

 

 

 

(4,735)

Profit before tax

 

 

 

 

11,420

Taxation

 

 

 

 

(2,269)

Profit for the year

 

 

 

 

9,151

 

 

 

 

 

 

 

a)      Geographic analysis

 

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

 

 

2016

2015

 

£'000

£'000

 

 

 

United Kingdom

69,794

64,486

Channel Islands

11,605

13,200

Total revenue

81,399

77,686

 

 

 

 

b)      Major clients

 

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

 

 

4.      Revenue

 

 

2016

2015

 

£'000

£'000

 

 

 

Fee income

69,273

66,443

Financial services commission

125

235

Advisory and other income

12,001

11,008

Total revenue

81,399

77,686

 

 

 

 

 

5.      Realised gain on investment

 

During the year ended 30 June 2016, the group realised an additional gain of £20,000 (2015: £540,000) on final disposal of its investment in Sancus Holdings Limited through the voluntary winding up of the company (note 16).

 

 

6.      Other gains and losses

 

Other gains and losses represent the net changes in the fair value of the group's financial instruments recognised in the Consolidated Statement of Comprehensive Income.

 

 

2016

2015

 

£'000

£'000

 

 

 

Impairment of available for sale financial assets (note 16)

(311)

(718)

Impairment of investment in joint venture (note 17)

(400)

-

Loss from changes in fair value of financial assets at fair value through profit or loss (note 20)

(3)

(252)

Gain from changes in fair value of deferred consideration (note 22)

3,571

216

Other gains and losses

2,857

(754)

 

 

 

 

 

7.      Operating profit

 

Operating profit is stated after charging:

 

 

2016

2015

 

£'000

£'000

 

 

 

Staff costs (note 8)

38,716

38,558

Acquisition costs (see below)

-

120

Auditors' remuneration (see below)

380

280

Financial Services Compensation Scheme Levy (see below)

475

510

Depreciation (note 15)

969

990

Amortisation (note 14)

2,674

2,708

 

 

 

 

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

 

 

2016

2015

 

£'000

£'000

 

 

 

Fees payable to the Company's auditor for the audit of the consolidated group and parent company financial statements

56

61

Fees payable to the Company's auditor and its associates for other services:

 

 

-    Audit of the Company's subsidiaries pursuant to legislation

230

185

-    Audit-related assurance services

70

34

-    Other advisory services

24

-

Total auditors' remuneration

380

280

 

 

 

 

Acquisition costs

 

Administrative costs for the year ended 30 June 2016 include no directly attributable business acquisition costs (2015: £120,000).

 

Financial Services Compensation Scheme levies

 

Administrative costs for the year ended 30 June 2016 include a charge of £475,000 (2015: £510,000) in respect of the Financial Services Compensation Scheme ('FSCS') levy. This includes the group's levy for the 2016/17 scheme year of £470,000.

 

 

8.      Employee information

 

a)      Staff costs

 

 

2016

2015

 

£'000

£'000

 

 

 

Wages and salaries

33,491

32,670

Social security costs

3,053

3,129

Other pension costs

1,145

1,331

Share-based payments

1,027

1,428

Total staff costs

38,716

38,558

 

 

 

 

Pension costs relate entirely to a defined contribution scheme.

 

b)      Number of employees

 

The average monthly number of employees during the year, including directors, was as follows:

 

 

2016

2015

 

 

 

Professional staff

190

183

Administrative staff

282

284

Total staff

472

467

 

 

 

 

c)      Key management compensation

 

The compensation of the key management personnel of the group, defined as the group Board of Directors including both the executives and non-executives, is set out below.

 

 

2016

2015

 

£'000

£'000

 

 

 

Short-term employee benefits

2,466

2,434

Post-employment benefits

25

25

Share-based payments

445

346

Total compensation

2,936

2,805

 

 

 

 

d)      Directors' emoluments

 

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

 

 

2016

2015

 

£'000

£'000

 

 

 

Salaries and bonuses

2,209

2,209

Non-executive directors' fees

234

208

Benefits in kind

23

17

 

2,466

2,434

Pension contributions

25

25

Amounts receivable under long term incentive schemes

445

378

Total directors' remuneration

2,936

2,837

 

 

 

 

The aggregate amount of gains made by directors on the exercise of share options during the year was £109,000 (2015: £913,000). Retirement benefits are accruing to one director (2015: six) under a defined contribution pension scheme.

 

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

 

 

2016

2015

 

£'000

£'000

 

 

 

Remuneration and benefits in kind

500

528

Amounts receivable under long term incentive schemes

93

68

Total remuneration

593

596

 

 

 

 

The amount of gains made by the highest paid director on the exercise of share options during the year was £25,000 (2015: £90,000).

 

 

9.      Finance income and finance costs

 

 

2016

2015

 

£'000

£'000

Finance income

 

 

 

 

 

Bank interest on deposits

58

86

Total finance income

58

86

 

 

 

Finance costs

 

 

 

 

 

Bank interest payable

-

3

Finance cost of deferred consideration

577

760

Total finance costs

577

763

 

 

 

 

 

10.    Taxation

 

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

 

 

2016

2015

 

£'000

£'000

 

 

 

UK Corporation Tax at 20.00% (2015: 20.75%)

3,262

2,776

Under / (over) provision in prior years

448

(231)

Total current tax

3,710

2,545

Deferred tax credits

(259)

(276)

Effect of change in tax rate on deferred tax

(334)

-

Income tax expense

3,117

2,269

 

 

 

 

Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

 

The tax on the group's profit before tax differs from the theoretical amount that would arise using the time apportioned tax rate applicable to profits of the consolidated entities in the UK as follows:

 

 

2016

2015

 

£'000

£'000

 

 

 

Profit on ordinary activities before tax

15,856

11,420

 

 

 

Profit on ordinary activities multiplied by the standard rate of tax in the UK of 20.00% (2015: 20.75%)

3,171

2,370

 

 

 

Tax effect of:

 

 

-    Lower tax rates in other countries in which the group operates

(77)

(255)

-    Disallowable expenses

(91)

385

-    Change in rate of Corporation Tax applicable to deferred tax

(334)

-

-    Under provision / (over provision) in prior years

448

(231)

Tax charge for the year

3,117

2,269

 

 

 

 

The deferred tax credits totalling £259,000 (2015: £276,000) represent a charge of £185,000 (2015: £28,000 charge) arising from the share option reserve at the balance sheet date, a credit of £35,000 (2015: £117,000 charge) relating to accelerated capital allowances and a credit of £409,000 (2015: £421,000) arising from the amortisation of acquired client relationship contracts.

 

On 1 April 2016, the standard rate of Corporation Tax in the UK was reduced to 20%. As a result the effective rate of Corporation Tax applied to the taxable profit for the year ended 30 June 2016 is 20.00% (2015: 20.75%).

 

In addition to the change in the rate of UK Corporation Tax disclosed above, the Finance (No.2) Act 2015, which was substantively enacted in October 2015, will further reduce the main rate of UK Corporation Tax to 19% in 2017 and 18% in 2020. Deferred tax assets and liabilities are calculated at the rate that is expected to be in force when the temporary differences unwind, but limited to the extent that such rates have been substantively enacted. The tax rate used to determine the deferred tax assets and liabilities is therefore 18% (2015: 20%) and will be reviewed in future years subject to new legislation.

 

 

11.    Earnings per share

 

The directors believe that underlying earnings per share provide a truer reflection of the group's performance in the year. Underlying earnings per share are calculated based on 'underlying earnings', which is defined as earnings before acquisition costs, finance costs of deferred consideration, changes in the fair value of deferred consideration and amortisation of intangible assets. The tax effect of these adjustments has also been considered.

 

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

 

 

2016

2015

 

£'000

£'000

 

 

 

Earnings attributable to ordinary shareholders

12,739

9,151

Acquisition costs (note 7)

-

120

Finance cost of deferred consideration (note 9)

577

760

Changes in fair value of deferred consideration (note 22)

(3,571)

70

Amortisation (note 14)

2,674

2,708

Tax impact of adjustments

(556)

(571)

Underlying earnings attributable to ordinary shareholders

11,863

12,238

 

 

 

 

Basic earnings per share is calculated by dividing earnings attributable to ordinary shareholders by the weighted average number of shares in issue throughout the year. Diluted earnings per share represents the basic earnings per share adjusted for the effect of dilutive potential shares issuable on exercise of employee share options under the group's share-based payment schemes, weighted for the relevant period.

 

The weighted average number of shares in issue during the year was as follows:

 

 

2016

2015

 

Number of shares

Number of shares

 

 

 

Weighted average number of shares in issue

13,493,316

13,399,031

Effect of dilutive potential shares issuable on exercise of employee share options

48,220

30,996

Diluted weighted average number of shares in issue

13,541,536

13,430,027

 

 

 

 

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

 

 

2016

2015

 

p

p

Based on reported earnings:

 

 

Basic earnings per share

94.41

68.30

Diluted earnings per share

94.07

68.14

 

 

 

Based on underlying earnings:

 

 

Basic earnings per share

87.92

91.33

Diluted earnings per share

87.60

91.12

 

 

 

 

 

12.    Dividends

 

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

 

 

2016

2015

 

£'000

£'000

 

 

 

Final dividend paid for the year ended 30 June 2015 of 20.5p (2014: 19.0p) per share

2,758

2,535

Interim dividend paid for the year ended 30 June 2016 of 12.0p (2015: 10.0p) per share

1,614

1,337

Total dividends

4,372

3,872

 

 

 

Final dividend proposed for the year ended 30 June 2016 of 23.0p (2015: 20.5p) per share

3,101

2,757

 

 

 

 

The interim dividend of 12.0p (2015: 10.0p) per share was paid on 26 April 2016.

 

A final dividend for the year ended 30 June 2016 of 23.0p (2015: 20.5p) per share was declared by the Board of Directors on 20 September 2016 and is subject to approval by the shareholders at the Company's annual general meeting. It will be paid on 28 October 2016 to shareholders who are on the register at the close of business on 30 September 2016. In accordance with IAS 10 'Events After the Reporting Period', this dividend has not been included as a liability in these financial statements.

 

 

13.    Business combinations

 

On 31 July 2014, the group exercised its option to acquire the entire share capital of Levitas Investment Management Services Limited ('Levitas'). Full details of the acquisition are disclosed in note 13 of the 2015 Annual Report and Accounts. There have been no adjustments to the goodwill recognised in relation to the acquisition of Levitas.

 

 

14.    Intangible assets

 

 

Goodwill

Computer

software

Acquired

client

relationship

contracts

Contracts

acquired with

fund

managers

Total

 

£'000

£'000

£'000

£'000

£'000

Cost

 

 

 

 

 

 

 

 

 

 

 

At 1 July 2014

24,793

411

32,747

3,048

60,999

Additions

-

1,405

-

474

1,879

Additions on acquisition of subsidiaries at fair value

11,213

-

-

-

11,213

At 30 June 2015

36,006

1,816

32,747

3,522

74,091

Additions

-

3,265

-

-

3,265

At 30 June 2016

36,006

5,081

32,747

3,522

77,356

 

 

 

 

 

 

Accumulated amortisation

 

 

 

 

 

 

 

 

 

 

 

At 1 July 2014

-

269

3,771

2,085

6,125

Amortisation charge

-

129

2,167

412

2,708

At 30 June 2015

-

398

5,938

2,497

8,833

Amortisation charge

-

132

2,177

365

2,674

At 30 June 2016

-

530

8,115

2,862

11,507

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

 

 

 

 

 

At 1 July 2014

24,793

142

28,976

963

54,874

At 30 June 2015

36,006

1,418

26,809

1,025

65,258

At 30 June 2016

36,006

4,551

24,632

660

65,849

 

 

 

 

 

 

 

a)      Goodwill

 

Goodwill acquired in a business combination is allocated at acquisition to the cash generating units ('CGUs') that are expected to benefit from that business combination. The carrying amount of goodwill at 30 June 2016 comprises £3,550,000 in respect of the Braemar Group Limited ('Braemar') CGU, £21,243,000 in respect of the Brooks Macdonald Asset Management (International) Limited, Brooks Macdonald Retirement Services (International) Limited and DPZ (collectively 'Brooks Macdonald International') CGU and £11,213,000 in respect of the Levitas Investment Management Services Limited ('Levitas') CGU.

 

Goodwill is reviewed annually for impairment and its recoverability has been assessed at 30 June 2016 by comparing the carrying amount of the CGUs to their expected recoverable amount, estimated on a value-in-use basis. The value-in-use of each CGU has been calculated using pre-tax discounted cash flow projections based on the most recent budgets approved by the relevant subsidiary company boards of directors, covering a period of up to five years. Cash flows are then extrapolated beyond the forecast period using an expected long-term growth rate.

 

Based on the value-in-use calculation, at 30 June 2016 the calculated recoverable amount of the Brooks Macdonald International CGU was £43,172,000, indicating that there is no impairment. The key underlying assumptions of the calculation are the discount rate, the short-term growth in earnings and the long-term growth rate of the business. A pre-tax discount rate of 8.45% has been used, based on the group's assessment of the risk-free rate of interest and specific risks relating to Brooks Macdonald International. Annual earnings growth rates of between 23% and 65% are forecast over the next five financial years, the period covered by the most recent forecasts, which reflect historic actual growth and planned management actions and are considered to be achievable given current market and industry trends. The 2% long-term growth rate applied is considered prudent in the context of the long-term average growth rate for the funds, investment management and financial planning industries in which the CGU operates.

 

In relation to the Levitas CGU, based on the value-in-use calculation the calculated recoverable amount at 30 June 2016 was £17,910,000, indicating that there is no impairment. The key underlying assumptions of the calculation are the discount rate, the growth in funds under management of the Levitas funds and the long-term growth rate of the business. A pre-tax discount rate of 8.45% has been used, based on the group's assessment of the risk-free rate of interest and specific risks relating to Levitas. Annual funds under management growth rates of between 20% and 48% are forecast in the next five financial years, the period covered by the most recent forecasts, which reflect historic actual growth and planned management activities and are considered to be achievable given current market and industry trends. The 2% long-term growth rate applied is considered prudent in the context of the long-term average growth rate for the funds industry in which the CGU operates.

 

The key assumptions inherent in the value-in-use calculations for the Braemar CGU were similarly a pre-tax discount rate of 8.45%, annual revenue growth rates ranging from 12% to 20% and a long-term growth rate of 2%.

 

Significant headroom exists in the calculations of the respective recoverable amounts of these CGUs over the carrying amounts of the goodwill allocated to them. On this basis, the directors have concluded that there is no impairment. The directors consider that no reasonably foreseeable change in any of the key assumptions would result in an impairment of goodwill, given the margin by which the estimated recoverable amounts of the CGUs exceed the carrying amounts of the goodwill allocated to each.

 

b)      Computer software

 

Software costs are amortised over an estimated useful life of four years on a straight line basis.

 

c)      Acquired client relationship contracts

 

This asset represents the fair value of future benefits accruing to the group from acquired client relationship contracts. The amortisation of client relationships is charged to the Consolidated Statement of Comprehensive Income on a straight line basis over their estimated useful lives (15 to 20 years).

 

d)      Contracts acquired with fund managers

 

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

 

 

15.    Property, plant and equipment

 

 

Motor vehicles

Fixtures and fittings

Equipment and leasehold improvements

Total

 

£'000

£'000

£'000

£'000

Cost

 

 

 

 

 

 

 

 

 

At 1 July 2014

35

2,087

5,814

7,936

Additions

25

69

1,528

1,622

Disposals

-

(64)

-

(64)

At 30 June 2015

60

2,092

7,342

9,494

Additions

-

19

732

751

Disposals

(27)

-

-

(27)

At 30 June 2016

33

2,111

8,074

10,218

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

 

 

 

 

At 1 July 2014

13

959

3,993

4,965

Depreciation charge

15

307

668

990

At 30 June 2015

28

1,266

4,661

5,955

Disposals

(15)

-

-

(15)

Depreciation charge

9

232

728

969

At 30 June 2016

22

1,498

5,389

6,909

 

 

 

 

 

Net book value

 

 

 

 

 

 

 

 

 

At 1 July 2014

22

1,128

1,821

2,971

At 30 June 2015

32

826

2,681

3,539

At 30 June 2016

11

613

2,685

3,309

 

 

 

 

 

 

 

16.    Available for sale financial assets

 

 

2016

2015

 

£'000

£'000

 

 

 

At beginning of year

1,532

2,182

Additions

500

250

Disposals

-

(250)

Loss from changes in fair value

(6)

-

Accumulated loss on revaluation reserve recycled

-

68

Impairment loss

(311)

(718)

At end of year

1,715

1,532

 

 

 

 

The group holds investments of 1,426,793.64 class B ordinary shares, representing an interest of 10.88%, in Braemar Group PCC Limited Student Accommodation Cell ('Student Accommodation Fund'); 750,000 zero dividend preference shares in GLI Finance Limited ('GLIF'), a listed company incorporated in Guernsey; and 500,000 redeemable preference shares in an unlisted company incorporated in the UK.

 

The Student Accommodation Fund is promoted by Brooks Macdonald Funds Limited, a subsidiary of the group. The shareholders of the fund approved a resolution in May 2016 to sell the underlying property portfolio of the fund to a third party. The shares will subsequently be compulsorily redeemed out of the remaining net assets of the fund following the sale, although this process had not been completed at 30 June 2016. The group has therefore estimated the fair value of the group's investment at 30 June 2016 at £471,000 (2015: £782,000) based on the most recent information made available to investors about the consideration payable for the assets of the fund and the expected net asset value per share after adjusting for the costs associated with the sale. An impairment loss of £311,000 (2015: £718,000) was recognised in the Consolidated Statement of Comprehensive Income during the year, reflecting this perceived permanent diminution of value of the group's shareholding.

 

During the year, the group realised an additional gain of £20,000 (2015: £540,000) on the final distribution of proceeds from the voluntary liquidation of Sancus Holdings Limited ('SHL'), an unlisted company incorporated in Guernsey. The disposal of the group's investment in SHL was recognised in the year ended 30 June 2015 and the gain is included within realised gain on investment in the Consolidated Statement of Comprehensive Income. Further details are disclosed in note 16 to the 2015 Annual Report and Accounts.

 

At 30 June 2016, the fair value of the group's GLIF preference shareholding was £744,000 (2015: £750,000), based on their bid price on the London Stock Exchange. The reduction in fair value of £6,000 (2015: £nil) is recognised within other comprehensive income in the Consolidated Statement of Comprehensive Income.

 

During the year, the group acquired 500,000 redeemable preference shares in an unlisted company with a par value of £1 at a cost of £500,000. The preference shares are redeemable at par any time after five years from the date of issue (8 April 2016) and bear an entitlement to a fixed preferential dividend of 8% per annum of the nominal value of the shares. The fair value of the preference shares has been estimated at £500,000 based on a discounted cash flow analysis.

 

The table below provides an analysis of the financial instruments that, subsequent to initial recognition, are measured at fair value. These are grouped into the following levels within the fair value hierarchy, based on the degree to which the inputs used to determine the fair value are observable:

 

·        Level 1 - derived from quoted prices in active markets for identical assets or liabilities at the measurement date;

 

·        Level 2 - derived from inputs other than quoted prices included within level 1 that are observable, either directly or indirectly; and

 

·        Level 3 - derived from inputs that are not based on observable market data.

 

 

Level 1

Level 2

Level 3

Total

 

£'000

£'000

£'000

£'000

Braemar Group PCC Limited Student Accommodation Cell

-

-

471

471

Unlisted redeemable preference shares

-

-

500

500

GLIF preference shares

744

-

-

744

Total

744

-

971

1,715

 

 

 

 

 

 

During the year, the Student Accommodation Fund investment was transferred from level 2 to level 3. As no active market exists for the shares and there has been no recent announcement of the net asset value of the fund, the group has applied valuation techniques that are not based on observable market data.



 

17.    Investment in joint venture

 

Brooks Macdonald Funds Limited, a subsidiary of Brooks Macdonald Group plc, holds a 60% interest in North Row Capital LLP, a UK Limited Liability Partnership. The group has joint control over the partnership, with the remaining interest owned by two individual partners who developed the investment approach behind the IFSL North Row Liquid Property Fund. The fund was launched in February 2014 and offers investors liquid exposure to global real estate markets.

 

 

2016

2015

 

£'000

£'000

 

 

 

At beginning of year

628

232

Working capital advanced in the year

86

400

Impairment loss

(400)

-

Share of loss of joint venture

(107)

(4)

At end of year

207

628

 

 

 

 

An impairment loss of £400,000 was recognised during the year (2015: £nil) to reduce the carrying amount of the group's investment in North Row Capital LLP to its estimated recoverable amount. The expense is included within other gains and losses on the Consolidated Statement of Comprehensive Income. Based on the most recent forecasts, the future cash flows from the partnership will accumulate slower than originally anticipated and as a result it will take longer for the group to realise a cash return on its investment in the joint venture.

 

 

18.    Deferred income tax

 

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

 

 

2016

2015

 

£'000

£'000

Deferred tax assets

 

 

 

 

 

Deferred tax assets to be settled after more than 12 months

190

207

Deferred tax assets to be settled within 12 months

361

502

Total deferred tax assets

551

709

 

 

 

Deferred tax liabilities

 

 

 

 

 

Deferred tax liabilities to be settled after more than 12 months

(3,951)

(4,694)

Deferred tax liabilities to be settled within 12 months

(84)

(119)

Total deferred tax liabilities

(4,035)

(4,813)

 

 

 

 

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

 

 

2016

2015

 

£'000

£'000

 

 

 

At 1 July

(4,104)

(4,308)

Credit to the Statement of Comprehensive Income (note 10)

593

276

Credit recognised in other comprehensive income

-

-

Credit / (charge) recognised in equity

27

(72)

Additions on acquisition of subsidiaries

-

-

At 30 June

(3,484)

(4,104)

 

 

 

 

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

 

 

Share-based payments

 

 

£'000

 

Deferred tax assets

 

 

 

 

 

At 1 July 2014

809

 

Charge to the Statement of Comprehensive Income

(28)

 

Charge to equity

(72)

 

At 30 June 2015

709

 

Charge to the Statement of Comprehensive Income

(185)

 

Charge to equity

27

 

At 30 June 2016

551

 

 

 

 

 

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

 

 

Accelerated capital allowances

Available for sale financial assets

Intangible asset amortisation

Total

 

£'000

£'000

£'000

£'000

Deferred tax liabilities

 

 

 

 

 

 

 

 

 

At 1 July 2014

2

-

5,115

5,117

Credit to the Statement of Comprehensive Income

117

-

(421)

(304)

Charge to other comprehensive income

-

-

-

-

At 30 June 2015

119

-

4,694

4,813

Additions on acquisition of subsidiaries

-

-

-

-

Debit/ (credit) to the Statement of Comprehensive Income

(35)

-

(743)

(778)

Charge to other comprehensive income

-

-

-

-

At 30 June 2016

84

-

3,951

4,035

 

 

 

 

 

 

 

19.    Trade and other receivables

 

 

2016

2015

 

£'000

£'000

Non-current assets

 

 

Loans receivable

150

-

Total non-current trade and other receivables

150

-

 

 

 

Current assets

 

 

Trade receivables

5,939

5,854

Other receivables

2,518

3,426

Prepayments and accrued income

15,501

12,122

Total current trade and other receivables

23,958

21,402

 

 

 

 

At 30 June 2016 there was a loan receivable outstanding, issued by Brooks Macdonald Asset Management (International) Limited to a third party for £150,000 (2015: £150,000). The loan is now repayable after more than one year from the reporting date. At 30 June 2015 the loan was included as a current asset within other receivables. No impairment was recognised during the year (2015: £nil).

 

 

20.    Financial assets at fair value through profit or loss

 

 

2016

2015

 

£'000

£'000

 

 

 

At beginning of year

3

478

Additions

1,000

40

Disposals

-

(263)

Loss from change in fair value

(3)

(252)

At end of year

1,000

3

 

 

 

 

These investments are classified as Level 1 as defined in note 16.

 

 

21.    Cash and cash equivalents

 

 

2016

2015

 

£'000

£'000

 

 

 

Cash at bank

19,437

19,240

Cash held in employee benefit trust

41

34

Total cash and cash equivalents

19,478

19,274

 

 

 

 

Cash and cash equivalents are distributed across a range of financial institutions with high credit ratings in accordance with the group's treasury policy. Cash at bank comprises current accounts and immediately accessible deposit accounts.

 

 

22.    Deferred consideration

 

Deferred consideration is split between non-current liabilities (see below) and provisions within current liabilities (note 25) to the extent that it is due for payment within one year of the reporting date. It reflects the directors' best estimate of amounts payable in the future in respect of certain client relationships and subsidiary undertakings that were acquired by the group. Deferred consideration is measured at its fair value based on discounted expected future cash flows. The movements in the total deferred consideration balance during the year were as follows:

 

 

2016

2015

 

£'000

£'000

 

 

 

At 1 July

13,826

11,236

Added on acquisitions during the year

-

11,264

Finance cost of deferred consideration

577

760

Fair value adjustments

(3,571)

(216)

Payments made during the year

(3,901)

(9,218)

At 30 June

6,931

13,826

 

 

 

Analysed as:

 

 

 

 

 

Amounts falling due within one year

1,641

4,384

Amounts falling due after more than one year

5,290

9,442

Total deferred consideration

6,931

13,826

 

 

 

 

No additions to deferred consideration (2015: £11,264,000) were recognised in the year. Payments totalling £3,901,000 (2015: £9,218,000) were made during the year, representing the final payment of £524,000 to the vendor of JPAM Limited ('JPAM'); the final payment of £2,130,000 to vendors of DPZ; and a further payment of £1,247,000 to vendors of Levitas.

 

A reduction in the fair value of deferred consideration of £3,571,000 (2015: £216,000) was recognised during the year, with a corresponding gain recognised within other gains and losses on the Consolidated Statement of Comprehensive Income. This included an adjustment to reduce the fair value of deferred consideration in respect of Levitas by £3,343,000. The amount payable is based on the incremental growth in FUM of the TM Levitas funds, measured at annual intervals. As forecast growth was not achieved during year, the FUM forecast was subsequently revised and the estimated future deferred consideration payments reduced accordingly. Adjustments were also made to reduce the fair value of the deferred consideration attributable to DPZ by £225,000 and JPAM by £3,000 to the amount of the final payments made to the vendors.

 

Deferred consideration is classified as Level 3 within the fair value hierarchy, as defined in note 16.

 

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

 

 

2016

2015

 

£'000

£'000

 

 

 

At 1 July

9,442

2,943

Added on acquisitions during the year

-

11,264

Finance cost of deferred consideration

498

482

Changes in fair value of deferred consideration

(3,343)

-

Transfer to current liabilities

(1,307)

(5,247)

At 30 June

5,290

9,442

 

 

 

 

During the year, no deferred consideration was recognised on acquisitions (2015: £11,264,000 was recognised in relation to the acquisition of Levitas). An amount of £1,307,000 (2015: £5,247,000), representing deferred consideration payable in respect of the acquisition of Levitas, was transferred to provisions within current liabilities. A range of final outcomes for the expected total deferred consideration payable cannot be estimated as the future value of the funds under management is dependent on several unpredictable variables, including client retention and market movements.

 

 

23.    Other non-current liabilities

 

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

 

 

2016

2015

 

£'000

£'000

 

 

 

At 1 July

95

115

Additional liability in respect of LTIS awards

76

74

Transfer to current liabilities

(57)

(94)

At 30 June

114

95

 

 

 

 

The additional liability was recognised during the year of £76,000 (2015: £74,000) in respect of existing LTIS awards, granted in previous years, that are expected to vest in the future. During the year, an amount of £57,000 (2015: £94,000) was transferred to current liabilities, reflecting awards that are expected to vest within the next 12 months.

 

 

24.    Trade and other payables

 

 

2016

2015

 

£'000

£'000

 

 

 

Trade payables

4,870

2,854

Other taxes and social security

2,509

2,580

Other payables

219

1,429

Accruals and deferred income

11,246

10,031

Total trade and other payables

18,844

16,894

 

 

 

 

Included within accruals and deferred income in 2016 is an accrual of £179,000 (2015: £282,000) in respect of employer's National Insurance contributions arising from share option awards under the LTIS.

 

The options have been valued using a Black Scholes model based on the market price of the Company's shares at the grant date. The total charge to the Consolidated Statement of Comprehensive Income for the year for all Phantom Share Option Schemes and employer's National Insurance contributions arising from share option awards under the LTIS was £84,000 (2015: £114,000).

 

 

25.    Provisions

 

 

Client compensation

Deferred consideration

FSCS levy

Total

 

£'000

£'000

£'000

£'000

 

 

 

 

 

At 1 July 2014

503

8,293

351

9,147

Charge to the Statement of Comprehensive Income

400

-

510

910

Added on acquisitions during the year

-

2,304

-

2,304

Finance cost of deferred consideration

-

278

-

278

Fair value adjustments

-

(216)

-

(216)

Transfer from non-current liabilities

-

2,943

-

2,943

Utilised during the year

(202)

(9,218)

(472)

(9,892)

At 30 June 2015

701

4,384

389

5,474

Charge to the Statement of Comprehensive Income

125

-

475

600

Added on acquisitions during the year

-

-

-

-

Finance cost of deferred consideration

-

79

-

79

Fair value adjustments

-

(228)

-

(228)

Transfer from non-current liabilities

-

1,307

-

1,307

Utilised during the year

(153)

(3,901)

(394)

(4,448)

At 30 June 2016

673

1,641

470

2,784

 

 

 

 

 

 

a)      Client compensation

 

Client compensation provisions relate to the potential liability arising from client complaints against the group. Complaints are assessed on a case by case basis and provisions for compensation are made where judged necessary.

 

b)      Deferred consideration

 

Deferred consideration has been included within provisions as a current liability to the extent that it is due for payment within one year of the reporting date. The amount outstanding at 30 June 2016 was £1,641,000 (2015: 4,384,000) and relates entirely to the Levitas acquisition.

 

An amount of £1,307,000 (2015: £2,943,000) was transferred from non-current liabilities, representing payments made during the year and provisions for amounts falling due within one year of the reporting date. Provisions of £3,901,000 (2015: £9,218,000) were utilised during the year on payment of £524,000 to the vendor of JPAM, £2,130,000 to the vendors of DPZ, and £1,247,000 to vendors of Levitas.

 

c)      FSCS levy

 

Following confirmation by the FSCS in April 2016 of its final industry levy for 2016/17, the group has made a provision of £470,000 (2015: £502,000) for its estimated share.



 

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

 

 

2016

2015

 

£'000

£'000

 

 

 

Operating profit

16,482

12,101

 

 

 

Adjustments for:

 

 

Depreciation of property, plant and equipment

969

990

Loss on sale of fixed assets

9

-

Amortisation of intangible assets

2,674

2,708

Other gains and losses

(2,857)

1,004

(Increase) / decrease in receivables

(2,706)

67

Increase in payables

1,950

1,693

Increase in provisions

53

236

Increase / (decrease) in non-current liabilities

19

(20)

Share-based payments

943

1,315

Net cash inflow from operating activities

17,536

20,094

 

 

 

 

In the year ended 30 June 2015, the group obtained control of Levitas. The net cash outflow resulting from this business combination is presented in note 13(c) on page 42 of the 2015 Annual Report and Accounts.

 

 

27.    Share capital and share premium account

 

The movements in share capital and share premium during the year were as follows:

 

 

Number of shares

Exercise

price

Share

capital

Share premium

account

Total

 

 

p

£'000

£'000

£'000

 

 

 

 

 

 

At 1 July 2014

13,592,175

 

135

35,147

35,282

Shares issued:

 

 

 

 

 

-    on exercise of options

29,500

155.5 - 290.5

-

50

50

-    to Sharesave Scheme

38,545

916.0 - 1,054.0

1

403

404

At 30 June 2015

13,660,220

 

136

35,600

35,736

Shares issued:

 

 

 

 

 

-    on exercise of options

19,400

215.0 - 290.5

-

53

53

-    to Sharesave Scheme

29,550

1,054.0 - 1,386.0

1

344

345

At 30 June 2016

13,709,170

 

137

35,997

36,134







 

The total number of ordinary shares issued and fully paid at 30 June 2016 was 13,709,170 (2015: 13,660,220) with a par value of 1p per share.

 

Shares issued on exercise of options and to Sharesave Scheme members resulted in a £1,000 increase in share capital in the year ended 30 June 2016 (2015: £1,000).

 

Employee Benefit Trust

 

The group established an Employee Benefit Trust ('EBT') on 3 December 2010 to acquire ordinary shares in the Company to satisfy awards under the group's Long Term Incentive Scheme ('LTIS') and other share-based payment schemes. At 30 June 2016, the EBT held 228,208 (2015: 207,532) 1p ordinary shares in the Company, acquired for a total consideration of £3,376,000 (2015: £2,803,000) with a market value of £3,774,000 (2015: £3,668,000). They are classified as treasury shares in the Consolidated Statement of Financial Position, their cost being deducted from retained earnings within shareholders' equity.

 

 

28.    Other reserves and retained earnings

 

Other reserves are comprised of the following balances:

 

 

2016

2015

 

£'000

£'000

 

 

 

Share option reserve

5,331

4,909

Merger reserve

192

192

Available for sale reserve

(6)

-

Total other reserves

5,517

5,101

 

 

 

 

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

 

 

2016

2015

 

£'000

£'000

Share option reserve

 

 

 

 

 

At beginning of the year

4,909

4,596

Share-based payments

943

1,315

Transfer to retained earnings

(806)

(1,334)

Tax on share-based payments

285

332

At end of the year

5,331

4,909

 

 

 

 

 

 

Available for sale reserve

 

 

 

 

 

At beginning of the year

-

(68)

Revaluation of available for sale financial assets

(6)

-

Recycling of reserve due to impairment

-

68

At end of the year

(6)

-

 

 

 

 

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

 

 

2016

2015

 

£'000

£'000

 

 

 

At beginning of the year

33,327

27,456

Profit for the financial year

12,739

9,151

Purchase of own shares by Employee Benefit Trust

(1,143)

(742)

Transfer from share option reserve

806

1,334

Dividends paid

(4,372)

(3,872)

At end of the year

41,357

33,327

 

 

 

 

 

29.    Events since the end of the year

 

The group disposed of its entire holding of GLIF zero dividend preference shares in July 2016 for proceeds of £735,000, representing a total realised loss on disposal of £15,000.

 

The sale of the underlying property portfolio of the Student Accommodation Fund completed on 1 July 2016 and the listing of the cell's ordinary shares on the Channel Islands Securities Exchange was cancelled on 5 July 2016. The final net asset value of the fund had not been determined at the date of signing these financial statements but is expected to available by the end of September 2016, with final payment of the redemption monies anticipated in October 2016.

 


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