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