TIDMBRK
RNS Number : 3772M
Brooks Macdonald Group PLC
14 September 2023
14 September 2023
BROOKS MACDONALD GROUP PLC
Final results for the year ended 30 June 2023
Solid financial performance, strategy continuing to deliver
Brooks Macdonald Group plc ("Brooks Macdonald" or "the Group")
today announces its audited results for the year ended 30 June
2023.
Andrew Shepherd, CEO of Brooks Macdonald, commented:
"I'm pleased to report a year of strategic progress and solid
financial performance for Brooks Macdonald, highlighting once more
the resilience of our strategy and our business model. Despite
market headwinds we delivered 5.2% net flows and robust underlying
profit margin. Although the economic climate continued to affect
investor sentiment, we delivered consistent positive net flows,
demonstrating the strength of both our proposition and our
relationships with clients and advisers.
"As we look ahead, our focus remains on ensuring we are well
positioned to support clients, advisers and our people. This
underpins our ambition and the plans we have in place to take
advantage of the long-term opportunity. Supported by a strong
capital position, our proven strategy, and motivated people, we
look to the future with confidence."
Solid financial performance
-- Group Funds Under Management ("FUM") reaching GBP16.8 billion
(FY22: GBP15.7 billion), up 7.5% on prior year
-- Positive net flows every quarter, 5.2% at Group level for the
full year (FY22: 4.8%), with the third quarter highest at an
annualised level of 9.2%
-- Robust investment performance given market conditions of 2.3%
for the year, ahead of the 1.6% increase in the MSCI PIMFA Private
Investor Balanced Index
-- Revenue of GBP123.8 million (FY22: GBP122.2 million), up 1.3%
driven by positive net flows and investment performance, a
contribution from acquisitions(1) , and increased interest income,
partly offset by product mix effects
-- Underlying profit of GBP30.3 million(2) (FY22: GBP34.5
million), maintaining a robust underlying profit margin of 24.5%
(FY22: 28.2%), in line with the Group's commitment to deliver top
quartile margins, despite difficult market conditions and the
impact of cost pressures
-- Strong capital position with a robust balance sheet,
including an appropriate buffer over regulatory capital
requirements
-- Full year dividend up 5.6% to 75.0p (FY22: 71.0p) reflecting
the Board's confidence in the Group's medium-term growth ambitions.
Eighteenth successive annual dividend increase since the shares
started trading on AIM.
Strategic progress
-- Continued strong growth in the Group's Platform Managed
Portfolio Service ("PMPS"), including BM Investment Solutions
("BMIS"), its B2B offering for advisers, with overall PMPS FUM up
70% over the year, now over 20% of Group FUM
-- Continued progress in Bespoke Portfolio Service ("BPS")
specialist products with FUM up almost 50% over the period in the
Decumulation Service, partly offsetting net outflows in core BPS in
line with the market
-- Core investment management processes successfully transferred
to the platform provided by SS&C, the Group's technology
partner
-- Acquisitions completed of Integrity Wealth Solutions and
Adroit Financial Planning, extending and enhancing the Group's
existing financial planning capabilities.
Outlook
-- Net flows expected to remain positive for full year FY24,
despite short-term macroeconomic headwinds which are likely to
result in negative net flows for Q1 and may affect the timing of
delivery of our medium-term 8-10% p.a. net flow ambition
-- Changing product mix will continue to affect average revenue yield
-- Benefits expected from the operational leverage from our
SS&C relationship as FUM increases over the medium term
-- Continuing to review potential acquisition targets to
complement organic growth, in line with the Group's strategy
-- Group's processes and client-centric culture proving well
aligned to the requirements of the FCA's new Consumer Duty
Principle, requiring firms to deliver good outcomes for retail
customers
-- Structural growth opportunity remains highly attractive,
underpinned by demographics, government policy, increasing use of
advice, fragmented nature of the market.
1 The underlying figures represent the results for the Group's
continuing activities excluding certain adjusting items as listed
in the Financial Review. These represent an alternative performance
measure ("APM") for the Group. R efer to the Non-IFRS financial
information section for a glossary of the Group's APMs, their
definition, and the criteria for how underlying adjustments are
considered . A reconciliation between the Group's statutory and
underlying profit before tax is also included in the Financial
Review.
2 The underlying figures represent the results for the Group's
continuing activities excluding certain adjusting items as listed
in the Financial Review. These represent an alternative performance
measure ("APM") for the Group. R efer to the Non-IFRS financial
information section for a glossary of the Group's APMs, their
definition, and the criteria for how underlying adjustments are
considered . A reconciliation between the Group's statutory and
underlying profit before tax is also included in the Financial
Review.
Key financial results
Year ended Year ended Change
30.06.2023 30.06.2022
Funds under management ("FUM") GBP16.8bn GBP15.7bn 7.5%
Net flows 5.2% 4.8% 0.4ppt
Revenue GBP123.8m GBP122.2m 1.3%
Underlying results(3)
Underlying profit before tax GBP30.3m GBP34.5m (12.2)%
Underlying profit margin before
tax 24.5% 28.2% (3.7)ppt
Underlying basic earnings per share 153.8p 174.1p (20.3)p
Underlying diluted earnings per
share 151.0p 168.7p (17.7)p
Statutory results
Statutory profit before tax GBP22.2m GBP29.5m (24.7)%
Statutory profit margin before tax 17.9% 24.1% (6.2)ppt
Statutory basic earnings per share 114.7p 149.0p (34.3)p
Statutory diluted earnings per share 112.6p 144.4p (31.8)p
Net cash GBP53.4m GBP61.3m (12.9)%
Dividends
Proposed final dividend per share 47.0p 45.0p 4.4%
Total dividend per share 75.0p 71.0p 5.6%
3 The underlying figures represent the results for the Group's
continuing activities excluding certain adjusting items as listed
in the Financial Review. These represent an alternative performance
measure ("APM") for the Group. R efer to the Non-IFRS financial
information section for a glossary of the Group's APMs, their
definition, and the criteria for how underlying adjustments are
considered . A reconciliation between the Group's statutory and
underlying profit before tax is also included in the Financial
Review.
Conference call and investor presentation details
There will be a Q&A session for analysts and investors at
9:30 a.m. today via webcast and conference call. For details please
contact FTI Consulting on +44 (0) 07976 870961 or
brooksmacdonald@fticonsulting.com
A video presentation and presentation slides will be available
from 7:30 a.m. today by going to the Investor Relations section of
Brooks Macdonald's website using the following link:
https://www.brooksmacdonald.com/investor-relations
Enquiries to:
Brooks Macdonald Group plc www.brooksmacdonald.com
Andrew Shepherd, CEO 020 7927 4816
Andrea Montague, CFO
Peel Hunt LLP (Nominated Adviser and
Broker)
Paul Shackleton / Andrew Buchanan / John
Welch 020 7418 8900
FTI Consulting brooksmacdonald@fticonsulting.com
Edward Berry 07703 330199
Notes to editors
Brooks Macdonald Group plc, through its various subsidiaries,
provides leading investment management services in the UK and
internationally. The Group, which was founded in 1991 and began
trading on AIM in 2005, had discretionary Funds under Management of
GBP16.85 billion as at 30 June 2023.
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 international investment management,
and acts as fund manager to a range of onshore and international
funds.
The Group has fifteen offices across the UK and Crown
Dependencies including London, Birmingham, Cheltenham, East Anglia,
Exeter, Leeds, Manchester, Nuneaton, Southampton, Tunbridge Wells,
Scotland, Wales, Jersey, Guernsey and Isle of Man.
LEI: 213800WRDF8LB8MIEX37
www.brooksmacdonald.com / @BrooksMacdonald
Chairman's statement
Introduction
Brooks Macdonald has had another good year, delivering solid
financial performance and continued strategic progress. Funds under
management ("FUM") finished the year at GBP16.8 billion (FY22:
GBP15.7 billion), up 7.5% due to the combination of strong net
flows and solid investment performance in turbulent markets.
Despite volatile market conditions driving weaker investor
sentiment, the Group achieved positive net flows every quarter. Net
flows for the year were 5.2%, slightly ahead of last year's 4.8%,
with the annualised rate of 9.2% in the third quarter (three months
to 31 March) being particularly pleasing.
Our team works every day to protect and enhance our clients'
wealth, and our Centralised Investment Process, embedded across the
business, continues to deliver strong performance over the medium
and longer term. Overall Group investment performance for this
financial year was 2.3%, slightly ahead of the MSCI PIMFA Private
Investor Balanced Index, which was up 1.6%.
Performance overview
The Group once again delivered growth at the FUM and revenue
level, with revenue of GBP123.8 million (FY22: GBP122.2 million).
Cost pressures meant that underlying profit before tax was GBP30.3
million, down 12.2% on last year (FY22: GBP34.5 million), and
underlying diluted earnings per share ("EPS") was down 10.5% to
151.0p (FY22: 168.7p).
Statutory profit before tax fell 24.7% to GBP22.2 million (FY22:
GBP29.5 million). Statutory basic EPS fell 23.0% to 114.7p (FY22:
149.0p).
Delivering our strategy
We have a clear strategy based on the three value drivers of
market-leading organic growth, service and operational excellence,
and selective high-quality M&A. We have continued to deliver
against all three drivers:
-- Our organic growth has been underpinned by our Platform
Managed Portfolio Service ("PMPS"), including our
business-to-business offering, BM Investment Solutions, with
organic net new business of 65.6% for the financial year. PMPS now
accounts for 20.7% of Group total FUM (FY22: 13.1%).
-- We have continued to embed our processes on the platform
provided by our technology partner, SS&C, and continued our
digital transformation, migrating our financial planning activities
to Intelliflo and (just after financial year end) implementing
Salesforce for client relationship management.
-- We completed two acquisitions, Integrity Wealth Solutions and Adroit Financial Planning.
The acquisitions have built on our existing financial planning
capabilities and we will shortly be moving to an organisation more
explicitly structured around our intermediary business on one hand,
and our developing Private Clients business on the other.
Dividend
The Board has recommended a final dividend of 47.0p (FY22:
45.0p), which, subject to approval by shareholders, will result in
total dividends for the year of 75.0p (FY22: 71.0p). This
represents an increase of 5.6% in total dividend on the previous
year and underlines the Board's confidence in the prospects for the
Group. The final dividend will be paid on 3 November 2023 to
shareholders on the register at the close of business on 22
September 2023.
Board changes
There were several changes to the Board during the financial
year. In January, we announced that Chief Financial Officer, Ben
Thorpe, and Chief Operating Officer, Lynsey Cross, would be leaving
the business in due course and would be standing down from the
Board with immediate effect.
In February, we announced that the Chairman, Alan Carruthers,
was leaving the Board due to ill health. I would like to take this
opportunity to reiterate the gratitude of the Group to Alan for the
immense contribution he made to Brooks Macdonald during his tenure.
The Group also announced that I would take over as Acting Chairman,
pending a permanent replacement being appointed.
Later in February, we announced that James Rawlingson was being
appointed Non-Executive Director with effect from 2 March 2023. He
took over as Chair of the Audit Committee in May, following receipt
of regulatory approval.
Finally in June, we announced that Andrea Montague would join
the Board as an Executive Director with effect from 1 August 2023,
and take over as Chief Financial Officer, subject to regulatory
approval.
Looking ahead
The industry continues to be subject to regulatory change, with
the FCA's new Consumer Duty rules going live on 31 July, shortly
after the financial year end. We welcome the new Consumer Principle
that requires firms to act to deliver good outcomes for retail
customers and our processes and client-centric culture are proving
well aligned to the new requirements.
Demographic and pension policy trends continue to underpin the
strategic opportunity for the UK wealth sector in general, and
Brooks Macdonald in particular, despite the continuing
macroeconomic uncertainty, the improving interest rate environment
for savers, and their impact on investor sentiment. The Group
continues to deliver solid performance and robust cash generation,
with a strong balance sheet. We have supportive shareholders and
our employees continue to deliver outstanding service to our
clients and intermediaries. We look to the future with
confidence.
Richard Price
Acting Chairman
13 September 2023
CEO's review
Introduction
I am happy to report that this has been another successful year
for Brooks Macdonald, with our strategy and business model
continuing to deliver solid performance despite challenging
macroeconomic conditions.
Our focus on our purpose of realising ambitions and securing
futures ensures we keep our clients at the forefront of our minds,
while also providing for our other stakeholders - our employees,
intermediaries and shareholders.
Delivering our strategy
Three value drivers underpin our strategy: strong organic
growth, service and operational excellence, and selective
high-quality acquisitions. We are committed to delivering top
quartile underlying profit margins, and we have also set
medium-term ambitions of delivering 8-10% net flows and becoming a
Top 5 wealth manager in the UK and Crown Dependencies. The
sustainable and scalable business model we have put in place
positions us well to achieve those ambitions and we continue to
make progress, ready to capitalise on the growth opportunities we
see ahead.
We completed two acquisitions in the first half of the financial
year - first, Integrity Wealth Solutions ("Integrity") based in
Nuneaton and then Adroit Financial Planning ("Adroit") in
Manchester. We have worked with both firms over a number of years,
delivering outsourced investment management. These acquisitions add
critical financial planning capability and leadership as we build
our Private Clients business. We continue to see a steady pipeline
of potential acquisitions and M&A will remain an important
contributor to achieving our goals.
We have spent considerable time putting in place sound
foundations for our Private Clients business and, looking forward,
we are now moving to make it increasingly visible. The business
proposition for our Private Clients business - integrated wealth
management - is quite distinct from the outsourced investment
management we offer to our intermediaries and we will increasingly
manage the two businesses separately. Of course, both will continue
to be underpinned by the rigour and quality of our Centralised
Investment Process, which is embedded across the Group.
Financial performance
We had a year of solid financial performance in FY23, continuing
to deliver on our medium-term commitment to top quartile margins,
although the underlying margin fell 3.7 points to 24.5%, reflecting
market conditions and cost pressures. We delivered solid revenue
and underlying profit levels of GBP123.8 million and GBP30.3
million respectively.
Statutory profit before tax also fell, to GBP22.2 million (FY22:
GBP29.5 million).
Our year-end closing FUM was GBP16.8 billion. Net flows were
positive in all quarters (and indeed months), 5.2% at Group level
for the full year, peaking at an annualised level of 9.2% in the
third quarter. Total FUM was up 7.5% over the year, with strong
flows supported by solid investment performance. We have a healthy
pipeline going into FY24, although market conditions are keeping
client sentiment subdued.
Investment performance and market conditions
Investment performance for the year came in at 2.3%, slightly
ahead of the MSCI PIMFA Private Investor Balanced Index, which rose
1.6%. Our investment performance was ahead of the ARC peer
benchmark for the year, and remains ahead of ARC for the 10-year
measure, and in line with peers over the medium term.
Financial markets remained volatile over the year with sticky
inflation pressures keeping central bank monetary policy tight.
While inflation has been steadily falling in the United States,
UK inflation has remained stubborn and it is less clear at what
level it will settle in the post COVID-19 world. Against this
backdrop central banks have been eager to show their commitment to
battle inflation, causing bond markets to price in higher interest
rates for longer. Our short-duration bond allocation was well
positioned for this repricing of bond markets and allowed
portfolios to weather the recent rises in gilt yields as well as
those around the UK mini-budget of last year. We have maintained
our overweight to equity markets, which has supported performance
over the year, although some of these gains in international
equities have been offset by a stronger sterling in the second half
of the financial year. Brooks Macdonald outperformed the peer
benchmark for all risk profiles over the year.
Looking ahead, we expect inflation to continue to fall in Europe
and the UK, but for uncertainty around the new 'normal' level of
inflation to lead to further volatility within bond and equity
markets. We are retaining our overweight position to equity markets
but maintaining our balance between value and growth investment
styles to allow portfolios to perform in multiple economic
scenarios.
Review of business performance
UK Investment Management
Across UK Investment Management ("UKIM"), our people have once
again worked incredibly hard to provide exceptional levels of
support to their clients and intermediaries. We have seen positive
net flows throughout the year, reaching an annualised rate of 12.0%
at UKIM level in the third quarter. BM Investment Solutions
("BMIS"), our business-to-business offering, where we work with an
adviser firm to provide a tailored service aligned to the
objectives of the clients and the firm, was once again the
strongest performer for net flows, followed by our Platform Managed
Portfolio Service ("PMPS").
In our flagship Bespoke Portfolio Service ("BPS") product, UKIM
has continued to see good growth in our specialist offerings, the
AIM Portfolio Service, the Responsible Investment Service, our
Decumulation Service, and our Court of Protection service. We have
also successfully delivered portfolios based on short-dated UK
Government bonds for investors looking to take advantage of higher
interest rates while retaining access to funds. Beyond the
specialist offerings and the gilt portfolios, however, BPS saw net
outflows driven by a broad market trend, exacerbated by the impact
of higher interest rates and macroeconomic uncertainty.
Although our Funds business had another challenging year, with
persistent net outflows in line with much of the sector, we
continue to see multi-asset funds as a major potential source of
growth for Brooks Macdonald. We have confidence in the actions we
have already taken to drive medium-term growth and we are reviewing
what further steps we should be taking.
During the year, we added Integrity's office in Nuneaton to our
portfolio of offices, bringing the total to 15 across the UK and
the Crown Dependencies.
Private Clients
We have continued to develop our Private Clients business,
adding Integrity and Adroit to our existing activities. We were
delighted to welcome Martin Lindsey and Neil Jefferies, and their
respective teams, to the Group and look forward to working with
them to enhance and grow our capabilities in this area. We are
increasingly offering clients an integrated wealth management
proposition with robust financial planning linked to a Brooks
Macdonald investment management solution, retaining our independent
financial advice for more complex cases or where the client
specifically requests it.
International
In International, Richard Hughes and team have had a difficult
year commercially, with continued elevated outflows, but we see
improving prospects in the coming months, with new products and
focus bringing renewed confidence. The International business is
now fully integrated with the Group and is leading the way on our
private client focus.
People
I am personally committed to a strong people agenda and I see
our client-centric culture as one of our greatest assets. We
continue both to invest in our people and to bring in strong new
hires to add to our talent pool. I was pleased to announce in
December that our General Counsel, Simon Broomfield, was in
addition taking on the role of Chief People Officer ("CPO"), and
Simon is now driving forward our people strategy.
Simon taking on the CPO role was one of a number of changes in
the Executive Committee this year, as several colleagues left the
business - our Chief Financial Officer, Ben Thorpe, our Chief
Operating Officer, Lynsey Cross, and our Chief Risk Officer, Priti
Verma, as well as our previous CPO, Tom Emery, all moved on and
they leave with our gratitude and best wishes. This allowed us to
promote internal talent, Simon to CPO and Caroline Abbondanza from
Chief Technology Officer to Chief Operating Officer, and to bring
in two new hires from outside the organisation.
Andrea Montague became our new Chief Financial Officer on 1
August and Louis Petherick as Chief Risk Officer on 4 September,
both subject to regulatory approval. Andrea was most recently Group
Chief Risk Officer at Aviva, having been previously Group Chief
Financial Controller, and Louis joins from FNZ UK, where he was
Chief Risk Officer. I am delighted to welcome Andrea and Louis to
the Group, and I am pleased with the strength of our new management
team.
Outlook
The fundamental market opportunity for the Group is excellent,
with an ageing population and a supportive policy environment
alongside growing wealth. As we continue to deliver robust
investment performance and supportive financial planning, plus
exceptional client service, helping our stakeholders realise their
ambitions and secure their futures, we can expect to see further
strong business growth.
Our strategy remains based on the three value drivers of strong
organic growth, service and operational excellence, and selective
high-quality acquisitions. We are committed to delivering top
quartile underlying profit margins, we are aiming to deliver 8-10%
annual net flows in the medium term, now potentially delayed by
short-term headwinds, and we aspire to be a Top 5 wealth manager in
the UK and Crown Dependencies.
I have confidence in our team, who bring a wide range of
expertise and experience as well as real passion and ambition to
see Brooks Macdonald succeed. I would like to finish, as ever, by
thanking our clients, the intermediaries we work with, and our
people for their continuing support. I look forward to an exciting
future together.
Andrew Shepherd
CEO
13 September 2023
Our strategy
Brooks Macdonald is delivering strong performance and has put in
place foundations for our continued future success. Our strategy is
clear and we are making substantial progress, ready to capitalise
on the growth opportunities we see ahead.
Our Purpose - Realising ambitions and securing futures
Brooks Macdonald was founded to give clients wealth management
driven by purpose and principles, and that remains as true as
ever.
We have multiple stakeholders - clients always come first, and
if we look after our clients, our employees, and our
intermediaries, then our shareholders will get the returns they
seek. For all of them, the reason Brooks Macdonald is here is to
help them realise their ambitions and secure their futures.
We work every day to protect and enhance our clients' wealth
through high-quality investment management and financial planning,
underpinned by exceptional client service.
We are dedicated to the highest professional standards, inspired
by our guiding principles: we do the right thing, we are connected,
we care, and we make a difference. We are proud of the powerful
blend of talented people we have in Brooks Macdonald, and together
we are confident and ambitious in what we can achieve and the
difference we can make for our clients.
Looking forward
We are moving to align our business around our two key
distribution channels - intermediaries and private clients. Our
proposition is different in the two channels - outsourced
discretionary investment management for intermediaries and
advice-led integrated wealth management for private clients.
Aligning the organisation to the needs of the different
propositions will make us more effective and efficient in
delivering for clients and advisers.
Our medium-term targets
We have set three medium-term targets
1 Our ambition is to be a Top 5 wealth manager in the UK and
Crown Dependencies
2 We aim at market-leading organic growth with 8-10% net flows,
and
3 We are committed to top quartile underlying profit margin.
What
Intermediary
-- Outsourced discretionary investment management for advisers
-- FUM
Private Clients
-- Advice-led integrated wealth management
-- AUM/A
Why
-- Propositions, target audience and therefore business models
are different and need dedicated management.
-- Clarity of business models will facilitate better alignment with functions.
-- Exposing different business characteristics will increase investor insight.
Our strategy
Our strategy is based on the three value drivers of strong
organic growth, service and operational excellence, and selective
high-quality acquisitions, and we have been delivering against all
three.
Strategy Delivery
----------------------------------------------------------- -----------------------------------------------------------
Market-leading organic growth
------------------------------------------------------------------------------------------------------------------------
* We aim to deliver best-in-class client service and * We delivered over 5% net flows in FY23, with positive
adviser experience. net flows every month, despite volatile markets and
weak investor sentiment.
* Our rigorous Centralised Investment Process gives
consistently good client outcomes. * Our Platform MPS product had net flows of over 65%.
* We have a compelling investment proposition. * We have continued to see positive net flows and FUM
growth in our specialist BPS products and in Private
Clients.
----------------------------------------------------------- -----------------------------------------------------------
Service and operational excellence
------------------------------------------------------------------------------------------------------------------------
* We work continuously to make Brooks Macdonald easy to * We migrated all our investment management processes
do business with. to the SS&C platform.
* We are building on our SS&C partnership to deliver a * We implemented Intelliflo for our financial planning
digital transformation in our products and services. activities.
* We will continue to drive for margin improvement * We again delivered robust underlying profit margin
through our scalable business model. despite revenue coming under pressure from weaker
markets.
----------------------------------------------------------- -----------------------------------------------------------
Selective high-quality acquisitions
------------------------------------------------------------------------------------------------------------------------
* We have ambitious inorganic growth plans - we will * We completed the acquisition of Integrity Wealth
not make Top 5 without M&A. Solutions and Adroit Financial Planning, building our
capabilities in advice and financial planning
leadership.
* Nonetheless, we rigorously apply our acquisition
criteria - we only acquire good businesses, with a
compelling strategic rationale, good cultural fit, * We reviewed and assessed many others, but continued
and strong economics. to strictly apply our criteria.
* We focus on the delivery of benefits.
----------------------------------------------------------- -----------------------------------------------------------
Financial review
Review of results for the year
The Group delivered a solid set of results for FY23, despite a
backdrop of challenging macroeconomic environment and volatile
markets impacting client sentiment. The Group achieved positive net
flows of GBP0.8bn or 5.2% in FY23 ahead of the rate achieved in
FY22 of 4.8%. The Group also continued to deliver on its ambitious
growth strategy, completing the acquisitions of Integrity Wealth
Solutions and Adroit Financial Planning in the year.
As experienced across the industry, the weaker markets seen
during the financial year have impacted the Group's revenue growth,
whilst the inflationary pressures prevailing during the year, along
with increased costs in connection to the Group's digital
transformation and costs incurred for terminated M&A processes,
amongst other non-staff cost movements, have resulted in an uplift
in total costs. This resulted in an underlying profit for the year
of GBP30.3 million, representing a decrease of 12.2% on the prior
year. The underlying profit margin was of 24.5% (FY22: 28.2%).
Group financial results summary
The table below shows the Group's financial performance for the
year ended 30 June 2023 with the comparative period and provides a
reconciliation between the underlying results, which the Board
considers to be an appropriate reflection of the Group's underlying
performance, and the statutory results. Underlying profit
represents an alternative performance measure ("APM") for the
Group. Refer to the Non-IFRS financial information section for a
glossary of the Group's APMs, their definition, and the criteria
for how underlying adjustments are considered.
Table 1 - Group financial results summary
FY23 FY22
GBPm GBPm Change
-------------------------------------- ------ ------ ---------
Revenue 123.8 122.2 1.3%
Fixed staff costs (45.2) (40.5) 11.6%
Variable staff costs (10.9) (14.8) (26.4)%
-------------------------------------- ------ ------ ---------
Total staff costs (56.1) (55.3) 1.4%
Non-staff costs (36.9) (31.3) 17.9%
FSCS levy (0.5) (1.1) (54.5)%
-------------------------------------- ------ ------ ---------
Total non-staff costs (37.4) (32.4) 15.4%
Total underlying costs (93.5) (87.7) 6.6%
Underlying profit before tax 30.3 34.5 (12.2)%
Underlying adjustments (8.1) (5.0) 62.0%
Statutory profit before tax 22.2 29.5 (24.7)%
Taxation (4.1) (6.1) (32.8)%
Statutory profit after tax 18.1 23.4 (22.6)%
-------------------------------------- ------ ------ ---------
Underlying profit margin before tax 24.5% 28.2% (3.7)ppt
Underlying basic earnings per share 153.8p 174.1p (11.7)%
Underlying diluted earnings per share 151.0p 168.7p (10.5)%
Statutory profit margin before tax 17.9% 24.1% (6.2)ppt
Statutory basic earnings per share 114.7p 149.0p (23.0)%
Statutory diluted earnings per share 112.6p 144.4p (22.0)%
Own Funds adequacy ratio 328.1% 356.9% (28.8)ppt
Dividends per share 75.0p 71.0p 5.6%
-------------------------------------- ------ ------ ---------
FUM movement in the year
The table below shows the opening and closing FUM position and
the flows for the year broken down by segment and by the key
services within UK Investment Management ("UKIM").
Table 2 - Movements in funds under management
Year ended 30 June 2023 (GBPm)
-----------------------------------------------------------------------------------------------------
Opening Organic net new business Closing
-------------------------------- ------ --------- -------
Total
FUM Total FUM organic
1 Jul inv. 30 Jun net new Total
22 Q1 Q2 Q3 Q4 Total perf. 23 business mvmt
------------------- ------- ----- ----- ----- ---- ----- ------ --------- --------- -------
BPS 8,581 (6) (82) (43) (76) (207) 153 8,527 (2.4)% (0.6)%
MPS Custody 960 (3) 2 (7) (17) (25) 31 966 (2.6)% 0.6%
MPS Platform 2,053 243 297 505 302 1,347 89 3,489 65.6% 69.9%
------------------- ------- ----- ----- ----- ---- ----- ------ --------- --------- -------
MPS total 3,013 240 299 498 285 1,322 120 4,455 43.9% 47.9%
------------------- ------- ----- ----- ----- ---- ----- ------ --------- --------- -------
UKIM discretionary 11,594 234 217 455 209 1,115 273 12,982 9.6% 12.0%
------------------- ------- ----- ----- ----- ---- ----- ------ --------- --------- -------
Funds - DCF 439 (14) (17) (20) (35) (86) (15) 338 (19.6)% (23.0)%
Funds - Other 1,418 (20) (24) (14) (37) (95) 47 1,370 (6.7)% (3.4)%
------------------- ------- ----- ----- ----- ---- ----- ------ --------- --------- -------
Funds total 1,857 (34) (41) (34) (72) (181) 32 1,708 (9.7)% (8.0)%
------------------- ------- ----- ----- ----- ---- ----- ------ --------- --------- -------
UKIM total 13,451 200 176 421 137 934 305 14,690 6.9% 9.2%
------------------- ------- ----- ----- ----- ---- ----- ------ --------- --------- -------
International 2,216 (9) (20) (48) (40) (117) 58 2,157 (5.3)% (2.7)%
------------------- ------- ----- ----- ----- ---- ----- ------ --------- --------- -------
Total 15,667 191 156 373 97 817 363 16,847 5.2% 7.5%
------------------- ------- ----- ----- ----- ---- ----- ------ --------- --------- -------
Total investment performance 2.3%
MSCI PIMFA Private Investor Balanced Index(1) 1.6%
--------------------------------------------------------------------------------- --------- -------
1 Capital-only index.
The Group achieved positive net flows of GBP0.8 billion or 5.2%
during the year, up on the rate achieved in FY22 of 4.8%.
Investment performance contributed GBP0.4 billion, leading to an
overall growth in the Group's closing FUM of 7.5% from the start of
the financial year to GBP16.8 billion (FY22: GBP15.7 billion).
Investment performance for the year was 2.3%, surpassing the
MSCI PIMFA Private Investor Balanced Index benchmark, which
increased by 1.6% over the same period. Investment performance was
ahead of the ARC peer benchmark for the year, and remains ahead of
ARC for the 10-year measure, and in line with peers over the medium
term.
Within UKIM, the BPS offering recorded net outflows of GBP0.2
billion during the year (FY22: GBP0.1 billion net inflows) with the
prevailing market volatility impacting investor sentiment and
higher interest rates driving increased trends towards higher cash
holdings, debt repayment and investment in money market funds in
the short term. Within BPS, we continue to see good traction in our
specialist products - the AIM Portfolio Service, the Responsible
Investment Service, the Decumulation Service, and the Court of
Protection Service - all focused on meeting different client
needs.
Platform MPS and, within that, the Group's B2B offering BM
Investment Solutions ("BMIS") continued to grow and had a strong
year, recording net inflows of GBP1.3 billion (FY22: GBP0.8
billion), which has continued to be an area of strategic focus for
the Group in FY23.
The Funds business recorded total net outflows of GBP0.2 billion
during the year (FY22: GBP0.1 billion), driven by market conditions
and in line with observed sector-wide behaviour.
The International business reported net outflows for the year of
GBP0.1 billion (FY22: break-even), also driven by market and
economic headwinds.
Revenue
Table 3 - Breakdown of the Group's total revenue
FY23 FY22 Change
GBPm GBPm %
--------------------------------------------------- ----- ----- ------
Fee income 91.5 101.8 (10.1)
Transactional and FX income 13.3 14.7 (9.5)
Financial planning income (excluding acquisitions) 4.1 4.1 -
Financial planning income (acquired) 2.5 - N/A
Interest income 12.4 1.6 675.0
--------------------------------------------------- ----- ----- ------
Total revenue 123.8 122.2 1.3
--------------------------------------------------- ----- ----- ------
Total revenue for the Group increased by 1.3% to GBP123.8
million in FY23 (FY22: GBP122.2 million).
Fee income of GBP91.5 million declined by 10.1% compared to the
prior year (FY22: GBP101.8 million) driven by lower average FUM
levels as a result of prevailing market conditions during the
financial year, and the relative change in product mix, with the
growth in net flows primarily driven by the MPS service. The
implementation of a new competitive rate card for the Cornelian
Risk Managed Funds range introduced in FY23 to drive asset growth
has also contributed to the reduction of fee income in FY23.
Transactional and FX income reduced by 9.5% on last year due to
lower trading volume in the year and the continuing trend of
clients moving to the fee-only rate card.
Financial planning fee totalled GBP6.6 million in FY23,
representing an increase of GBP2.5 million on FY22, primarily
attributable to the income generated by the Integrity Wealth
Solutions and Adroit Financial Planning businesses acquired during
the year.
Interest income increased significantly from GBP1.6 million to
GBP12.4 million, driven by the rise in the Bank of England base
rates during FY23, net of amounts paid out to clients on cash
holdings.
Table 4 - Revenue, average FUM and yields
Revenue Average FUM Yield(2)
-------------------- ---------------------- ------------------
FY23 FY22 Change FY23 FY22 Change FY23 FY22 Change
GBPm GBPm GBPm GBPm GBPm % bps bps bps
------------------------------ ----- ----- ------ ------ ------ ------ ---- ---- ------
BPS fees 54.2 59.9 (5.7) 65.1 65.8 (0.7)
BPS non-fees (transactional
& FX) 10.4 12.7 (2.3) 12.5 13.9 (1.4)
BPS non-fees (interest
income) 9.7 1.0 8.7 11.7 1.1 10.6
------------------------------ ----- ----- ------ ------ ------ ------ ---- ---- ------
Total BPS 74.3 73.6 0.7 8,318 9,108 (8.7) 89.3 80.8 8.5
MPS Custody 5.7 6.1 (0.4) 967 1,029 (6.0) 59.1 59.3 (0.2)
MPS Platform 5.2 3.5 1.7 2,750 1,808 52.1 18.8 19.2 (0.4)
MPS non-fees (interest
income) 1.1 0.3 0.8 11.7 3.3 8.4
------------------------------ ----- ----- ------ ------ ------ ------ ---- ---- ------
Total MPS 12.0 9.9 2.1 3,717 2,837 31.0 32.3 34.9 (2.6)
------------------------------ ----- ----- ------ ------ ------ ------ ---- ---- ------
UKIM discretionary 86.3 83.5 2.8 12,035 11,945 0.7 71.7 69.9 1.8
Funds 9.6 12.8 (3.2) 1,997 2,220 (10.0) 48.3 57.8 (9.5)
------------------------------ ----- ----- ------ ------ ------ ------ ---- ---- ------
Total UKIM 95.9 96.3 (0.4) 14,032 14,165 (0.9) 68.4 68.0 0.4
International fees(1) 16.1 18.5 (2.4) 2,198 2,443 (10.0) 73.3 75.5 (2.2)
International non-fees 4.2 2.1 2.1 18.9 8.6 10.3
------------------------------ ----- ----- ------ ------ ------ ------ ---- ---- ------
Total International 20.3 20.6 (0.3) 2,198 2,443 (10.0) 92.2 84.1 8.1
------------------------------ ----- ----- ------ ------ ------ ------ ---- ---- ------
Total FUM-related revenue 116.2 116.9 (0.7) 16,230 16,608 (2.3) 71.6 70.4 1.2
------------------------------ ----- ----- ------ ------ ------ ------ ---- ---- ------
Financial planning income(2) 6.6 4.1 2.5
Other income 1.0 1.2 (0.2)
------------------------------ ----- ----- ------ ------ ------ ------ ---- ---- ------
Total non-FUM-related
revenue 7.6 5.3 2.3
------------------------------ ----- ----- ------ ------ ------ ------ ---- ---- ------
Total Group revenue 123.8 122.2 1.6
------------------------------ ----- ----- ------ ------ ------ ------ ---- ---- ------
MSCI PIMFA Private Investor Balanced Index(3) 1,665 1,774 (6.1)
---------------------------------------------------- ------ ------ ------ ---- ---- ------
(1) The revenue and yields in respect of the Lloyds Channel
Islands previously acquired businesses are included within the
International fees line in the above table as these businesses are
now fully embedded.
(2) Following a corporate restructure of the business in FY22,
fees earned on financial planning advice in the International
business is included in the Annual Management Charge and are no
longer billed separately. Comparatives have been updated to reflect
a like-for-like comparison with advice fees shown in the
International fees line for both years. As a result, the financial
planning revenue in the table above relates to solely UK financial
planning income.
(3) Capital-only index (average based on quarterly closing
balances).
The Group's average FUM fell by 2.3% from FY22 to FY23, ahead of
the average monthly movement in the MSCI PIMFA Private Investor
Balanced Index, which fell by 6.1% over the same period.
The yield on BPS fees for UKIM decreased by 0.7bps to 65.1bps
during the year (FY22: 65.8bps), driven by fee pressure and rates
achieved on new business. The BPS non-fee transactional and FX
income yield reduced by 1.4bps in the year, as a result of lower
trading volumes and a relatively lower proportion of dealing
accounts. On the other hand, the yield on interest income saw
significant growth from 1.1bps to 11.7bps driven by the increases
in the Bank of England base rates during the year, partly offset by
interest paid out by the Group on clients' cash balances.
The yield on MPS Custody of 59.1bps remained relatively stable
on FY22, whereas the yield on MPS Platform fell slightly by 0.4bps
to 18.8bps due to the impact of product mix as Platform MPS
includes our BM Investment Solutions offering that attracts
relatively larger mandates and benefit from discounted tiered
rates. The MPS non-fee yield on interest income increased
substantially, from 3.3bps last year to 11.7bps in FY23.
The Funds fee yields reduced by 9.5bps to 48.3bps during FY23,
in line with expectations, driven by the Cornelian Risk Managed
Fund range moving onto a more competitive rate card in July 2022.
As part of our growth strategy, we are targeting a significant
increase in market share with advisers and networks that
predominately use multi-asset funds to deliver their investment
offering.
International fee income yield reduced by 2.2bps to 73.3bps
during FY23, driven by a change in mix and the impact of the timing
of inflows and outflows recorded during the year. Similarly to
UKIM, non-fees income yield increased significantly by 10.3bps as a
result of the rise in rates earned on both GBP and foreign currency
account balances, along with increased foreign exchange trading
activity.
Underlying costs
Total underlying costs increased by 6.6% from GBP87.7 million in
FY22 to GBP93.5 million in FY23, including GBP2.0 million incurred
in respect of the two acquired businesses during the year. The key
movements are set out in the bridge chart and explained below.
Table 6 - Breakdown of net movement in total underlying costs
into staff and non-staff costs
Integrity
Total & Adroit BM Core
GBPm GBPm GBPm
------------------------------------ ----- --------- -------
Staff costs increase/(decrease) 0.8 1.6 (0.8)
Non-staff costs increase 5.0 0.4 4.6
------------------------------------ ----- --------- -------
Total FY23 underlying cost increase 5.8 2.0 3.8
------------------------------------ ----- --------- -------
Staff costs
Total staff costs increased by GBP0.8 million to GBP56.1
million. Of this, GBP1.6 million was driven by the incremental
costs arising from the two acquisitions. Excluding acquired costs,
staff costs decreased by GBP0.8 million, from GBP55.3 million to
GBP54.5 million.
Excluding the impact of acquisitions, fixed staff costs
increased by GBP3.2 million as a result of inflationary pay rises
and the impact of net joiners. The increase in fixed staff costs
was offset by a decrease in the variable staff costs from GBP14.8
million to GBP10.9 million driven by the reduction in pre-variable
pay profit. Within this, the share-based payments charge was down
GBP0.8 million on the prior year due to lapses recognised in FY23
as a result of leavers, and a reduction in the Group's share price
impacting the associated employer national insurance
contributions.
Non-staff costs
Non-staff costs amounted to GBP37.4 million, representing an
increase of 15.4% on the prior year. Excluding the cost impact of
the two recently acquired businesses of GBP0.4 million, non-staff
costs increased by GBP4.6 million or 14.2%. In addition to generic
inflationary increases seen across the industry during the year,
the following items contributed to the net increase.
During the year, the Group migrated investment management
processes onto the SS&C technology suite, delivering brand-new
capabilities and supporting the Group's digital transformation,
whilst providing a scalable platform for future growth. The
platform migration resulted in a net increase of GBP2.1 million in
FY23, comprising GBP3.2 million additional spend on the enhanced
capabilities, offset by a transitional service credit of GBP1.1
million recognised during the embedding period.
Furthermore, during the year, the Group incurred GBP1.0 million
in connection with terminated M&A processes and GBP0.7 million
in legal fees in respect of legacy matters cases, now fully
settled. In the prior year, the Group recognised a release of
historic tax provisions amounting to GBP1.4 million, which was not
repeated in FY23.
The above noted uplift in non-staff costs were offset by a
reduction in Financial Services Compensation Scheme ("FSCS") levy
of GBP0.6 million from GBP1.1 million in FY22 to GBP0.5 million in
FY23 as a result of lower compensation forecasts expected by the
FSCS for FY23.
Profit before tax
Combined, the above gave rise to an underlying profit before tax
for the year of GBP30.3 million, a decrease of 12.2% on the prior
year (FY22: GBP34.5 million) and resulting in a profit margin of
24.5%, down by 3.7 points on last year (FY22: 28.2%).
The Group's statutory profit before tax was of GBP22.2 million
(FY22: GBP29.5 million).
Segmental analysis
For FY23, the Group reported its results across two key
operating segments, UK Investment Management and International. The
tables below provide a breakdown of the full-year performance
broken down by these segments, with comparatives. The operations in
relation to Integrity Wealth Solutions and Adroit Financial
Planning have been included in the UK Investment Management segment
from the respective acquisition dates.
UKIM, which includes the Group's Private Clients business,
reported a 2.5% increase in revenue, driven by higher financial
planning and interest income, offset by a decline in fee income and
transactional income. Total underlying costs increased by 6.2% as a
result of the factors outlined previously. This gave rise to an
underlying profit for FY23 of GBP34.5 million (FY22: GBP36.0
million) and an underlying profit margin of 33.3%.
The volatile markets and economic uncertainties experienced in
FY23 also impacted the International segment, which reported a
decrease in underlying profit to GBP0.1 million (FY22: GBP0.2
million). The decline in profitability was driven by a reduction in
fee income within revenues as discussed previously and an uplift in
total costs, partly driven by legal and professional fees.
Table 7 - Segmental analysis
Group and
UK Investment consolidation
FY23 (GBPm) Management International adjustments Total
---------------------------------------- ------------- ------------- -------------- ------
Revenue 103.5 20.3 - 123.8
Direct costs (47.4) (13.6) (33.4) (94.4)
---------------------------------------- ------------- ------------- -------------- ------
Operating contribution 56.1 6.7 (33.4) 29.4
Indirect cost recharges and net finance
income (21.6) (6.6) 29.1 0.9
---------------------------------------- ------------- ------------- -------------- ------
Underlying profit/(loss) before tax 34.5 0.1 (4.3) 30.3
---------------------------------------- ------------- ------------- -------------- ------
Underlying adjustments (4.8) (3.0) (0.3) (8.1)
---------------------------------------- ------------- ------------- -------------- ------
Statutory profit/(loss) before tax 29.7 (2.9) (4.6) 22.2
---------------------------------------- ------------- ------------- -------------- ------
Underlying profit margin before tax 33.3% 0.5% N/A 24.5%
Statutory profit/(loss) margin before
tax 28.7% (14.3)% N/A 17.9%
---------------------------------------- ------------- ------------- -------------- ------
Group and
UK Investment consolidation
FY22 (GBPm) Management International adjustments Total
---------------------------------------- ------------- ------------- -------------- ------
Revenue 101.0 21.2 - 122.2
Direct costs (43.4) (12.8) (31.2) (87.4)
---------------------------------------- ------------- ------------- -------------- ------
Operating contribution 57.6 8.4 (31.2) 34.8
Indirect cost recharges and net finance
costs (21.6) (8.2) 29.5 (0.3)
---------------------------------------- ------------- ------------- -------------- ------
Underlying profit/(loss) before tax 36.0 0.2 (1.7) 34.5
---------------------------------------- ------------- ------------- -------------- ------
Underlying adjustments (1.9) (3.0) (0.1) (5.0)
---------------------------------------- ------------- ------------- -------------- ------
Statutory profit/(loss) before tax 34.1 (2.8) (1.8) 29.5
---------------------------------------- ------------- ------------- -------------- ------
Underlying profit margin before tax 35.6% 0.9% N/A 28.2%
Statutory profit/(loss) margin before
tax 33.8% (13.2)% N/A 24.1%
---------------------------------------- ------------- ------------- -------------- ------
Restatement of segmental view
We have undertaken a review of cost allocations across the Group
to support branch and team level performance reporting, ensuring
the costs are allocated consistently across the Group. As a result,
the prior year segmental reporting has been restated to ensure
consistent reporting with the current year reporting.
Reconciliation between underlying and statutory profits
Underlying profit before tax is considered by the Board to be an
appropriate reflection of the Group's performance compared to the
statutory results as it excludes income and expense categories,
which are deemed to be of a non-recurring nature or a non-cash
operating item. Reporting at an underlying basis is also considered
appropriate for external analyst coverage. Underlying profit is
deemed to be an alternative performance measure ("APM"); refer to
the Non-IFRS financial information section for a glossary of the
Group's APMs, their definitions, and the criteria for how
underlying adjustments are considered. A reconciliation between
underlying and statutory profit before tax for the year ended 30
June 2023 with comparatives is shown in the table below:
Table 8 - Reconciliation between underlying profit and statutory
profit before tax
FY23 FY22
GBPm GBPm
--------------------------------------------------- ----- -----
Underlying profit before tax 30.3 34.5
Amortisation of client relationships (5.7) (5.5)
Dual running operating platform costs (1.6) (2.4)
Acquisition and integration-related costs (0.6) -
Changes in fair value and finance cost of deferred
contingent consideration (0.2) (0.1)
Other non-operating income - 3.0
--------------------------------------------------- ----- -----
Total underlying adjustments (8.1) (5.0)
Statutory profit before tax 22.2 29.5
--------------------------------------------------- ----- -----
Amortisation of client relationship contracts (GBP5.7 million
charge)
These intangible assets are created in the course of acquiring
funds under management and are amortised over their useful life,
which have been assessed to range between 6 and 20 years. The
increase in the charge from last year is due to the additional
assets recognised as part of the acquisitions of Integrity Wealth
Solutions and Adroit Financial Planning. This amortisation charge
has been excluded from the underlying profit since it is a
significant non-cash item. (Refer to Note 10 to the Consolidated
financial statements for more details).
Dual running operating platform costs (GBP1.6 million
charge)
The Group is in a partnership agreement with SS&C to
transform our adviser and client service including the onboarding
process and digital experience, as well as enhancing our operating
platform. As part of the transition process, the Group has incurred
net incremental costs in running two operating platforms
concurrently, with the dual running costs finishing at the end of
H1 FY23. The dual running costs have been excluded from underlying
profit in view of their non-recurring nature.
Acquisition and integration-related costs (GBP0.6 million
charge)
These represent costs incurred in relation to the acquisitions
of Integrity Wealth Solutions on 31 October 2022 and Adroit
Financial Planning on 15 December 2022. The acquisition-related
costs incurred include stamp duty and legal fees and the
integration-related costs include the cost of retention-based share
option awards.
Changes in fair value and finance cost of deferred contingent
consideration (GBP0.2 million charge)
This comprises the associated net finance costs arising on
deferred contingent consideration payments from acquisitions
carried out by the Group, together with their fair value
measurements, where applicable. The deferred contingent
consideration for Integrity Wealth Solutions was revalued at 30
June 2023. (Refer to Note 12 of the Consolidated financial
statements for more details).
FY22 - Other non-operating income (GBP3.0 million credit)
During the prior year ended 30 June 2022, the Group received
confirmation from HMRC that the supply of certain Group services
was exempt from VAT. As a result, the Group received a refund from
HMRC in respect of VAT arising on those services during the period
from 1 July 2017 to 30 June 2020 of GBP3.0 million. This was
treated as an adjusting item to the underlying profit in view of
its non-recurring nature.
Reconciliation between profits and earnings before interest,
tax, depreciation and amortisation ("EBITDA")
The tables below provide reconciliations between the Group's
underlying and statutory profit before tax and the underlying and
statutory earnings before interest, tax, depreciation and
amortisation ("EBITDA"), which constitutes an APM, and which the
Board considers to be an appropriate alternative measure to the
Group's BAU performance.
Table 9 - Underlying EBITDA reconciliation
FY23 FY22 Change
GBPm GBPm %
------------------------------ ----- ----- -------
Underlying profit before tax 30.3 34.5 (12.2)
Add back:
Net finance (income)/costs (0.9) 0.2 (550.0)
Depreciation and amortisation 3.8 4.0 (5.0)
------------------------------ ----- ----- -------
Underlying EBITDA 33.2 38.7 (14.2)
------------------------------ ----- ----- -------
Table 10 - EBITDA reconciliation
FY23 FY22 Change
GBPm GBPm %
------------------------------ ----- ----- -------
Statutory profit before tax 22.2 29.5 (24.7)
Add back:
Net finance (income)/costs (0.8) 0.3 (366.7)
Depreciation and amortisation 9.5 9.5 -
------------------------------ ----- ----- -------
EBITDA 30.9 39.3 (21.4)
------------------------------ ----- ----- -------
Taxation
The Group's total tax charge for the year was GBP4.1 million,
representing a decrease of 32.8% from last year (FY22: GBP6.1
million). The Group's underlying effective tax rate has decreased
from 20.8% to 19.7% and the statutory effective tax rate has
decreased from 20.8% to 18.4%. The reduction is primarily due to an
R&D credit on FY22 qualifying expenditure recognised as a prior
period tax adjustment in FY23, and additional deferred tax credits
recognised in the current year. (Details on taxation are provided
in Note 6 of the Consolidated financial statements).
Earnings per share
Basic statutory earnings per share for the Group in FY23 was
114.7p (FY22: 149.0p). On an underlying basis, basic earnings per
share was 153.8p, a decrease of 11.7% on the prior year (FY22:
174.1p) driven by the decrease in underlying earnings. (Details on
the basic and diluted earnings per share are provided in Note 8 of
the Consolidated financial statements).
Dividend
The Board recognises the importance of dividends to shareholders
and the benefit of providing sustainable shareholder returns. In
determining the level of dividend in any year, the Board considers
a number of factors, such as the level of retained earnings, future
cash commitments, statutory profit cover, capital and liquidity
requirements and the level of profit retention required to sustain
the growth of the Group. The Board has proposed a final dividend of
47.0p per share (FY22: 45.0p). Including the interim dividend of
28.0p per share (FY22: 26.0p), this results in a total dividend for
the year of 75.0p per share (FY22: 71.0p), which is an overall
increase of 4.0p or 5.6%. (Refer to Note 9 to the Consolidated
financial statements for more details). The recommended dividend is
subject to shareholders' approval, which will be sought at the
Company's Annual General Meeting on 26 October 2023.
Financial position and regulatory capital
Net assets increased by 6.0% to GBP157.3 million at 30 June 2023
(FY22: GBP148.4 million), demonstrating the Group's continued
strong financial position. The Group's tangible net assets (net
assets excluding intangibles) was GBP56.7 million at 30 June 2023
(FY22: GBP62.5 million). As at 30 June 2023, the Group had
regulatory capital resources of GBP64.6 million (FY22: GBP70.0
million). As at 30 June 2023, the Group had an own funds adequacy
ratio of 328.1% (FY22: 356.9%). The own funds adequacy ratio is
defined as the Group's own funds as a proportion of the fixed
overhead requirement. The total net assets and the own funds
adequacy ratio calculation take into account the respective
period's profits (net of the declared interim dividends) as these
are deemed to be verified at the date of publication of the annual
results.
Table 11 - Own funds reconciliation
FY23 FY22
GBPm GBPm
----------------------------------- ------- ------
Share capital 0.2 0.1
Share premium 81.8 79.1
Other reserves 9.1 10.0
Retained earnings 66.2 59.2
----------------------------------- ------- ------
Total equity 157.3 148.4
Intangible assets (net book value) (100.6) (85.9)
Deferred tax adjustment 7.9 7.5
----------------------------------- ------- ------
Own funds 64.6 70.0
----------------------------------- ------- ------
Brooks Macdonald Asset Management Limited, the Group's main
operating subsidiary, is an IFPRU 125k Limited Licence Firm
regulated by the Financial Conduct Authority ("FCA"). In view of
this, the Group is classified as a regulated group and subject to
the same regime. As required under FCA rules, and those of both the
Jersey and Guernsey Financial Services Commission, the Group
assesses its regulatory capital and liquidity on an ongoing basis
through the Internal Capital Adequacy and Risk Assessment ("ICARA")
and Adjusted Net Liquid Asset ("ANLA") assessments, which include
performing a range of stress tests and scenario analysis to
determine the appropriate level of regulatory capital and liquidity
that the Group needs to hold. Surplus levels of capital and
liquidity are forecast, taking into account known outflows and
proposed dividends to ensure that the Group maintains sufficient
capital and liquidity at all times.
The FY22 ICARA review was conducted for the year ended 30 June
2022 and signed off by the Board in December 2022. Regulatory
capital forecasts are performed monthly and take into account
expected dividends and intangible asset acquisitions and disposals
where applicable, as well as budgeted and forecast trading results.
The Group's IFPR Public Disclosures are published annually on the
Group's website ( www.brooksmacdonald.com ) and provide further
details about the Group's regulatory capital resources and
requirements. The Group monitors a range of capital and liquidity
statistics on a daily and monthly basis.
Cash flow and capital expenditure
The Group continues to have strong levels of cash generation
from operations. Total cash resources at the end of the year were
GBP53.4 million (FY22: GBP61.3 million) and the Group had no
borrowings at 30 June 2023. This reduction was contributed by the
Group financing the recent acquisitions of Integrity Wealth
Solutions and Adroit Financial Planning from its own resources,
resulting in a net cash outflow of GBP15.1 million.
The Group incurred capital expenditure of GBP3.7 million (FY22:
GBP3.2 million). This comprised technology-related development of
GBP3.0 million (FY22: GBP2.9 million), property-related costs of
GBP0.5 million (FY22: GBP0.2 million) and IT and office equipment
of GBP0.2 million (FY22: GBP0.1 million). The technology-related
spend was primarily incurred in connection with our partnership
with SS&C and amortisation started at the end of July 2022
following the migration, with the capital expenditure amortised
over the remaining eight years of the ten-year agreement entered
into with SS&C.
FY24 guidance and outlook
Looking ahead, financial markets remain volatile presenting
short-term headwinds, expected to impact flows, particularly in H1
FY24. Moreover, the continued change in product mix is expected to
impact fee yields. Whilst the Group continues to focus on cost
discipline, inflationary cost pressures are expected to lead to
mid-single digit cost growth.
Despite the short-term headwinds on financial performance, the
Group continues to be well placed to deliver on its ambitious
strategic objectives in the medium term and continue to grow the
business.
Andrea Montague
Chief Financial Officer
13 September 2023
Risks
A dynamic approach to risk management in order to support
positive client outcomes
We continue to develop and enhance our risk management processes
across the Group as the risk landscape under which the firm
operates changes, and the impact of the current geopolitical and
macroeconomic uncertainties are monitored.
The Group continues to respond to regulatory developments and
has implemented changes to our risk management framework to reflect
the requirements of these new regulations, such as the Task Force
on Climate-related Financial Disclosures ("TCFD") and the Consumer
Duty. The Group remains focused on embedding and enhancing the risk
management framework, through its work on resilience, third
parties, and client outcomes.
The Group has also maintained its drive towards efficient,
data-driven and evidenced-based risk management, which facilitates
the transition to a more agile and dynamic approach to identifying,
assessing, managing and monitoring risks.
Overall, the Group remains well capitalised and liquid, with
significant buffers above all regulatory requirements.
How we manage risk
The Group risk management framework
Risk management starts with oversight through appropriate
governance; an efficient board and committee structure, with
individual and collective roles and delegated authorities and a set
of core policies to provide guidance to staff.
Effective risk management relies on insight through robust and
timely management information. We manage our risks by learning
lessons from past events, such as errors, breaches, near misses and
complaints, by conducting point-in-time risk assessments and
attempting to predict what the future risk landscape might look
like through our suite of key indicators.
The risk management methodology within the Group's risk
management framework ("RMF") consists of the following six
interlinked steps:
Risk identification. This takes place through regular business
monitoring and periodic reviews, including risk mapping exercises
and the risks arising from change or new products and services.
Risk appetite. Once we have identified risks, we set an appetite
for each material risk. This defines the amount of risk that the
Board is prepared to accept in order to deliver its business
objectives. Risk appetite reflects culture, strategic goals and the
existing operating and control environment.
Risk analysis. Having set the risk appetite, we can assess the
impact and probability of each material risk against the agreed
risk appetite. This can include the quantification of capital risk
as part of the Internal Capital Adequacy and Risk Assessment
("ICARA").
Controls assessment. We also assess the effectiveness of
controls in reducing the probability of a risk occurring, or should
it materialise, in mitigating its impact.
Additional actions. Where differences exist between our risk
appetite and the current residual risk profile, we take action to
either accept, avoid or transfer part or all of those risks that
are outside our risk appetite, or to reconsider the risk
appetite.
Reporting. Ongoing reporting of risks to senior management
provides insight to inform risk-based decision-making and
allocation of resources to achieve business objectives.
Overarching risk appetite statement
-- The Group's overarching risk appetite statement ("ORAS"), as
defined by the Board, sets out the acceptable level of current and
emerging risk we are willing to take to achieve our strategic
business objectives. It provides a framework to allow the Group to
effectively balance the risk and reward relationship in
decision-making.
-- Clients, both existing and prospective, are at the heart of
everything we do. As such, we aim to operate a sustainable business
that conducts itself in a reputable and prudent manner, taking into
account the interests of our clients through providing products and
services suited to their needs and risk profile, which demonstrate
value for money.
-- As the business continues to grow through sustainable organic
growth and strategic value-adding acquisitions, the ORAS helps
ensure our key stakeholder obligations are met, supported by
internal policies and regulatory requirements. We commit to using
this framework to ensure we make strategic and business decisions
that do not exceed our overarching risk appetite.
-- In all of the Group's decisions and operations, we balance
risk versus reward and we consider the below three dimensions.
Client outcome
-- We put client interests at the heart of everything we do to
ensure appropriate client outcomes.
Financial performance and resources
-- We optimise profitability and use resources efficiently to drive financial performance.
-- We, at all times, maintain adequate capital and liquid assets
to meet financial and funding obligations as they fall due.
-- We invest in the development and wellbeing of our employees.
Control environment
-- We, at all times, operate within our risk appetite,
operational risk parameters and regulatory framework, ensuring a
robust control and oversight environment.
Key risks
We have identified our risks at Group and business line levels
to help manage our key risks in a consistent and uniform way with
oversight from relevant Committees and Boards.
Group level risks
Definition Key risks identified Change since Rationale for
by risk management last year change
framework
--------------------- ---------------------------------------------------------- ------------ ---------------------
1. Credit risk Unchanged The risk continues
The risk of loss * Cash deposits with external banks to remain unchanged
arising given the strong
from a client or credit risk control
counterparty * Client credit risk environment,
failing to meet their including
financial obligations ongoing monitoring
to a Brooks Macdonald * Counterparty credit risk and due diligence
entity as and when on all
they counterparties.
fall due. * Custodian-related credit risk
* Indirect counterparty risk in respect of referrals
--------------------- ---------------------------------------------------------- ------------ ---------------------
2. Liquidity risk Unchanged The Group has
The risk that assets * Corporate cash deposited with external banks adequate
are insufficiently liquidity resources
liquid significantly above
and/or Brooks * Client cash deposited with external banks (CASS its Minimum Liquidity
Macdonald rules) Requirement and
does not have maintains appropriate
sufficient banking facilities.
financial resources * Failed trades The Group regularly
available to meet monitors forecast
liabilities against actual
as they fall due, or * Indirect liquidity risk associated with client cash flows and
can secure such portfolios matches the maturity
resources profiles of financial
only at excessive assets and
cost. * Indirect liquidity risks associated with dealing liabilities.
Liquidity risk also The Group has robust
includes the risk contingency funding
that * Indirect risk in respect of the liquidity of arrangements, which
the Group is unable individual holdings in a fund are tested on a
to meet regulatory periodic basis.
prudential
liquidity ratios. * Indirect risk in respect of the overall liquidity of
our funds
--------------------- ---------------------------------------------------------- ------------ ---------------------
3. Market risk Increasing The continued
The risk that arises * Failed trades conflict
from fluctuations in in Ukraine and
the value of, or the associated
income * Indirect market risk associated with advising on geopolitical
arising from, client portfolios tensions,
movements coupled with
in equity, bonds, or significant
other traded markets, * Indirect market risks associated with dealing global inflationary
interest rates or pressure, gives
foreign rise to increased
exchange rates that * Indirect market risk associated with managing client volatility and
have a financial portfolios heightened downside
impact. risk.
--------------------- ---------------------------------------------------------- ------------ ---------------------
Business level risks
--------------------- ---------------------------------------------------------- ------------ ---------------------
4. Business and Unchanged Despite current
strategic * Adviser concentration macro-economic
risk and geological
The risk of having an challenges, the
inadequate business * Acquisitions Group continues
model or making to post positive
strategic net flows, therefore
decisions that may * Business growth highlighting the
result resiliency of its
in lower than business model.
anticipated * Extreme market events
profit or losses, or
exposes the Group to
unforeseen risks. * Investment performance
* Product governance
--------------------- ---------------------------------------------------------- ------------ ---------------------
5. Conduct risk Unchanged The Group continues
The risk of causing * Suitability and conduct risk to work on numerous
detriment to clients, initiatives to
stakeholders or the promote good risk
integrity of the and compliance
wider culture and awareness
market because of to ensure positive
inappropriate client outcomes.
execution of Brooks
Macdonald's business
activities.
--------------------- ---------------------------------------------------------- ------------ ---------------------
6. Operational risk Unchanged The Group continues
The risk of loss * Data quality to monitor and
arising enhance its oversight
from inadequate or framework to mitigate
failed * Cyber/data security any external threats
internal processes, brought about by
people and systems, the current
or from external * Change management geopolitical
events. environment, coupled
It includes legal and with idiosyncratic
fraud risk but, not * IT infrastructure and capability risks linked to
strategic, the Group's
reputational transition
and business risks. * Operational maturity to a new operating
model.
* Third-party suppliers
* People
* Resilience
--------------------- ---------------------------------------------------------- ------------ ---------------------
7. Prudential risk Unchanged The Group continues
The risk of adverse * Prudential requirements to maintain capital
business and/or resources and liquid
client assets above its
impact resulting from minimum regulatory
breaching regulatory requirement and
capital/liquidity internal thresholds.
requirements,
or market/credit risk
internal limits.
--------------------- ---------------------------------------------------------- ------------ ---------------------
8. Legal and Unchanged This risk continues
regulatory * Reputational risk to remain unchanged
risk given that the
Legal and regulatory regulatory landscape
risk is defined as * Financial crime and focus on the
the wealth management
risk of exposure to industry has not
legal or regulatory * Governance changed.
penalties, financial
forfeiture and
material * Legacy issues
loss due to failure
to act in accordance
with industry laws * Regulatory, tax and legal compliance
and
regulations.
--------------------- ---------------------------------------------------------- ------------ ---------------------
9. Climate risk Unchanged This risk remains
The potential * Resilience unchanged as the
financial business embeds
impacts associated the various TCFD
with * Investment risk disclosure
the transition to a requirements.
low-carbon economy
and * People
the longer-term
physical
climate risks. * Third-party suppliers
* Operation maturity
--------------------- ---------------------------------------------------------- ------------ ---------------------
Emerging risks
10. Margins pressure A declining bond market (owing to rising
The potential risk to profits interest rates) and an unstable equity
as a result of market instability. market, may have an impact on profit margins.
--------------------------------------- -------------------------------------------------
11. Geopolitical landscape Geopolitical events have a direct impact
In light of an ongoing energy on market risk listed previously. Prolonged
crisis and cost-of-living economic downturn also has an impact on
issues. client sentiment and thus business and
strategic risk as listed previously.
--------------------------------------- -------------------------------------------------
12. Generational wealth change With generational wealth poised to change
The potential decrease in hands, primarily from the baby boomers
AUM as financial assets are to Gen X and millennials through the next
passed down from one generation decade, younger investors may have different
to the next. priorities and views on how their inheritance
is managed.
--------------------------------------- -------------------------------------------------
13. Cyber threats With the continuing geopolitical events,
The threat of a malicious the cyberthreat landscape is worsening.
attack by individuals or organisations There has been an increase in the sophistication
attempting to gain access of cyber threat activity.
to the Company's network to
corrupt data, disrupt, and
steal confidential information.
--------------------------------------- -------------------------------------------------
14. Disruptive technologies With the introduction of new technologies
The risk that innovative technologies such as AI, the industry is being impacted
significantly alter the way particularly in automated trading, investment
businesses operate. advice, fraud detection, customer service,
and portfolio management.
--------------------------------------- -------------------------------------------------
Viability statement
In accordance with the UK Corporate Governance Code, the Board
has assessed the Group's viability over a five-year period. The
decision to do so is to be aligned with the Group's strategy, its
budgeting and forecasting process and the scenarios set out in the
2022 Internal Capital Adequacy and Risk Assessment ("ICARA").
The Board has carried out a robust assessment of the principal
risks facing the Group along with the stress tests and scenarios
that would threaten the sustainability of its business model,
future performance, solvency or liquidity. This assessment is based
on the Group's Medium-Term Plan ("MTP"), the ICARA and an
evaluation of the Group's emerging and principal risks, as set out
in the Risks section.
In assessing the future viability of the overall business, the
Board has considered the current and future strategy. The Board has
also considered the business environment of the Group and the
potential threats to its business model arising from regulatory,
demographic, political and technological changes. Moreover, the
Board's assessment considered the current macroeconomic
environment, the impact of volatile markets and the prevailing high
inflation and interest rates, on the Group's profitability,
regulatory capital and liquidity forecasts. The Board's assessment
of the Group's capital and liquidity position also considers the
implications of meeting the Group's proposed interim and final
dividend pay-outs.
The five-year MTP forms part of the Group's annual business
planning process. The model translates the Group's current and
future strategy into a detailed year-one budget, followed by
higher-level forecasts for years two through to five. The
combination of this detailed budgeting, longer-term forecasting and
various stress tests provides a transparent and holistic view of
the forward-looking financial prospects of the Group. The Board
reviews and challenges the Group's MTP annually. The MTP covering
the five-year period from FY23 to FY27, which underpins the 2022
ICARA was challenged and approved by the Board in June 2022. The
MTP for the five-year period covering FY24 to FY28 was reviewed and
challenged by the Board in June 2023.
In addition to the annual MTP preparation process, a re-forecast
is carried out by management and reviewed by the Board on a
quarterly basis. These reflect updates for prevailing trading
conditions and other changes required to the budget assumptions set
at the start of the year.
As part of the ICARA, the Group models a range of downside
scenarios and a severe but plausible stress scenario designed to
assess the Group's ability to withstand a market-wide shock, such
as a sharp market decline triggered by a global recession;
Group-specific stresses, such as the loss of an investment
management team or key introducer, and a combination of both.
The Group modelled a multi-layered scenario involving a
significant decline in financial markets over a five-year period (a
drop of 23% and 5% in years one and two respectively, followed by a
gradual recovery), combined with the loss of a key investment
management team. This scenario would have a material impact on the
Group's profitability compared to the MTP base case, giving rise to
a small regulatory capital deficit by the end of FY27, before
putting in place any mitigating management actions.
Management identified a number of mitigating actions that could
be implemented in the event of such severe stresses. In this
scenario, the mitigation actions implemented were to reduce
discretionary compensation and reduce the dividend payments to
ensure a capital surplus was maintained against the minimum capital
requirement. No additional actions were taken with regards to
profitability as although the Group experiences a sharp decline in
profitability, the reduction was temporary, and profits were
forecast to increase from FY25 onwards. In the Group's modelling on
the above-mentioned multi-layered scenario, post the implementation
of the management mitigating actions the Group would revert to a
healthy capital surplus position. If deemed appropriate, mitigating
actions could include a broader and more significant reduction in
the Group's cost base (IT, property, change initiatives and
others). The implementation of the above actions depends on the
nature of the specific stress events and the time frames over which
they occur.
These scenarios are refreshed on a regular basis to ensure they
remain relevant and continue to be a suitable tool for developing
our controls and mitigating actions. The latest ICARA refresh
exercise took place in spring 2023, where it was confirmed that the
stress tests modelled previously in the 2022 ICARA were still
deemed appropriate and materially relevant. Management also
considers a reverse stress case and carries out an assessment of
the cost to the Group of a wind-down in the event of a
non-recoverable shock to the operating model. Moreover, management
has identified a number of actions that could be implemented in the
event of severe stresses.
Taking into consideration the assessment of the above factors,
including the results of the latest ICARA, the Group's risk
management framework and the mitigating actions that can be put in
place, the Board has reasonable expectations the Group will be able
to continue in operation and meet its liabilities as they fall due
over the period under assessment. This assessment also supports the
Group's Consolidated financial statements to be prepared on a going
concern basis, as discussed in Note 2 of the Consolidated financial
statements.
Consolidated statement of comprehensive income
For the year ended 30 June 2023
2023 2022
Note GBP'000 GBP'000
--------------------------------------------------- ---- --------- ---------
Revenue 4 123,777 122,210
Administrative costs (102,207) (95,288)
--------------------------------------------------- ---- --------- ---------
Gross profit 21,570 26,922
Other gains/(losses) - net (162) (55)
Operating profit 21,408 26,867
Finance income 5 1,127 68
Finance costs 5 (296) (372)
Other non-operating income - 2,983
Profit before tax 22,239 29,546
Taxation 6 (4,090) (6,135)
Profit for the year attributable to equity holders
of the Company 18,149 23,411
Other comprehensive income - -
Total comprehensive income for the year 18,149 23,411
--------------------------------------------------- ---- --------- ---------
Earnings per share
Basic 8 114.7p 149.0p
Diluted 8 112.6p 144.4p
--------------------------------------------------- ---- --------- ---------
Consolidated statement of financial position
As at 30 June 2023
30 June 30 June
2023 2022(1)
Note GBP'000 GBP'000
---------------------------------------------- ---- -------- --------
Assets
Non-current assets
Intangible assets 10 100,582 85,887
Property, plant and equipment 2,123 2,202
Right-of-use assets 4,329 4,971
Financial assets at fair value through other
comprehensive income 500 500
---------------------------------------------- ---- -------- --------
Total non-current assets 107,534 93,560
Current assets
Financial assets at fair value through profit
or loss 825 784
Trade and other receivables 33,542 30,473
Cash and cash equivalents 53,355 61,328
---------------------------------------------- ---- -------- --------
Total current assets 87,722 92,585
---------------------------------------------- ---- -------- --------
Total assets 195,256 186,145
---------------------------------------------- ---- -------- --------
Liabilities
Non-current liabilities
Lease liabilities (3,181) (4,075)
Provisions 11 (322) (326)
Net deferred tax liabilities (6,033) (4,957)
Other non-current liabilities (783) (570)
---------------------------------------------- ---- -------- --------
Total non-current liabilities (10,319) (9,928)
Current liabilities
Lease liabilities (1,960) (1,952)
Provisions 11 (1,000) (819)
Deferred contingent consideration 12 (1,467) (327)
Trade and other payables (22,521) (23,861)
Current tax liabilities (645) (833)
---------------------------------------------- ---- -------- --------
Total current liabilities (27,593) (27,792)
---------------------------------------------- ---- -------- --------
Net assets 157,344 148,425
---------------------------------------------- ---- -------- --------
Equity
Share capital 14 164 162
Share premium account 14 81,830 79,141
Other reserves 9,112 9,962
Retained earnings 66,238 59,160
---------------------------------------------- ---- -------- --------
Total equity 157,344 148,425
---------------------------------------------- ---- -------- --------
(1) The Group has reclassified the deferred tax balances to
offset deferred tax assets and liabilities and present net deferred
tax balances by jurisdiction to ensure consistent reporting with
the current period. In the prior year, the reported deferred tax
asset was GBP3,002,000, which has been netted off in the deferred
tax liabilities balance.
The Consolidated financial statements were approved by the Board
of Directors and authorised for issue on 13 September 2023, and
signed on their behalf by:
Andrew Shepherd
CEO
Andrea Montague
Chief Financial Officer
Company registration number: 4402058
Consolidated statement of changes in equity
For the year ended 30 June 2023
Share
Share premium Other Retained Total
capital account reserves earnings equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ---- -------- -------- --------- --------- --------
Balance at 1 July 2021 161 78,703 8,467 46,672 134,003
--------------------------- ---- -------- -------- --------- --------- --------
Comprehensive income
Profit for the year - - - 23,411 23,411
Other comprehensive income - - - - -
--------------------------- ---- -------- -------- --------- --------- --------
Total comprehensive income - - - 23,411 23,411
Transactions with owners
Issue of ordinary shares 14 1 438 - - 439
Share-based payments - - 2,779 - 2,779
Share options exercised - - (2,494) 2,494 -
Purchase of own shares by
Employee Benefit Trust - - - (3,100) (3,100)
Tax on share options - - 1,210 - 1,210
Dividends paid 9 - - - (10,317) (10,317)
--------------------------- ---- -------- -------- --------- --------- --------
Total transactions with
owners 1 438 1,495 (10,923) (8,989)
Balance at 30 June 2022 162 79,141 9,962 59,160 148,425
--------------------------- ---- -------- -------- --------- --------- --------
Comprehensive income
Profit for the year - - - 18,149 18,149
Other comprehensive income - - - - -
--------------------------- ---- -------- -------- --------- --------- --------
Total comprehensive income - - - 18,149 18,149
Transactions with owners
Issue of ordinary shares 14 2 2,689 - - 2,691
Share-based payments - - 2,686 - 2,686
Share options exercised - - (3,201) 3,201 -
Purchase of own shares by
Employee Benefit Trust - - - (2,850) (2,850)
Tax on share options - - (335) - (335)
Dividends paid 9 - - - (11,422) (11,422)
--------------------------- ---- -------- -------- --------- --------- --------
Total transactions with
owners 2 2,689 (850) (11,071) (9,230)
Balance at 30 June 2023 164 81,830 9,112 66,238 157,344
--------------------------- ---- -------- -------- --------- --------- --------
Consolidated statement of cash flows
For the year ended 30 June 2023
2023 2022
Note GBP'000 GBP'000
----------------------------------------------------- ---- -------- --------
Cash flows from operating activities
Cash generated from operations 13 30,093 32,826
Corporation Tax paid (5,134) (5,269)
Tax refund - 2,983
----------------------------------------------------- ---- -------- --------
Net cash generated from operating activities 24,959 30,540
Cash flows from investing activities
Purchase of computer software 10 (2,954) (2,912)
Purchase of property, plant and equipment (745) (289)
Purchase of financial assets at fair value
through profit or loss (30) (215)
Consideration paid 7 (15,111) -
Deferred contingent consideration paid 12 (334) (6,000)
Interest received 5 1,127 68
----------------------------------------------------- ---- -------- --------
Net cash used in investing activities (18,047) (9,348)
Cash flows from financing activities
Proceeds of issue of shares 14 1,691 439
Payment of lease liabilities (2,304) (1,785)
Purchase of own shares by Employee Benefit
Trust 14 (2,850) (3,100)
Dividends paid to shareholders 9 (11,422) (10,317)
----------------------------------------------------- ---- -------- --------
Net cash used in financing activities (14,885) (14,763)
Net (decrease)/increase in cash and cash equivalents (7,973) 6,429
----------------------------------------------------- ---- -------- --------
Cash and cash equivalents at beginning of year 61,328 54,899
----------------------------------------------------- ---- -------- --------
Cash and cash equivalents at end of year 53,355 61,328
----------------------------------------------------- ---- -------- --------
Notes to the consolidated financial statements
For the year ended 30 June 2023
1. General information
Brooks Macdonald Group plc ("the Company") is the Parent Company
of a group of companies ("the Group"), which offers a range of
investment management services to private high net worth
individuals, pension funds, institutions, charities and trusts. The
Group also provides financial planning as well as international
investment management, and acts as fund manager to a range of
onshore and international funds.
The Company is a public limited company by shares, incorporated
and domiciled in the United Kingdom under the Companies Act 2006
and listed on AIM. The address of its registered office is 21
Lombard Street, London, EC3V 9AH, England.
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 for the year ended
30 June 2023 have been prepared in accordance with UK-adopted
International Accounting Standards ("IAS") and with the
requirements of the Companies Act 2006 as applicable to companies
reporting under those standards. These Consolidated financial
statements have been prepared on a historical cost basis, except
for the revaluation of financial assets at fair value through other
comprehensive income, financial assets and financial liabilities at
fair value through profit or loss, and deferred contingent
consideration 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. For further
details on the Group's going concern assessment, see the Viability
statement. There have been no post balance sheet events that have
materially impacted the Group's liquidity headroom and going
concern assessment.
c. Changes in accounting policies
The Group's accounting policies that have been applied in
preparing these Financial statements are consistent with those
disclosed in the Annual Report and Accounts for the year ended 30
June 2022, except as explained below.
New accounting standards, amendments and interpretations adopted
in the year
In the year ended 30 June 2023, the Group did not adopt any new
standards or amendments issued by the International Accounting
Standards Board ("IASB") or interpretations by the International
Financial Reporting Standards Interpretations Committee ("IFRS IC")
that have had a material impact on the Consolidated financial
statements.
Certain new accounting standards, amendments to accounting
standards, and interpretations have been published that are not
mandatory for 30 June 2023 reporting periods and have not been
early adopted by the Group. These standards, amendments or
interpretations are not expected to have a material impact on the
Group in the current or future reporting periods or on foreseeable
future transactions.
Effective
Standard, Amendment or Interpretation date
---------------------------------------------------------------- ------------
Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance 1 January
Contracts' (amendments to IFRS 4) 2018
COVID-19-Related rent concessions beyond 30 June 2021 (amendment
to IFRS 16) 1 April 2021
Reference to the conceptual framework (amendments to IFRS 1 January
3) 2022
Property, Plant and Equipment - proceeds before intended 1 January
use (amendments to IAS 16) 2022
Onerous Contracts - cost of fulfilling a contract (amendments 1 January
to IAS 37) 2022
1 January
Annual improvements to IFRS Standards 2018-2020 2022
---------------------------------------------------------------- ------------
d. Critical accounting estimates and significant judgements
The preparation of financial information requires the use of
assumptions, estimates and judgements about future conditions. Use
of currently available information and application of judgement are
inherent in the formation of estimates. Actual results in the
future may differ from those reported. In this regard, the
Directors believe that the accounting policies, where important
estimations are used, relate to the measurement of intangible
assets and the estimation of the fair value of share-based
payments.
The preparation of the Group's Consolidated financial statements
includes the use of estimates and assumptions. The significant
accounting estimates, being those with a significant risk of a
material change to the carrying value of assets and liabilities
within the next year in terms of IAS 1, 'Presentation of Financial
Statements', are the useful economic life estimates for property,
plant and equipment, computer software and acquired
client-relationship contracts, additionally the pre-tax discount
rate and perpetuity growth rate used to calculate the International
cash-generating unit ("CGU") goodwill impairment review (Note
10).
The Consolidated financial statements include other areas of
judgement and accounting estimates. While these areas do not meet
the definition under IAS 1 of significant accounting estimates or
critical accounting judgements, the recognition and measurement of
certain material assets and liabilities are based on assumptions
and/or are subject to longer-term uncertainties. The other areas of
judgement and accounting estimates are the pre-tax discount rate
and perpetuity growth rate used within the Braemar and Cornelian
CGU goodwill impairment reviews (Note 10), additionally the inputs
into the Black-Scholes model used to value the Group's
equity-settled share-based payments (Note 15).
The underlying assumptions and estimates are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the year in which the estimate is revised only if the revision
affects both current and future periods.
Further information about key assumptions and sources of
estimation uncertainty are set out below.
Intangible assets
The Group has acquired client relationships and the associated
investment management and financial advice contracts as part of
business combinations, through separate purchase or with newly
employed teams of fund managers, as described in Note 10. In
assessing the fair value of these assets, the Group has estimated
their finite life based on information about the typical length of
existing client relationships. Acquired client relationship
contracts are amortised on a straight-line basis over their
estimated useful lives, ranging from 6 to 20 years.
Of the client relationship intangible assets held by the Group
at 30 June 2023, the expected amortisation charge for the year
ending 30 June 2024 is GBP5,808,000. If the useful economic lives
were to reduce by one year, the estimated charge would increase by
GBP2,033,000.
Goodwill recognised as part of a business combination is
reviewed annually for impairment, or when a change in circumstances
indicates that it might be impaired. The recoverable amounts of
CGUs are determined by value-in-use calculations, which require the
use of estimates to derive the projected future cash flows
attributable to each unit. Details of the more significant
assumptions and sensitivity analysis are given in Note 10.
In assessing the value of client relationships and the
associated investment management and financial advice contracts and
goodwill ,or gain on bargain purchase arising as part of a business
combination, the Group prepares forecasts for the cash flows
acquired and discounts to a net present value. The Group uses a
pre-tax discount rate, adjusting from a post-tax discount rate
calculated by the Group's weighted average cost of capital
("WACC"), adjusted for any specific risks for the relevant CGU. The
Group uses the capital asset pricing model ("CAPM") to estimate the
WACC, which is calculated at the point of acquisition for a
business combination, or the relevant reporting period date. The
key inputs are the risk-free rate, market risk premium, the Group's
adjusted beta with reference to beta data from peer-listed
companies, small company premium and any risk-adjusted premium for
the relevant CGU. See Note 10 for further details on the discount
rate for the various CGUs.
Share-based payments
The Group operates various share-based payment schemes in
respect of services received from certain employees. Estimating the
fair value of these share-based payments requires the Group to
apply an appropriate valuation model and determine the inputs to
that model (Note 15). The charge to the Consolidated statement of
comprehensive income in respect of share-based payments is
calculated using assumptions about the number of eligible employees
that will leave the Group and the number of employees that will
satisfy the relevant performance conditions. These estimates are
reviewed regularly. A decrease of 10% in the total options would
decrease the estimated share-based payment charge and the
associated national insurance charge in the Consolidated statement
of comprehensive income for the year by GBP591,000 and GBP121,000,
respectively. The key inputs into the fair value calculations for
the options granted during the year are disclosed in Note 15.
3. Segmental information
For management purposes, the Group's activities are organised
into two operating divisions: UK Investment Management and
International. The Group's other activity, offering nominee and
custody services to clients, is included within UK Investment
Management. These divisions are the basis on which the Group
reports its primary segmental information to the Group Board of
Directors, which is the Group's chief operating decision-maker. In
accordance with IFRS 8 'Operating Segments', disclosures are
required to reflect the information which the Board of Directors
uses internally for evaluating the performance of its operating
segments and allocating resources to those segments. The
information presented in this Note is consistent with the
presentation for internal reporting.
The UK Investment Management segment offers a range of
investment management services to private high net worth
individuals, pension funds, institutions, charities and trusts, as
well as wealth management services to high net worth individuals
and families, giving independent 'whole of market' financial
advice, enabling clients to build, manage and protect their wealth.
The International segment is based in the Channel Islands and the
Isle of Man, offering a similar range of investment management and
wealth management services as the UK Investment Management segment.
The Group segment principally comprises the Group Board's
management and associated costs, along with the consolidation
adjustments.
Following the acquisitions of Integrity and Adroit (Note 7), the
activities since the two acquisitions were completed have been
included in the UK Investment Management segment.
Revenues and expenses are allocated to the business segment that
originated the transaction. Sales between segments are carried out
at arm's length. Centrally incurred expenses are allocated to
business segments on an appropriate pro rata basis.
Group and
UK Investment consolidation
Management International adjustments Total
Year ended 30 June 2023 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- ------------- ------------- -------------- --------
Total revenue 109,737 20,319 - 130,056
Inter segment revenue (6,279) - - (6,279)
----------------------------------------- ------------- ------------- -------------- --------
External revenue 103,458 20,319 - 123,777
Underlying administrative costs (47,405) (13,576) (33,373) (94,354)
----------------------------------------- ------------- ------------- -------------- --------
Operating contribution 56,053 6,743 (33,373) 29,423
Allocated costs (22,127) (6,844) 28,971 -
Net finance income 590 226 88 904
----------------------------------------- ------------- ------------- -------------- --------
Underlying profit/(loss) before tax 34,516 125 (4,314) 30,327
Amortisation of client relationships (3,205) (2,465) - (5,670)
Dual running costs of operating platform (1,424) (192) - (1,616)
Acquisition and integration related
costs (499) - (69) (568)
Changes in fair value of deferred
contingent consideration - - (173) (173)
Finance cost of deferred contingent
consideration - (7) (54) (61)
Profit/(loss) mark-up on Group allocated
costs 299 (299) - -
----------------------------------------- ------------- ------------- -------------- --------
Total underlying adjustments (4,829) (2,963) (296) (8,088)
Profit/(loss) before tax 29,687 (2,838) (4,610) 22,239
Taxation (4,090)
----------------------------------------- ------------- ------------- -------------- --------
Profit for the year attributable
to equity holders of the Company 18,149
----------------------------------------- ------------- ------------- -------------- --------
Group and
UK Investment consolidation
Management International adjustments
Year ended 30 June 2023 GBP'000 GBP'000 GBP'000 Total GBP'000
----------------------------------- ------------- ------------- -------------- -------------
Statutory operating costs included
the following:
* Amortisation 3,429 912 2,491 6,832
* Depreciation 1,943 689 17 2,649
* Interest income 762 279 51 1,092
----------------------------------- ------------- ------------- -------------- -------------
Group and
UK Investment consolidation
Management International adjustments Total
Year ended 30 June 2022(1) GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------------- ----------------------- ----------------------- -----------------------
Total revenue 105,550 21,156 - 126,706
Inter segment revenue (4,496) - - (4,496)
---------------------------- ------------- ----------------------- ----------------------- -----------------------
External revenue 101,054 21,156 - 122,210
Underlying administrative
costs (43,469) (12,783) (31,165) (87,417)
---------------------------- ------------- ----------------------- ----------------------- -----------------------
Operating contribution 57,585 8,373 (31,165) 34,793
Allocated costs (21,327) (8,187) 29,514 -
Net finance costs (254) (15) - (269)
---------------------------- ------------- ----------------------- ----------------------- -----------------------
Underlying profit/(loss)
before tax 36,004 171 (1,651) 34,524
Amortisation of client
relationships (2,978) (2,465) - (5,443)
Other non-operating income 2,983 - - 2,983
Dual running costs of
operating platform (2,119) (309) - (2,428)
Finance cost of deferred
contingent
consideration - (12) (78) (90)
Profit/(loss) mark-up on
Group allocated
costs 214 (214) - -
---------------------------- ------------- ----------------------- ----------------------- -----------------------
Total underlying adjustments (1,900) (3,000) (78) (4,978)
Profit/(loss) before tax 34,104 (2,829) (1,729) 29,546
Taxation (6,135)
---------------------------- ------------- ----------------------- ----------------------- -----------------------
Profit for the year
attributable
to equity holders of the
Company 23,411
---------------------------- ------------- ----------------------- ----------------------- -----------------------
(1) As discussed in the Financial review, the segmental results
for the year ended 30 June 2022 have been restated to be consistent
with the current year. For the year ended 30 June 2022, the
reported UKIM segment allocated costs have changed from
GBP25,129,000 to GBP21,327,000, a movement of GBP3,802,000, and
underlying profit before tax changed from GBP32,202,000 to
GBP36,004,000, a movement of GBP3,802,000. The reported
International segment underlying administrative costs changed from
GBP14,016,000 to GBP12,783,000, a movement of GBP1,233,000,
allocated costs changed from GBP3,152,000 to GBP8,187,000, a
movement of GBP5,035,000, and underlying profit before tax changed
from GBP3,973,000 to GBP171,000, a movement of GBP3,802,000. The
reported Group segment underlying administrative costs changed from
GBP29,932,000 to GBP31,165,000, a movement of GBP1,233,000, and
allocated costs changed from GBP28,281,000 to GBP29,514,000, a
movement of GBP1,233,000.
Group and
UK Investment consolidation
Management International adjustments Total
Year ended 30 June 2022 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ------------- ------------- -------------- --------
Statutory operating costs included
the following:
* Amortisation 2,888 917 3,117 6,922
* Depreciation 2,014 498 - 2,512
* Interest income 20 23 - 43
----------------------------------- ------------- ------------- -------------- --------
4. Revenue
UK Investment
Management International Total
Year ended 30 June 2023 GBP'000 GBP'000 GBP'000
-------------------------------------------------- ------------- ------------- --------
Investment management fees 65,626 12,292 77,918
Transactional income and foreign exchange trading
fees 10,578 2,704 13,282
Fund management fees 9,983 3,739 13,722
Financial planning income 6,446 - 6,446
Interest income 10,825 1,584 12,409
-------------------------------------------------- ------------- ------------- --------
Total revenue 103,458 20,319 123,777
-------------------------------------------------- ------------- ------------- --------
UK Investment
Management International Total(1)
Year ended 30 June 2022 GBP'000 GBP'000 GBP'000
-------------------------------------------------- ------------- ------------- --------
Investment management fees 70,161 14,014 84,175
Transactional income and foreign exchange trading
fees 12,209 2,491 14,700
Fund management fees 13,187 4,441 17,628
Financial planning income 4,082 - 4,082
Interest income 1,377 210 1,587
Other income 38 - 38
-------------------------------------------------- ------------- ------------- --------
Total revenue 101,054 21,156 122,210
-------------------------------------------------- ------------- ------------- --------
(1) The Group has restated the prior year Financial planning
income within International to Investment management fees to align
to the current reporting period.
a. Geographic analysis
The Group's operations are located in the United Kingdom, the
Channel Islands and the Isle of Man. The following table presents
external revenue analysed by the geographical location of the Group
subsidiary entity providing the service.
2023 2022
GBP'000 GBP'000
---------------- -------- --------
United Kingdom 103,458 101,054
Channel Islands 20,173 21,079
Isle of Man 146 77
---------------- -------- --------
Total revenue 123,777 122,210
---------------- -------- --------
b. Major clients
The Group is not reliant on any one client or group of connected
clients for the generation of revenues.
5. Finance income and finance costs
2023 2022
GBP'000 GBP'000
-------------------------------------------------- -------- --------
Finance income
Dividends on preference shares 35 25
Bank interest on deposits 1,092 43
-------------------------------------------------- -------- --------
Total finance income 1,127 68
-------------------------------------------------- -------- --------
Finance costs
Finance cost of lease liabilities 235 282
Finance cost of deferred contingent consideration
(Note 12) 61 90
-------------------------------------------------- -------- --------
Total finance costs 296 372
-------------------------------------------------- -------- --------
6. Taxation
The tax charge on profit for the year was as follows:
2023 2022
GBP'000 GBP'000
----------------------------------------------- -------- --------
UK Corporation Tax at 20.5% (FY22: 19.0%) 5,703 6,441
Over provision in prior years (834) (307)
----------------------------------------------- -------- --------
Total current tax 4,869 6,134
Deferred tax credits (1,189) (211)
Under provision of deferred tax in prior years 410 212
----------------------------------------------- -------- --------
Income tax expense 4,090 6,135
----------------------------------------------- -------- --------
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, split out between underlying and statutory profits:
Underlying Underlying Statutory
profit profit adjustments profit
Year ended 30 June 2023 GBP'000 GBP'000 GBP'000
------------------------------------------------------------- ---------- ------------------- ---------
Profit before taxation 30,327 (8,088) 22,239
Profit multiplied by the standard rate of
tax in the UK of 20.5% 6,217 (1,658) 4,559
Tax effect of amounts that are not deductible/(taxable)
in calculating taxable income:
* Depreciation and amortisation 604 (285) 319
* Non-taxable income (124) - (124)
* Overseas tax losses not available for UK tax purposes 67 - 67
* Lower tax rates in other jurisdictions in which the
Group operates (107) - (107)
* Disallowable expenses 263 48 311
* Share-based payments (512) - (512)
* Over provision in prior years (423) - (423)
------------------------------------------------------------- ---------- ------------------- ---------
Income tax expense 5,985 (1,895) 4,090
------------------------------------------------------------- ---------- ------------------- ---------
Effective tax rate 19.7% n/a 18.4%
------------------------------------------------------------- ---------- ------------------- ---------
Underlying Underlying Statutory
profit profit adjustments profit
Year ended 30 June 2022 GBP'000 GBP'000 GBP'000
------------------------------------------------------------- ---------- ------------------- ---------
Profit before taxation 34,524 (4,978) 29,546
Profit multiplied by the standard rate of
tax in the UK of 19.0% 6,560 (946) 5,614
Tax effect of amounts that are not deductible/(taxable)
in calculating taxable income:
* Depreciation and amortisation 609 (207) 402
* Non-taxable income (8) - (8)
* Overseas tax losses not available for UK tax purposes (293) - (293)
* Lower tax rates in other jurisdictions in which the
Group operates (201) 92 (109)
* Disallowable expenses 309 15 324
* Share-based payments 315 - 315
* Over provision in prior years (110) - (110)
------------------------------------------------------------- ---------- ------------------- ---------
Income tax expense 7,181 (1,046) 6,135
------------------------------------------------------------- ---------- ------------------- ---------
Effective tax rate 20.8% n/a 20.8%
------------------------------------------------------------- ---------- ------------------- ---------
It was outlined in the Finance Bill 2021 (11 March 2021) and
substantively enacted having received royal assent on the 10 June
2021, that the UK Corporation Tax rate would increase from 19.0% to
25.0% from 1 April 2023. As a result, the effective rate of
Corporation Tax applied to the taxable profit for the year ended 30
June 2023 is 20.5% (FY22: 19.0%). The relevant deferred tax
balances have been remeasured at this increased rate. Deferred tax
assets and liabilities are calculated at the rate that is expected
to be in force when the temporary differences unwind, however
limited to the extent that such rates have been substantively
enacted.
The deferred tax (credits)/charges for the year arise from:
2023 2022
GBP'000 GBP'000
----------------------------------------------------------- -------- --------
Share-based payments (1) 399
Accelerated capital allowances (27) 73
Accelerated capital allowances on research and development (117) (63)
Dilapidations (54) 12
Amortisation of acquired client relationship contracts (934) (880)
Trading losses carried forward (56) 248
Under provision in prior years 410 212
----------------------------------------------------------- -------- --------
Deferred tax (credit)/charge (779) 1
----------------------------------------------------------- -------- --------
7. Business combinations
Integrity
On 31 October 2022, the Group acquired Integrity Wealth Bidco
Limited and Integrity Wealth (Holdings) Limited, together with its
subsidiary Integrity Wealth Solutions Limited ("IWS"),
(collectively "Integrity"). The acquisition brings a successful and
rapidly growing Independent Financial Adviser ("IFA") business into
the Group and brings scale to the Group's Private Clients business,
adding distinctive expertise in their specialist area. The
acquisition consisted of acquiring 100% of the issued share capital
of Integrity Wealth (Holdings) Limited and Integrity Wealth Bidco
Limited (intermediate holding company), which was funded through
existing financial resources. On 14 April 2023, the Group acquired
an additional client book, which has been incorporated into the
Integrity business and acquisition accounting.
The acquisition was accounted for using the acquisition method
and details of the purchase consideration are as follows:
Note GBP'000
------------------------------------------------ ----- -------
Initial cash consideration 4,246
Shares consideration i 1,000
Excess for net assets ii 601
Deferred contingent consideration at fair value iii 1,240
------------------------------------------------ ----- -------
Total purchase consideration 7,087
------------------------------------------------------- -------
i. The Group issued 52,084 ordinary shares to the previous
shareholders of Integrity Wealth (Holdings) Limited and Integrity
Wealth Bidco Limited at a price of GBP19.20 per share. The amount
of shares issued was based on the share price at the completion
date to provide the equivalent consideration value of
GBP1,000,000.
ii. In accordance with the Sale and Purchase Agreement ("SPA"),
the Group was required to pay the difference between the available
capital and the required regulatory capital for Integrity.
iii. The total estimated cash deferred contingent consideration
for the original Integrity acquisition was GBP1,505,000, payable in
a period between one and three years following completion, based on
revenue criteria and client attrition of the acquired business. As
outlined in the SPA, the maximum cash deferred contingent
consideration payable was up to GBP2,746,000 if certain revenue
criteria are met.
On 30 June 2023, the Group agreed to renegotiate the deferred
contingent consideration, which resulted in the Group recognising a
change in fair value of deferred contingent consideration of
GBP173,000 on 30 June 2023. See Note 12 for further details.
Client relationship intangible assets of GBP3,156,000 were
recognised on acquisition in respect of the expected cash inflows
and economic benefit from the acquired business. An associated
deferred tax liability of GBP787,000 was recognised in relation to
the expected cash inflows on the acquired client relationship
intangible asset. Goodwill of GBP3,945,000 was recognised on
acquisition in respect of the expected growth in the acquired
business and associated cash inflows. The fair value of the assets
acquired were the gross contractual amounts and were all considered
to be fully recoverable. The fair value of the identifiable assets
and liabilities acquired, at the date of acquisition, are detailed
below.
Net assets acquired through business combination
GBP'000
-------------------------------------------------- -------
Trade and other receivables 268
Cash at bank 804
Trade and other payables (167)
Corporation tax payable (132)
-------------------------------------------------- -------
Total net assets recognised by acquired companies 773
Fair value adjustments:
* Client relationship contracts 3,156
* Deferred tax liabilities (787)
-------------------------------------------------- -------
Net identifiable assets 2,369
Goodwill 3,945
-------------------------------------------------- -------
Total purchase consideration 7,087
-------------------------------------------------- -------
The trade and other receivables were recognised at their fair
value, being the gross contractual amounts, which were deemed fully
recoverable.
Adroit
On 15 December 2022, the Group acquired Adroit Financial
Planning Limited ("Adroit"), a successful and rapidly growing IFA
business. The acquisition brings further scale to the Group's
Private Clients business, adding distinctive expertise in their
specialist area. The acquisition consisted of acquiring 100% of the
issued share capital of Adroit Financial Planning Limited, which
was funded through existing financial resources.
The acquisition was accounted for using the acquisition method
and details of the purchase consideration are as follows:
Note GBP'000
----------------------------- ----- -------
Initial cash consideration 10,991
Additional consideration i 270
----------------------------- ----- -------
Total purchase consideration 11,261
------------------------------------ -------
i. In accordance with the Sale and Purchase Agreement ("SPA"),
the Group was required to pay an additional amount based on the
number of days between the date of exchange and the date of
completion.
Client relationship intangible assets of GBP2,931,000 were
recognised on acquisition in respect of the expected cash inflows
and economic benefit from the acquired business. An associated
deferred tax liability of GBP733,000 was recognised in relation to
the expected cash inflows on the acquired client relationship
intangible asset. Goodwill of GBP8,541,000 was recognised on
acquisition in respect of the expected growth in the acquired
business and associated cash inflows. The fair value of the assets
acquired were the gross contractual amounts and were all considered
to be fully recoverable. The fair value of the identifiable assets
and liabilities acquired, at the date of acquisition, are detailed
below.
Net assets acquired through business combination
GBP'000
------------------------------------------------ -------
Trade and other receivables 533
Cash at bank 193
Trade and other payables (204)
------------------------------------------------ -------
Total net assets recognised by acquired company 522
Fair value adjustments:
* Client relationship contracts 2,931
* Deferred tax liabilities (733)
------------------------------------------------ -------
Net identifiable assets 2,198
Goodwill 8,541
------------------------------------------------ -------
Total purchase consideration 11,261
------------------------------------------------ -------
The trade and other receivables were recognised at their fair
value, being the gross contractual amounts, which were deemed fully
recoverable.
Acquisition impact on reported results
Directly attributable acquisition and integration-related costs
of GBP568,000 were incurred in relation to the acquisitions, which
were charged to administrative costs in the Consolidated statement
of comprehensive income, but excluded from underlying profit.
In the period from acquisition to 30 June 2023, the two
acquisitions earned revenue of GBP2,484,000 and statutory profit
before tax of GBP285,000. Had the acquisitions been consolidated
from 1 July 2022, the Consolidated statement of comprehensive
income would have included revenue of GBP4,068,000 and statutory
profit before tax of GBP585,000.
Net cash outflow resulting from business combinations
GBP'000
---------------------------------------------------------- -------
Total purchase consideration 18,348
Less shares issued as consideration (1,000)
Less deferred cash contingent consideration at fair value (1,240)
---------------------------------------------------------- -------
Cash paid to acquire business combinations 16,108
Less cash held by acquired entities (997)
---------------------------------------------------------- -------
Net cash outflow - investing activities 15,111
---------------------------------------------------------- -------
8. Earnings per share
The Directors believe that underlying earnings per share
provides an appropriate reflection of the Group's performance in
the year. Underlying earnings per share, which is an alternative
performance measure ("APM"), is calculated based on 'underlying
earnings', which is also an APM. Refer to the Non-IFRS Information
for a glossary of the Group's APMs, their definition and criteria
for how underlying adjustments are considered. The tax effect of
the underlying adjustments to statutory earnings has also been
considered, refer to Note 6 for the taxation on underlying and
statutory profit.
Earnings for the year used to calculate earnings per share as
reported in these Consolidated financial statements were as
follows:
2023 2022
GBP'000 GBP'000
----------------------------------------------------------- -------- --------
Earnings attributable to ordinary shareholders 18,149 23,411
----------------------------------------------------------- -------- --------
Amortisation of acquired client relationship contracts
(Note 10) 5,670 5,443
Dual running costs of operating platform 1,616 2,428
Acquisition and integration-related costs (Note 7) 568 -
Changes in fair value of deferred contingent consideration
(Note 12) 173 -
Finance cost of deferred contingent consideration
(Note 12) 61 90
Other non-operating income - (2,983)
Tax impact of adjustments (Note 6) (1,895) (1,046)
----------------------------------------------------------- -------- --------
Underlying earnings attributable to ordinary shareholders 24,342 27,343
----------------------------------------------------------- -------- --------
Basic earnings per share is calculated by dividing earnings
attributable to ordinary shareholders by the weighted average
number of shares in issue throughout the period. Included in the
weighted average number of shares for basic earnings per share
purposes are employee share options at the point all necessary
conditions have been satisfied and the options have vested, even if
they have not yet been exercised.
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 diluted
weighted average number of shares in issue and diluted earnings per
share considers the effect of all dilutive potential shares
issuable on exercise of employee share options. The potential
shares issuable includes the contingently issuable shares that have
not yet vested and the vested unissued share options that are
either nil cost options or have little or no consideration.
The weighted average number of shares in issue during the year
was as follows:
2023 2022
Number Number
of shares of shares
--------------------------------------------------------- ---------- ----------
Weighted average number of shares in issue 15,825,397 15,707,706
Effect of dilutive potential shares issuable on exercise
of employee share options 293,992 502,259
--------------------------------------------------------- ---------- ----------
Diluted weighted average number of shares in issue 16,119,389 16,209,965
--------------------------------------------------------- ---------- ----------
Earnings per share for the year attributable to equity holders
of the Company were:
2023 2022
p p
------------------------------ ----- -----
Based on reported earnings:
Basic earnings per share 114.7 149.0
Diluted earnings per share 112.6 144.4
Based on underlying earnings:
Basic earnings per share 153.8 174.1
Diluted earnings per share 151.0 168.7
------------------------------ ----- -----
9. Dividends
Amounts recognised as distributions to equity holders of the
Company in the year were as follows:
2023 2022
GBP'000 GBP'000
------------------------------------------------------ -------- --------
Final dividend paid for the year ended 30 June 2022
of 45.0p (FY21: 40.0p) per share 7,021 6,251
Interim dividend paid for the year ended 30 June 2023
of 28.0p (FY22: 26.0p) per share 4,401 4,066
------------------------------------------------------ -------- --------
Total dividends 11,422 10,317
------------------------------------------------------ -------- --------
Final dividend proposed for the year ended 30 June
2023 of 47.0p (FY22: 45.0p) per share 7,448 7,031
------------------------------------------------------ -------- --------
The interim dividend of 28.0p (FY22: 26.0p) per share was paid
on 6 April 2023.
A final dividend for the year ended 30 June 2023 of 47.0p (FY22:
45.0p) per share was declared by the Board of Directors on 13
September 2023 and is subject to approval by the shareholders at
the Company's Annual General Meeting. It will be paid on 3 November
2023 to shareholders who are on the register at the close of
business on 22 September 2023. In accordance with IAS 10 'Events
After the Reporting Period', the aggregate amount of the proposed
dividend expected to be paid out of retained earnings is not
recognised as a liability in these Consolidated financial
statements.
10. 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 2021 51,887 11,398 70,011 3,521 136,817
Additions - 2,912 - - 2,912
Disposals - (7,380) - - (7,380)
----------------------------- -------- --------- ------------- --------- --------
At 30 June 2022 51,887 6,930 70,011 3,521 132,349
Additions 12,486 2,954 6,087 - 21,527
Disposals - (1,054) - (3,521) (4,575)
----------------------------- -------- --------- ------------- --------- --------
At 30 June 2023 64,373 8,830 76,098 - 149,301
----------------------------- -------- --------- ------------- --------- --------
Accumulated amortisation and
impairment
----------------------------- -------- --------- ------------- --------- --------
At 1 July 2021 11,213 6,152 26,034 3,521 46,920
Amortisation charge - 1,479 5,443 - 6,922
Accumulated amortisation on
disposals - (7,380) - - (7,380)
----------------------------- -------- --------- ------------- --------- --------
At 30 June 2022 11,213 251 31,477 3,521 46,462
Amortisation charge - 1,162 5,670 - 6,832
Accumulated amortisation on
disposals - (1,054) - (3,521) (4,575)
----------------------------- -------- --------- ------------- --------- --------
At 30 June 2023 11,213 359 37,147 - 48,719
----------------------------- -------- --------- ------------- --------- --------
Net book value
At 1 July 2021 40,674 5,246 43,977 - 89,897
At 30 June 2022 40,674 6,679 38,534 - 85,887
----------------------------- -------- --------- ------------- --------- --------
At 30 June 2023 53,160 8,471 38,951 - 100,582
----------------------------- -------- --------- ------------- --------- --------
The amortisation charge of intangible assets is recognised
within administrative costs in the Consolidated statement of
comprehensive income.
At 30 June 2023, intangible assets totalling GBP87,825,000 are
recognised in the United Kingdom and GBP12,757,000 are recognised
in the Channel Islands.
a. Goodwill
Goodwill acquired in a business combination is allocated at
acquisition to the cash-generating units ("CGUs") that are expected
to benefit from that business combination. The carrying amount of
goodwill in respect of these CGUs within the operating segments of
the Group comprises:
2023 2022
GBP'000 GBP'000
----------------------------------------------------- -------- --------
Funds
Braemar Group Limited ("Braemar") 3,320 3,320
International
Brooks Macdonald Asset Management (International)
Limited ("Brooks Macdonald International") 21,243 21,243
Cornelian
Cornelian Asset Managers Group Limited ("Cornelian") 16,111 16,111
Integrity
Integrity Wealth (Holdings) Limited ("Integrity") 3,945 -
Adroit
Adroit Financial Planning Limited ("Adroit") 8,541 -
Total goodwill 53,160 40,674
----------------------------------------------------- -------- --------
Goodwill is reviewed annually for impairment and its
recoverability has been assessed at 30 June 2023 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 and forecasts approved by the
relevant subsidiary company boards of directors. The most recent
budgets prepared are part of the detailed budget process for the
year ending 30 June 2023, and then extrapolated over a longer
period for the following four years, resulting in the budgets and
forecasts covering a period of five years. Cash flows are then
extrapolated beyond the five-year budget and forecast period using
an expected long-term growth rate, with the long-term growth rate
considered reasonable against the budgeted and forecast growth.
Cornelian
The Cornelian CGU recoverable amount was calculated as
GBP46,836,000 at 30 June 2023 (FY22: GBP61,502,000), giving a
surplus over the Cornelian CGU carrying amount of GBP16,468,000,
indicating that there is no impairment. The key underlying
assumptions of the calculation are the discount rate, the
medium-term growth in earnings and the long-term growth rate of the
business. The revenue growth forecasts range between 11% and 13%
annually over the five-year period. Revenue growth is forecast
using new business targets, expected outflows and estimated impact
of market performance on FUM, multiplied by estimated fee yields
for both the discretionary and fund management business.
Expenditure growth is forecast to increase by up to 7% annually
over the five-year period. Both the revenue growth and expenditure
growth reflect historic actual growth and planned management
actions and are considered to be reasonable in the current market
and industry conditions. A pre-tax discount rate of 15% has been
used (FY22: 16%), based on the Group's assessment of the risk-free
rate of interest and specific risks relating to Cornelian. The
recoverable amount was based on the estimated cash inflows over the
next five financial years, the period covered by the most recent
forecasts, which reflect planned management actions and are
considered to be reasonable in the current market and industry
conditions. The 2% long-term growth rate applied is considered
prudent in the context of the long-term average growth rate for the
funds and investment management industries in which the CGU
operates.
The Directors do not believe that any reasonably possible change
would result in an impairment; however, to provide additional
analysis, sensitivity analysis has been performed to show what may
be required for an impairment to be recognised.
-- An increase of the pre-tax discount rate by 6% (FY22: 12%),
from 15% to 21%, would result in an impairment.
-- The 2% perpetuity growth rate would need to reduce by 10%
(FY22: 24%) to -8% to trigger an impairment.
-- The forecast pre-tax cash inflows would need to reduce by 28%
(FY22: 40%) each year to result in an impairment.
International
Based on a value-in-use calculation, the recoverable amount of
the Brooks Macdonald International CGU at 30 June 2023 was
GBP33,642,000 (FY22: GBP64,453,000), giving a surplus over the
Brooks Macdonald International CGU carrying amount of GBP4,023,000,
indicating that there is no impairment. The key underlying
assumptions of the calculation are the discount rate, the
medium-term growth in earnings and the long-term growth rate of the
business. A pre-tax discount rate of 13% (FY22: 14%) has been used,
based on the Group's assessment of the risk-free rate of interest
and specific risks relating to Brooks Macdonald International. The
key input in forecasting revenue is FUM, which is forecast to grow
based on new business targets, attrition, and estimated impact of
market performance. FUM is multiplied by estimated fee yields for
the business resulting in annual revenue growth between 3% and 7%
annually over the five-year period. Expenditure growth is forecast
to increase by between 4% and 7% annually over the five-year
period, which includes consideration for reasonable allocated
costs. The underlying methodology for allocating costs is reviewed
by management each year when preparing the value-in-use
calculations to ensure the methodology remains appropriate. In the
current year this resulted in a change to the allocation metrics
used within the five-year forecast. The period covered is five
years and the forecasts are based on management's growth
projections for the business based on its strategic objectives,
taking into account historic performance and prevailing market and
economic conditions. The 2% long-term growth rate applied is
considered prudent in the context of the long-term average growth
rate for the funds, investment management and financial planning
industries in which the CGU operates.
The Directors do not believe that any reasonably possible change
would result in an impairment; however, to provide additional
analysis, sensitivity analysis has been performed to show what may
be required for an impairment to be recognised.
-- An increase of the pre-tax discount rate by 2% (FY22: 10%),
from 13% to 15%, would result in an impairment.
-- The 2% perpetuity growth rate would need to reduce by 2%
(FY22: 23%)to nil to trigger an impairment.
-- The forecast pre-tax cash inflows would need to reduce by 11%
(FY22: 47%) each year to result in an impairment.
Funds
Based on a value-in-use calculation, the recoverable amount of
the Braemar CGU at 30 June 2023 was GBP14,463,000 (FY22:
GBP17,847,000), giving a surplus over the Braemar CGU carrying
amount of GBP10,243,000 indicating that there is no impairment. A
pre-tax discount rate of 16% (FY22: 17%) has been used, based on
the Group's assessment of the risk-free rate of interest and
specific risks relating to Braemar. The key underlying assumptions
of the calculation are the discount rate, the growth in FUM of the
funds business and the long-term growth rate. The revenue generated
in the cash flow forecasts is based on FUM forecasts multiplied by
the relevant yields, with FUM growth ranging between 11% and 20%
annually over the five-year period. FUM growth is forecast using
estimated new business targets, expected outflows and estimated
impact of market performance. Expenditure growth is forecast at 3%
annually over the five-year period. The inputs to the forecast cash
inflows over the next five financial years, reflect historic actual
growth and planned management activities and are considered to be
reasonable in the current market and industry conditions. The 2%
long-term growth rate applied is considered prudent in the context
of the long-term average growth rate for the funds
industry in which the CGU operates.
The Directors do not believe that any reasonably possible change
would result in an impairment; however, to provide additional
analysis, sensitivity analysis has been performed to show what may
be required for an impairment to be recognised.
-- An increase of the pre-tax discount rate by 28% (FY22: 48%),
from 16% to 44%, would result in an impairment.
-- The 2% perpetuity growth rate could reduce by 100% (FY22:
100%) to -98% and an impairment would still not be triggered.
-- The forecast pre-tax cash inflows would need to reduce by 52%
(FY22: 83%) each year to result in an impairment.
Integrity
During the year ended 30 June 2023, the Group completed the
acquisition of Integrity Wealth Bidco Limited, Integrity Wealth
(Holdings) Limited and Integrity Wealth Solutions Limited, and
subsequently recognised goodwill on acquisition of GBP3,945,000.
See Note 7 for further details.
Adroit
During the year ended 30 June 2023, the Group completed the
acquisition of Adroit Financial Planning Limited, and subsequently
recognised goodwill on acquisition of GBP8,541,000. See Note 7 for
further details.
At 30 June 2023, 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 required to
the goodwill balances at 30 June 2023.
b. Computer software
Costs incurred on internally developed computer software are
initially recognised at cost and when the software is available for
use, the costs are amortised on a straight-line basis over an
estimated useful life of four years, with some specific projects
being given longer UELs based on their size and usability.
During the year ended 30 June 2023, the Group conducted a review
of the computer software assets and retired assets from the fixed
asset register with a GBPnil net book value, and no longer used in
the business. This resulted in disposals of computer software, with
cost and accumulated amortisation both totalling GBP1,054,000.
c. Acquired client relationship contracts
This asset represents the fair value of future benefits accruing
to the Group from acquired client relationship contracts. The
amortisation of client relationships is charged to the Consolidated
statement of comprehensive income on a straight-line basis over
their estimated useful lives (6 to 20 years).
During the year ended 30 June 2023, the Group acquired client
relationship contracts totalling GBP3,156,000 and GBP2,931,000, as
part of the Integrity and Adroit acquisitions, respectively (Note
7), which were recognised as separately identifiable intangible
assets in the Condensed consolidated statement of financial
position, with useful economic lives of 15 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.
During the year ended 30 June 2023, the Group conducted a review
of the contracts acquired with fund managers assets with a GBPnil
net book value, and no longer used in the business. This resulted
in disposals of contracts acquired with fund managers, with cost
and accumulated amortisation both totalling GBP3,521,000.
11. Provisions
Leasehold
Client compensation FSCS levy dilapidations Tax-related Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------------------- --------- -------------- ----------- --------
At 1 July 2021 600 1,245 413 - 2,258
Charge to the Consolidated
statement of comprehensive
income 398 1,304 126 162 1,990
Transfer from trade and
other payables - - - 1,217 1,217
Utilised during the year (886) (2,163) (172) (1,099) (4,320)
---------------------------- ------------------- --------- -------------- ----------- --------
At 30 June 2022 112 386 367 280 1,145
Charge to the Consolidated
statement of comprehensive
income 579 239 260 - 1,078
Utilised during the year (441) (458) (2) - (901)
---------------------------- ------------------- --------- -------------- ----------- --------
At 30 June 2023 250 167 625 280 1,322
---------------------------- ------------------- --------- -------------- ----------- --------
Analysed as:
Amounts falling due within
one year 250 167 303 280 1,000
Amounts falling due after
more than one year - - 322 - 322
---------------------------- ------------------- --------- -------------- ----------- --------
Total provisions 250 167 625 280 1,322
---------------------------- ------------------- --------- -------------- ----------- --------
a. Client compensation
Client compensation provisions relate to the potential liability
arising from client complaints against the Group. Complaints are
assessed on a case-by-case basis and provisions for compensation
are made where judged necessary. The amount recognised within
provisions for client compensation represents management's best
estimate of the potential liability. The timing of the
corresponding outflows is uncertain as these are made as and when
claims arise.
b. FSCS levy
Following confirmation by the FSCS in July 2023 of its final
industry levy for the 2023/24 scheme year, the Group has made a
provision of GBP167,000 (FY22: GBP386,000) for its estimated
share.
c. Leasehold dilapidations
Leasehold dilapidations relate to dilapidation provisions
expected to arise on leasehold premises held by the Group, and
monies due under the contract with the assignee of leases on the
Group's leased properties.
d. Tax-related
Tax-related provisions relate to voluntary disclosures made by
the Group to HM Revenue and Customs ("HMRC") following an input VAT
review carried out by the Group during FY22.
12. Deferred contingent consideration
Deferred contingent consideration payable is split between
non-current liabilities and current liabilities 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 contingent
consideration is measured at its fair value based on discounted
expected future cash flows. The movements in the total deferred
contingent consideration balance during the year were as
follows:
2023 2022
GBP'000 GBP'000
-------------------------------------------------- -------- --------
At 1 July 327 6,237
Additions 1,240 -
Finance cost of deferred contingent consideration 61 90
Fair value adjustments 173 -
Payments made during the year (334) (6,000)
-------------------------------------------------- -------- --------
At 30 June 1,467 327
-------------------------------------------------- -------- --------
Analysed as:
Amounts falling due within one year 1,467 327
Amounts falling due after more than one year - -
-------------------------------------------------- -------- --------
Total deferred consideration 1,467 327
-------------------------------------------------- -------- --------
During the year ended 30 June 2023, the Group completed the
Integrity Wealth Solutions Limited acquisition, and an additional
client book later in the year, and part of the consideration is to
be deferred over a period of one to three years. The total cash
deferred contingent consideration of GBP1,505,000 was recognised at
its fair value of GBP1,240,000 on acquisition. The deferred
contingent consideration was payable in May 2024 and October 2025
based on the future revenue generated by the discretionary business
acquired. During the year ended 30 June 2023, the Group recognised
a finance cost of GBP54,000 on the Integrity Wealth Solutions
acquisition deferred contingent consideration. The Integrity Wealth
Solutions deferred contingent consideration was renegotiated at 30
June 2023, and it was agreed that GBP1,250,000 was to be paid to
the vendors of Integrity Wealth Solutions, settled in cash of
GBP625,000 and Brooks Macdonald Group plc shares valued at
GBP625,000. As a result, a change in fair value of the contingent
consideration of GBP173,000 was recognised for the year ended 30
June 2023. This revised deferred contingent consideration was
settled after the reporting period in July 2023.
During the year ended 30 June 2023, the final payment was made
in relation to the acquisition of the Lloyds Channel Islands
business totalling GBP334,000. Prior to the final payment, GBP7,000
was recognised as a finance cost of deferred contingent
consideration within FY23. Full details of the Lloyds acquisition
are disclosed in Note 10 of the 2021 Annual Report and
Accounts.
Deferred contingent consideration is classified as Level 3
within the fair value hierarchy.
13. Reconciliation of operating profit to net cash inflow from
operating activities
2023 2022
GBP'000 GBP'000
---------------------------------------------- -------- --------
Operating profit 21,408 26,867
Adjustments for:
Amortisation of intangible assets 6,832 6,922
Depreciation of property, plant and equipment 824 843
Depreciation of right-of-use assets 1,825 1,669
Other (losses)/gain - net 162 55
Increase in receivables (2,215) (2,024)
Decrease in payables (1,526) (3,194)
Decrease in provisions (147) (1,113)
Increase in other non-current liabilities 244 22
Share-based payments charge 2,686 2,779
---------------------------------------------- -------- --------
Net cash inflow from operating activities 30,093 32,826
---------------------------------------------- -------- --------
14. Share capital and share premium account
The movements in share capital and share premium during the year
were as follows:
Exercise Share Share premium
Number of price capital account Total
shares p GBP'000 GBP'000 GBP'000
----------------------- ----------- ----------------- -------- ------------- --------
At 1 July 2021 16,181,138 161 78,703 78,864
Shares issued:
on exercise of options 6,886 2,127.0 - 2,730.0 - 120 120
to Sharesave Scheme 17,518 1,172.0 - 1,988.0 1 318 319
----------------------- ----------- ----------------- -------- ------------- --------
At 30 June 2022 16,205,542 162 79,141 79,303
Shares issued:
on exercise of options 1,866 1,710.0 - 2,400.0 - 30 30
to Sharesave Scheme 140,171 1,172.0 - 1,704.0 1 1,660 1,661
of consideration
for the acquisition
of Integrity 52,084 1,900.0 - 1,920.0 1 999 1,000
----------------------- ----------- ----------------- -------- ------------- --------
At 30 June 2023 16,399,663 164 81,830 81,994
----------------------- ----------- ----------------- -------- ------------- --------
The total number of ordinary shares issued and fully paid at 30
June 2023 was 16,399,663 (FY22: 16,205,542) with a par value of 1p
per share.
There was GBP2,691,000 share capital issued on exercise of
options and to Sharesave Scheme members in the year ended 30 June
2023 (FY22: GBP439,000).
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, see Note
15(c). At 30 June 2023, the EBT held 552,633 (FY22: 580,806) 1p
ordinary shares in the Company, acquired for a total consideration
of GBP16,950,000 (FY22: GBP14,100,000) with a market value of
GBP11,633,000, (FY22: GBP12,923,000). They are classified as
treasury shares in the Consolidated statement of financial
position, their cost being deducted from retained earnings within
shareholders' equity.
15. Equity-settled share-based payments
All share options granted to employees under the Group's
equity-settled share-based payment schemes are valued using the
Black-Scholes model, based on the market price of the Company's
shares at the grant date and annualised volatility of up to 50%,
covering the period to the end of the contractual life. Volatility
has been estimated on the basis of the Company's historical share
price subsequent to flotation. The risk-free annual rate of
interest is deemed to be the yield on a gilt-edged security with a
maturity term between seven months and five years, ranging from
0.01% to 2.00%. No options outstanding at 30 June 2023 (FY22: none)
carry any dividend or voting rights.
The share options in issue under the various equity-settled
share-based payment schemes have been valued at prices ranging from
GBP5.29 to GBP24.67 per share. The charge to the Consolidated
statement of comprehensive income for the year in respect of these
was GBP2,686,000 (FY22: GBP2,779,000). The weighted average
remaining contractual life of all equity-settled share-based
payment schemes at 30 June 2023 was 1.17 years (FY22: 1.04 years).
The weighted average share price of all options exercised during
the year was GBP19.34 (FY22: GBP14.97).
A summary of the inputs into the fair value calculations for
options granted during the year is set out below.
Save As
Long-Term Incentive You Earn
Plan (SAYE)
------------------------- -------------------- ----------
Grant date Various 12/05/2023
Share price at grant GBP GBP18.60 - GBP19.48 GBP19.35
Vesting period 27 - 51 months 36 months
Volatility % 37.82 - 40.98% 37.86%
Annual dividend % 3.65 - 4.21% 4.05%
Risk-free rate % 3.75 - 4.38% 3.79%
Option value GBP GBP16.33 - GBP18.22 GBP6.39
------------------------- -------------------- ----------
The exercise price and fair value of share options granted
during the year were as follows:
Exercise
price Fair value Number of
GBP GBP options
-------------------------- -------- -------------- ---------
Long-Term Incentive Plan - 16.33 - 18.22 306,603
Employee Sharesave Scheme 19.35 6.39 161,518
-------------------------- -------- -------------- ---------
a. Long-Term Incentive Plan
The Long-Term Incentive Plan was approved by shareholders at the
2018 Annual General Meeting and encompasses annual deferral of
bonuses into a Deferred Bonus Plan ("DBP"), Long-Term Incentive
Plan ("LTIP") awards made to senior management and Exceptional
Share Option Awards ("ESOA"). Certain ESOA grants carry performance
conditions. All awards are subject to continued employment and are
made at the discretion of the Remuneration Committee. 1,452 awards
expired during the year (FY22: none).
2023 2022
Weighted Weighted
average average
exercise exercise
Number price Number price
of options GBP of options GBP
---------------------- ----------- --------- ----------- ---------
At 1 July 711,763 - 806,057 -
Awarded in the year 306,603 - 153,726 -
Exercised in the year (168,107) - (112,501) -
Forfeited in the year (162,899) - (135,519) -
---------------------- ----------- --------- ----------- ---------
At 30 June 687,360 - 711,763 -
---------------------- ----------- --------- ----------- ---------
i. Deferred Bonus Plan ("DBP") Awards
The number of share options outstanding at the reporting date
was as follows:
2023 2022
Exercise price Vesting Number Number of
Scheme year (grant date) GBP period of options options
------------------------- --------------- ------------ ----------- ----------
2018 - 2019 - 2021 12,491 18,114
2019 - 2020 - 2022 13,132 30,882
2020 - 2021 - 2023 27,689 49,120
2021 - 2022 - 2024 44,239 64,804
2022 - 2023 - 2025 78,834 -
------------------------- --------------- ------------ ----------- ----------
All years 176,385 162,920
-------------------------------------------------------- ----------- ----------
ii. Long-Term Incentive Plan ("LTIP") Awards
The number of share options outstanding at the reporting date
was as follows:
2023 2022
Exercise price Vesting Number Number of
Scheme year (grant date) GBP period of options options
------------------------- --------------- -------- ----------- ----------
2019 - 2022 - 16,292
2020 - 2023 10,128 23,955
2021 - 2024 44,619 81,890
2022 - 2025 59,088 -
------------------------- --------------- -------- ----------- ----------
All years 113,835 122,137
---------------------------------------------------- ----------- ----------
iii. Exceptional Share Option Awards ("ESOA")
The number of share options outstanding at the reporting date
was as follows:
2023 2022
Exercise price Vesting Number Number of
Financial year of grant GBP period of options options
------------------------ --------------- ------------ ----------- ----------
2019 - 2019 - 2024 130,394 185,361
2020 - 2020 - 2024 45,419 102,524
2021 - 2021 - 2024 116,580 131,789
2022 - 2022 - 2025 7,032 7,032
2023 - 2023 - 2026 97,715 -
------------------------ --------------- ------------ ----------- ----------
All years 397,140 426,706
------------------------------------------------------- ----------- ----------
b. Long-Term Incentive Scheme ("LTIS")
The Group made no new awards under the LTIS during the year. The
conditional awards, which vest three years after the grant date,
are subject to the satisfaction of specified performance criteria,
measured over a three-year performance period. No awards expired
during the year (FY22: none). Off-cycle awards were made in 2017 to
senior executives to replace awards forfeited from previous
employers.
2023 2022
Number Number
of options of options
---------------------- ----------- -----------
At 1 July 5,442 43,340
Exercised in the year - (37,898)
Forfeited in the year - -
---------------------- ----------- -----------
At 30 June 5,442 5,442
---------------------- ----------- -----------
The number of share options outstanding at the reporting date
was as follows:
2023 2022
Exercise price Vesting Number Number of
Scheme year (grant date) GBP period of options options
------------------------- --------------- -------- ----------- ----------
2015 - 2018 1,077 1,077
2016 - 2019 1,416 1,416
2017 (off-cycle) - 2020 2,949 2,949
------------------------- --------------- -------- ----------- ----------
All years 5,442 5,442
---------------------------------------------------- ----------- ----------
At 30 June 2023, options for schemes up to and including the
2017 scheme have vested and are able to be exercised.
c. Employee Benefit Trust ("EBT")
Brooks Macdonald Group plc established an Employee Benefit Trust
on 3 December 2010 to acquire ordinary shares in the Company to
satisfy awards under the LTIS and LTIP. All finance costs and
administration expenses connected with the EBT are charged to the
Consolidated statement of comprehensive income as they accrue. The
EBT has waived its rights to dividends. The following table shows
the number of shares held by the EBT that have not yet vested
unconditionally.
2023 2022
Number Number
of shares of shares
---------------------- ---------- ----------
At 1 July 580,806 608,683
Acquired in the year 140,495 124,297
Exercised in the year (168,668) (152,174)
---------------------- ---------- ----------
At 30 June 552,633 580,806
---------------------- ---------- ----------
d. Company Share Option Plan ("CSOP")
The Company has established a Company Share Option Plan, which
was approved by HMRC in November 2013. The CSOP is a discretionary
scheme whereby employees or Directors are granted an option to
purchase the Company's shares in the future at a price set on the
date of the grant. The maximum award under the terms of the scheme
is a total market value of GBP30,000 per recipient.
2023 2022
---------------------- ----------------------
Weighted Weighted
average average
exercise exercise
Number price Number price
of options GBP of options GBP
---------------------- ----------- --------- ----------- ---------
At 1 July 18,821 16.32 28,431 16.67
Exercised in the year (1,866) 15.89 (6,886) 17.40
Forfeited in the year - - (2,724) 17.23
---------------------- ----------- --------- ----------- ---------
At 30 June 16,955 16.37 18,821 16.32
---------------------- ----------- --------- ----------- ---------
The number of share options outstanding at the reporting date
was as follows:
Exercise 2023 2022
price Vesting Number Number
Scheme year (grant date) GBP period of options of options
------------------------- -------- ------- ----------- -----------
2013 14.52 2016 2,067 2,067
2014 13.81 2017 2,537 3,262
2015 17.19 2018 9,016 9,596
2016 17.25 2019 3,335 3,896
------------------------- -------- ------- ----------- -----------
All years 16,955 18,821
------------------------- -------- ------- ----------- -----------
At 30 June 2023, all options for the CSOP schemes have vested
and are able to be exercised. No awards expired during the year
under the CSOP schemes (FY22: 1,851).
e. Employee Sharesave Scheme ("SAYE")
Under the scheme, employees can contribute up to GBP500 a month
over a three-year period to acquire shares in the Company. At the
end of the savings period, employees can elect to receive shares or
receive their savings in cash.
2023 2022
---------------------- ----------------------
Weighted Weighted
average average
exercise exercise
Number price Number price
of options GBP of options GBP
---------------------- ----------- --------- ----------- ---------
At 1 July 254,111 14.25 248,390 13.15
Granted in the year 161,518 19.35 44,109 19.88
Exercised in the year (143,701) 11.85 (17,518) 14.02
Forfeited in the year (46,925) 17.21 (20,870) 13.30
---------------------- ----------- --------- ----------- ---------
At 30 June 225,003 15.23 254,111 14.25
---------------------- ----------- --------- ----------- ---------
The number of share options outstanding at the reporting date
was as follows:
Exercise 2023 2022
price Vesting Number Number
Scheme year (grant date) GBP period of options of options
------------------------- -------- ------- ----------- -----------
2019 14.00 2022 - 7,207
2020 11.72 2023 7,611 152,650
2021 17.04 2024 36,473 50,597
2022 19.88 2025 21,911 43,657
2023 14.34 2026 159,008 -
------------------------- -------- ------- ----------- -----------
All years 225,003 254,111
------------------------- -------- ------- ----------- -----------
At 30 June 2023, options for the 2020 scheme have vested and are
able to be exercised. 77 awards under the 2019 scheme expired
during the year (FY22: 761).
16. Contingent liabilities and guarantees
In the normal course of business, the Group is exposed to
certain legal issues, which, in the event of a dispute, could
develop into litigious proceedings and, in some cases, may result
in contingent liabilities. Similarly, a contingent liability may
arise in the event of a finding in respect of the Group's tax
affairs, including the accounting for VAT, which could result in a
financial outflow and/or inflow from the relevant tax
authorities.
A claim for unspecified losses has been made by a client against
Brooks Macdonald Financial Consulting Limited, a subsidiary of the
Group, in relation to alleged negligent financial advice. The
claimant has not yet advised the quantum of their claim so it is
not possible to reliably estimate the potential impact of a ruling
in their favour. There remains significant uncertainty surrounding
the claim and the Group's legal advice indicates that it is not
probable that the claim will be upheld; therefore no provision for
any liability has been recognised at this stage.
During the year ended 30 June 2020, a small number of clients
rejected the goodwill offers made to them by Brooks Macdonald Asset
Management (International) Limited in connection with the
exceptional costs of resolving legacy matters, and as of 30 June
2022, one claim had been issued against the company. That claim was
resolved during the financial year ended 30 June 2023 with no cash
outflow for the Group. While the Group have never accepted, nor
been adjudged to have, any legal liability in relation to the
legacy matters, the Group continues to recognise a contingent
liability in relation to the possibility that one or more clients
might make new complaints or claims. There are no further claims in
issue nor any complaints active as at 30 June 2023.
Brooks Macdonald Asset Management Limited, a subsidiary company
of the Group, has an agreement with the Royal Bank of Scotland plc
to guarantee settlement for trading with CREST stock on behalf of
clients. The Group holds client assets to fund such trading
activity.
17. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, are eliminated on consolidation. The Company's
individual financial statements include the amounts attributable to
subsidiaries. These amounts are disclosed in aggregate in the
relevant company financial statements and in detail in the
following table:
Amounts owed by Amounts owed to
related parties related parties
2023 2022 2023 2022
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------- -------- -------- -------- --------
Brooks Macdonald Asset Management Limited 239 238 - -
Brooks Macdonald Asset Management (International)
Limited 83 - - 89
Brooks Macdonald Funds Limited - - 900 -
Brooks Macdonald Financial Consulting
Limited - - - 34
-------------------------------------------------- -------- -------- -------- --------
All of the above amounts are interest-free and repayable on
demand.
18. Events since the end of the year
No material events have occurred between the reporting date and
the date of signing the financial statements.
Non-IFRS financial information
Non-IFRS financial information or alternative performance
measures ("APMs") are used as supplemental measures in monitoring
the performance of the Group. The adjustments applied to IFRS
measures to compute the Group's APMs exclude income and expense
categories, which are deemed of a non-recurring nature or a
non-cash operating item. The Board considers the disclosed APMs to
be an appropriate reflection of the Group's performance.
The Group follows a rigorous process in determining whether an
adjustment should be made to present an alternative performance
measure compared to IFRS measures. For an adjustment to be excluded
from underlying profit as an alternative performance measure
compared to statutory profit, it must initially meet at least one
of the following criteria:
-- It is unusual in nature, e.g. outside the normal course of business and operations.
-- It is a significant item, which may be recognised in more than one accounting period.
-- It has been incurred as a result of an acquisition, disposal
or a company restructure process.
The Group uses the below APMs:
Equivalent
APM IFRS measure Definition and purpose
-------------------- ------------------- ---------------------------------------------------
Underlying profit Statutory profit Calculated as profit before tax excluding
before tax before tax income and expense categories, which are
deemed of a non-recurring nature or a non-cash
operating item. It is considered by the
Board to be an appropriate reflection of
the Group's performance and considered appropriate
for external analyst coverage and peer group
benchmarking.
-------------------- ------------------- ---------------------------------------------------
Underlying tax Statutory tax Calculated as the statutory tax charge,
charge charge excluding the tax impact of the adjustments
excluded from underlying profit. See Note
6 Taxation of the Consolidated financial
statements.
-------------------- ------------------- ---------------------------------------------------
Underlying earnings Total comprehensive Calculated as underlying profit before tax
/ Underlying income less the underlying tax charge.
profit after See Note 8 of the Consolidated financial
tax statements for a reconciliation of underlying
profit after tax and statutory profit after
tax.
-------------------- ------------------- ---------------------------------------------------
Underlying profit Statutory profit Calculated as underlying profit before tax
margin before margin before over revenue for the year. This is another
tax tax key metric assessed by the Board and appropriate
for external analyst coverage and peer group
benchmarking.
-------------------- ------------------- ---------------------------------------------------
EBITDA/Underlying N/A Earnings before interest, tax, depreciation
EBITDA and amortisation ("EBITDA"). Underlying
EBITDA is EBITDA excluding income and expense
categories which are deemed of a non-recurring
nature or a non-cash operating item.
-------------------- ------------------- ---------------------------------------------------
Underlying basic Statutory basic Calculated as underlying profit after tax
earnings per earnings per divided by the weighted average number of
share share shares in issue during the year. This is
a key management incentive metric and is
a measure used within the Group's remuneration
schemes. See Note 8 of the Consolidated
financial statements for the Earnings per
share.
-------------------- ------------------- ---------------------------------------------------
Underlying diluted Statutory diluted Calculated as underlying profit after tax
earnings per earnings per divided by the weighted average number of
share share shares in issue during the year, including
the dilutive impact of future share awards.
This is a key management incentive metric
and is a measure used within the Group's
remuneration schemes.
-------------------- ------------------- ---------------------------------------------------
Underlying costs Statutory costs Calculated as total administrative expenses,
other net gains/(losses), finance income
and finance costs and excluding income and
expense categories, which are deemed of
a non-recurring nature or a non-cash operating
item. This is a key measure used in calculating
underlying profit before tax.
-------------------- ------------------- ---------------------------------------------------
Segmental underlying Segmental statutory Calculated as profit before tax, excluding
profit before profit before income and expense categories, which are
tax tax deemed of a non-recurring nature or a non-cash
operating item for each segment. See Note
3 of the Consolidated financial statements
for the Segmental information.
-------------------- ------------------- ---------------------------------------------------
Segmental underlying Segmental statutory
profit before profit before Calculated as segmental underlying profit
tax margin tax margin before tax over segmental revenue.
-------------------- ------------------- ---------------------------------------------------
Own Funds Capital N/A Calculated as the Group's total regulatory
Adequacy Ratio resources relative to its Fixed Overhead
requirement.
-------------------- ------------------- ---------------------------------------------------
Finance information
The financial information contained within this preliminary
announcement has been extracted from the Group's Financial
statements, which have been approved by the Board of Directors and
agreed with the Company's auditors'.
The financial information set out above does not constitute the
Group's statutory financial statements for the years ended 30 June
2023 or 2022. Statutory financial statements for 2022 have been
delivered to the Registrar of Companies. Statutory financial
statements for 2023 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting. The auditor has
reported on both the 2023 and 2022 financial statements. Their
reports were unqualified.
Forward looking statements
This announcement has been prepared to provide information to
shareholders to assess the current position and future potential of
Brooks Macdonald Group. It contains certain forward-looking
statements with respect to the Group's financial condition,
operations, and business opportunities. Forward looking statements
involve known and unknown risks, uncertainties and other important
factors that could cause actual results to differ materially from
what is expressed or implied by the statements. Any forward-looking
statement is made in good faith based on information available to
the Directors as of the date of the statement. Past performance
cannot be relied on as a guide to future performance.
Financial calendar
Results announcement 14 September 2023
------------------------------ -----------------
Ex-dividend date for final
dividend 21 September 2023
------------------------------ -----------------
Record date for final dividend 22 September 2023
------------------------------ -----------------
Annual General Meeting 26 October 2023
------------------------------ -----------------
Final dividend payment date 3 November 2023
------------------------------ -----------------
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FR LJMPTMTABBTJ
(END) Dow Jones Newswires
September 14, 2023 02:00 ET (06:00 GMT)
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