Brooks Macdonald
Annual Report 2014

Plain-text annual report

Annual Report & Accounts for the year ended 30 June 2014 Business performance Financial highlights Chairman’s statement Chief Executive’s review Strategic report Directors’ reports Report of the directors Statement of directors’ responsibilities 1 2 3-4 5-15 16-17 18 Consolidated financial statements Independent auditors’ report to the members of Brooks Macdonald Group plc Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements 19-20 21 22 23 24 25-59 Company financial statements Independent auditors’ report to the members of Brooks Macdonald Group plc Company balance sheet Notes to the company financial statements 60 61 62-66 Shareholders’ information Explanatory notes to the Annual General Meeting resolutions Notice of Annual General Meeting Form of proxy Other information Directors and advisers 67-68 69-70 71 IBC Financial highlights +28% +16% +2% Discretionary funds under management increased from £5.11 billion to £6.55 billion during the year Total dividends per share have increased from 22.5p to 26.0p, including a proposed final dividend of 19.0p per share Pre-tax profit for the year was £10.6 million compared to £10.4 million in 2013 +5% +14% Basic earnings per share increased from 65.88p to 69.01p Post-tax profit for the year attributable to shareholders was £9.1 million compared to £8.0 million in 2013 Funds under management (£m) Earnings per share (p) Dividend per share (p) 6,550 5,110 57.43 51.92 38.10 3,520 2,969 2,186 69.01 65.88 26.0 22.5 18.5 15.0 9.0 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 1 Annual Report & Accounts 2014Brooks Macdonald Group plcChairman’s statement Christopher Knight, Chairman “The strength of our brand and the professionalism of our staff, coupled with the continued investment in the business… enable us to look forward with confidence” 2 This has been a year of significant change, in which we have made large investments in the Group’s future, maintained our profits and grown our discretionary funds under management. Profit before tax has risen marginally to (‘Levitas’), further expanding our Funds business and also our exposure in the growing field of pensions fund management, largely stemming from the Government’s auto enrolment initiative. Our discretionary funds under management grew strongly over the year and as at 30 June 2014 totalled £6.55bn (2013: £5.11bn), a rise of 28%. Net of the DPZ acquisition this represents a rise of over 21%, compared to the WMA Balanced index that grew by 6.2% over the year. £10.6m, in line with expectations. Earnings As well as this increase in discretionary funds per share have risen to 69.01p. under management we also saw growth in The board is recommending a final dividend of 19.0p per share which, if approved by shareholders, will result in total dividends for the year of 26.0p. This represents an increase of 16% over the total dividends paid last year of 22.5p per share. The final dividend will be all parts of the Group. Advisory assets increased to over £450m (2013: £348m), property assets under administration grew to £1.13bn (2013: £1.04bn) and third party assets under administration grew to £200m (2013: £140m). paid on 28 October 2014 to shareholders In addition to the acquisitions mentioned who are on the register at the close of above the Group has continued to grow business on 26 September 2014. Richard Price joined us as a non-executive director in August. He is a former partner in KPMG and brings us the benefit of his considerable experience and expertise in the financial services industry. organically with a combination of strong new business flow and by providing risk adjusted returns for our clients. We expect to continue to invest in the future of the business – in further development of our IT systems and in our investment and wealth management process. The strength of our DPZ Capital Limited (‘DPZ’) became part of brand and the professionalism of our staff, the Group in April 2014 and now forms part coupled with the continued investment in of Brooks Macdonald International, based in the business to which I have referred, enable Jersey. This acquisition added £360m of us to look forward with confidence. discretionary funds under management and brings further scale and skill sets to our existing offshore offering. After the year end we completed the acquisition of Levitas Christopher Knight Chairman Investment Management Services Limited 16 September 2014 Annual Report & Accounts 2014Brooks Macdonald Group plcChief Executive’s review Chris Macdonald, Chief Executive “In a year of continued change the Group has made good progress particularly in the growth of our discretionary funds under management” Introduction After the considerable changes within the charities and both our MPS and BPS offerings are benefiting from the increasing industry in recent years, this has been a year popularity of Self-invested Personal where the business has continued to evolve, Pensions (SIPPs) and other money purchase we have invested in the future and grown pension arrangements. funds under management and administration. We have maintained profits and positioned the Group for a return to profit growth despite increased costs. The growth in funds and changes have only been possible with the hard work and dedication of all our staff. In addition we continue to receive considerable support from professional intermediaries both in and outside the UK and I would like to thank them for the confidence they have shown in the Group. Funds under management Our discretionary funds under management rose to over £6.5bn, a rise of over £1.4bn over the year. This represents an increase of 28.2% supported by the DPZ acquisition and investment markets. Investment performance across the Group accounted for 6.5% over the year (£330m), DPZ 7.0% (£360m) and net new business 14.7% (£750m). We have seen growth in each of our investment services. Our Bespoke Portfolio Service (‘BPS’) is our core private client offering and is offered on and offshore with the principal source of business being referrals from professional advisers. Our Managed Portfolio Service (‘MPS’) is available either as a portfolio or as a unit and after a period of margin pressure I am pleased to report that pricing appears to have stabilised. This service has principally been marketed onshore but we will, post the DPZ acquisition, be marketing this to Our Funds business has grown to £518m in funds under management (2013: £390m) and continues to gain momentum. We are now also managing over £1.1bn of discretionary assets offshore including the recently acquired DPZ funds. This has grown net of the acquisition by over £180m over the last financial year. In addition we have over £450m of advisory assets, all of which are based offshore. Braemar Estates, our specialist property manager, continues to grow and now has property assets under management of £1.13bn (2013: £1.04bn). Our UK Financial Planning income grew by 65% to £3.8m (2013: £2.3m). Industry background Eighteen months after the introduction of the Retail Distribution Review (‘RDR’) in the UK, it is worth commenting on the changes that the wealth management industry has undergone. The legislation was introduced, amongst other things, to improve transparency, the stability of financial institutions and competition for clients. We were and remain supportive of these objectives but RDR has led to significant industry changes. We have had to invest heavily in systems, reissue application forms to all our clients and change the pricing of our MPS proposition. The costs of regulation have risen very significantly but we have embraced these changes and are now professional intermediaries offshore. Clients positioned to continue to grow the business include private individuals, trusts and in the new regulatory environment. 3 Annual Report & Accounts 2014Brooks Macdonald Group plcChief Executive’s review Alliances (which refer significant amounts of We have continued to be recognised business into our discretionary offering). externally with a series of awards over the Strategies for growth We continue to focus on our core strategies for growth: organic, service and performance development and on-going investment in the business. Our organic growth revolves around working with professional intermediaries, principally financial advisers, trust companies, and private client legal and accountancy practices. This remains a We continually look to improve our service offering and performance development. Over the last year we have entered into a new partnership (North Row Capital LLP) and as result launched the IFSL North Row Liquid Property Fund; we have enabled our AIM investment service to be distributed via professional intermediaries; we are critical area for growth for the business and I launching our offshore MPS proposition; we am pleased to report that we now work with more than 670 professional intermediary firms covering Asset Management on and offshore, Funds and Financial Consulting. Over the last year we have also expanded our reach with continue to invest in risk monitoring tools for investment portfolios and to expand our research capabilities. Investment performance for our clients remains strong, particularly for low, low-to-medium and medium risk client mandates, in which the professional intermediaries offshore and this vast majority of our clients sit. We also will remain an area of focus during 2014 and beyond. In addition we continue to grow our brand, recruit high quality staff and invest in our trainee programme. We have in the last year believe the opportunity for SIPPs and the management of pension funds to be another opportunity for the Group and this remains an area of focus onshore. made several senior appointments including We completed the acquisition of DPZ in our Head of Investment Services (David April and its integration into Brooks Lewis-Irlam) and Head of Group Governance Macdonald International (‘BMI’) continues (Simon Broomfield) and seven new trainee apace. As well as adding scale to our international presence DPZ bring specific MPS and fixed interest skill sets. I would like to take this opportunity to thank the teams in BMI and DPZ for all their hard work in making this happen. appointments as well as six trainees qualifying. We now have over 80 investment managers, 30 consultants and 17 trainees. Organic growth has been geographically well spread. With the opening of our office in Leamington Spa last year (and openings in York and Taunton in recent years) we now have a much stronger regional footprint across the UK. This allows us to provide a strong local service as well as providing a nationwide service where needed by larger last year and as a people business I was delighted that we were again recognised as being in the Sunday Times Top 100 Medium Sized Companies to Work For. I am pleased to report that the Group has been identified as the only discretionary fund manager to achieve the highest level of Defaqto (an independent, financial research company in the UK) Star and Diamond Rating in all four categories of discretionary management (MPS, Bespoke, Funds and Platforms). Summary and outlook The amount of change in the financial services industry has not slowed down and we have been quick to adapt where necessary. This has required investment of both capital and a huge amount of hard work for all members of staff. In a year of continued change the Group has made good progress particularly in the growth of Markets have been supportive, particularly in the first half of the calendar year and our outlook for investment returns remains cautiously optimistic, balancing economic recovery and the end of quantitative easing against the potential rise in UK interest rates. We will continue to invest in systems development and remain optimistic for new business flows. After a year of flat profits we At the end of July (post the year end) we expect to return to profit growth. New completed the acquisition of Levitas business has started the year well and the pursuant to the purchase of the option in Board remains confident for the future of December 2013. Levitas has two risk-rated the Group. funds specifically designed for the employee benefits market. At the time of completion Chris Macdonald Chief Executive firms of professional intermediaries. Linked to Levitas funds totalled £89.4m and this this is where we work closely with a number of strategic partners and I am pleased that we now have 15 (2013: 12) Strategic dovetails with our belief in the significant 16 September 2014 opportunity around auto enrolment and the growth of personal pension provision. 4 We made two acquisitions during the year. our discretionary funds under management. Annual Report & Accounts 2014Brooks Macdonald Group plcStrategic report Principal activities The Group is an integrated wealth management group offering a range of fee-based bespoke advice and services principally to private high-net-worth individuals, charities and trusts. The Group offers the services through six principal companies and operates out of ten UK based offices giving broad geographic coverage and two offshore offices in Jersey and Guernsey. Company Location Services Clients Brooks Macdonald Asset London, Hampshire, Discretionary investment Private individuals, charities and trusts Management Limited (‘BMAM’) Manchester, Tunbridge Wells, management, custody, nominee Edinburgh, Taunton, York and dealing and Leamington Spa Brooks Macdonald Asset Jersey and Guernsey Discretionary investment Private individuals, charities and trusts Management (International) Limited (‘BMI’) management, custody, nominee, dealing, advisory and stockbroking Brooks Macdonald Financial London and York Independent financial advice, Private individuals and families Consulting Limited (‘BMFC’) personal tax and mortgage services Employee benefits consultancy Businesses and their employees Brooks Macdonald Funds Limited Hale and London Manager to a range of regulated Private individuals, charities and trusts (‘BMF’) OEICs and specialist property and structured return funds Braemar Estates (Residential) Hale Estate and block property Institutions, property fund managers Limited management and private individuals Brooks Macdonald Retirement Jersey and Guernsey Independent financial advice Private individuals, families, trusts Services (International) Limited (‘BMRSI’) and businesses Results and cash position The Group has seen continued revenue growth in the year with an Cash flow from operating activities as detailed in note 23 increased 4% to £13.7m (2013: £13.2m) and, subject to approval by increase of 9% to £69.13m (2013: £63.16m), despite pressure on shareholders at the Annual General Meeting, a final dividend of pricing in some parts of the Group. The Group is also in a period of 19.0p per share will be paid on 28 October 2014 to shareholders on significant IT investment in order to enhance the services we offer the register at 26 September. This makes total dividends for the year clients and to realise operational efficiencies across the business as a of 26.0p (2013: 22.5p), which is an increase of 16%. whole. In line with the increasing regulatory requirements of the financial services industry generally we are also investing further in our corporate governance, risk and compliance departments. Statutory pre-tax profits for the year increased marginally to £10.6m (2013: £10.4m) and basic earnings per share increased by 5% to 69.01p (2013: 65.88p). The Group had no borrowings at 30 June 2014 (2013: £nil) and, in a year of considerable investment as detailed in the consolidated statement of cash flows on page 24, closing cash balances were maintained at £18.1m (2013: £18.4m). As disclosed in note 22 there are amounts due within one year of £8.3m in respect of the deferred consideration on the acquisitions of DPZ Capital Limited, JPAM Limited and Brooks Macdonald International. On 31 July 2014 the company exercised its option to acquire Levitas (see note 34) and made the initial payment of £0.7m under the terms of the agreement. 5 Annual Report & Accounts 2014Brooks Macdonald Group plcStrategic report Strategy and outlook A key part of the strategy for the Group remains to grow the BMAM, BMI and BMF At 1 July 2013 business both organically and through strategic investments to supplement and complement existing parts of the Group. The Group has made the recent acquisition of DPZ Capital Limited (see Inflows – net new discretionary business* – acquired through DPZ Capital Limited – investment growth note 9), a wealth management business based in Jersey and, on At 30 June 2014 31 July 2014, exercised an option to acquire 100% of the share capital of Levitas Investment Management Services Limited (see Organic growth net of markets note 34). The Group also made an investment in North Row Capital Total net growth Funds under management (£m) 5,110 750 360 330 6,550 14.7% 28.2% LLP during the year (see note 14), which manages a fund providing investors with liquid exposure to the global real estate market. Each of these transactions has enhanced the range of services and strengthened the offering of the Group. * Includes clients leaving and capital or income withdrawals of larger than £50,000 for Bespoke Portfolio Service and larger than £20,000 for Managed Portfolio Service It has been another year of considerable growth for Brooks Macdonald Funds, as part of the increase in the table shown above, There has been continued development and investment in the IT with total FUM increasing significantly to £518m (2013: £390m) at systems across the Group together with an increasing cost in 30 June 2014, an increase of 33%. This growth was achieved both relation to our regulatory and compliance responsibilities. These organically through the net new investment in the existing seven specific cost areas, together with other investments in staff and funds, as well as by the investment in North Row Capital LLP, which general infrastructure, have resulted in a year of static profits for the manages the IFSL North Row Liquid Property Fund that was Group, but whilst we will continue to invest in our systems launched in February 2014 and has contributed £16m to the year development we expect to return to profits growth next year. end total of FUM. BMAM, BMI and BMF - discretionary investment management The investment management service principally provides discretionary investment management to private investors, charities and trusts. Despite considerable changes within the industry we have continued to grow funds under management (‘FUM’) which is one of the main key performance indicators (‘KPIs’) of the Group. In April 2014 we made the acquisition of DPZ Capital Limited (see note 9) in Jersey, but we have additionally grown FUM organically (including net new business and investment growth) by over £1bn during the year. The detailed movement in FUM over the year is shown below. A large proportion of the new organic business comes from professional intermediaries with whom we have worked over a number of years. As well as introducing discretionary management funds they also introduce to other parts of the Group and are another KPI. The number of introducing firms has increased to 670 (2013: 544) at 30 June 2014. BMFC and BMRSI BMFC, the UK based financial consulting business, had a strong year of growth with revenue increasing by 65% in the year to 30 June 2014 to £3.81m (2013: £2.32m). The business delivers both fee-based financial planning to high-net-worth individuals and employee benefits consultancy to small and medium sized employers throughout the UK. It saw growth across both areas with revenue starting to flow from “auto enrolment” advice resulting from the Pensions Act 2008. BMFC is in a period of investment with additional staff and systems to enable it to take opportunities presented by auto enrolment and the cost of this investment resulted in a loss for the year. 6 Annual Report & Accounts 2014Brooks Macdonald Group plc Strategic report BMRSI had a year of consolidation and is now starting to look at committees. Each risk committee is responsible for reviewing international pension opportunities in a number of jurisdictions and identified risks and implementing procedure reviews and mitigating is repositioning the service in Jersey and Guernsey. action as necessary. Business-level risk committees report up to the Braemar Estates Braemar Estates has continued its growth in the property management sector winning further mandates and the value of assets under administration as at 30 June 2014 was £1.13bn (2013: £1.04bn), an increase of 9% in the year. Corporate governance The principal board committees are the Audit, Remuneration and Risk and Compliance Committee. The membership of the Risk and Compliance Committee is made up of the Group’s four non-executive directors and is chaired by Colin Harris. As necessary, the committee meetings are also attended by senior business managers and relevant key staff including the Chief Executive, Finance Director, other members of the Group Board, heads of various business units and the head of departments for compliance, risk and group governance. Risk and Compliance committees, all of which have specific terms of During the year ended 30 June 2014 the committee met on seven reference which are periodically reviewed and approved by the occasions. Its principal responsibilities include overseeing the current Board. These terms of reference are available on the Group website. risk exposures of the Group, reviewing the risk assessment Audit Committee The members of the Audit Committee are three of the non-executive directors: Christopher Knight, Colin Harris and, since his appointment on 1 August, Richard Price. On 8 September 2014 Richard Price was appointed Chairman of the committee in succession to Christopher Knight. The board is satisfied that all members of the committee have recent and relevant financial experience. The committee met five times during the year ended 30 June 2014. As well as being responsible for reviewing the external audit arrangements with regard to compensation, scope and period of office, the committee also considers the accounting policies of the processes, assessing material breaches of risk limits and the adequacy of proposed remedial action and reviewing client complaints. The Group has made some changes to its governance and risk management functions. The Risk and Compliance department has been divided into two separate departments, which together with the Legal department, reports to a new Head of Group Governance. These changes allow the Compliance, Risk and Legal departments to operate independently of and provide an effective check on each other whilst ensuring efficient communication and appropriate sharing of information between them. Apart from these structural changes, the risk management framework remains broadly the same Group and the significant issues and judgements in connection with as for the previous year. regulatory financial reporting. The committee reviews the audit control memorandum and the audit engagement letters and has discussions with the auditor without management present. The principal risks assessed by management as having a potential material impact on the Group are detailed below, together with the principal means in which these risks are mitigated. Risk and Compliance Committee The Group’s risk management framework is embedded throughout the organisation. Individual business units adhere to documented business processes, which are monitored by the Group’s compliance Financial risks The Group’s principal financial risks relate to credit risk, liquidity risk and market risk and the measures and policies for the management of those risks are set out in note 30 to the consolidated financial statements. Further details on capital management processes can be and risk functions. Monitoring output is reported to business managers and identified risks are reported to business-level risk found in note 31. 7 Annual Report & Accounts 2014Brooks Macdonald Group plcStrategic report Risk and Compliance Committee (continued) Non-financial risks The significant non-financial risks faced by Group have been reviewed by the committee, who believe they remain broadly the same as in previous years and are as follows: Reputational risk Impact The Group has a growing reputation as a provider of high quality investment and wealth management services. There is a risk that significant damage to reputation could lead to the loss of existing clients as well as impacting on the ability to gain new clients, which would lead to a fall in financial income. Such risk could arise from events such as poor investment performance, poor client service or regulatory censure. Mitigation This risk is minimised by ensuring the Group maintains a culture of high ethical and professional standards whilst focussing on delivering a first class service to all of our clients. The Group maintains separate, independent risk and compliance departments, which ensures conformity with the regulations of the Financial Conduct Authority, as well as relevant statutes, in all of our dealings with our clients. Regulatory risk Impact The sector in which the Group operates is heavily regulated and any breach of regulations could lead to fines or disciplinary action against the Group or its staff. Mitigation The Group monitors compliance with existing regulations and any impending changes in regulations in order to assess the impact on the business and to ensure that the Group has sufficient resources to implement any necessary changes. People risk Impact Our business is dependent on client relationships with our staff. Operating in a competitive market there is a risk of loss of existing clients due to poor performance or service, a failure to respond to changes in the market place, or the loss of key investment professionals. Technology risk Impact A key part of the high quality service delivered to clients is facilitated by a flexible and robust internal ICT infrastructure. Mitigation To minimise this risk, the Group continues to invest in its employees and monitors developments in the marketplace in which it operates to ensure that the Group continues to offer a wide range of services. Recruitment policies are designed to attract high quality staff and the Group regularly reviews and benchmarks its remuneration packages and contractual arrangements in order to retain and motivate staff. The Learning & Development team, as part of Human Resources, provides structured training plans in order to ensure all staff continue to develop their careers within the Group. Mitigation New ICT projects are regularly reviewed and appraised at board meetings in order to ensure that the Group continues to develop and maintain its ICT capabilities. As well as our regional offices providing back up facilities for our London offices, we have a fully tested disaster recovery plan which would facilitate remote working capabilities. 8 Annual Report & Accounts 2014Brooks Macdonald Group plcStrategic report Risk and Compliance Committee (continued) Operational risk Impact Operational risk is the risk that the Group suffers a loss of business resulting from inadequate or failed internal processes, people and systems or from the failure of outsourcing partners or external suppliers. Investment performance risk Impact There is a risk that portfolios will not meet their investment objectives which could result in the Group suffering loss of business. There is a risk on the suitability of portfolios for clients and where the suitability responsibility lies between a professional introducing the client and the group company. Mitigation Due diligence takes place prior to the commencement of any outsourcing or supply, to maintain a robust procurement process and good contract governance. We have completed a review of key outsourcing partners across the Group and have in place procedures to regularly assess the performance of such suppliers as well identifying suitable and viable alternatives. Mitigation Portfolio performance, valuations and risk profiles are monitored by management, allowing issues to be identified and mitigated as they arise. The Group has in place BITA Monitor portfolio risk oversight tools to assist with supervising portfolio management. The Group has completed a re-papering exercise for all of its Managed Portfolio Service clients and is well advanced in a similar exercise for all other discretionary clients in order to agree the suitability of their individual portfolios. Remuneration Committee The Remuneration Committee comprises Diane Seymour-Williams (Chair), Christopher Knight and Colin Harris. The committee (in consultation with the Chief Executive) determines the specific remuneration packages for each executive director and certain senior executives including base salary, annual bonus, long-term incentives, benefits and terms of employment. The committee is also responsible for setting the broad parameters for the annual base salary review across the Group and reviews all awards made under various long-term incentive schemes operated across the Group. In response to shareholders’ feedback in 2013 the committee has decided that the directors’ remuneration report will be subject to a shareholder vote at the Annual General Meeting on 27 October 2014. Remuneration policy Brooks Macdonald recognises the importance of its employees to the success of the Group and consequently the remuneration policy is designed to be market competitive in order to attract, retain and motivate high-calibre individuals. External third party data is used to validate rather than to benchmark the total reward. The remuneration policy, which applies to directors and employees of the Group, is based on the following key principles: • designed to encourage the retention of staff through deferred variable compensation, where appropriate; • the need to provide a market competitive balanced package of benefits; • differentiation by merit and performance; • an emphasis on variable, performance driven remuneration to bonus payments funded from retained profits; • consistency with the FCA Remuneration Code and across the Group; • alignment with shareholders’ interests through significant and widespread equity ownership opportunities; and • clarity, transparency and fairness of process 9 Annual Report & Accounts 2014Brooks Macdonald Group plcStrategic report Remuneration Committee (continued) Remuneration policy (continued) The current remuneration package for an executive director has four main elements: basic salary and benefits, profit-related bonus, long-term equity based incentives and pension. The total reward is designed to include a balance of fixed and variable pay with an element of deferral. Basic salary Basic salary is paid monthly in cash through payroll determined by the committee and any changes are implemented from 1 July each year or when an individual changes position or responsibility. In deciding appropriate levels the committee considers salaries throughout the Group and information on comparable AIM-listed and financial services companies and firms provided by advisers to the committee. The views of the Chief Executive are taken into consideration when setting the salary of other directors. The base salaries of executive directors were increased on 1 July 2014 by a total of 2.6% compared to an overall average increase for all employees of 3.7%. The non-executive directors’ salaries were similarly reviewed and increased on average by 9.3% with the approval of the board to reflect their additional responsibilities and commitments as the Group grows. Annual profit-related bonus award Awards to executive directors and some other senior employees of the Group of profit-related bonuses are made from a pool of profits of 15-25% of the Group pre-tax profit after the payment of all bonuses to all other staff. The committee determines the overall size of the pool based on the performance of the Group against a number of key performance indicators including the growth in profits, the movement in funds under management, various internal client service metrics and the performance against budget of each of the operating divisions. The total payment to executive directors, including the amounts deferred into shares, represented 10.0% (2013: 10.9%) of Group pre-tax profit. Awards to individual executive directors are determined by the committee following recommendations from the Chief Executive, taking into account a number of financial and non-financial factors. These are intended to give a broad assessment of the annual performance objectives of each director, including the results of the business, investment performance, net new business, management of risks facing the Group and cost control within each individual’s area of responsibility. The Remuneration Committee has decided that 20% of the bonus awarded will be made in shares deferred for a period of three years under a Long Term Incentive Scheme (‘LTIS’). In addition, directors may choose to defer a further amount of any bonus awarded, up to a maximum of 20%, making 40% in total, into shares under the LTIS. The scheme has performance conditions attached to the deferred award, requiring a minimum growth in the diluted earnings per share of the Group of 2% per annum above the increase in the Retail Price Index (RPI) over the three year period. Benefits The executive directors receive a range of benefits on a similar basis to other employees of the Group. Benefits available include private healthcare, life assurance, critical illness cover and permanent health insurance as well as interest free season ticket loans as disclosed in note 33 to the consolidated financial statements. The non-executive directors do not receive any benefits except that they are entitled to reclaim for expenses incurred in carrying out the Group’s business. Pension Executive directors may participate in the pension arrangements of the Group or receive cash in lieu of pension on the same basis as other employees. The Group’s contributions are currently 15% of base salary. 10 Annual Report & Accounts 2014Brooks Macdonald Group plcStrategic report Remuneration Committee (continued) The elements of remuneration packages are summarised below. Directors’ remuneration Salary or fee £’000 75 247 162 167 167 183 189 - - 40 36 - 1,266 Chairman C J Knight Executives C A J Macdonald N I Holmes S J Jackson A W Shepherd R H Spencer S P Wombwell J M Gumpel* N H Lawes* Non-executives C R Harris D Seymour-Williams R Price† Total *Resigned 19 October 2012 †Appointed 1 August 2014 Equity incentives bonus - cash Profit related Profit related bonus - deferred shares £’000 £’000 Benefits Total 2014 Total 2013 Pension Pension contributions contributions 2013 2014 £’000 £’000 £’000 £’000 £’000 - 256 160 120 160 132 132 - - - - - 960 - 64 40 30 40 33 33 - - - - - 240 - 3 2 3 2 3 3 - - - - - 16 75 60 570 364 320 369 351 357 - - 581 349 350 349 346 377 106 77 40 36 - 2,482 38 35 - 2,668 - - 24 18 18 - - - - - - 60 - - 24 24 24 - - - 7 - - 79 Long Term Incentive Scheme (‘LTIS’) and Employee Benefit Trust (‘EBT’) The Group established an EBT on 3 December 2010. The Trust was established to acquire ordinary shares in the Company in connection with the deferred share element of the profit-related bonus under the LTIS as detailed above. The EBT is also used for other long-term awards to members of the Board and other long-term awards to other senior employees. The Remuneration Committee has made additional awards under the LTIS to certain executive directors and other senior employees. The conditional awards are subject to the same performance and other conditions as those applying to the deferred profit-related bonus share options. Details of the awards granted to the directors of the Company under the terms of the LTIS during the year ended 30 June 2014, in respect of the deferred element of the profit-related bonus for the previous year together with any additional awards, are detailed below. The market value of the Company’s shares at the date the awards were made, 1 November 2013, was £14.64. 11 Annual Report & Accounts 2014Brooks Macdonald Group plc Strategic report Remuneration Committee (continued) Equity incentives (continued) Long Term Incentive Scheme (‘LTIS’) and Employee Benefit Trust (‘EBT’) (continued) C A J Macdonald N I Holmes S J Jackson A W Shepherd R H Spencer S P Wombwell At 1 July 2013 4,112 6,536 5,354 - 2,095 9,886 4,724 - 2,715 3,595 4,567 - 2,095 9,804 4,567 - 2,405 3,105 2,677 - 11,847 3,780 - Profit-related bonus - deferred shares 2014 Additional awards under terms of LTIS 2014 At 30 June 2014 - - - 4,372 - - - 2,528 - - - 2,528 - - - 3,791 - - - 2,186 - - 2,528 - - - - - - - - - - - - - - - - - - - - - - 4,112 6,536 5,354 4,372 2,095 9,886 4,724 2,528 2,715 3,595 4,567 2,528 2,095 9,804 4,567 3,791 2,405 3,105 2,677 2,186 11,847 3,780 2,528 Earliest exercise date 27.10.13 20.10.14 25.10.15 01.11.16 27.10.13 20.10.14 25.10.15 01.11.16 27.10.13 20.10.14 25.10.15 01.11.16 27.10.13 20.10.14 25.10.15 01.11.16 27.10.13 20.10.14 25.10.15 01.11.16 20.10.14 25.10.15 01.11.16 During the year none of the directors exercised any shares under the LTIS (2013: none). The LTIS options have a £nil exercise price and no expiry date. Sharesave Scheme All directors are entitled to take part in the HMRC approved Brooks Macdonald Group Sharesave Scheme on the same terms as all other employees. Annual invitations to participate in the scheme, which commences each year on 1 June, are sent to directors and subject to rules of the scheme various option grants were made for new three-year fixed term contracts as detailed below: 12 Annual Report & Accounts 2014Brooks Macdonald Group plc Strategic report Remuneration Committee (continued) Equity incentives (continued) Sharesave Scheme (continued) At 1 July 2013 Awarded in the year Exercised in the year At 30 June 2014 Exercise price Earliest exercise date C A J Macdonald N I Holmes S J Jackson A W Shepherd R H Spencer S P Wombwell 985 - 985 - 985 - 767 985 - 985 - - 649 - 1,298 - 1,298 - - 1,298 - 1,298 (985) - (985) - (985) - - (985) - (985) - - 649 - 1,298 - 1,298 767 - 1,298 - 1,298 916p 1386p 916p 1386p 916p 1386p 1172p 916p 1386p 916p 1386p Expiry date 30.11.14 30.11.17 30.11.14 30.11.17 30.11.14 30.11.17 01.06.14 01.06.17 01.06.14 01.06.17 01.06.14 01.06.17 01.06.16 30.11.16 01.06.14 01.06.17 01.06.14 01.06.17 30.11.14 30.11.17 30.11.14 30.11.17 On the expiry of the 2011 Sharesave Scheme the directors exercised their options as detailed above. The aggregate gain on exercise was £31,000 (2013: £nil). As none of the shares had been sold by 30 June 2014 the aggregate realised gain was £nil (2013: £nil). The Company’s share price at the various dates of exercise was between £14.91 and £15.49. Under the rules of the scheme, Colin Harris, Christopher Knight, Richard Price and Diane Seymour-Williams were not eligible to participate in the Sharesave Scheme and therefore held no options at either the beginning or the end of the year or at the date of their appointment. Enterprise Management Incentive Scheme (‘EMI’) The Brooks Macdonald Group Enterprise Management Incentive Scheme (EMI) was adopted by the shareholders of the Company on 11 February 2005. Options granted can be exercised if there has been an increase in the diluted earnings per share of the Company of at least 2% per annum more than the increase in the RPI over the period of three financial years starting with the financial year in which the date of grant falls and ending with the financial year in which the third anniversary of the date of grant falls. Options may not normally be exercised before the third anniversary of the date of the grant and expire on the tenth anniversary of the grant. Due to the increase in the size of the Company it is no longer eligible under HMRC rules to grant options under this EMI scheme and the last options were awarded to directors under this scheme on 17 October 2007. 13 Annual Report & Accounts 2014Brooks Macdonald Group plc Strategic report Remuneration Committee (continued) Equity incentives (continued) Enterprise Management Incentive Scheme (‘EMI’) (continued) The details of the remaining grants under the scheme to directors are shown below: N I Holmes S J Jackson At 1 July 2013 15,000 4,500 6,000 17,000 12,500 Awarded in the year Exercised in the year At 30 June 2014 - - - - - - - - (17,000) (12,500) 15,000 4,500 6,000 - - Exercise price 155.5p 215.0p 290.5p 215.0p 290.5p Earliest exercise date 01.11.08 18.10.09 17.10.10 18.10.09 17.10.10 Expiry date 01.11.15 17.10.16 31.10.17 17.10.16 31.10.17 The aggregate gain during the year from the exercise of the above EMI share options was £427,000 (2013: £301,000). The Company’s share price at the exercise date was £16.950 (2013: £12.905). None of the other directors held any EMI share options at either the beginning or the end of the year or at the date of their appointment. The average share price during the year was £14.87 (2013: £13.27). Details of the share option schemes are provided in note 21 and note 26 to the consolidated financial statements. The market price at the end of the year was £15.65 (2013: £14.35) and the highest and lowest prices during the year were £18.02 (2013: £14.96) and £11.84 (2013: £11.35) respectively. Company Share Option Plan (‘CSOP’) Following discussions regarding remuneration structures and incentives schemes for senior employees and directors the Company decided to set up a CSOP which was approved by shareholders at the Annual General Meeting on 17 October 2013 and by HMRC on 21 November 2013. The scheme 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 for an individual is a total market value of £30,000. There are performance conditions attaching to the scheme similar to those in place for the EMI Scheme above whereby there must be an increase in the diluted earnings per share of the Company of 2% more than the increase in the RPI over the three years starting with the financial year in which the option is granted. Details of the number of options granted to the directors of the Company under the terms of the CSOP during the year ended 30 June 2014, in respect of awards made in the previous financial year, are shown in the table below. The options were granted on 21 November 2013 with an exercise price of £14.52. N I Holmes S J Jackson A W Shepherd S P Wombwell At 1 July 2013 Granted in the year Exercised in the year At 30 June 2014 - - - - 2,067 2,067 2,067 2,067 - - - - 2,067 2,067 2,067 2,067 Exercise price 1,452.0p 1,452.0p 1,452.0p 1,452.0p In the year ended 30 June 2014, a new award with an aggregate market value of £15,000 was made under the CSOP to R H Spencer. The number of options to be granted and the option price for this award will be determined based on the share price at the grant date in October 2014. None of the other directors held any CSOP share options at either the beginning or the end of the year or at the date of their appointment. 14 Annual Report & Accounts 2014Brooks Macdonald Group plc Strategic report Remuneration Committee (continued) Equity incentives (continued) Company Share Option Plan (‘CSOP’) (continued) Dilution Not more than 15% of the issued ordinary share capital of the Company (adjusted for bonus and rights issues) will be issued for all EMI and share incentive schemes operated by the Company in any ten year rolling period. The Company satisfies the various equity-based schemes it operates using a combination of market purchased, newly issued and treasury shares. Service contracts for executive directors The Company has service contracts with its executive directors with a notice period of 12 months and it is company policy that such contracts should not normally contain periods of more than 12 months. External appointments Executive directors are encouraged to take on external appointments as non-executive directors but are discouraged from taking more than one other position given the time commitment. Prior approval of any new appointment is required by the Board with any fees in excess of £10,000 per annum paid to the Company. Advisers to the Remuneration Committee During the year the Remuneration Committee have employed professional advisers to assist with the implications of the FCA Remuneration Code and to provide industry specific comparative information regarding compensation and pay packages. Non-executive directors Non-executive directors do not have contracts of employment but as with other directors are now required to stand for re-election. The executive directors are responsible for determining the fees of the non-executive directors who do not receive pension or other benefits from the Group and do not participate in any Group incentive schemes. 15 Annual Report & Accounts 2014Brooks Macdonald Group plc Report of the directors The directors present herewith their annual report, together with Retirement and re-appointment of directors the audited financial statements of the Group for the year ended Richard Price has been appointed as an additional director since the 30 June 2014. Results and dividends Annual General Meeting in 2013 and accordingly, the company’s articles of association require him to retire from office at the forthcoming Annual General Meeting and to offer himself The profit before taxation for the year ended 30 June 2014 was for re-election. £10,568,000 (2013: £10,398,000) and the profit after taxation was £9,056,000 (2013: £8,030,000). Simon Jackson, Diane Seymour-Williams and Richard Spencer will also retire by rotation at the Annual General Meeting and are The Company paid an interim dividend during the year of 7.0p eligible to nominate themselves for re-election. (2013: 6.5p) per share. The directors recommend a final dividend of 19.0p per share (2013: 16.0p). This results in total dividends for the Directors’ indemnities year of 26.0p (2013: 22.5p) per ordinary share. These dividends The Company has made qualifying third party indemnity provisions amount to a total distribution to shareholders of £3,453,000 for the benefit of its directors and these remain in force at the date (2013: £2,938,000). of the report. Directors and their interests Employment policies The directors of the company, who were in office during the year Employees are encouraged to identify and become involved with and up to the date of signing the financial statements, are listed the financial performance of the Group and are rewarded by below together with their beneficial interests in the share capital of involvement in profit sharing arrangements. Employees also have the Company. the opportunity to participate in the Group’s share incentive plans. Chairman C J Knight Executives C A J Macdonald N I Holmes S J Jackson A W Shepherd R H Spencer S P Wombwell Non-executives C R Harris D Seymour-Williams At 30 June 2014 Number of shares At 30 June 2013 Number of shares The Group considers that communication with our employees is very important and indeed vital for the success of the Group. Employees 71,585 71,585 828,874 827,889 41,495 79,534 48,915 774,338 89,189 6,086 5,000 40,510 56,799 51,165 773,353 88,204 6,086 5,000 are informed of important issues by electronic mail and seminars. The Group considers that regular training is extremely important. This is achieved by the provision of in-house and external training courses and the training team provide a number of continuing professional development activities. All staff are encouraged to report their specific training needs to their line managers, which are then co-ordinated through the central Learning and Development department. The Group operates a graduate training scheme in respect of its trainee investment managers and financial planning consultants. The Group is an equal opportunities employer. All job applicants and employees are treated fairly and on merit, regardless of their race, gender, marital status, age, disability, religious belief or sexual Details of share options held by the directors at the beginning and orientation. Applications from disabled persons are always the end of the year can be found within the Remuneration considered and where employees become disabled efforts are made Committee report on pages 9 to 15. to continue their employment within the Group by providing training and the supply of equipment if necessary so that they are able to continue their role. 16 Annual Report & Accounts 2014Brooks Macdonald Group plc Report of the directors Employment policies (continued) All staff have the option to take an interest free annual season ticket loan. To retain the Group’s employees and to improve staff morale, the Group recognises the need for employees to have an appropriate work-life balance. Long serving employees are entitled to additional annual leave dependent on their length of service. On 1 February 2014 the Group became eligible for “auto enrolment” under the terms of the Pensions Act 2008 and on commencing employment all eligible employees are now enrolled into the Group pension scheme. Substantial shareholdings As at 29 August 2014, the Company had received notification of substantial interests in its shares of 3% or more as follows: Each of the directors in office at the date of signing this report confirms that, so far as they are aware, there is no relevant audit information of which the Company’s auditor is unaware. Each director has taken all reasonable steps that he or she ought to have taken as a director in order to make him or herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. Annual General Meeting The 2014 Annual General Meeting will be held on 27 October 2014 at 111 Park Street, London, W1K 7JL. The notice of the meeting is on pages 69 to 70 with details of the resolutions proposed and explanatory notes on pages 67 to 68. On behalf of the Board of Directors, Liontrust Asset Management Artemis Fund Managers C A J Macdonald Hargreave Hale R H Spencer Standard Life Investments J M Gumpel Kames Capital Octopus Investments Spearpoint Holdings L L Cook Company Secretary 16 September 2014 Number of shares 2,193,606 1,347,817 828,874 801,373 774,338 749,082 643,445 611,957 610,415 409,218 Percentage holding 16.14% 9.92% 6.10% 5.90% 5.70% 5.51% 4.73% 4.50% 4.49% 3.01% Events since the end of the year Details of events after the reporting date are set out in note 34 to the consolidated financial statements. Independent auditors The Audit Committee has recommended to the Board of Directors that the incumbent auditor, PricewaterhouseCoopers LLP, be reappointed. PricewaterhouseCoopers LLP have expressed their willingness to continue in office as auditor and a resolution to reappoint them as auditor will be proposed at the forthcoming Annual General Meeting. 17 Annual Report & Accounts 2014Brooks Macdonald Group plc Statement of directors’ responsibilities The directors are responsible for preparing the Annual Report and The directors are responsible for keeping adequate accounting the financial statements in accordance with applicable law records that are sufficient to show and explain the Company’s and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, and the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. company law the directors must not approve the financial The directors are responsible for the maintenance and integrity of statements unless they are satisfied that they give a true and fair the Group’s website. Legislation in the United Kingdom governing view of the state of affairs of the Group and the Company and of the preparation and dissemination of financial statements may differ the profit or loss of the Company and Group for that period. In from legislation in other jurisdictions. preparing these financial statements, the directors are required to: The directors consider that the Annual Report & Accounts, taken as • select suitable accounting policies and then apply them a whole, is fair, balanced and understandable and provides the consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether IFRSs as adopted by the European Union and information necessary for shareholders to assess a company’s performance, business model and strategy. Each of the directors, whose names and functions are listed in the report of the directors confirm that, to the best of their knowledge: applicable UK Accounting Standards have been followed, subject • the group financial statements, which have been prepared in to any material departures disclosed and explained in the Group accordance with IFRSs as adopted by the EU, give a true and fair and parent company financial statements respectively; view of the assets, liabilities, financial position and profit of the • prepare the financial statements on the going concern basis Group; and unless it is inappropriate to presume that the Company will • the strategic report and the report of the directors include a fair continue in business review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces 18 Annual Report & Accounts 2014Brooks Macdonald Group plcIndependent auditors’ report to the members of Brooks Macdonald Group plc Report on the group financial statements What an audit of financial statements involves Our opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). An audit In our opinion the financial statements, defined below: involves obtaining evidence about the amounts and disclosures in • give a true and fair view of the state of the Group’s affairs as at 30 June 2014 and of its profit and cash flows for the year then ended; • have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; and • have been prepared in accordance with the requirements of the Companies Act 2006 This opinion is to be read in the context of what we say in the remainder of this report. What we have audited the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: • whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; • the reasonableness of significant accounting estimates made by the directors; and • the overall presentation of the financial statements In addition, we read all the financial and non-financial information in the Annual Report & Accounts to identify material inconsistencies with the audited financial statements and to identify any The group financial statements (the “financial statements”), which information that is apparently materially incorrect based on, or are prepared by Brooks Macdonald Group plc, comprise: materially inconsistent with, the knowledge acquired by us in the • the consolidated statement of financial position as at 30 June 2014; • the consolidated statement of comprehensive Income for the year then ended; • the consolidated statement of cash flows for the year then ended; • the consolidated statement of changes in equity for the year then ended; and • the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union. course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the strategic report and the report of the directors for the financial year for which the financial statements are prepared is consistent with the financial statements. Other matters on which we are required to report by exception Adequacy of information and explanations received Under the Companies Act 2006 we are required to report to you if, in our opinion, we have not received all the information and In applying the financial reporting framework, the directors have explanations we require for our audit. We have no exceptions to made a number of subjective judgements, for example in respect of report arising from this responsibility. significant accounting estimates. In making such estimates, they have made assumptions and considered future events. 19 Annual Report & Accounts 2014Brooks Macdonald Group plcIndependent auditors’ report to the members of Brooks Macdonald Group plc Directors’ remuneration Other matter We have reported separately on the company financial statements of Brooks Macdonald Group plc for the year ended 30 June 2014. Marcus Hine (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 16 September 2014 Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. Responsibilities for the financial statements and the audit Our responsibilities and those of the directors As explained more fully in the statement of directors’ responsibilities set out on page 18, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. 20 Annual Report & Accounts 2014Brooks Macdonald Group plcConsolidated statement of comprehensive income for the year ended 30 June 2014 Revenue Administrative costs Operating profit Finance income Finance costs Share of results of joint venture Profit before tax Taxation Profit for the year attributable to equity holders of the Company Other comprehensive income: Items that may be reclassified subsequently to profit or loss Revaluation of available for sale financial assets Total comprehensive income for the year Earnings per share* Basic Diluted Note 4 5 7 7 14 8 8 27 27 2014 £’000 69,133 (58,207) 10,926 119 (349) (128) 10,568 (1,512) 9,056 (131) 8,925 69.01p 68.67p *Comparative amounts have been restated to reflect the impact of new shares issued as consideration on the acquisition of DPZ The accompanying notes on pages 25 to 59 form an integral part of the consolidated financial statements. 2013 £’000 63,159 (52,661) 10,498 179 (279) - 10,398 (2,368) 8,030 (9) 8,021 65.88p 65.28p 21 Annual Report & Accounts 2014Brooks Macdonald Group plc Consolidated statement of financial position as at 30 June 2014 Assets Non-current assets Intangible assets Property, plant and equipment Available for sale financial assets Investment in joint venture Deferred tax assets Total non-current assets Current assets Trade and other receivables Financial assets at fair value through profit or loss Cash and cash equivalents Total current assets Total assets Liabilities Non-current liabilities Deferred consideration Deferred tax liabilities Other non-current liabilities Total non-current liabilities Current liabilities Trade and other payables Current tax liabilities Provisions Total current liabilities Net assets Equity Share capital Share premium account Other reserves Retained earnings Total equity Note 11 12 13 14 15 16 17 18 19 15 20 21 22 24 24 25 25 2014 £’000 54,874 2,971 2,182 232 809 61,068 21,432 478 18,056 39,966 101,034 (2,943) (5,117) (115) (8,175) (15,178) (1,076) (9,147) (25,401) 67,458 135 35,147 4,720 27,456 67,458 2013 £’000 44,624 2,421 1,582 - 858 49,485 17,773 - 18,440 36,213 85,698 (5,804) (4,498) (125) (10,427) (13,779) (1,149) (2,783) (17,711) 57,560 133 31,868 3,952 21,607 57,560 The consolidated financial statements were approved by the Board of Directors and authorised for issue on 16 September 2014, signed on their behalf by: C A J Macdonald Chief Executive S J Jackson Finance Director Company Registration Number 4402058. The accompanying notes on pages 25 to 59 form an integral part of the consolidated financial statements. 22 Annual Report & Accounts 2014Brooks Macdonald Group plc Consolidated statement of changes in equity for the year ended 30 June 2014 Balance at 1 July 2012 109 4,423 2,988 16,190 23,710 Share capital £’000 Share premium account £’000 Other reserves £’000 Retained earnings £’000 Total £’000 Comprehensive income Profit for the year Other comprehensive income: Revaluation of available for sale financial asset Total comprehensive income - - - - - - 24 27,445 Transactions with owners Issue of ordinary shares Share-based payments Share-based payments transfer Purchase of own shares by employee benefit trust Tax on share options Dividends paid (note 10) Total transactions with owners Balance at 30 June 2013 Comprehensive income Profit for the year Other comprehensive income: Revaluation of available for sale financial asset Total comprehensive income Transactions with owners Issue of ordinary shares Share-based payments Share-based payments transfer Purchase of own shares by employee benefit trust Tax on share options Dividends paid (note 10) Total transactions with owners - - - - - 24 133 - - - 2 - - - - - 2 Balance at 30 June 2014 135 - - - - - 27,445 31,868 - - - 3,279 - - - - - 3,279 35,147 - (9) (9) - 1,111 (350) - 212 - 973 3,952 8,030 8,030 - 8,030 (9) 8,021 - - 350 (779) - (2,184) (2,613) 21,607 27,469 1,111 - (779) 212 (2,184) 25,829 57,560 - 9,056 9,056 (131) (131) - 1,288 (545) - 156 - 899 4,720 - 9,056 (131) 8,925 - - 545 (732) - (3,020) (3,207) 27,456 3,281 1,288 - (732) 156 (3,020) 973 67,458 The accompanying notes on pages 25 to 59 form an integral part of the consolidated financial statements. 23 Annual Report & Accounts 2014Brooks Macdonald Group plc Consolidated statement of cash flows for the year ended 30 June 2014 Note 23 Cash flow from operating activities Cash generated from operations Taxation paid Net cash generated from operating activities Cash flows from investing activities Purchase of property, plant and equipment Purchase of intangible assets Purchase of available for sale financial assets Acquisition of subsidiary companies, net of cash acquired 9 Deferred consideration paid Interest received Financial assets at fair value through profit or loss Investment in joint venture Proceeds of sale of intangible assets Proceeds of sale of available for sale financial assets Net cash used in investing activities Cash flows from financing activities Proceeds of issue of shares Purchase of own shares by employee benefit trust Dividends paid to shareholders Net cash (used in) / generated from financing activities Net (decrease) / increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 18 2014 £’000 13,671 (2,318) 11,353 (1,342) (552) (750) (3,340) (1,866) 119 (478) (360) - - (8,569) 584 (732) (3,020) (3,168) (384) 18,440 18,056 2013 (restated)* £’000 13,155 (1,661) 11,494 (863) (617) - (20,757) (3,637) 179 - - 32 63 (25,600) 22,020 (779) (2,184) 19,057 4,951 13,489 18,440 *Comparative amounts have been restated to show deferred consideration paid within cash flows from investing activities The accompanying notes on pages 25 to 59 form an integral part of the consolidated financial statements. 24 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 1. General information Brooks Macdonald Group plc (‘the Company’) is the parent company of a group of companies (‘the Group’), which offers a range of investment management services and related professional advice to private high-net-worth individuals, charities, and trusts. The Group also provides financial planning as well as offshore fund management and administration services and acts as fund manager to regulated OEICs, providing specialist funds in the property and structured return sectors and managing property assets on behalf of these funds and other clients. The Company is a public limited company, incorporated and domiciled in the United Kingdom under the Companies Act 2006 and listed on AIM. The address of its registered office is 111 Park Street, London, W1K 7JL. 2. Principal accounting policies The general accounting policies applied in the preparation of these financial statements are set out below. These policies have been applied consistently to all years presented, unless otherwise stated. a) Basis of preparation The Group’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union, IFRS IC interpretations, and the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared on the historical cost basis, except for the revaluation of available for sale financial assets such that they are measured at their fair value. At the time of approving the financial statements, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements. b) Basis of consolidation The Group’s financial statements comprise a consolidation of the financial statements of the parent company (Brooks Macdonald Group plc) and its subsidiaries. The underlying financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies. Subsidiaries are all entities controlled by the Company, deemed to exist where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of the subsidiaries are included from the date on which control is transferred to the Group to the date that control ceases. All intercompany transactions and balances between Group companies are eliminated on consolidation. c) Changes in accounting policies The Group’s accounting policies applied to these financial statements are consistent with those disclosed within the financial statements for the year ended 30 June 2013, except as described below. New accounting policies During the year the Group entered into a joint venture (note 14) and adopted the accounting policy below: i) Investments in joint ventures A joint venture is an entity in which the Group holds a long-term interest and is jointly controlled by the Group and one or more third parties under a contractual agreement. Under the equity method of accounting, interests in joint ventures are initially recognised at cost in the consolidated statement of financial position and subsequently adjusted to reflect changes in the Group’s share of the net assets of the entities. The Group’s share of the results of joint ventures is included in the consolidated statement of comprehensive income. If the Group’s share of the losses of a joint venture equals or exceeds its investment, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint venture. 25 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 2. Principal accounting policies (continued) c) Changes in accounting policies (continued) New accounting standards, amendments and interpretations adopted in the year In the year ended 30 June 2014 the Group did not adopt any new standards or amendments issued by the IASB or interpretations issued by the IFRS Interpretations Committee (IFRS IC) that have had a material impact on the consolidated financial statements. Other new standards, amendments and interpretations adopted, that have not had a material impact on the amounts reported in these financial statements but may impact the accounting for future transactions and arrangements, were: Standard, amendment or interpretation Disclosures: offsetting financial assets and financial liabilities (amendments to IFRS 7) Annual improvements (2009-2011 cycle) Transition guidance: Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities (amendments to IFRS 10, 11 and 12) IFRS 10 ‘Consolidated Financial Statements’ IFRS 11 ‘Joint Arrangements’ IFRS 12 ‘Disclosure of Interests in Other Entities’ IFRS 13 ‘Fair Value Measurement’ IAS 27 (revised 2011) ‘Separate Financial Statements’ IAS 28 (revised 2011) ‘Investments in Associates and Joint Ventures’ Effective date 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 New accounting standards, amendments and interpretations not yet adopted A number of new standards, amendments and interpretations, which have not been applied in preparing these financial statements, have been issued and are effective for annual and interim periods beginning after 1 July 2013: Standard, amendment or interpretation Consolidation of investment entities (amendments to IFRS 10, 12 and IAS 27) Offsetting financial assets and financial liabilities (amendments to IAS 32) Recoverable amount disclosures for non-financial assets (amendments to IAS 36) Novation of derivatives and continuation of hedge accounting (amendments to IAS 39) IFRIC 21 ‘Levies’ Contributions to defined benefit plans (amendments to IAS 19) General hedge accounting (amendments to IFRS 9) Effective date 1 January 2014 1 January 2014 1 January 2014 1 January 2014 1 January 2014 1 July 2014 1 January 2018 These changes are currently being assessed but none are expected to have a significant impact on the Group’s future consolidated financial statements. 26 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 2. Principal accounting policies (continued) d) Critical accounting estimates and judgements The preparation of financial information requires the use of assumptions, estimates and judgements about future conditions. Use of currently available information and application of judgement are inherent in the formation of estimates. Actual results in the future may differ from those reported. In this regard, the directors believe that the accounting policies where judgement is necessarily applied are those that relate to the measurement of intangible assets, deferred consideration, the estimation of the fair value of share-based payments and client compensation provisions. The underlying assumptions made are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period 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 contracts as part of business combinations (as described in note 9), through separate purchase and purchased with newly employed teams of fund managers (as described in note 11). In assessing the fair value of these assets the Group has estimated their finite life based on information about the typical length of existing client relationships. Contracts acquired with fund managers and acquired client relationship contracts are amortised on a straight line basis over their estimated useful lives, ranging from 5 to 20 years. Goodwill recognised as part of a business combination is reviewed annually for impairment, or when a change in circumstances indicates that it might be impaired. The recoverable amounts of cash generating units are determined by value in use calculations, which require the use of estimates to derive the projected future cash flows attributable to each unit. Details of the more significant assumptions are given in note 11. Deferred consideration As described in note 19, the Group has a deferred consideration balance in respect of the acquisition of JPAM Limited in July 2012; Brooks Macdonald Asset Management (International) Limited and Brooks Macdonald Retirement Services (International) Limited in November 2012; and DPZ Capital Limited in April 2014. Deferred consideration is recognised at its fair value, being an estimate of the amount that will ultimately be payable in future periods. This has been calculated allowing for estimated growth in the acquired funds, discounted by the cost of capital. The Group considers that potential changes to these assumptions would not result in a material change in the fair value of the deferred consideration. 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 (notes 21 and 26). The charge to the consolidated statement of comprehensive income in respect of share-based payments is calculated using assumptions about the number of eligible employees that will leave the Group and the number of employees that will satisfy the relevant performance conditions. These estimates are reviewed regularly. Provisions In the ordinary course of business, the Group may receive complaints from clients in relation to the services provided. Complaints are assessed on a case-by-case basis and provisions are made where it is judged to be likely that compensation will be paid. e) Exceptional items Exceptional items are disclosed and described separately in the financial statements where it is necessary to do so to provide further understanding of the underlying financial performance of the Group. These include material items of income or expense that are shown separately due to the significance of their nature or amount. 27 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 2. Principal accounting policies (continued) f) Business combinations Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured at the fair value of the aggregate amount of the consideration transferred at the acquisition date, irrespective of the extent of any minority interest. Acquisition costs are charged to the consolidated statement of comprehensive income in the year of acquisition. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions at the acquisition date. If the business combination is achieved in stages, the fair value of the Groups’ previously held equity interest is re-measured at the acquisition date and the difference is credited or charged to the consolidated statement of comprehensive income. Identifiable assets and liabilities assumed on acquisition are recognised in the consolidated statement of financial position at their fair value at the date of acquisition. Any contingent consideration to be paid by the Group to the vendor is recognised at its fair value at the acquisition date. Subsequent changes to the fair value of contingent consideration are recognised in accordance with IAS 39 in the consolidated statement of comprehensive income. Goodwill is initially measured at cost, being the excess of the consideration transferred over the acquired company’s net identifiable assets acquired and liabilities assumed. If the consideration is lower than the fair value of the net assets acquired, the difference is recognised as a gain on a bargain purchase in the consolidated statement of comprehensive income. Impairment Goodwill and other intangible assets with an indefinite life are tested annually for impairment. For the purposes of impairment testing, goodwill acquired in a business combination is allocated to each of the Group’s cash generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquisition are assigned to those units. The carrying amount of each cash generating unit is compared to its recoverable amount, which is determined using a discounted future cash flow model. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash generating unit retained. g) Fees, commissions and interest Portfolio management and other advisory and custody services are billed in arrears but are recognised over the period the service is provided. Fees are calculated on the basis of a percentage of the value of the portfolio over the period. Dealing charges are levied at the time a deal is placed for a client. Fees are only recognised when the fee amount can be estimated reliably and it is probable that the fee will be receivable. Amounts are shown net of rebates paid to significant investors. Performance fees are earned from some clients when contractually agreed performance levels are exceeded within specified performance measurement periods. They are only recognised, at the end of these performance periods, when a reliable estimate of the fee can be made and it is almost certain that it will be received. Financial consulting fees are charged to clients using an hourly rate or by a fixed fee arrangement and are recognised over the period the service is provided. Commissions receivable and payable are accounted for in the period in which they are earned. Where amounts due are conditional on the successful completion of fund raising for investment vehicles, revenue is recognised where, in the opinion of the directors, there is reasonable certainty that sufficient funds have been raised to enable the successful operation of that investment vehicle. Amounts due on an annual basis for the management of third party investment vehicles are recognised on a time apportioned basis. Interest receivable is recognised on an accruals basis. h) Cash and cash equivalents Cash comprises cash in hand and call deposits held with banks. Cash equivalents comprise short-term, highly liquid investments, with a maturity of less than three months from the date of acquisition. 28 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 2. Principal accounting policies (continued) i) Share-based payments Equity settled schemes The Group engages in equity settled share-based payment transactions in respect of services received from certain employees. The fair value of the services received is measured by reference to the fair value of the shares or share options on the grant date. This cost is then recognised in the consolidated statement of comprehensive income over the vesting period, with a corresponding credit to equity. The fair value of the options granted is determined using option pricing models, which take into account the exercise price of the option, the current share price, the risk free rate of interest, the expected volatility of the Company’s share price over the life of the award and other relevant factors. Cash settled schemes The Group engages in cash settled share-based payment transactions in respect of services received from certain employees. On the grant date, the liability is measured at its fair value. The liability is subsequently re-measured at the end of each reporting period and on the date of settlement, with any changes in fair value recognised in the consolidated statement of comprehensive income. The cost of the services received from employees in respect of this scheme is recognised in the consolidated statement of comprehensive income with a corresponding credit to accruals. j) Segmental reporting The Group determines and presents operating segments based on the information that is provided internally to the Group Board of Directors, which is the Group’s chief operating decision maker. The Group’s reportable segments were amended in the year to include the Channel Islands as a separate segment, reflecting the way in which reporting to the Board has evolved with the continued integration of BMI and BMRSI into the Group. Comparative information for the year ended 30 June 2013 has been restated accordingly. k) Fiduciary activities The Group commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. These assets and income arising thereon are excluded from these financial statements, as they are not assets of the Group. The Group holds money on behalf of some clients in accordance with the client money rules of the Financial Conduct Authority. Such monies and the corresponding liability to clients are not included within the consolidated statement of financial position as the Group is not beneficially entitled thereto. l) Property, plant and equipment All property, plant and equipment is included in the consolidated statement of financial position at historical cost less accumulated depreciation and impairment. Costs include the original purchase cost of the asset and the costs attributable to bringing the asset into a working condition for its intended use. Provision is made for depreciation to write off the cost less estimated residual value of each asset, using a straight line method, over its expected useful life as follows: Fixtures and fittings Equipment Leasehold improvements Motor vehicles 3 to 6.67 years 5 years over the term of the lease 4 years The assets’ residual values and useful economic lives are reviewed, and adjusted if appropriate, at the end of each reporting period. Gains and losses arising on disposal are determined by comparing the proceeds with the carrying amount. These are included in the consolidated statement of comprehensive income. 29 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 2. Principal accounting policies (continued) m) Intangible assets Amortisation of intangible assets is charged to administrative expenses in the consolidated statement of comprehensive income on a straight line basis over the estimated useful lives of the assets (4 to 20 years). Acquired client relationship contracts and contracts acquired with fund managers Intangible assets are recognised where client relationship contracts are either separately acquired or acquired with investment managers who are employed by the Group. These are initially recognised at cost and are subsequently amortised on a straight line basis over their estimated useful economic life. Separately acquired client relationship contracts are amortised over 15 years and those acquired with investment managers over five years. Both types of intangible asset are reviewed annually to determine whether an indicator of impairment exists. Computer software Computer software costs are amortised on a straight line basis over an estimated useful life of four years. Goodwill Goodwill arising as part of a business combination is initially measured at cost, being the excess of the fair value of the consideration transferred over the Group’s interest in the net fair value of the separately identifiable assets, liabilities and contingent liabilities of the subsidiary at date of acquisition. In accordance with IFRS 3 ‘Business Combinations’, goodwill is not amortised but is reviewed annually for impairment and is therefore stated at cost less any provision for impairment of value. Any impairment is recognised immediately in the consolidated statement of comprehensive income and is not subsequently reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. On acquisition, any goodwill acquired is allocated to cash generating units for the purposes of impairment testing. If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the consolidated statement of comprehensive income. n) Financial investments The Group classifies financial assets in the following categories: fair value through profit or loss; available for sale; loans and receivables; and held-to-maturity. The classification is determined by management on initial recognition of the financial asset, which depends on the purpose for which it was acquired. Fair value through profit or loss Financial instruments are classified as fair value through profit or loss if they are either held for trading or specifically designated in this category on initial recognition. Assets in this category are initially recognised at fair value and subsequently re-measured, with gains or losses arising from changes in fair value being recognised in the consolidated statement of comprehensive income. Available for sale Available for sale financial assets are non-derivatives that are either specifically designated in this category or are not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period. Available for sale financial assets are initially recognised at fair value and are subsequently revalued based on the current bid prices of the asset as quoted in active markets. Loans and receivables Loans and receivables are non-derivative assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets except where they have maturities of more than 12 months after the end of the reporting period, in which case they are classified as non-current assets. The Group’s loans and receivables are recognised within ‘trade and other receivables’. Held-to-maturity Held-to-maturity financial assets are non-derivative financial assets with fixed or determinate payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. Held-to-maturity financial assets are measured at amortised cost. 30 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 2. Principal accounting policies (continued) o) Provisions Provisions are recognised when the Group has a present obligation as a result of a past event, where it is probable that it will result in an outflow of economic benefits and can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. Client compensation Complaints are assessed on a case-by-case basis and provisions for compensation are made where it is judged necessary. p) Foreign currency translation The Group’s functional and presentational currency is the Pound Sterling. Foreign currency transactions are translated using the exchange rate prevailing at the transaction date. At the reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the prevailing rates on that date. Foreign exchange gains and losses resulting from settlement of such transactions and from the translation of period-end monetary assets and liabilities are recognised in the consolidated statement of comprehensive income. q) Retirement benefit costs Contributions in respect of the Group’s defined contribution pension scheme are charged to the consolidated statement of comprehensive income as they fall due. r) Taxation Tax on the profit for the year comprises current and deferred tax. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Group’s financial statements. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability settled based on tax rates (and laws) that have been enacted or substantively enacted at the reporting date. Deferred tax assets are only recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. s) Trade receivables Trade receivables are initially recognised and subsequently measured at the original invoice amount less an allowance for any amounts that are expected to be uncollectable. Doubtful debts are provided for when the collection of the full amount is no longer probable, whilst bad debts are immediately written off when identified. t) Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. These are classified as current liabilities if payment is due within 12 months or less (or in the normal operating cycle of the business if longer). Otherwise, they are presented as non-current liabilities in the consolidated statement of financial position. Trade payables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. u) Operating lease payments Rent payments due under operating leases are charged to the consolidated statement of comprehensive income on a straight line basis over the term of the lease. Where leases include lease incentives such as rent-free periods, the benefit of these incentives is recognised over the lease term as a reduction in the rental expense. 31 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 2. Principal accounting policies (continued) v) Financial instruments The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial instruments are recognised in the consolidated statement of financial position at fair value when the Group becomes a party to the contractual provisions of the instrument. w) Carried interest receivable The Group earns a performance fee, carried interest receivable, on some of the funds it manages on behalf of its investors. Carried interest receivable is recognised where, at the reporting date, the performance criteria have been met based on the valuations of the funds. Carried interest that has been earned but is not yet due for payment is discounted to its present value. This is included within current liabilities in the consolidated statement of financial position. x) Employee Benefit Trust (‘EBT’) The Company provides finance to an EBT to purchase the Company’s shares on the open market in order to meet its obligation to provide shares when an employee exercises certain options or awards made under the Group’s share-based payment schemes. The administration and finance costs connected with the EBT are charged to the consolidated statement of comprehensive income. The cost of the shares held by the EBT is deducted from equity. A transfer is made between other reserves and retained earnings over the vesting periods of the related share options or awards to reflect the ultimate proceeds receivable from employees on exercise. The trustees have waived their rights to receive dividends on the shares. The EBT is considered to be a Special Purpose Entity (‘SPE’) where the substance of the relationship between the Group and the SPE indicates that the SPE is controlled by the Group. In substance, the activities of the trust are being conducted on behalf of the Group according to its specific business needs, in order to obtain benefits from its operation. On this basis, the assets held by the trust are consolidated into the Group’s financial statements. y) Share capital Ordinary share capital is classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds. Where the parent company purchases the Company’s equity share capital (treasury shares) the consideration paid, including any directly incremental costs (ie net of income taxes) is deducted from equity attributable to the Company’s equity holders until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received (net of any directly attributable incremental transaction costs and the related income tax effects) is included within equity attributable to the Company’s equity holders. z) Dividend distribution The dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividend is authorised and no longer at the discretion of the Company. Final dividends are recognised when approved by the Company’s shareholders at the Annual General Meeting and interim dividends are recognised when paid. 32 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 3. Segmental information For management purposes the Group’s activities are organised into four operating divisions: investment management, financial planning, fund and property management and the Channel Islands. The Group’s other activity, offering nominee and custody services to clients, is included within investment management. These divisions are the basis on which the Group reports its primary segmental information. In accordance with IFRS 8 ‘Operating Segments’, disclosures are required to reflect the information which the Board uses internally for evaluating the performance of its operating segments and allocating resources to those segments. The information presented in this note follows the presentation for internal reporting to the Group Board of Directors. During the year the Group identified the Channel Islands as being a separate reportable segment. This comprises the results of BMI and BMRSI along with the recently acquired DPZ. Previously, BMI and BMRSI were included within the investment management and financial planning segments respectively. The comparatives for the year ended 30 June 2013 have been restated in accordance with IFRS 8 to reflect this change. Revenues and expenses are allocated to the business segment that originated the transaction. Revenues and expenses that are not directly originated by a particular business segment are reported as unallocated. Sales between segments are carried out at arm’s length. Centrally incurred expenses are allocated to business segments on an appropriate pro-rata basis. Segmental assets and liabilities comprise operating assets and liabilities, those being the majority of the balance sheet. Investment management £’000 48,988 (156) 48,832 12,324 Investment management £’000 49,581 - 49,581 13,106 Financial planning £’000 Fund and property management £’000 4,034 (223) 3,811 (109) Financial planning £’000 3,633 (1,317) 2,316 191 5,061 (127) 4,934 (102) Fund and property management £’000 4,636 - 4,636 (482) Channel Islands £’000 11,556 - 11,556 2,376 Channel Islands £’000 6,626 - 6,626 1,799 Year ended 30 June 2014 Total segment revenues Inter segment revenues External revenues Segment result Unallocated items Profit before tax Taxation Profit for the year Year ended 30 June 2013 (restated) Total segment revenues Inter segment revenues External revenues Segment result Unallocated items Profit before tax Taxation Profit for the year Total £’000 69,639 (506) 69,133 14,489 (3,921) 10,568 (1,512) 9,056 Total £’000 64,476 (1,317) 63,159 14,614 (4,216) 10,398 (2,368) 8,030 33 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 3. Segmental information (continued) a) Geographic analysis The Group’s operations are located in the United Kingdom and the Channel Islands. The following table presents underlying operating income analysed by the geographical location of the Group entity providing the service. United Kingdom Channel Islands Total operating income b) Major clients 2014 £’000 57,577 11,556 69,133 The Group is not reliant on any one client or group of connected clients for the generation of revenues. 4. Revenue Fee income Financial services commission Total revenue 5. Operating profit Operating profit is stated after charging: Staff costs (note 6) Acquisition costs (see below) Auditors’ remuneration (see below) Financial Services Compensation Scheme Levy (see below) Depreciation (note 12) Amortisation (note 11) A more detailed analysis of auditors’ remuneration is provided below: Fees payable to the Company’s auditor for the audit of the consolidated group and parent company financial statements Fees payable to the Company’s auditor and its associates for other services: – audit of the Company’s subsidiaries pursuant to legislation – audit-related assurance services – tax advisory services – other assurance services – other advisory services Total auditors’ remuneration 34 2014 £’000 66,394 2,739 69,133 2014 £’000 33,872 187 220 351 981 2,212 2014 £’000 37 145 29 - - 9 220 2013 £’000 56,533 6,626 63,159 2013 £’000 59,431 3,728 63,159 2013 £’000 26,907 1,047 282 359 863 1,865 2013 £’000 44 150 22 6 60 - 282 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 5. Operating profit (continued) Acquisition costs Administrative costs for the year ended 30 June 2014 include £187,000 (2013: £1,047,000) of directly attributable business acquisition costs: £61,000 in relation to the acquisition of DPZ Capital Limited, £46,000 incurred in the establishment of North Row Capital LLP and £80,000 in respect of the option to purchase Levitas Investment Management Services Limited (2013: £30,000 in respect of the acquisition of JPAM and £1,017,000 in respect of the acquisition of BMI and BMRSI). The Group exercised the option to purchase Levitas in July 2014, as further explained in note 34. Financial Services Compensation Scheme levies Administrative costs for the year ended 30 June 2014 include a charge of £351,000 (2013: £359,000) for the Financial Services Compensation Scheme (‘FSCS’) levy. The Group received no invoices during the year for additional levies on previous scheme years (2013: invoices totalling £119,000 were received) but a provision of £351,000 (2013: £240,000) has been made for the estimated levy by the FSCS for the 2014/15 scheme year (note 22). 6. Employee information a) Staff costs Wages and salaries Social security costs Other pension costs Share-based payments Total staff costs Pension costs relate entirely to a defined contribution scheme. b) Number of employees The average monthly number of employees during the year, including directors, was as follows: Professional staff Administrative staff Total staff c) Key management compensation 2014 £’000 28,867 2,863 1,012 1,130 33,872 2014 169 253 422 2013 £’000 21,920 2,738 625 1,624 26,907 2013 156 207 363 Key management compensation relates to the Group Board of Directors, including both the executive directors and non-executive directors for the years presented. Short-term employee benefits Post-employment benefits Share-based payments Total compensation 2014 £’000 2,242 60 398 2,700 2013 £’000 2,390 79 387 2,856 35 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 6. Employee information (continued) d) Directors’ emoluments Further details of director’s emoluments are included within the Remuneration Committee report on pages 9 to 15. Salaries Non-executive directors’ fees Benefits in kind Pension contributions Amounts receivable under long-term incentive schemes Total directors’ remuneration 2014 £’000 2,075 151 16 2,242 60 240 2,542 2013 £’000 2,238 133 19 2,390 79 278 2,747 The aggregate amount of gains made by directors on the exercise of share options during the year was £458,000 (2013: £301,000). Retirement benefits are accruing to six directors (2013: six) under a defined contribution pension scheme. The remuneration of the highest paid director during the year was as follows: Remuneration and benefits in kind Amounts receivable under long-term incentive schemes Total remuneration 2014 £’000 506 64 570 The amount of gains made by the highest paid director on the exercise of share options during the year was £6,000 (2013: £176,000). 2014 £’000 109 10 119 2014 £’000 349 349 7. Finance income and finance costs Finance income Bank interest on deposits Tax repayment supplement Total finance income Finance costs Finance cost of deferred consideration Total finance costs 36 2013 £’000 517 64 581 2013 £’000 177 2 179 2013 £’000 279 279 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 8. Taxation The tax charge on profit on ordinary activities for the year was as follows: UK Corporation Tax at 22.50% (2013: 23.75%) (Over)/under provision in prior years Total current tax Deferred tax credit Effect of change in tax rate on deferred tax Income tax expense 2014 £’000 2,477 (17) 2,460 (473) (475) 1,512 2013 £’000 2,618 424 3,042 (673) (1) 2,368 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: Profit on ordinary activities before tax Profit on ordinary activities multiplied by the standard rate of tax in the UK of 22.50% (2013: 23.75%) Tax effect of: – lower tax rates in other countries in which the Group operates – disallowable expenses – non-taxable income – tax losses unutilised/(utilised) on which no deferred tax is provided – change in rate of Corporation Tax applicable to deferred tax – (over)/under provision in prior years Tax charge for the year 2014 £’000 10,568 2,378 (618) 77 (1) 168 (475) (17) 1,512 2013 £’000 10,398 2,469 (398) 189 (260) (55) (1) 424 2,368 The deferred tax credits totalling £948,000 (2013: £674,000) represent a credit of £122,000 (2013: £287,000) arising from the share option reserve at the balance sheet date, a credit of £10,000 (2013: £10,000) relating to accelerated capital allowances, a credit of £341,000 (2013: £377,000) arising from the amortisation of acquired client relationship contracts and a credit due to a change in tax rates of £475,000 (2013: £nil). On 1 April 2014, the standard rate of Corporation Tax in the UK was reduced from 23% to 21%. As a result the effective rate of Corporation Tax applied to the taxable profit for the year ended 30 June 2014 is 22.50% (2013: 23.75%). In addition to the change in the rate of UK Corporation Tax disclosed above, the Finance Act 2013 (substantively enacted on 2 July 2013) will further reduce the main rate of UK Corporation Tax to 20% with effect from 1 April 2015. Deferred tax assets and liabilities are calculated at the rate that is expected to be in force when the temporary differences unwind, but limited to the extent that such rates have been substantively enacted. Consequently the tax rate used to determine the deferred tax assets and liabilities is 20% (2013: 23%). The tax charge relating to components of other comprehensive income is as follows: Revaluation of available for sale financial assets Tax credit on revaluation of available for sale financial assets Total other comprehensive income 2014 £’000 (150) 19 (131) 2013 £’000 (12) 3 (9) 37 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 9. Business combinations On 11 April 2014, the Group acquired the entire share capital of DPZ Capital Limited (‘DPZ’). DPZ is a well established wealth management business based in Jersey. It manages a range of distinct investment strategies founded on its core competencies: asset allocation; manager selection; fixed interest and credit investing; and equity selection. On acquisition, DPZ had funds under management of approximately £430m, £360m of which was managed on a discretionary basis, £60m on an advisory basis and £10m on an execution only basis. In the financial year ended 30 June 2013, the Group acquired the entire share capital of JPAM Limited, Brooks Macdonald Asset Management (International) Limited (formerly Spearpoint Limited) and Brooks Macdonald Retirement Services (International) Limited (formerly Spearpoint Retirement Services Limited). Details of these acquisitions are disclosed in note 9 of the 2013 Annual Report. The total consideration for the acquisition of DPZ was £11,678,000, comprising of: cash of £4,155,000; the issue of 158,032 shares in Brooks Macdonald Group plc with a value of £2,697,000; and a contingent balance of £4,826,000 payable in two instalments in October 2014 and May 2016 and based on the future value of the discretionary funds under management acquired. The fair value of the liability is currently the maximum consideration that could be paid under the terms of the acquisition, assuming that there is no reduction in the level of discretionary client funds retained. Directly attributable acquisition costs of £61,000 were incurred as a result of the acquisition and have been charged to the consolidated statement of comprehensive income. Goodwill of £4,035,000 was recognised on acquisition in respect of expected synergies from combining the operations of DPZ with the Group’s existing offshore operations, as well as intangible assets that do not qualify for separate recognition and the experience of the investment management staff employed by DPZ. The fair values of the assets acquired are the gross contractual amounts and all are considered to be fully recoverable. The fair value of the identifiable assets and liabilities acquired, at the date of acquisition, are detailed in (a) below. a) Net assets acquired through business combinations Property, plant and equipment Trade and other receivables Cash and cash equivalents Other current assets Trade and other payables Other current liabilities Total net assets recognised by acquired company Fair value adjustments: – client relationship contracts – deferred tax liability on client relationship contracts Net identifiable assets Goodwill Total purchase consideration 38 £’000 7,875 (1,575) £’000 189 569 815 179 (138) (271) 1,343 6,300 7,643 4,035 11,678 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 9. Business combinations (continued) b) Impact on reported results from date of acquisition DPZ Capital Limited Revenues from external customers £’000 727 Profit for the year £’000 161 Had DPZ Capital Limited been consolidated from 1 July 2013, the consolidated statement of comprehensive income would show Group pro-forma revenue of £71,658,000 and post-tax profit for the year of £9,193,000. c) Net cash outflow resulting from business combinations Total purchase consideration (note 9a) Less: – shares issued as consideration – deferred cash consideration Cash paid to acquire subsidiaries Less: cash held by subsidiaries acquired Cash paid to acquire subsidiary net of cash acquired 10. Dividends Amounts recognised as distributions to equity holders of the Company in the year were as follows: Final dividend paid for the year ended 30 June 2013 of 16.0p (2012: 12.5p) per share Interim dividend paid for the year ended 30 June 2014 of 7.0p (2013: 6.5p) per share Total dividends 2014 £’000 2,102 918 3,020 Final dividend proposed for the year ended 30 June 2014 of 19.0p (2013: 16.0p) per share 2,535 The interim dividend of 7.0p (2013: 6.5p) per share was paid on 17 April 2014. £’000 11,678 (2,697) (4,826) 4,155 (815) 3,340 2013 £’000 1,348 836 2,184 2,102 A final dividend for the year ended 30 June 2014 of 19.0p (2013: 16.0p) per share was declared by the Board of Directors on 16 September 2014 and is subject to approval by the shareholders at the Company’s Annual General Meeting. It will be paid on 28 October 2014 to shareholders who are on the register at the close of business on 26 September 2014. In accordance with IAS 10 ‘Events After the Reporting Period’, this dividend has not been included as a liability in these financial statements. 39 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 11. Intangible assets Cost At 1 July 2012 Additions Disposals At 30 June 2013 Additions Additions on acquisition of subsidiaries at fair value At 30 June 2014 Accumulated amortisation At 1 July 2012 Amortisation charge At 30 June 2013 Amortisation charge At 30 June 2014 Net book value At 1 July 2012 At 30 June 2013 At 30 June 2014 a) Goodwill Goodwill £’000 Computer software £’000 Acquired client relationship contracts £’000 Contracts acquired with fund managers £’000 3,550 17,208 - 20,758 - 4,035 24,793 - - - - - 3,550 20,758 24,793 90 243 - 333 78 - 411 46 113 159 110 269 44 174 142 6,867 18,037 (32) 24,872 - 7,875 32,747 536 1,477 2,013 1,758 3,771 6,331 22,859 28,976 1,973 601 - 2,574 474 - 3,048 1,466 275 1,741 344 2,085 507 833 963 Total £’000 12,480 36,089 (32) 48,537 552 11,910 60,999 2,048 1,865 3,913 2,212 6,125 10,432 44,624 54,874 Goodwill acquired in a business combination is allocated at acquisition to the cash generating units (‘CGUs’) that are expected to benefit from that business combination. The carrying amount of goodwill at 30 June 2014 comprises £3,550,000 in respect of the Braemar Group Limited (‘Braemar’) CGU, £17,208,000 in respect of the Brooks Macdonald Asset Management (International) Limited and Brooks Macdonald Retirement Services (International) Limited (collectively ‘Brooks Macdonald International’) CGU and £4,035,000 in respect of the DPZ Capital Limited (‘DPZ’) CGU. Goodwill is reviewed annually for impairment and its recoverability has been assessed at 30 June 2014 by comparing the carrying amount of the CGUs to their expected recoverable amount, estimated on a value-in-use basis. The value-in-use of each CGU has been calculated using pre-tax discounted cash flow projections based on the most recent budgets approved by the Board, covering a period of up to five years. Cash flows are then extrapolated beyond the forecast period using an expected long-term growth rate. 40 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 11. Intangible assets (continued) a) Goodwill (continued) Based on the value-in-use calculation, at 30 June 2014 the calculated recoverable amount of the Brooks Macdonald International CGU was £26,520,000, indicating that there is no impairment. The key underlying assumptions of the calculation are the discount rate, the short-term growth in earnings and the long-term growth rate of the business. A pre-tax discount rate of 10% has been used, based on the Group’s assessment of the risk-free rate of interest and specific risks relating to Brooks Macdonald International. Annual earnings growth rates of 7% and 5% respectively are forecast in the next two financial years, the period covered by the most recent forecasts, which reflect historic actual growth and are considered to be achievable given current market and industry trends. The 2% long-term growth rate applied is considered prudent in the context of the long-term average growth rate for the funds, investment management and financial planning industries in which the CGU operates. The key assumptions inherent in the value-in-use calculations for the Braemar and DPZ CGUs were similarly a pre-tax discount rate of 10%, annual revenue growth rates ranging from 10% to 27% and a long-term growth rate of up to 2%. Significant headroom exists in the calculations of the respective recoverable amounts of these CGUs over the carrying amounts of the goodwill allocated to them. On this basis, the directors have concluded that there is no impairment. The directors consider that no reasonably foreseeable change in any of the key assumptions would result in an impairment of goodwill, given the margin by which the estimated recoverable amounts of the CGUs exceed the carrying amounts of the goodwill allocated to each. b) Computer software Software costs are amortised over an estimated useful life of four years on a straight line basis. c) Acquired client relationship contracts This asset represents the fair value of future benefits accruing to the Group from acquired client relationship contracts. The amortisation of client relationships is charged to the consolidated statement of comprehensive income on a straight line basis over their estimated useful lives (15 to 20 years). During the year ended 30 June 2014, the Group acquired client relationship contracts totalling £7,875,000 (2013: £18,037,000), as part of business combinations (note 9), which were recognised as separately identifiable intangible assets in the consolidated statement of financial position. These related to the acquisition of DPZ. 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. 41 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 12. Property, plant and equipment Cost At 1 July 2012 Additions Additions on acquisition of subsidiaries At 30 June 2013 Additions Additions on acquisition of subsidiaries At 30 June 2014 Accumulated depreciation At 1 July 2012 Depreciation charge At 30 June 2013 Depreciation charge At 30 June 2014 Net book value At 1 July 2012 At 30 June 2013 At 30 June 2014 13. Available for sale financial assets Motor vehicles £’000 Fixtures and fittings £’000 Equipment and leasehold improvements £’000 - 35 - 35 - - 35 - 4 4 9 13 - 31 22 1,417 151 54 1,622 276 189 2,087 434 234 668 291 959 983 954 1,128 4,071 677 - 4,748 1,066 - 5,814 2,687 625 3,312 681 3,993 1,384 1,436 1,821 Total £’000 5,488 863 54 6,405 1,342 189 7,936 3,121 863 3,984 981 4,965 2,367 2,421 2,971 The Group holds an investment of 1,426,793.64 B shares in Braemar Group PCC Limited Student Accommodation Cell. The fund is promoted by Brooks Macdonald Funds Limited, a subsidiary of the Group. Although trading is currently suspended on this fund, the fund manager continues to publish a price based on the fair value of the underlying assets of the fund. At 30 June 2014, based on the most recent valuation, the fair value of the investment was £1,432,000 (2013: £1,582,000). The loss of £150,000 (2013: loss of £12,000) has been recognised in other comprehensive income in the consolidated statement of comprehensive income. During the year the Group made an investment of £750,000 in Sancus Holdings Limited (‘Sancus’), an unlisted company incorporated in the Channel Islands. Sancus is a Peer-to-Peer (‘P2P’) secured lender, concentrating on traditional P2P transactions and focused on working with entrepreneurs and businesses. The business helps clients to lend or borrow directly, to or from fellow entrepreneurs and professionals, to assist the real economy. In the opinion of the directors, the market value of the investment at 30 June 2014 remains £750,000 based on the most recent transaction price. During the year ended 30 June 2013, a £50,000 investment in UK Farming plc was de-recognised as the entity is now considered to be controlled by the Group and its assets and liabilities have been consolidated accordingly. The Group disposed of no investments in the current year (2013: £nil). 42 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 13. Available for sale financial assets (continued) At beginning of year Additions Disposals De-recognised on consolidation of former investment Loss from changes in fair value At end of year 2014 £’000 1,582 750 - - (150) 2,182 2013 £’000 1,657 - (13) (50) (12) 1,582 The table below provides an analysis of the financial instruments that, subsequent to initial recognition, are measured at fair value. These are grouped into the following levels within the fair value hierarchy, based on the degree to which the inputs used to determine the fair value are observable: • • • level 1 – derived from quoted prices in active markets for identical assets or liabilities at the measurement date; level 2 – derived from inputs other than quoted prices included within level 1 that are observable, either directly or indirectly; and level 3 – derived from inputs that are not based on observable market data Braemar Group PCC Limited Student Accommodation Cell Sancus Holdings Limited Total There has been no movement between any of the levels during the year. 14. Investment in joint venture Level 1 £’000 - - - Level 2 £’000 1,432 - 1,432 Level 3 £’000 - 750 750 Total £’000 1,432 750 2,182 During the year Brooks Macdonald Funds Limited, a subsidiary of the Group, entered into a new partnership, North Row Capital LLP, in which it holds a 60% interest and has joint control. The balance is owned by two individual partners who developed the investment approach behind the IFSL North Row Liquid Property Fund, which was launched in February 2014. The fund offers investors liquid exposure to global real estate markets by investing predominantly in property derivatives, as well as property equity and debt, to gain exposure to the direct property markets. The establishment of the partnership and the fund required an initial investment of approximately £135,000 by Brooks Macdonald Funds and additional working capital of £225,000 in the year ended 30 June 2014. The Group’s share of the loss for the year reported by North Row Capital LLP was £128,000, which has been recognised in the consolidated statement of comprehensive income with a corresponding reduction in the investment in joint venture recognised in the consolidated statement of financial position. 43 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 15. Deferred income tax Deferred income tax assets are only recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. An analysis of the Group’s deferred assets and deferred tax liabilities is shown below. Deferred tax assets Deferred tax assets to be settled after more than 12 months Deferred tax assets to be settled within 12 months Total deferred tax assets Deferred tax liabilities Deferred tax liabilities to be settled after more than 12 months Deferred tax liabilities to be settled within 12 months Total deferred tax liabilities The gross movement on the deferred income tax account during the year was as follows: At 1 July Credit to the statement of comprehensive income (note 8) Credit recognised in other comprehensive income Charge recognised in equity Additions on acquisition of subsidiaries At 30 June The change in deferred income tax assets and liabilities during the year was as follows: Deferred tax assets At 1 July 2012 Charge to the statement of comprehensive income Charge to equity At 30 June 2013 Credit to the statement of comprehensive income Charge to equity At 30 June 2014 2014 £’000 204 605 809 (5,115) (2) (5,117) 2014 £’000 (3,640) 948 19 (60) (1,575) (4,308) 2013 £’000 234 624 858 (4,468) (30) (4,498) 2013 £’000 (25) 674 3 (97) (4,195) (3,640) Share-based payments £’000 668 287 (97) 858 11 (60) 809 The carrying amount of the deferred tax asset is reviewed at each reporting date and is only recognised to the extent that it is probable that future taxable profits of the Group will allow the asset to be recovered. 44 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 15. Deferred income tax (continued) Deferred tax liabilities At 1 July 2012 Additions on acquisition of subsidiaries Credit to the statement of comprehensive income Charge to other comprehensive income At 30 June 2013 Additions on acquisition of subsidiaries Credit to the statement of comprehensive income Charge to other comprehensive income At 30 June 2014 16. Trade and other receivables Trade receivables Other receivables Prepayments and accrued income Total trade and other receivables Accelerated capital allowances £’000 Available for sale financial assets £’000 Intangible asset amortisation £’000 22 - (10) - 12 - (10) - 2 649 4,195 (377) - 4,467 1,575 (927) - 5,115 22 - - (3) 19 - - (19) - 2014 £’000 9,653 1,299 10,480 21,432 Total £’000 693 4,195 (387) (3) 4,498 1,575 (937) (19) 5,117 2013 £’000 5,158 766 11,849 17,773 17. Financial assets at fair value through profit or loss During the year the Group acquired equity shareholding investments. The cost of these investments was £478,000 and their market value at 30 June 2014 was £478,000. These investments are classified as level 1 as defined in note 13. 18. Cash and cash equivalents Cash at bank Cash held in employee benefit trust Total cash and cash equivalents 2014 £’000 17,994 62 18,056 2013 £’000 18,420 20 18,440 Cash and cash equivalents are distributed across a range of financial institutions with high credit ratings in accordance with the Group’s treasury policy. Cash at bank comprises current accounts and immediately accessible deposit accounts. 45 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 19. Deferred consideration Deferred consideration, which is also included within provisions in current liabilities to the extent that it is due to be paid within one year of the reporting date (note 22), relates to the directors’ best estimate of amounts payable in the future in respect of certain client relationships and subsidiary undertakings that were acquired by the Group. Deferred consideration is measured at its fair value based on the discounted expected future cash flows. The movements in the deferred consideration balance during the year were as follows: At 1 July Added on acquisitions during the year Interest accrued Payments made during the year At 30 June Analysed as: Amounts falling due within one year Amounts falling due after more than one year Total deferred consideration 2014 £’000 7,927 4,826 349 (1,866) 11,236 8,293 2,943 11,236 2013 £’000 2,309 8,976 279 (3,637) 7,927 2,123 5,804 7,927 Deferred consideration of £4,826,000 (2013: £8,976,000) was recognised during the year (note 9), relating to the acquisition of DPZ Capital Limited. Payments of £1,866,000 (2013: £3,637,000) were made during the year, representing £981,000 to the vendors of JPAM and £885,000 to Clarke Willmott LLP. Amounts falling due after more than one year from the reporting date are presented in non-current liabilities as shown below: At 1 July Added on acquisitions during the year Interest accrued Transfer to current liabilities At 30 June 2014 £’000 5,804 2,435 26 (5,322) 2,943 2013 £’000 959 5,597 207 (959) 5,804 The amount payable in respect of acquisitions during the year of £2,435,000 (2013: £5,597,000) is the deferred consideration relating to the acquisition of DPZ Capital Limited (note 9). An amount of £5,322,000 (2013: £959,000), representing the deferred consideration of £4,482,000 payable in respect of the acquired client relationships of BMI and BMRSI and £840,000 relating to the acquisition of JPAM Limited, was transferred to provisions within current liabilities. A range of final outcomes for the expected total deferred consideration payable cannot be estimated as the future value of the funds under management is dependent on several unpredictable variables, including client retention and market movements. 46 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 20. Other non-current liabilities Other non-current liabilities relate to employer’s National Insurance contributions arising from share option awards under the LTIS scheme. An additional liability of £82,000 (2013: £90,000) was recognised during the year in respect of existing awards, granted in previous years, which are expected to vest in the future. During the year, an amount of £92,000 (2013: £383,000) was transferred to current liabilities, reflecting awards that will vest within the next 12 months. 21. Trade and other payables Trade payables Other taxes and social security Other payables Accruals and deferred income Total trade and other payables 2014 £’000 2,134 1,712 1,319 10,013 15,178 2013 £’000 2,631 1,394 2,621 7,133 13,779 Included within accruals and deferred income is an accrual of £310,000 (2013: £837,000) in respect of the Phantom Share Option Schemes granted in October 2008 and October 2009 and employer’s National Insurance contributions arising from share option awards under the LTIS (note 26b). The schemes are cash settled and payments are made to participants in respect of their awards by the Group’s subsidiary undertakings. The options are awarded at no cost to the participants. The amount that is ultimately payable to participants of the scheme is equal to the increase in market value of the Company’s ordinary shares over a three year vesting period. The award will vest after three years to the extent that the performance conditions are satisfied and will be forfeited in total if performance fails to meet the minimum criteria. The options have been valued using a Black Scholes model based on the market price of the Company’s shares at the grant date (note 26). The total charge to the consolidated statement of comprehensive income for the year for all Phantom Share Option Schemes and employer’s National Insurance contributions arising from share option awards under the LTIS (note 26b) was £150,000 (2013: £423,000). The number of Phantom Share Options outstanding at 30 June 2014 was as follows: At 1 July Forfeited in the year Exercised in the year At 30 June Number of options 37,103 - (37,103) - 2014 Weighted average base price (£) 9.415 - 9.415 - Number of options 133,103 (45,000) (51,000) 37,103 2013 Weighted average base price (£) 6.875 7.750 4.255 9.415 47 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 22. Provisions At 1 July 2012 Charge to the statement of comprehensive income Added on acquisitions during the year Interest accrued Transfer from non-current liabilities Utilised during the year At 30 June 2013 Charge to the statement of comprehensive income Added on acquisitions during the year Interest accrued Transfer from non-current liabilities Utilised during the year At 30 June 2014 a) Client compensation Client compensation £’000 Deferred consideration £’000 339 246 - - - (165) 420 233 - - - (150) 503 1,350 - 3,379 72 959 (3,637) 2,123 - 2,367 321 5,348 (1,866) 8,293 FSCS levy £’000 - 240 - - - - 240 351 - - - (240) 351 Total £’000 1,689 486 3,379 72 959 (3,802) 2,783 584 2,367 321 5,348 (2,256) 9,147 Client compensation provisions relate to the potential liability arising from client complaints against the Group. Complaints are assessed on a case by case basis and provisions for compensation are made where judged necessary. b) Deferred consideration Deferred consideration has been included within provisions as a current liability to the extent that it is due to be paid within one year of the reporting date. Deferred consideration payable within one year of £2,367,000 (2013: £3,379,000) was recognised during the year. An amount of £5,348,000 (2013: £959,000) was transferred from non-current liabilities, representing a payment to the vendor of JPAM Limited and the final tranche of deferred consideration paid to Clarke Willmott LLP in November 2013 in respect of client relationships acquired in October 2011. Provisions of £1,866,000 (2013: £3,637,000) were utilised during the year on payment of £981,000 to the vendors of JPAM and £885,000 to Clarke Willmott LLP. c) FSCS levy Following confirmation by the FSCS in April 2014 of its proposed 2014/15 annual industry levy, the Group has made a provision of £351,000 (2013: £240,000) for its estimated share. 48 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 23. Reconciliation of operating profit to net cash inflow from operating activities Operating profit Adjustments for: Depreciation of property, plant and equipment Amortisation of intangible assets (Increase)/decrease in receivables Increase/(decrease) in payables Increase in provisions Decrease in non-current liabilities Share-based payments Net cash inflow from operating activities 2014 £’000 10,926 981 2,212 (2,910) 990 194 (10) 1,288 13,671 2013 (restated)* £’000 10,498 863 1,865 91 (1,301) 321 (293) 1,111 13,155 *Comparative amounts have been restated to show deferred consideration paid within cash flows from investing activities In the year ended 30 June 2014, the Group obtained control of DPZ. The net cash outflow resulting from this business combination is presented in note 9(c). 24. Share capital and share premium account The movements in share capital and share premium during the year were as follows: At 1 July 2012 Shares issued: – on placing – on exercise of options – to Sharesave Scheme At 30 June 2013 Shares issued: – as consideration – on exercise of options – to Sharesave Scheme At 30 June 2014 Number of shares 10,927,496 Exercise price p 2,288,193 1,150.0 - 1,301.9 73,100 59,185 13,347,974 158,032 29,500 56,669 13,592,175 140.0 - 290.5 240.0 - 578.0 1,706.4 215.0 - 290.5 578.0 - 916.0 Share capital £’000 109 23 1 - 133 2 - - 135 Share premium account £’000 4,423 26,927 327 191 31,868 2,696 72 511 35,147 Total £’000 4,532 26,950 328 191 32,001 2,698 72 511 35,282 The total number of ordinary shares, issued and fully paid at 30 June 2014 was 13,592,175 (2013: 13,347,974) with a par value of 1p per share. On 12 April 2014, the Company issued 158,032 ordinary shares with a market value of £2,696,658 as part consideration for the acquisition of DPZ by Brooks Macdonald Asset Management (International) Limited. Shares issued on exercise of options and to Sharesave Scheme members are shown as a having a £nil impact on share capital in the year ended 30 June 2014 due to rounding (2013: £1,000 and £nil respectively). 49 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 24. Share capital and share premium account (continued) Employee Benefit Trust The Group established an Employee Benefit Trust (‘EBT’) on 3 December 2010 to acquire ordinary shares in the Company to satisfy awards under the Group’s Long Term Incentive Scheme (‘LTIS’) and other share-based payment schemes (note 26). At 30 June 2014, the EBT held 249,696 (2013: 212,172) 1p ordinary shares in the Company, acquired for a total consideration of £3,168,000 (2013: £2,544,000) with a market value of £3,906,000 (2013: £3,045,000). They are classified as treasury shares in the consolidated financial statements and their cost has been deducted from retained earnings within shareholders’ equity. 25. Other reserves and retained earnings Other reserves are comprised of the following balances: Share option reserve Merger reserve Available for sale reserve Total other reserves The movements in other reserves during the year were as follows: Share option reserve At beginning of the year Share-based payments Transfer to retained earnings Tax on share-based payments At end of the year Merger reserve At beginning of the year At end of the year Available for sale reserve At beginning of the year Revaluation of available for sale financial assets At end of the year The movements in retained earnings during the year were as follows: At beginning of the year Profit for the financial year Purchase of own shares by Employee Benefit Trust Transfer from share option reserve Dividends paid At end of the year 50 2014 £’000 4,596 192 (68) 4,720 2014 £’000 3,697 1,288 (545) 156 4,596 192 192 63 (131) (68) 2014 £’000 21,607 9,056 (732) 545 (3,020) 27,456 2013 £’000 3,697 192 63 3,952 2013 £’000 2,724 1,111 (350) 212 3,697 192 192 72 (9) 63 2013 £’000 16,190 8,030 (779) 350 (2,184) 21,607 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 26. Equity settled share-based payments All share options granted to employees under the Group’s equity settled share-based payment schemes are valued using a Black Scholes model, based on the market price of the Company’s shares at the grant date and volatility ranging from 15% to 50% on an historic price, 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 of ten years, ranging from 0.34% to 2.00%. For options granted during the year, the Black Scholes model was based on the market price of the Company’s shares at each respective grant date and volatility of 50% with no dividend yield, an expected vesting period of three years and a risk-free annual rate of interest of 0.34%. The share options issued under the various equity settled share-based payment schemes have been valued at prices ranging from £nil to £14.64 per share. The charge to the consolidated statement of comprehensive income for the year in respect of these was £1,288,000 (2013: £1,111,000). The weighted average remaining contractual life of all equity settled share-based payment schemes at 30 June 2014 was 2.08 years (2013: 2.61 years). The weighted average share price of all options exercised during the year was £15.79 (2013: £13.75). The total charge to the consolidated statement of comprehensive income for the year for all share-based payment schemes was £1,130,000 (2013: £1,624,000). The exercise price and fair value of share options granted during the year was as follows: Long Term Incentive Scheme Employee Sharesave Scheme No options were granted under the EMI Scheme during the year. a) Enterprise Management Incentive Scheme (‘EMI’) Exercise price p nil 1,386 Fair value p 1,464 428 Under the approved EMI Scheme, certain employees hold options to subscribe for shares in the Company at prices ranging from 140p to 775p. Options are conditional on the employee completing three years’ service (the vesting period) and are exercisable three years from the grant date. The options have a contractual option term of seven years from the date they become exercisable. The Group has no legal or constructive obligation to repurchase or settle the options in cash. At 1 July Forfeited in the year Exercised in the year At 30 June Number of options 98,753 - (29,500) 69,253 2014 Weighted average exercise price £ 2.77 - 2.47 2.90 Number of options 182,657 (10,804) (73,100 98,753 2013 Weighted average exercise price £ 3.00 7.75 2.61 2.77 The number of share options outstanding at the reporting date was as follows: Scheme year (grant date) Exercise price (p) Vesting period 2014 Number of options 2013 Number of options 2005 2006 2007 2010 All years 155.5 215.0 290.5 775.0 2008 - 2015 2009 - 2016 2010 - 2017 2013 - 2020 25,000 6,500 29,650 8,103 69,253 25,000 23,500 42,150 8,103 98,753 51 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 26. Equity settled share-based payments (continued) b) Long Term Incentive Scheme (‘LTIS’) The Company has made annual awards under the LTIS to executive directors and other senior executives. 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. All such conditional awards are made at the discretion of the Remuneration Committee. At 1 July Granted in the year Exercised in the year Forfeited in the year At 30 June 2014 Number of options 2013 Number of options 205,613 45,068 (11,376) (5,809) 233,496 128,343 78,954 - (1,684) 205,613 The number of share options outstanding at the reporting date was as follows: Scheme year (grant date) Exercise price (p) Vesting period 2014 Number of options 2013 Number of options 2010 2011 2012 2013 All years c) Employee Benefit Trust (EBT) nil nil nil nil 2013 2014 2015 2016 22,962 91,554 74,937 44,043 233,496 33,848 92,811 78,954 - 205,613 Brooks Macdonald Group plc established an Employee Benefit Trust (‘the Trust’) on 3 December 2010. The Trust was established to acquire ordinary shares in the Company to satisfy rights to purchase shares on the exercise of options awarded under the LTIS. All finance costs and administration expenses connected with the Trust are charged to consolidated statement of comprehensive income as they accrue. The Trust has waived its rights to dividends. The following table shows the number of shares held by the Trust that have not yet vested unconditionally. 2014 Number of shares 2013 Number of shares 212,172 48,900 (11,376) 249,696 151,139 61,033 - 212,172 At 1 July Acquired in the year Exercised in the year At 30 June 52 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 26. Equity settled share-based payments (continued) d) Company Share Option Plan (‘CSOP’) The Company has established a Company Share Option Plan (‘CSOP’), 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 £30,000 per recipient. The performance conditions attached to the scheme require an increase in the diluted earnings per share of the Company of 2% more than the increase in the RPI over the three years starting with the financial year in which the option is granted. The number of share options outstanding at the reporting date was as follows: At 1 July Granted in the year Lapsed in the year At 30 June e) Employee Sharesave Scheme Number of options - 21,361 (345) 21,016 2014 Weighted average exercise price £ Number of options 2013 Weighted average exercise price £ - 14.52 14.52 14.52 - - - - - - - - Under the scheme, employees can contribute up to £500 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. At 1 July Granted in the year Forfeited in the year Exercised in the year At 30 June Number of options 147,323 149,083 (8,265) (56,669) 231,472 2014 Weighted average exercise price £ 10.23 13.86 10.52 9.04 12.85 Number of options 180,566 39,489 (13,547) (59,185) 147,323 2013 Weighted average exercise price £ 8.33 11.72 9.54 5.54 10.23 The number of share options outstanding at 30 June 2014 was as follows: Scheme year (grant date) Exercise price (p) Vesting period 2014 Number of options 2013 Number of options 2010 2011 2012 2013 2014 All years 578.0 916.0 1,054.0 1,172.0 1,386.0 2013 2014 2015 2016 2017 - 1,654 44,512 36,612 148,694 231,472 2,040 58,536 48,332 38,415 - 147,323 53 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 27. Earnings per share The directors believe that adjusted earnings per share provide a truer reflection of the Group’s underlying performance in the year. Adjusted earnings per share are calculated based on ‘adjusted earnings’, that is earnings before acquisition costs, finance costs of deferred consideration and amortisation of intangible non-current assets. The tax effect of these adjustments has also been considered. Earnings attributable to ordinary shareholders Acquisition costs (note 5) Finance cost of deferred consideration (note 7) Amortisation (note 11) Tax impact of adjustments Adjusted earnings attributable to ordinary shareholders The weighted average number of shares in issue during the year was as follows: Weighted average number of shares in issue* Adjustment for issue of shares on acquisition of DPZ Weighted average number of shares in issue† Effect of dilutive potential shares issuable on exercise of employee share options Diluted weighted average number of shares in issue† *2013 comparative as previously reported †2013 comparative as restated 2014 £’000 9,056 187 349 2,212 (486) 11,318 2013 £’000 8,030 1,047 279 1,865 (502) 10,719 2014 Number of shares 2013 Number of shares 13,145,314 (21,680) 13,123,634 64,289 13,187,923 12,210,418 (20,834) 12,189,584 111,793 12,301,377 The comparative weighted average number of shares in issue and therefore the comparatives for basic earnings per share and diluted earnings per share have been restated to take account of shares issued at a premium to their market value as part of the DPZ acquisition. 2014 p 69.01 68.67 86.24 85.82 2013 p 65.88 65.28 87.94 87.14 Based on reported earnings†: Basic earnings per share Diluted earnings per share Based on adjusted earnings†: Basic earnings per share Diluted earnings per share †2013 comparative as restated 54 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 28. Lease commitments The Group leases various office premises under non-cancellable operating lease arrangements. The future aggregate minimum lease payments under these leases are as follows: Within one year Second to fifth years inclusive After five years 29. Discretionary funds under management 2014 £’000 1,373 1,882 46 2013 £’000 1,162 2,240 38 The Group holds client money and assets on behalf of clients in accordance with the client money rules of the Financial Conduct Authority. Such money and the corresponding liabilities to clients are not shown in the consolidated statement of financial position as the Group is not beneficially entitled thereto. The total market value of client money and assets held is shown below: Client money bank accounts Client assets under management Total client funds under management 2014 £’000 573,204 5,976,796 6,550,000 2013 £’000 595,365 4,514,635 5,110,000 55 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 30. Financial risk management The Group has identified the financial risks arising from its activities and has established policies and procedures as part of a formal structure for managing risk, including establishing risk lines, reporting lines, mandates and other control procedures. The structure is reviewed regularly. The Group does not use derivative financial instruments for risk management purposes. a) Liquidity risk Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its financial liabilities when they fall due. The primary objective of the Group’s treasury policy is to manage short-term liquidity requirements and to ensure that the Group maintains a surplus of immediately realisable assets over its liabilities, such that all known and potential cash obligations can be met. The table below shows the cash inflows and outflows from the Group under non-derivative financial assets and liabilities, together with cash and bank balances available on demand. On demand £’000 Not more than 3 months £’000 After 3 months but not more than 1 year £’000 After 1 year but not more than 5 years £’000 Financial assets with no fixed repayment date £’000 At 30 June 2014 Cash flows from financial assets Available for sale financial assets Financial assets at fair value through profit or loss Cash and balances at bank Trade receivables Other receivables Cash flows from financial liabilities Trade payables Other financial liabilities - - 18,056 - - 18,056 - - - - - - 9,653 - 9,653 2,134 12,588 14,722 - - - - 132 132 - 7,891 7,891 - - - - - - - 3,058 3,058 Total £’000 2,182 478 18,056 9,653 132 2,182 478 - - - 2,660 30,501 - - - 2,134 23,537 25,671 Net liquidity gap 18,056 (5,069) (7,759) (3,058) 2,660 4,830 At 30 June 2013 Cash flows from financial assets Available for sale financial assets Cash and balances at bank Trade receivables Other receivables Cash flows from financial liabilities Trade payables Other financial liabilities - 18,440 - - 18,440 - - - - - 5,158 - 5,158 2,631 10,609 13,240 - - - 107 107 - 1,928 1,928 - - - - - - 5,929 5,929 1,582 - - - 1,582 18,440 5,158 107 1,582 25,287 - - - 2,631 18,466 21,097 Net liquidity gap 18,440 (8,082) (1,821) (5,929) 1,582 4,190 56 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 30. Financial risk management (continued) b) Market risk Interest rate risk The Group may elect to invest surplus cash balances in short-term cash deposits with maturity dates not exceeding three months. Consequently, the Group has a limited exposure to interest rate risk due to fluctuations in the prevailing level of market interest rates. A 1% fall in the average monthly interest rate receivable on the Group’s cash and cash equivalents would have the impact of reducing interest receivable and therefore profit before taxation by £180,000 (2013: £184,000). An increase of 1% would have an equal and opposite effect. Foreign exchange risk The Group does not have any material exposure to transactional foreign currency risk and therefore no analysis of foreign exchange risk is provided. Price risk Price risk is the risk that the fair value of the future cash flows from financial instruments will fluctuate due to changes in market prices (other than those arising from interest rate risk or currency risk). The Group is exposed to price risk through its holdings of equity securities and other financial assets, which are measured at fair value in the consolidated statement of financial position (notes 13 and 17). A 1% fall in the value of these financial instruments would have the impact of reducing other comprehensive income by £22,000 (2013: £12,000) and profit before tax by £5,000 (2013: £nil). An increase of 1% would have an equal and opposite effect. c) Credit risk The Group may elect to invest surplus cash balances in highly liquid money market instruments with maturity dates not exceeding three months. The difference between the fair value and the net book value of these instruments is not material. To reduce the risk of a counterparty default, the Group deposits the rest of its funds in approved, high quality banks. At 30 June 2014 there was no significant concentration of credit risk in any particular counterparty (2013: none). Assets exposed to credit risk recognised on the consolidated statement of financial position total £18,056,000 (2013: £18,440,000), being the Group’s total cash and cash equivalents. Trade receivables with a carrying amount of £9,653,000 (2013: £5,158,000) are neither past due nor impaired. Trade receivables have no external credit rating as they relate to individual clients, although the value of investments held in each individual client’s portfolio is always in excess of the total value of the receivable. All trade receivables fall due within three months (2013: all). 57 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 31. Capital management Capital is defined as the total of share capital, share premium, retained earnings and other reserves of the Company. Total capital at 30 June 2014 was £67,458,000 (2013: £57,560,000). Regulatory capital is derived from the Group Internal Capital Adequacy Assessment Process (ICAAP), which is a requirement of the Capital Requirements Directive. The ICAAP draws on the Group’s risk management process which is embedded within the individual businesses, function heads and executive committees within the Group. The Group’s objectives when managing capital are to comply with the capital requirements set by the Financial Conduct Authority, to safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders and to maintain a strong capital base to support the development of the business. Capital adequacy and the use of regulatory capital are monitored daily by the Group’s management. The Group’s 2014 ICAAP was approved in August 2014. There have been no capital requirement breaches during the year. Brooks Macdonald Group plc’s Pillar III disclosure is presented on our website at www.brooksmacdonald.com. 32. Guarantees and contingent liabilities The Company has an agreement with the Royal Bank of Scotland plc to guarantee settlement for trading with CREST stock on behalf of clients. The Group holds client assets to fund such trading activity. Additional levies by the Financial Services Compensation Scheme may give rise to further obligations based on the Group’s income in the current or previous years. Nevertheless, the ultimate cost to the Group of these levies remains uncertain and is dependent upon future claims resulting from institutional failures. 33. Related party transactions Certain directors have taken advantage of the Group’s interest-free season ticket loan facility which is available to all employees. The directors who have such loans are as follows: Director N I Holmes S J Jackson Loan balance 2014 £’000 Loan balance 2013 £’000 Maximum amount 2014 £’000 Maximum amount 2013 £’000 - 5 1 5 - 10 2 10 Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. The Company’s individual financial statements include the amounts attributable to subsidiaries. These amounts have been disclosed in aggregate in the relevant company financial statements and in detail in the following table: Amounts owed by related parties 2014 £’000 Amounts owed by related parties 2013 £’000 Amounts owed to related parties 2014 £’000 Amounts owed to related parties 2013 £’000 Braemar Group Limited Brooks Macdonald Financial Consulting Limited Brooks Macdonald Asset Management Limited Brooks Macdonald Nominees Limited 2,350 311 - - 2,150 955 - - - - 14,724 2,583 - - 17,018 2,727 58 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the consolidated financial statements 33. Related party transactions (continued) All of the above amounts are interest-free and, with the exception of the subordinated loan to Braemar Group Limited, are repayable on demand. The Group manages a number of collective investment funds that are considered related parties. Available for sale financial assets include an investment of 1,426,793.64 B shares in Braemar Group PCC Limited Student Accommodation Cell (note 13). This transaction was conducted on an arm’s length basis at market value. In the year ended 30 June 2014 Brooks Macdonald Funds Limited, a subsidiary of the Group, entered into a new partnership, North Row Capital LLP, in which it holds a 60% interest and has joint control. The balance is owned by two individual partners who developed the investment approach behind the IFSL North Row Liquid Property Fund, which was launched in February 2014. The fund offers investors liquid exposure to global real estate markets by investing predominantly in property derivatives, as well as property equity and debt, to gain exposure to the direct property markets. The establishment of the partnership and the fund required an initial capital contribution of £135,000 by Brooks Macdonald Funds, with a further investment of £225,000. The Group’s share of the loss for the period reported by North Row Capital LLP was £128,000, which has been recognised in the consolidated statement of comprehensive income with a corresponding reduction in the investment in joint venture recognised in the consolidated statement of financial position. 34. Events since the end of the year On 31 July 2014, the Company exercised its option to acquire 100% of the share capital of Levitas Investment Management Services Limited (‘Levitas’). Levitas is the sponsor of two funds known as TM Levitas A and TM Levitas B, to which Brooks Macdonald Asset Management Limited acts as the investment adviser. The funds were launched in July 2012 and aggregate assets under management on completion of the acquisition were £89,353,000. The Levitas investment proposition uses a blend of the two funds to match investments to a client’s specific risk rating, thus simplifying the investment and rebalancing processes while keeping down costs. The consideration payable by the Group will be based on 3% of Levitas’ funds under management, calculated at agreed milestones up to 1 November 2018. The maximum consideration payable by the Group will be £24,000,000 and is subject to reduction if the growth in funds under management fails to meet the agreed targets. Payment of the consideration will be made by the Group in cash in a series of instalments, with the final payment date being on or around 8 November 2020. The acquisition will be accounted for as a business combination under IFRS 3 and it is anticipated that goodwill will be recognised. The goodwill represents the Levitas concept; the relationship with Aspira, the principal intermediary and vendor; and growth potential of the assets under management of the two funds in generating future fee income for Levitas. Transaction costs of £80,000 were incurred in the year ended 30 June 2014 and are included within administrative costs in the consolidated statement of comprehensive income. Due to the acquisition occurring after the end of the financial year and the proximity to the date of issuing the Annual Report & Accounts, the directors are unable to provide the full disclosures required under IFRS 3 regarding acquisitions after the end of the reporting period but before the financial statements are due for issue. Specifically, an assessment of the acquisition date fair value of the consideration and identifiable assets and liabilities has not yet been completed as the required information is not currently available. This will be finalised in the 12 months following the acquisition and full disclosures will be provided in the Half Yearly Financial Report for the six months ending 31 December 2014. 59 Annual Report & Accounts 2014Brooks Macdonald Group plcIndependent auditors’ report to the members of Brooks Macdonald Group plc Report on the company financial statements Our opinion In our opinion the financial statements, defined below: • • • give a true and fair view of the state of the Company’s affairs as at 30 June 2014; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006 This opinion is to be read in the context of what we say in the remainder of this report. What we have audited The company financial statements (the “financial statements”), which are prepared by Brooks Macdonald Group plc, comprise: • • the Company balance sheet as at 30 June 2014; and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). In applying the financial reporting framework, the directors have made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events. What an audit of financial statements involves We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: • • whether the accounting policies are appropriate to the Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and • the overall presentation of the financial statements In addition, we read all the financial and non-financial information in the Annual Report & Accounts to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the strategic report and the report of the directors for the financial year for which the financial statements are prepared is consistent with the financial statements. Other matters on which we are required to report by exception Adequacy of accounting records and information and explanations received Under the Companies Act 2006 we are required to report to you if, in our opinion: • • • we have not received all the information and explanations we require for our audit; or adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns We have no exceptions to report arising from this responsibility. Directors’ remuneration Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. Responsibilities for the financial statements and the audit Our responsibilities and those of the directors As explained more fully in the statement of directors’ responsibilities set out on page 18, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Other matter We have reported separately on the group financial statements of Brooks Macdonald Group plc for the year ended 30 June 2014. Marcus Hine (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 16 September 2014 60 Annual Report & Accounts 2014Brooks Macdonald Group plc Company balance sheet as at 30 June 2014 Fixed assets Investments Current assets Debtors Cash at bank and in hand Total current assets Note £’000 38 39 6,730 5,254 11,984 Creditors: amounts falling due within one year 40 (27,750) Net current liabilities Total assets less current liabilities Creditors: amounts falling due after more than one year 41 Net assets Financed by: Capital and reserves Called up share capital Share premium account Share option reserve Revaluation reserve Profit and loss account Total shareholders’ funds 42 42 43 43 43 44 £’000 7,127 10,274 17,401 (25,290) 2014 £’000 53,315 (15,766) 37,549 - 37,549 135 35,148 4,202 (68) (1,868) 37,549 2013 £’000 46,631 (7,889) 38,742 (4,482) 34,260 133 31,868 3,023 63 (827) 34,260 The company financial statements were approved by the Board of Directors and authorised for issue on 16 September 2014, signed on their behalf by: C A J Macdonald Chief Executive Company Registration Number: 4402058 S J Jackson Finance Director The accompanying notes on pages 62 to 66 form an integral part of the company financial statements. 61 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the company financial statements 35. 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 Company’s financial statements are prepared in accordance with the Companies Act 2006 and applicable accounting standards in the United Kingdom. The financial statements have been prepared on the historical cost basis, except for the revaluation of investments 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 has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements. b) Investments in subsidiary companies Investments in subsidiaries are recognised at cost less provisions for impairment. c) Share-based payments The Company has applied the requirements of FRS 20 ‘Share-based Payment’ and has adopted the requirements of UITF 44. Equity settled share-based payments are measured at fair value at the grant date and the charge to the profit and loss account is recognised on a straight line basis over the period in which the related services are provided, based on the number of shares that are expected to vest. d) Operating lease payments Rent payments due under operating leases are charged to the profit and loss account on a straight line basis over the term of the lease. The Company benefited from a rent-free period under the terms of its current property lease. In accordance with UITF 28 ‘Operating Lease Incentives’, the benefit is allocated over the shorter of the lease term and the date of the market rent review specified in the lease. During the rent-free period a rental charge has been recognised in the profit and loss account and accrued as a liability in the balance sheet. e) Retirement benefit costs Contributions in respect of the Group’s defined contribution pension scheme are charged to the profit and loss account as they fall due. f) Employee Benefit Trust Where the Company holds its own equity shares through an Employee Benefit Trust these shares are shown as a reduction in shareholders’ equity. Any consideration paid or received for the purchase or sale of these shares is shown as a reduction in the reconciliation of movements in shareholders’ funds. No gain or loss is recognised in the profit and loss account or the statement of total recognised gains or losses on the purchase, sale, issue or cancellation of these shares. g) Other investments Other quoted investments are re-valued each reporting period to their fair value according to the most recently available market information. 36. Profit for the year As permitted by Section 408 of the Companies Act 2006 the Company has elected not to present its own profit and loss account for the financial year. Brooks Macdonald Group plc reported profit after tax for year ended 30 June 2014 of £2,602,000 (2013: £2,902,000). Auditors’ remuneration is disclosed in note 5 of the consolidated financial statements. The average monthly number of employees during the year was nine (2013: nine). Directors’ emoluments are set out in note 6 of the consolidated financial statements. 37. Dividends Details of the Company’s dividends paid and proposed, subject to approval at the Annual General Meeting, are set out in note 10 of the consolidated financial statements. 62 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the company financial statements 38. Investments Net book value At 1 July 2012 Additions: – share options – acquisition of subsidiary Revaluation At 30 June 2013 Additions: – share options – acquisition of subsidiary Revaluation At 30 June 2014 Group undertakings £’000 Quoted investments £’000 10,269 1,111 33,669 - 45,049 1,288 5,546 - 51,883 1,594 - - (12) 1,582 - - (150) 1,432 Total £’000 11,863 1,111 33,669 (12) 46,631 1,288 5,546 (150) 53,315 Quoted investments represent the Company’s holding of 1,426,793.64 B shares in Braemar Group PCC Limited Student Accommodation Cell. The fund is promoted by Brooks Macdonald Funds Limited, a subsidiary of the Company. Although trading is currently suspended on this fund, the fund manager continues to publish a price based on the fair value of the underlying assets of the fund. At 30 June 2014, based on the most recent valuation, the investment was £1,432,000 (2013: £1,582,000), representing a loss during the year of £150,000 (2013: loss of £12,000). Investments in group undertakings are recorded at cost, which is the fair value of the consideration paid to acquire the Company’s subsidiaries. Additions to group undertakings of £1,288,000 (2013: £1,111,000) represent the cost of share options issued during the year in accordance with FRS 20. Additions on acquisition of subsidiaries of £5,546,000 represent the additional shares acquired in Brooks Macdonald Asset Management (International) Limited. In respect of the year ended 30 June 2013 additions of £33,669,000 represent the cost of the Company’s investment in Brooks Macdonald Asset Management (International) Limited and Brooks Macdonald Retirement Services (International) Limited. Details of the Company’s subsidiary undertakings as at 30 June 2014, all of which were wholly owned and included in the consolidated financial statements, are shown below. Company Braemar Group Limited Brooks Macdonald Asset Management Limited Type of share and par value Ordinary 1p Ordinary £1 Country of incorporation Nature of business UK UK Investment management Investment management Brooks Macdonald Asset Management (International) Limited Ordinary £1 Channel Islands Investment management Brooks Macdonald Financial Consulting Limited Brooks Macdonald Investment Services Limited Ordinary 5p Ordinary £1 UK UK Financial consulting Dormant Brooks Macdonald Retirement Services (International) Limited Ordinary £1 Channel Islands Retirement planning Brooks Macdonald Tax Services Limited Ordinary £1 UK Dormant 39. Debtors Amounts owed by subsidiary undertakings Other debtors Total debtors 2014 £’000 6,461 269 6,730 2013 £’000 7,105 22 7,127 Amounts owed by subsidiary companies are unsecured, interest-free and, with the exception of the subordinated loan to Braemar Group Limited, repayable on demand. 63 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the company financial statements 40. Creditors: amounts falling due within one year Trade creditors Amounts owed to subsidiary undertakings Deferred tax Accruals Other creditors Total creditors due within one year 2014 £’000 27 21,307 - 1,711 4,705 27,750 2013 £’000 30 23,747 19 1,374 120 25,290 Amounts owed to subsidiary companies are unsecured, interest-free and are repayable on demand. Included in other creditors is £4,705,000, which is the directors’ best estimate of the deferred consideration payable in respect of the client relationships and subsidiary undertakings that were acquired by the company. 41. Creditors: amounts falling due after more than one year As at 30 June 2014, there were no amounts falling due after more than one year. In respect of the year ended 30 June 2013, the creditors balance of £4,482,000, falling due after more than one year, related to the directors’ best estimate of the deferred consideration payable in respect of the client relationships and subsidiary undertakings that were acquired by the Company. Deferred consideration is measured at its fair value based on the discounted expected future cash flows. 42. Called up share capital and share premium account The movements in share capital and share premium during the year were as follows: At 1 July 2012 Shares issued At 30 June 2013 Shares issued At 30 June 2014 Number of shares 10,927,496 2,420,478 13,347,974 244,201 13,592,175 Share capital £ ’000 Share premium account £ ’000 109 24 133 2 135 4,423 27,445 31,868 3,280 35,148 Total £’000 4,532 27,469 32,001 3,282 35,283 The total number of ordinary shares, issued and fully paid at 30 June 2014, was 13,592,175 (2013: 13,347,974) with a par value of 1p per share. Excluding 249,696 (2013: 212,172) treasury shares held by the EBT, the Company had 13,342,479 (2013: 13,135,802) ordinary 1p shares in issue as at 30 June 2014. Long Term Incentive Scheme The Group established an Employee Benefit Trust (‘EBT’) on 3 December 2010 to acquire ordinary shares in the Company to satisfy awards under the Group’s Long Term Incentive Scheme (‘LTIS’) and other share-based payment schemes (note 26). All finance and administration expenses connected with the Trust are charged to the consolidated statement of comprehensive income as and when they accrue. The Trust has waived its rights to dividends. As at 30 June 2014, the Company had paid £3,339,000 to the Trust, which had acquired 261,072 ordinary shares on the open market for consideration of £3,277,000. In November 2013, in respect of the scheme granted in October 2010, the Trust received instructions to exercise 11,376 options. The cost of the shares released on exercise of these options amounted to £110,000. At 30 June 2014, the number of shares held by the Trust was 249,696 (2013: 212,172) with a market value of £3,906,000 (2013: £3,045,000), acquired for a total consideration of £3,168,000 (2013: £2,544,000). These shares are presented as treasury shares in the Group financial statements and their cost is deducted from retained earnings within shareholders’ equity. 64 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the company financial statements 42. Called up share capital and share premium account (continued) Long Term Incentive Scheme (continued) The Company has made annual awards under the LTIS to executive directors and other senior executives. 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. All such conditional awards are made at the discretion of the Remuneration Committee. 43. Reserves Share option reserve At beginning of the year Share-based payments Share-based payment transfer At end of the year Revaluation reserve At beginning of the year Loss from changes in fair value Deferred tax on revaluation At end of the year Profit and loss account At beginning of the year Profit for the financial year Dividends paid Share-based payment transfer Purchase of own shares At end of the year Analysis of movement in profit and loss account Profit and loss account At beginning of the year Profit for the financial year Share-based payment transfer Employee Benefit Trust shares exercised Dividends paid At end of the year Employee Benefit Trust At beginning of the year Purchase of own shares Employee Benefit Trust shares exercised At end of the year Total profit and loss account at end of the year 2014 £’000 3,023 1,288 (109) 4,202 63 (131) - (68) (827) 2,602 (3,020) 109 (732) (1,868) 1,717 2,602 109 (109) (3,020) 1,299 (2,544) (732) 109 (3,167) (1,868) 2013 £’000 1,912 1,111 - 3,023 94 (9) (22) 63 (766) 2,902 (2,184) - (779) (827) 999 2,902 - - (2,184) 1,717 (1,765) (779) - (2,544) (827) 65 Annual Report & Accounts 2014Brooks Macdonald Group plc Notes to the company financial statements 44. Reconciliation of movements in total shareholders’ funds Profit for the financial year Loss from changes in fair value Deferred tax on revaluation Total recognised gains and losses for the financial year Dividends paid Share-based payments Issue of new shares Purchase of own shares by EBT Net additions to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds 45. Lease commitments 2014 £’000 2,602 (131) - 2,471 (3,020) 1,288 3,282 (732) 3,289 34,260 37,549 2013 £’000 2,902 (9) (22) 2,871 (2,184) 1,111 27,469 (779) 28,488 5,772 34,260 The Company leases office premises under non-cancellable operating lease arrangements. The future aggregate minimum lease payments under these leases are as follows: Within one year Second to fifth years inclusive After five years 46. Related party transactions 2014 £’000 959 1,241 46 2013 £’000 908 1,626 38 The Company has applied the exemption available under FRS 8 in electing not to disclose transactions and balances with its wholly owned subsidiary companies. Details of related party transactions with directors are provided in note 33 of the consolidated financial statements. 66 Annual Report & Accounts 2014Brooks Macdonald Group plc Explanatory notes to the Annual General Meeting resolutions Enclosed with this document is a notice convening the Annual General functions of the Group, with the managers of ICT, Human Resources and Meeting of the company for 27 October 2014. This explanatory note Learning and Development reporting to him. gives further information on the resolutions set out in the notice of Annual General Meeting. He is a chartered accountant and joined the Group in 2000 having worked for a number of public and private companies at director level. Resolution 1 – Approval of the Report & Accounts The directors propose that the Company’s annual accounts and reports Diane Seymour-Williams (55) joined the board of Brooks Macdonald Group plc in 2011. She has spent her entire career in the fund of the directors and the auditors for the year ended 30 June 2014 be management industry, both managing portfolios and businesses. Diane received and considered. Resolution 2 – Approval of the directors’ remuneration report While it is not a strict requirement for the Company, as a matter of good corporate governance the directors have decided to propose an ordinary resolution to approve the directors’ remuneration report for the year ended 30 June 2014. The directors’ remuneration report can be found spent 23 years at Morgan Grenfell/Deutsche Asset Management in a variety of roles, including Head of Asian Equities team, CEO & CIO Asia, and Head of Global Equity Product. Diane is currently a director of LGM Investments Limited, Lloyd George Investment Company plc, Witan Pacific Investment Trust plc, LG China Fund plc and BMO Investments (Ireland) plc. on pages 9 to 15 of the Annual Report & Accounts. Richard Spencer (51) is the Chief Investment Officer (CIO) of Brooks Resolution 3 – To declare a final dividend The directors recommend a final dividend of 19 pence per ordinary share. Subject to approval by shareholders, the final dividend will be paid on 28 October 2014 to shareholders on the register on 26 September 2014. Macdonald Asset Management Limited where he is responsible for overseeing the investment management strategy and asset allocation. Richard joined the Company in 1991 as a founding director and has worked in the industry since 1985. Richard Price (52) joined the board of Brooks Macdonald Group plc in August 2014. Richard spent 28 years at KPMG where he had Resolutions 4 to 7 – To re-elect certain of the directors Richard Price has been appointed as an additional director since the considerable exposure to financial services clients, holding a number of roles including the UK Head of KPMG’s Financial Sector Transaction Annual General Meeting in 2013 and, accordingly, the Company’s Services practice. articles of association require him to retire from office at this Annual General Meeting and to offer himself for re-election. In addition, the Company’s articles of association state that one third of the directors (or the nearest whole number closest to one third) must retire from office at each Annual General Meeting and offer themselves for re-election. In addition, any director who has been in office for more than three years since their last appointment or re-appointment should also retire and offer themselves for re-election. Simon Jackson, Diane Seymour-Williams and Richard Spencer are therefore offering themselves for re-election on this basis. Information on each of the directors standing for re-election is set out below. The Board confirms that each of the directors offering themselves for re-election has extensive relevant experience of the Group and its business. The Board is therefore of the opinion that all such persons should be re-elected to the Board. Simon Jackson (55) is finance director responsible for the Group’s management accounts. In addition to the finance function, Simon has Board responsibility for some of the other central administrative Richard is also a non-executive director of Think Money Group Limited. A copy of each service contract is available for inspection at the registered office of the Company and will be available for inspection at the Annual General Meeting. Resolution 8 – To appoint PricewaterhouseCoopers LLP as auditors This Resolution proposes that PricewaterhouseCoopers LLP should be appointed as the Company’s auditors and authorises the directors to determine their remuneration. Resolution 9 – Authority to allot shares The Companies Act 2006 prevents directors from allotting unissued shares without the authority of shareholders in general meeting. In certain circumstances this could be unduly restrictive. The directors’ existing authority to allot shares, which was granted at the Annual General Meeting held in 2013, will expire at the end of this year’s Annual General Meeting. 67 Annual Report & Accounts 2014Brooks Macdonald Group plcExplanatory notes to the Annual General Meeting resolutions Resolution 9 - Authority to allot shares (continued) Resolution 9 in the notice of Annual General Meeting will be proposed, as Resolution 11 – Company’s authority to purchase its own shares Resolution 11 in the notice of Annual General Meeting, which will be an ordinary resolution, to authorise the directors to allot ordinary shares of proposed as a special resolution, will authorise the Company to make 1 pence each in the capital of the Company up to a maximum nominal market purchases of up to 1,359,200 ordinary shares. The existing amount of £44,855 (ie up to 4,485,500 ordinary shares) representing authority to make market purchases of ordinary shares, which was approximately 33% of the ordinary shares in issue on 16 September granted at the Annual General Meeting held in 2013, will expire at the 2014. The Company does not currently hold any shares in treasury. end of this year’s Annual General Meeting. The authority conferred by this resolution will expire on the date which The number of ordinary shares stated in this resolution equals is 15 months after the passing of this resolution or, if sooner, at the end approximately 10% of the Company’s ordinary shares in issue on 16 of next year’s Annual General Meeting. Resolution 10 – To disapply pre-emption rights Unless they are given an appropriate authority by shareholders, if the September 2014. The minimum price that may be paid is the nominal value of an ordinary share (ie 1 pence), and the maximum price shall not exceed 5% above the average of the middle market quotations for an ordinary share for the five business days before each purchase is directors wish to allot any of the unissued shares for cash or grant rights made (exclusive of expenses). over shares or sell treasury shares for cash (other than pursuant to an employee share scheme) they must first offer them to existing shareholders in proportion to their existing holdings. This is known as pre-emption rights. The existing disapplication of these statutory pre-emption rights, which was granted at the Annual General Meeting held in 2013, will expire at the end of this year’s Annual General Meeting. Accordingly, Resolution 10 in the notice of Annual General Meeting will be proposed, as a special resolution, to give the directors power to allot shares without the application of these statutory pre-emption rights: first, in relation to offers The authority conferred by this resolution will expire on the date which falls 15 months after the passing of this resolution or, if sooner, at the end of next year’s Annual General Meeting. The directors are committed to managing the Company’s capital effectively. Although the directors have no plans to make such purchases, buying back the Company’s ordinary shares is one of the options they keep under review. Purchases would only be made after considering the effect on earnings per share, and the benefits for shareholders generally. of equity securities by way of rights issue, open offer or similar The Company may hold in treasury any of its own shares that it purchases arrangements; and second, in relation to the allotment of equity securities pursuant to the Companies Act 2006 and the authority conferred by this for cash up to a maximum aggregate nominal amount of £13,592 (ie up resolution. This would give the Company the ability to re-issue treasury to 1,359,200 ordinary shares) representing approximately 10% of the shares quickly and cost effectively and would provide the Company with ordinary shares in issue on 16 September 2014. greater flexibility in the management of its capital base. The authority sought and limits set by this resolution will also apply to a sale by the Company of any shares it holds as treasury shares. The Companies Act 2006 allows shares purchased by the Company out of distributable profits to be held as treasury shares, which may then be cancelled, sold for cash or used to meet the Company’s obligations under its employee share-based incentive schemes. Any subsequent transfers of treasury shares by the Company to satisfy the requirements of employee share-based incentive schemes will be counted towards the anti-dilution limits for such share issues to the extent required by the Association of British Insurers guidelines. The power conferred by this resolution will expire on the date which falls 15 months after the passing of this resolution or, if sooner, at the end of next year’s Annual General Meeting. 68 Annual Report & Accounts 2014Brooks Macdonald Group plcNotice of Annual General Meeting Company Registration number: 4402058 Notice is given that the Annual General Meeting of Brooks Disapplication of pre-emption rights Macdonald Group plc (the “Company”) will be held at 111 Park Street, To resolve as a special resolution: London, W1K 7JL on Monday 27 October 2014 at 9.30 am for the following purposes. Ordinary business To resolve as ordinary resolutions: 10. that, subject to the passing of resolution 9 above, the directors be generally empowered pursuant to sections 570 and 573 of the Act to allot equity securities (within the meaning of section 560 of the Act) for cash, pursuant to the authority conferred by resolution 9, as if section 561 of the Act did not apply to such allotment, provided that 1. to receive and consider the accounts and reports of the directors and this power shall expire on the date which is 15 months after the the auditors for the year ended 30 June 2014 2. to approve the directors’ remuneration report for the year ended 30 June 2014 passing of this resolution or, if sooner, the end of the next Annual General Meeting of the Company. This power shall be limited to the allotment of equity securities: 3. to declare a final dividend of 19 pence per ordinary share for the year 10.1 in connection with an offer of equity securities (including, 4. 5. 6. 7. 8. ended 30 June 2014 to re-elect Richard Price as a director to re-elect Simon Jackson as a director to re-elect Diane Seymour-Williams as a director to re-elect Richard Spencer as a director to appoint PricewaterhouseCoopers LLP as the Company’s auditors and to authorise the directors to determine their remuneration Special business Directors’ authority to allot shares To resolve as an ordinary resolution: 9. that the directors be generally and unconditionally authorised pursuant to section 551 of the Companies Act 2006 (the “Act”) to exercise all the powers of the Company to allot shares in the Company and to grant rights to subscribe for, or to convert any security into, shares in the Company (“Relevant Securities”), up to a maximum aggregate nominal amount of £44,855, for a period expiring (unless previously revoked, varied or renewed) on the date which is 15 months after the passing of this resolution or, if sooner, the end of the next Annual General Meeting of the Company. However, in each case the Company may, before such expiry, make an offer or agreement which would or might require Relevant Securities to be allotted after this authority expires and the directors may allot Relevant Securities in pursuance of such offer or agreement as if this authority had not expired. without limitation, under a rights issue, open offer or similar arrangement) in favour of holders of ordinary shares in the capital of the Company in proportion (as nearly as may be practicable) to their existing holdings of ordinary shares but subject to such exclusions or other arrangements as the directors deem necessary or expedient in relation to fractional entitlements or any legal, regulatory or practical problems under the laws of any territory, or the requirements of any regulatory body or stock exchange; and 10.2 otherwise than pursuant to paragraph 10.1 up to an aggregate nominal amount of £13,592; but the Company may, before such expiry, make an offer or agreement which would or might require equity securities to be allotted after this power expires and the directors may allot equity securities in pursuance of such offer or agreement as if this power had not expired. This power applies in relation to a sale of shares which is an allotment of equity securities by virtue of section 560(2)(b) of the Act as if in the first paragraph of this resolution the words “pursuant to the authority conferred by resolution 9” were omitted. All previous unutilised powers given to the directors pursuant to sections 570 and 573 of the Act shall cease to have effect at the conclusion of this Annual General Meeting Company’s authority to purchase its own shares All previous unutilised authorities given to the directors pursuant to To resolve as a special resolution: section 551 of the Act shall cease to have effect at the conclusion of the Annual General Meeting, save to the extent that those authorities are exercisable pursuant to section 551(7) of the Act by reason of any offer or agreement made prior to the date of this resolution which would or might require shares to be allotted or rights to be granted on or after that date 11. that the Company be generally authorised pursuant to section 701 of the Act to make market purchases (within the meaning of section 693(4) of the Act) of its ordinary shares of £0.01 each on such terms and in such manner as the directors shall determine, provided that: 69 Annual Report & Accounts 2014Brooks Macdonald Group plc Notice of Annual General Meeting 11.1 the maximum number of ordinary shares hereby authorised to Procedure for appointing a proxy be purchased is 1,359,200; 11.2 the maximum price which may be paid for each ordinary share shall be 5% above the average of the middle market quotations for an ordinary share (as derived from The Stock Exchange Daily Official List) for the five business days immediately before the day on which the purchase is made (in each case exclusive of expenses); 11.3 the minimum price which may be paid for each ordinary share shall be £0.01; and 11.4 this authority (unless previously revoked, varied or renewed) shall expire on the date which is 15 months after the passing of this resolution or, if sooner, the end of the next Annual General Meeting of the Company, except in relation to the purchase of ordinary shares the contract for which was concluded before such date and which will or may be executed wholly or partly after such date By order of the Board L L Cook Company Secretary 29 September 2014 Registered office: 111 Park Street, London, W1K 7JL Notes: Rights to appoint a proxy 1. Members of the Company are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and vote at a meeting of the Company. A proxy does not need to be a member of the Company. A member may appoint more than one proxy in relation to a meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that member 2. A proxy form which may be used to make such appointment and give proxy directions accompanies this notice. If you do not receive a proxy form and believe that you should have one, or if you require additional proxy forms in order to appoint more than one proxy, please contact Capita Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU 70 3. To be valid, the proxy form must be received by post or (during normal business hours only) by hand at Capita Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU no later than 9.30 am on Saturday 25 October 2014. It should be accompanied by the power of attorney or other authority (if any) under which it is signed or a notarially certified (or certified by a solicitor with a current practising certificate) copy of such power or authority 4. The return of a completed proxy form will not preclude a member from attending the Annual General Meeting and voting in person if he or she wishes to do so Record date 5. To be entitled to attend and vote at the Annual General Meeting (and for the purpose of the determination by the Company of the votes they may cast), members must be registered in the register of members of the Company at 6.00 pm on Saturday 25 October 2014 (or, in the event of any adjournment, at 6.00 pm on the day 48 hours before the time of the adjourned meeting). Changes to the register of members after the relevant deadline will be disregarded in determining the right of any person to attend and vote at the meeting Corporate representatives 6. Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a member provided that they do not do so in relation to the same shares Other rights of members 7. Any member attending the meeting has the right to ask questions. The Company must cause to be answered any such question relating to the business being dealt with at the meeting but no such answer need be given if (a) to do so would interfere unduly with the preparation for the meeting or involve the disclosure of confidential information, (b) the answer has already been given on a website in the form of an answer to a question, or (c) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered Documents available for inspection 8. There will be available for inspection at the registered office of the Company during normal business hours on any weekday (excluding Saturdays and public holidays) and at the place of the meeting for at least 15 minutes prior to and during the Annual General Meeting copies of: • • the service contract of each executive director; and the letter of appointment of each non-executive director Annual Report & Accounts 2014Brooks Macdonald Group plc Form of proxy Annual General Meeting on 27 October 2014 at 9.30 am Brooks Macdonald Group plc Please read the notice of meeting and the explanatory notes below before completing this form. I/We (see note 5) Name Address being a member/members of the above-named Company hereby appoint the chairman of the meeting (see note 6) OR Name Address as my/our proxy to attend, speak and vote in my/our name and on my/our behalf at the Annual General Meeting of the Company to be held on 27 October 2014 at 9.30 am and at any adjournment thereof. Please tick this box if this proxy appointment is one of multiple appointments being made by the same member (see note 2). D L O F The above proxy is appointed to exercise the rights attached to [all] OR Number shares held by me. (see notes 1 and 2) of the ordinary shares I/we direct my/our proxy to vote on the resolutions set out in the notice of Annual General Meeting as I/we have indicated by placing a mark in the appropriate box below (see notes 7 and 8). D L O F Ordinary business FOR AGAINST VOTE WITHHELD Resolution 1: To receive and consider the Annual Report & Accounts for the year ended 30 June 2014 Resolution 2: To approve the directors’ remuneration report for the year ended 30 June 2014 Resolution 3: To declare a final dividend of 19 pence per ordinary share Resolution 4: To re-elect Richard Price as a director Resolution 5: To re-elect Simon Jackson as a director Resolution 6: To re-elect Diane Seymour-Williams as a director Resolution 7: To re-elect Richard Spencer as a director Resolution 8: To appoint PricewaterhouseCoopers LLP as the Company’s auditors and to authorise the directors to determine their remuneration Special business FOR AGAINST VOTE WITHHELD Resolution 9: Ordinary resolution to give the directors authority to allot shares Resolution 10: Special resolution to give the directors power to disapply pre-emption rights in relation to the allotment of shares Resolution 11: Special resolution to give the Company a general authority to purchase its own shares Signature: (To be valid, this proxy form must be signed) (see note 11) Notes: Date: / /2014 2. Your rights to appoint a proxy 1. As a member of the Company you are entitled to appoint a proxy to exercise all or any of your rights to attend and to speak and vote at a meeting of the Company. A proxy does not need to be a member of the Company. You may appoint more than one proxy in relation to a meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by you You may appoint a proxy in respect of all or some only of the shares held by you. If you do not want to appoint a proxy in respect of all of the shares held by you, delete the word “all” in square brackets and insert the number of shares in respect of which you wish to appoint your proxy in the box provided. If you sign and return this proxy form with no number inserted, you will be deemed to have appointed your proxy in respect of all of the shares held by you If you require additional proxy forms in order to appoint more than one proxy, please contact the Company’s registrar, Capita Asset Services, or you may copy this form. Please indicate by ticking the box provided if the proxy appointment is one of multiple appointments being made. You must also indicate in the separate box the number of shares in relation to which the proxy holder is authorised to act as your proxy. All proxy forms must be signed and should, wherever possible, be returned together in one envelope If you appoint a proxy, this does not preclude you from attending the meeting and voting in person 3. 4. Procedure for appointing a proxy 5. Please insert your full name and address in block capitals in the box 6. To appoint as your proxy a person other than the chairman of the meeting, delete the words in square brackets and insert the full name and address of your chosen proxy in block capitals in the box. If you sign and return this proxy form with no name inserted in the box, the chairman of the meeting will be deemed to be your proxy. Where you appoint as your proxy someone other than the chairman of the meeting, it is your responsibility to ensure that that person attends the meeting and is aware of your voting intentions. If you wish your proxy to make any comments on your behalf, you will need to appoint someone other than the chairman of the meeting and give that person your directions Directing your proxy how to vote 7. To direct your proxy how to vote on the resolutions mark the appropriate box with an “X”. If no voting direction is given, your proxy can vote or abstain from voting as he or she chooses. Your proxy has the right to vote (or abstain from voting) as he or she chooses in relation to any other business (including a resolution to adjourn the meeting or to amend a resolution) which may properly come before the meeting The “vote withheld” option is provided to enable you to abstain on any particular resolution. However, it should be noted that a “vote withheld” is not a vote in law and will not be counted in the calculation of the proportion of the votes “for” and “against” a resolution 8. Other 9. To be valid, this proxy form must be received by post or (during normal business hours only) by hand at Capita Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU no later than 9.30 am on Saturday 25 October 2014 10. In the case of joint holders of any share, where more than one of the joint holders purports to appoint a proxy in respect of the same share, only the appointment submitted by the person whose name stands first in the register as one of the joint holders will be accepted 11. This proxy form must be signed and dated by the member or his or her attorney duly authorised in writing. In the case of a member which is a company, this proxy form must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or other authority under which this proxy form is signed, or a copy of such power or authority, must be included with the proxy form 12. In accordance with Regulation 41 of the Uncertificated Securities Regulations Act only those shareholders entered on the register of members at 6.00 pm on Saturday 25 October 2014 are entitled to attend and vote at the Annual General Meeting to be held at 9.30 am on 27 October 2014 71 Annual Report & Accounts 2014Brooks Macdonald Group plc Directors and advisers Directors C J Knight C A J Macdonald C R Harris N I Holmes S J Jackson R S Price D Seymour-Williams A W Shepherd R H Spencer S P Wombwell Chairman Chief Executive Non-executive Director Finance Director Non-executive Director Non-executive Director Offices Edinburgh Guernsey Hale Hampshire Jersey London Leamington Spa Manchester Taunton Tunbridge Wells York 10 Melville Crescent, Edinburgh, EH3 7LU Yorkshire House, Le Truchot, St. Peter Port, Guernsey, GY1 1WD Richmond House, Heath Road, Hale, Cheshire, WA14 2XP The Long Barn, Dean Estate, Wickham Road, Fareham, Hampshire, PO17 5BN Liberation House, Castle Street, St. Helier, Jersey, JE2 3AT 110 & 111 Park Street, London, W1K 7JL John Stow House, 18 Bevis Marks, London, EC3A 7JB 36 Hamilton Terrace, Holly Walk, Leamington Spa, Warwickshire, CV32 4LY 1 Marsden Street, Manchester, M2 1HW Ground Floor, Blackbrook Gate, Blackbrook Park Avenue, Taunton, Somerset, TA1 2PX 2 Mount Ephraim Road, Tunbridge Wells, Kent, TN1 1EE Howard House, 3 St. Mary’s Court, Blossom Street, York, YO24 1AH Company information Company Secretary Company Registration Number Registered Office Website L L Cook 4402058 111 Park Street, London, W1K 7JL www.brooksmacdonald.com Independent auditors PricewaterhouseCoopers LLP 7 More London Riverside London SE1 2RT Registrars Capita Asset Services The Registry 34 Beckenham Road Kent BR3 4TU Solicitors Macfarlanes LLP 20 Cursitor Street London EC4A 1LT Nominated adviser and broker Peel Hunt LLP Moor House 120 London Wall London EC2Y 5ET Principal bankers The Royal Bank of Scotland plc 40 Islington High Street London N1 8JX Public relations MHP Communications Limited 60 Great Portland Street London W1W 7RT 73 Annual Report & Accounts 2014Brooks Macdonald Group plc www.brooksmacdonald.com 74 Annual Report & Accounts 2014Brooks Macdonald Group plc

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