Brooks Macdonald Group plc Annual Report 2016

FY2016 Annual Report · Brooks Macdonald Group plc

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Annual Report
& Accounts
for the year ended 30 June 2016

Contents

Business performance
Highlights of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chairman’s statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chief Executive’s review . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Strategic report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

01
02
03-04
05-19

Corporate governance
Report of the directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Statement of directors’ responsibilities . . . . . . . . . . .

20-21
22

Consolidated financial statements
Independent auditors’ report to the
members of Brooks Macdonald Group plc . . . . . . .
Consolidated statement of
comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

24-25

27
Consolidated statement of financial position . . . .
28
Consolidated statement of changes in equity . . .
Consolidated statement of cash flows . . . . . . . . . . . . .
29
Notes to the consolidated financial statements . 30-64

Company financial statements
Independent auditors’ report to the
members of Brooks Macdonald Group plc . . . . . . .
Company statement of financial position . . . . . . . .
Company statement of changes in equity . . . . . . . .
Company statement of cash flows . . . . . . . . . . . . . . . . .
Notes to the company financial statements . . . . . .
Directors and advisers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

65-66
67
68
69
70-79
80

H IGH L IGH TS OF T H E Y E A R

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 01

Highlights of the year

Business highlights

• We celebrated our 25th year in business with continued

growth for the group .

• Discretionary funds under management passed the

£8 billion mark during the year .

• We retained our 5-star Defaqto ratings for our Bespoke
Portfolio Service, Managed Portfolio Service and
Platform offering .

• We entered into a new strategic alliance in March 2016,
taking the total number of these partnerships to 18 .

• Our International discretionary investment services were

made available to South African offshore investors through
Glacier International’s Global Life Plan and to affluent clients
in Portugal through Generali PanEurope’s tailored Private
Wealth Portfolio .

•

In March 2016 we won an unprecedented five awards at the
Citywire Wealth Manager Regional Stars Awards .

• Our brand was relaunched in April 2016, unifying all of the
group’s services and encapsulating all of our literature and
communications, both in print and online .

• We extended our principal sponsorship of Middlesex County

Cricket Club until the end of 2019 .

Financial highlights

+3%

Underlying pre-tax profit†
2016: £15 .536 million
2015: £15 .078 million

+39%

Pre-tax profit
2016: £15 .856 million
2015: £11 .420 million

+15%

Total dividends per share
2016: 35 .0p*
2015: 30 .5p
* Including a proposed final dividend of

23 .0p per share

+12%

Discretionary funds under
management
30 June 2016: £8 .30 billion
30 June 2015: £7 .41 billion

† Excludes acquisition costs, finance cost

of deferred consideration, changes in

fair value of deferred consideration and

amortisation of intangible assets .

A reconciliation between underlying profit
before tax and statutory profit before tax is

shown in the Strategic report on page 7 .

C H A I R M A N ’ S STAT E M E N T

02 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Chairman’s statement

We will maintain our investment across the business to
sustain our continued growth. This covers investment in
research, governance, IT, distribution, marketing and most
importantly our staff.

Christopher Knight Chairman

500 staff . We are proud of Brooks
Macdonald’s history and confident
that we can continue to build on what
has been achieved over the last
quarter century . The future, we
believe, is bright .

Christopher Knight
Chairman

20 September 2016

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

Underlying pre-tax profit for the year
was £15 .5m (2015: £15 .1m), a rise of
3%, although underlying earnings per
share have fallen to 87 .92p (2015:
91 .33p) . Statutory pre-tax profits for
the year grew by 39% to £15 .9m (2015:
£11 .4m), the scale of the increase
resulting from a reduction in the
estimated deferred consideration
payable in future years to the vendors
of Levitas Investment Management
Services Limited .

The board is recommending a final
dividend of 23 .0p per share which, if
approved by shareholders, will result
in total dividends for the year of 35 .0p .
This is an increase of 15% over the
total dividends paid the previous year
of 30 .5p per share . The final dividend
will be paid on 28 October 2016 to
shareholders on the register at the
close of business on 30 September
2016 . We remain cash generative and
have a strong balance sheet .

The EU referendum had an effect on
our results . In the first half of the
financial year we decided to postpone

the launch of two new funds . In the
second half, investment returns were
challenging and in the final quarter
investor sentiment was certainly
weaker . In spite of these market
conditions, our discretionary funds
under management grew strongly
over the year to over £8 .30bn (2015:
£7 .41bn), a rise of 12 .0% . This
compares favourably to the growth of
the WMA Balanced index of 4 .6% .

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

Brooks Macdonald was established
twenty-five years ago, with three of its
founders continuing to be actively
involved in the business: Chris
Macdonald, Jon Gumpel and Richard
Spencer . From a modest office in Park
Street employing a handful of people,
the business has grown into a highly
successful investment management
group with twelve offices and nearly

C H I E F E X EC U T I V E ’ S R E V I E W

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 03

Chief Executive’s review

We are well positioned strategically, have a strong
balance sheet, are growing our brand, have high-quality
staff across the group, are working with an increasing
number of professional intermediaries and are
constantly developing our investment off ering.

Chris Macdonald Chief Executive

Introduction

Business review

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

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

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

Our discretionary funds under
management rose to over £8 .3bn, an
increase of over £880m over the
fi nancial year . This represents an
increase of 12 .0%, of which 11 .7% was
new business (£863m) and 0 .3%
(£25m) investment growth . We
concluded no acquisitions in the year
and this growth was largely generated
internally, predominantly via our
work with professional introducers .
We continue to work with an
increasing number (now over 960) of
high-quality professional
intermediaries throughout the UK and
overseas . Pleasingly, our work with
this sector shone through in the
Citywire Regional Stars awards, where
professional advisers voted Brooks
Macdonald their preferred
discretionary fund manager in 5 of 6
regions of the UK . We remain highly
focussed on providing a high-quality
service to this sector and thank them
for their continued support .

Our bespoke discretionary portfolio
service (‘BPS’) remains the premium
off ering for high-net-worth clients .
This continues to gain traction with
private clients, pension and trust
funds . Pension funds (principally Self
Invested Personal Pensions - ‘SIPPs’)
and increasingly ISA portfolios remain
a substantial opportunity . We remain
confi dent that the need for an
incentive to save remains and that
tax-effi cient wrappers will form a key
component of any strategy in this

C H I E F E X EC U T I V E ’ S R E V I E W

C ON T I N U E D

04 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Chief Executive’s review

continued

Business review continued

space . On and offshore we now
manage over £6 .4bn via our BPS
service .

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

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

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

We have made a number of
management changes in Braemar
Estates, our specialist property
manager . These started to contribute
to growth in the second half . Assets
under administration declined
marginally over the year (-3 .1%) .

Our financial planning business
continued the trend of the prior year .
Consulting work rose while employee
benefits had a difficult year . Work
generated into our Investment
Management business remains robust
and we will be looking to launch a

pension default fund for our
employee-benefit clients early this
financial year .

and have launched a telephone
support team to expand our offering
to the wider community .

Industry background

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

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

Strategies for growth

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

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

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

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

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

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

Summary and outlook

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

Chris Macdonald
Chief Executive

20 September 2016

ST R AT EGIC R E PORT

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 05

Strategic report

The market and our services

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

A summary of our services
Brooks Macdonald manages £8 .301 billion for its clients as of 30 June 2016, making us one of the leading private client
investment managers . We provide discretionary investment management solutions to private clients, families, charities and
trustees . We also provide financial planning advice and employment benefits consultancy to small and medium sized
enterprises . Through our funds we provide multi asset and specialist fund products to the retail sector and we have a
property estate and building management service for private individuals, institutions and property fund managers .

A breakdown of the split of the discretionary funds under management is shown in the graph below:

Investment Management (UK)

Investment Management (Channel Islands)

Funds

The market and our services

ST R AT EGIC R E PORT

C ON T I N U E D

06 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Strategic report

continued

The market and our services continued

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

Opening discretionary FUM

Net new discretionary business
Acquisitions
Investment growth

Total FUM growth

Closing FUM

Organic growth (net of markets) %
Total growth %

Group performance

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

Table 1

Total revenue
Operating costs
Net financial income and gains
Profit before tax
Underlying profit before tax¹
Earnings per share
Dividends per share²
Underlying margin3

2016
£m

7,413

863
–
25

888

8,301

11.6
12.0

2015
£m

6,550

645
–
218

863

7,413

9 .8
13 .2

2016
£m
(unless stated)

2015
£m
(unless stated)

81.4
(67.8)
2.3
15.9
15.5
94.41p
35.0p
19.1%

77 .7
(65 .4)
(0 .9)
11 .4
15 .1
68 .30p
30 .5p
19 .4%

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

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

Underlying profit as a percentage of total revenue

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

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

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 07

Strategic report

continued

Group performance continued

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

We continue to operate in an increasingly regulated environment and we have again strengthened our legal, risk and
compliance departments by additional recruitment over the last financial year . In 2016 we have seen the levy paid to the
Financial Services Compensation Scheme (‘FSCS’) stabilise at £0 .5m (2015: £0 .5m) .

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

During the year one of the original FUM targets for Levitas was not achieved, resulting in a reduction in the amount payable to
the vendors of the business . Accordingly, as more fully explained in note 22 to the financial statements, there was a fair value
reduction of £3 .3m resulting in a gain to Consolidated Statement of Comprehensive Income .

Included in total net financial income and gains for the year of £2 .3m is this fair value reduction for Levitas, together with
other financial income, costs and the group’s share of joint venture results as detailed on the Consolidated Statement of
Comprehensive Income and the accompanying notes .

As disclosed more fully in note 16 to the consolidated financial statements, the group has an investment in a student
accommodation fund . During the year the shareholders of the fund approved the sale of the underlying property assets,
which resulted in an impairment charge of £0 .3m (2015: £0 .7m) .

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

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

Underlying profit before tax
Amortisation of intangible assets
Finance cost of deferred consideration
Changes in fair value of deferred consideration
Acquisition costs

Profit before tax

2016
£m

15.5
(2.6)
(0.6)
3.6
–

15.9

2015
£m

15 .1
(2 .7)
(0 .8)
(0 .1)
(0 .1)

11 .4

Group performance

08 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Strategic report

continued

Group performance continued

Amortisation of intangible assets (note 14)
As explained in notes 2(d) and 2(m), client relationship intangible assets are created in the course of acquiring funds under
management . The amortisation charge associated with these assets and software represents a significant non-cash item and
it has therefore been excluded from underlying profit, which represents largely cash-based earnings .

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

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

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

Cash resources and regulatory capital
The group is cash generative and, as detailed in the Consolidated Statement of Cash Flows on page 29, there was an increase
in cash resources at the year end of £0 .2m to £19 .5m (2015: £19 .3m) . The group had no borrowings at 30 June 2016 (2015:
£nil) .

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

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

Investment management
The UK based investment management service continues to remain the core part of the group contributing 72% (2015: 70%)
of the group turnover . Investment management principally provides discretionary investment management to private
investors, pension funds, charities and trusts through BPS and MPS . Despite considerable changes within the industry and
volatility within the financial markets we have continued to grow FUM as shown in the table on page 6 .

Financial planning
The financial consulting business continues to deliver both fee based financial planning advice to high net-worth families,
and employee benefit consultancy to small and medium sized employers throughout the UK . Numbers of clients increased
over the course of the year and the division remains a major introducer of new investment management funds to the group .
During the year there was further investment in systems and staff and, despite the uncertain economic climate, revenue
increased to £4 .3m (2015: £4 .1m) resulting in a small loss for the year of £0 .1m (2015: £0 .1m) .

Group performance

Strategic report

continued

Group performance continued

Segmental review continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 09

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

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

During the year, as a result of slower than anticipated growth of the Liquid Property Fund, the business recognised an
impairment charge against its investment in North Row Capital LLP (NRC), in which it has a 60% share, of £0 .4m (2015: £nil)
together with a share of the losses of NRC for the year of £0 .1m (2015: £0 .0m) .

The estates business had an improved year although the value of assets under management marginally declined to £1 .10bn
(2015: £1 .14bn) . Following a strategic review of the business and some changes to the board, additional revenue streams were
identified which saw an increase in turnover of 9% over the previous year despite the fall in the value of assets under
management . As a result the estates business broke even for the year compared to a loss of £0 .4m in 2015 .

International
The business saw an increase of FUM during the year of 16% to £1 .35bn (2015: £1 .16bn) with new business from a number
of sources and new jurisdictions including South Africa and the conversion of previously non-managed advisory and
execution clients .

As advised at the half year the planned conversion of advisory accounts to discretionary accounts saw a significant reduction
in the transactional income of the business during the year with total revenues for the International business falling by 12% .
Whilst the associated costs of the advisory clients have been reduced these have not matched the timing of the loss of
revenue and together with increased legal fees in the year, particularly dealing with some legacy issues prior to the
acquisition, the profit for the year has fallen to £0 .5m (2015: £1 .3m) .

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

The new Brooks Macdonald brand

As part of the plans for the continued growth of the group, working together with specialist consultants we reviewed and
relaunched our brand in April 2016 .

As part of the review we ascertained from both internal and external sources the key characteristics of the group and how we
were identified principally by our clients, professional intermediaries and staff .

We work extensively with professional intermediaries and so in reference to this the new brand was designed to unify all of
the group services under a single Brooks Macdonald brand . This would be used both in the UK and internationally, and
positions us as a investment manager of choice around our core offering .

The brand emphasises the ethos of the group – striking a balance between our professional and technical expertise and the
way we support our clients and various partners . It encapsulates our core values of honesty, fairness and clarity . From a new
logotype through to a new style and tone, the brand will implant these values within all of our literature and communications,
on our new website and on our secure client portal . Through these channels, it will provide our clients, partners and staff with
assurance of the quality of our business .

The new Brooks Macdonald brand

10 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Strategic report

continued

The new Brooks Macdonald brand continued

Ultimately, the new brand will help us raise awareness within the increasingly competitive environment in which we operate .
It will help us provide the best possible service to our clients, thereby maximising growth in our FUM and improving our
profitability . It will also allow us to maintain the culture and ethos that has made us successful .

Corporate governance

A review of the company’s corporate structure has been conducted and this will result in changes to our corporate structure
which will take effect at the beginning of the next financial year . These changes are designed to improve the governance
arrangements for our key operating businesses . Historically, each subsidiary has been run as an independent company;
however, in future, key strategic decisions will be made on a group basis . Day-to-day management of underlying businesses
will be undertaken by a management committee, which will report to the group executive committee . We believe this
approach will permit more effective management of resources .

As a result of our improved governance arrangements, our asset management and funds subsidiaries will be managed
through one single management committee as an investment management business line . This will improve investment
governance by ensuring our risk and investment management controls are applied uniformly across our various products
and services .

Governance arrangements at the group level remain unchanged . The principal board committees are audit, remuneration
and risk and compliance, each of which has specific terms of reference which are periodically reviewed by the board . These
terms of reference are available on the group website .

Audit Committee
The key responsibilities of the Audit Committee are:

•

to review the group’s accounting procedures and internal financial controls;

to review the reporting of financial and other information to the shareholders of the company and to monitor the integrity of the
financial statements;

to review the effectiveness of the external audit process and the independence and objectivity of the external auditors; and

to report to the board on how it has discharged its responsibilities .

The membership of the committee comprises three non-executive directors: Richard Price (Chairman), Christopher Knight
and Colin Harris . The board is satisfied that all members of the committee have recent and relevant financial experience . In
addition, committee meetings are normally attended by the Group Chief Executive Officer, the Finance Director and by
representatives of the external auditors . The committee meets with representatives of the external auditors without
management present at least once a year .

The committee met five times during the year with meetings structured around the financial calendar of the company .

Risk and Compliance Committee
The group’s risk-management framework is designed to ensure risks are identified, managed and reported effectively at
every level . At an operational level, first-line systems and controls are employed to monitor compliance with internal policies
and procedures . In the second line of defence, compliance monitoring carries out independent checks . Output from both is
reported to the relevant management committee and relevant management information is reported to the business-level risk
committee, the executive committee, and the Risk and Compliance Committee through the group’s escalation policy . The risk
department works with each business unit to conduct a programme of risk and control assessments throughout the year and
the output from these is also reported to the relevant management committee, the relevant risk committee, executive
committee and the Risk and Compliance Committee as appropriate . Identified risks at each business unit are recorded in a
risk register and reported up through the risk committee structure, ultimately to the group board Risk and Compliance
Committee, where required in accordance with the group escalation policy .

Corporate governance

Strategic report

continued

Corporate governance continued

Risk and Compliance Committee continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 11

The membership of the Risk and Compliance Committee is made up of the group’s four non-executive directors and is chaired
by the senior independent director, Colin Harris . Business managers and representatives from the legal, risk and compliance
functions attend committee meetings as necessary to report on monitoring output, the results of risk and control assessments
and changes to the risk register . The group board Risk and Compliance Committee is principally responsible for monitoring
identified risks and the effectiveness of mitigating action, keeping risk assessment processes under review, assessing
material breaches of risk limits and reviewing client complaints .

The Risk and Compliance Committee met on six occasions during the year ended 30 June 2016 .

The group’s risk mitigation framework is subject to on-going review .

The principal risks identified as having a potential material impact on the group are detailed below, together with the
principal means of mitigation .

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 32 to the consolidated financial statements . Further details on capital
management processes can be found in note 33 .

Non-financial risks
The significant non-financial risks faced by group have been reviewed by the committee, which believes 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 .

Regulatory risk

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 .

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 law and
regulations and keeps abreast of future changes to assess the
likely business impact 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 .

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 validates its remuneration packages and
contractual arrangements and motivation is measured
through a sentiment index . Structured training is provided
by the group’s learning & development team .

Corporate governance

12 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Strategic report

continued

Corporate governance continued

Risk and Compliance Committee continued

Non-financial risks continued

Information Communication Technology (‘ICT’) risk

Impact
A key part of the high quality service delivered to clients is
facilitated by a flexible and robust internal ICT
infrastructure . Ancillary areas of ICT risk include system
development, ICT operations, ICT support and
telecommunications .

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 . Business
continuity is assured through our network of offices and our
remote working capabilities .

Outsourcing risk

Impact
Where key systems are provided by outsourced providers,
there is a risk of failure of the outsourcing partners or
external suppliers . There are further risks in the onboarding
of outsourcing partners and ongoing support from them .

Operational risk

Impact
There is a risk that the group suffers a loss of business
resulting from inadequate or failed internal processes,
people and systems .

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 keep our key
outsourcing partners under review and have in place
procedures to regularly assess the performance of such
suppliers as well as identifying suitable and viable
alternatives .

Mitigation
The group employs a comprehensive risk-management
framework, which comprises ongoing monitoring and
reporting of operational areas by first-line and second-line
controls . The risk function works with businesses to conduct
risk and control assessments, and external auditors provide
further ad hoc checks .

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 keeps its
client documentation under review and updates it regularly
to ensure clients are properly informed about investment
policy and risks .

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 for all staff
across the group and reviews all awards made under various long-term incentive schemes operated by the group .

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 .
The committee has reviewed the numerous regulatory changes and guidelines to ensure that the remuneration policies
across the business are in line with best practice . External third party data is used to validate rather than to benchmark the
total reward .

Corporate governance

Strategic report

continued

Corporate governance continued

Remuneration Committee continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 13

The remuneration policy, which applies to directors and employees of the group and was approved by shareholders at the
AGM on 27 October 2015, 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;

inclusion of both annual and long term elements;

fair for both the director and the company with some element of discretion;

• differentiation by merit and performance;

•

an emphasis on variable, performance driven remuneration bonus payments funded from retained profits;

compliant with financial services rules and regulations;

alignment with shareholders’ interests with significant long term equity participation; and

clarity, transparency and fairness of process .

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 .

The remuneration of directors in 2016 and 2015 is set out in the table below . Executive director remuneration includes legacy
LTIP awards made in 2012 and 2011 that vested in the year .

Single total figure of remuneration for each director

Salary and fees

Taxable
benefits

Annual bonus1

Long term
incentive
schemes

Pension
related
benefits

Sharesave

Total

£’000

2016

2015

2016

2015

2016

2015

20162

20153

2016

2015

2016

2015

2016

2015

Executives

C A J Macdonald

N I Holmes

S J Jackson

A W Shepherd

R H Spencer

S P Wombwell

Non-executives

C J Knight
(Chairman)

C R Harris (Senior
independent
director)

D Seymour-
Williams

R Price

Total

257

169
191

200

191

197

253

166

188
188
188

194

240

192

144

176

132

120

272

192

140

176

148

104

1,205 1,177

17 1,004 1,032

445

–

133

132

159

602

–

1,439 1,385

17 1,004 1,032

445

602

–

593

471

419

458

373

388

616

518

380

500

385

460

6 2,702 2,859

–

6 2,936 3,067

Corporate governance

14 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Strategic report

continued

Corporate governance continued

Remuneration Committee continued

Notes

The annual bonus represents the cash amount receivable for the relevant financial year . An additional amount of 20% for each executive director is deferred and
awarded by way of ordinary shares under the terms of the long term incentive scheme ( LTIS) as disclosed below in table 2 .

The amounts represent the value vested in the year from three year LTIS awards arising from the deferred element of the 2012 annual bonus together with any
additional awards made on similar terms . The awards satisfied the performance conditions requiring 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 the grant falls and
ending with the financial year in which the third anniversary of the date of the grant falls . The vesting date was 25 October 2015 and the market price on 23 October
2015, the day nearest to the vesting date, was £17 .34 .

The amounts represent the value vested in the year from three year LTIS awards arising from the deferred element of the 2011 annual bonus together with any
additional awards made on similar terms . The awards satisfied the performance conditions requiring 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 the grant falls and
ending with the financial year in which the third anniversary of the date of the grant falls . The vesting date was 20 October 2014 and the market price on that date
was £13 .42 .

Notes to the single total figure of remuneration for each director table
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 companies of a similar size and complexity
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 2015 by a total of 2 .5% compared to an
overall average increase for all employees of 3 .1% .

Non-executive directors’ fees
The non-executive directors’ fees were similarly reviewed and increased on average by 8 .8% with the approval of the board to
reflect their additional responsibilities and commitments as the group grows .

The Chairman’s fee was increased from £90,000 to £92,000 on 1 August 2015 and the basic non-executive director’s fee was
increased from £40,000 to £42,000 on 1 August 2015 . Non-executive directors also receive an additional responsibility fee of
£4,000 per annum in recognition of their chairing a committee or being the senior independent director .

Taxable benefits
Benefits are provided to the directors to complement the remuneration package and may include, for example private
medical insurance for directors and their dependants, death in service cover, critical illness and permanent health insurance,
annual medicals, Save As You Earn scheme, and the provision of interest free season ticket loans .

Taxable benefits are the provision of private medical insurance for the executives and their dependants and the provision of
interest free season ticket loans as disclosed in note 35 to the consolidated financial statements .

Annual bonus
Awards to executive directors and some other senior employees of the group of profit related bonuses are made from a pool
of profits of 5-15% of the group pre-tax profit after the payment of all bonuses to all other staff . As disclosed in note 22 to the
consolidated financial statements there was an increase in the group pre-tax profit during the year of £3 .34m in respect of
changes in the deferred consideration on the acquisition of Levitas and given the ‘one-off’ and exceptional nature of this item
the committee excluded this amount in the consideration of the size of the bonus pool for this year .

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 in respect of the year ended 30 June 2016, including the amounts deferred into
shares, represents 8 .8% (2015: 9 .8%) of group pre-tax profit . The total bonus payment to all senior employees who participate
in this scheme is 12 .2% (2015: 12 .8%) .

Corporate governance

Strategic report

continued

Corporate governance continued

Remuneration Committee continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 15

Notes to the single total figure of remuneration for each director table continued
Annual bonus continued
Awards to individual executive directors are determined by the committee following objectives and measures proposed
by 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 .

Long Term Incentive Scheme (‘LTIS’) and Employee Benefit Trust (‘EBT’)
The group established an EBT on 3 December 2010 in order 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 senior employees of the group .

The Remuneration Committee has made additional awards under the LTIS to certain executive directors and senior
employees . The additional awards are subject to the same performance and other conditions as those applying to the
deferred profit related bonus share options .

The LTIS awards reported are the historic awards vesting at the end of the three year cycle valued using the share price on the
date of the vesting . In addition to the deferred element of the annual bonus described above the executive directors are
awarded rights to acquire ordinary shares . 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 .

In the case of a ‘bad’ leaver, all unvested awards will normally lapse . A ‘bad’ leaver is a director who leaves other than on
retirement, redundancy, due to ill health or on the sale of the business unless the committee determines otherwise .

Pensions
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 .

Sharesave
This benefit is the value of the discount on the Sharesave options granted in the year .

Directors’ interests in shares
At 30 June 2016, directors’ shareholdings were as set out in table 1 .

Corporate governance

16 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Strategic report

continued

Corporate governance continued

Remuneration Committee continued

Table 1: Directors’ shareholdings and interest in shares at 30 June 2016

Beneficially
owned
shares

230,764
55,995
30,534
50,153
229,848
54,189

71,585
6,086
5,000
–

Interest in shares

LTIS1

Sharesave

EMI
schemes

CSOP

Total

16,964
16,737
14,474
18,192
9,349
13,376

–
–
–
–

649
1,298
1,298
727
1,455
1,298

–
–
–
–

–
6,0002
–
–
–
–

–
–
–
–

–
2,067
2,067
2,067
1,9593
2,067

–
–
–
–

17,613
26,102
17,839
20,986
12,763
16,741

–
–
–
–

734,154

89,092

6,725

6,000

10,227

112,044

Number of shares or options

Executives
C A J Macdonald
N I Holmes
S J Jackson
A W Shepherd
R H Spencer
S P Wombwell

Non-executives
C J Knight (Chairman)
C R Harris (Senior independent director)
D Seymour-Williams
R Price (appointed 1 August 2014)

Total

Notes

In the year ended 30 June 2016 further awards were made to the executive directors under the LTIS scheme together with the deferred element of the annual bonus
award . The £ value of the awards are shown below in table 2 and the actual number of shares awarded will be determined based on the share price at the grant date in
October 2016 .

On 27 April 2016 Nicholas Holmes exercised his options over 4,500 ordinary shares of 1p each under the terms of the EMI scheme award dated 17 October 2006 at
an option price of £2 .15 per share . The closing market price for the shares on 27 April 2016 was £17 .55 .

On 29 October 2015 Richard Spencer was granted an option over 872 ordinary shares of 1p each under the terms of the CSOP scheme at an option price of £17 .19 per
share in respect of an award of £15,000 made in the year ended 30 June 2015 .

Table 2: Monetary value of awards made under LTIS

Executives
C A J Macdonald
N I Holmes
S J Jackson
A W Shepherd
R H Spencer
S P Wombwell

Total

Deferred
bonus
£’000

Additional
awards
£’000

Total
£’000

60
48
36
44
33
30

–
40
20
40
–
20

60
88
56
84
33
50

251

120

371

Corporate governance

Strategic report

continued

Corporate governance continued

Remuneration Committee continued

Directors’ interests in shares continued
Table 3: LTIS

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 17

C A J Macdonald

N I Holmes

S J Jackson

A W Shepherd

R H Spencer

S P Wombwell

Plan
cycle

Performance
period end
date

Vesting
date

2010-13 30 .06 .2013 27 .10 .2013
2012-15 30 .06 .2015 25 .10 .2015
2013-16 30 .06 .2016 01 .11 .2016
2014-17 30 .06 .2017 14 .10 .2017
2015-18 30 .06 .2018 29 .10 .2018

2012-15 30 .06 .2015 25 .10 .2015
2013-16 30 .06 .2016 01 .11 .2016
2014-17 30 .06 .2017 14 .10 .2017
2015-18 30 .06 .2018 29 .10 .2018

2011-14 30 .06 .2014 20 .10 .2014
2012-15 30 .06 .2015 25 .10 .2015
2013-16 30 .06 .2016 01 .11 .2016
2014-17 30 .06 .2017 14 .10 .2017
2015-18 30 .06 .2018 29 .10 .2018

2012-15 30 .06 .2015 25 .10 .2015
2013-16 30 .06 .2016 01 .11 .2016
2014-17 30 .06 .2017 14 .10 .2017
2015-18 30 .06 .2018 29 .10 .2018

At
1 July
2015

4,112
5,354
4,372
4,533
–

4,724
2,528
4,958
–

4,567
2,528
3,896
–

4,567
3,791
4,958
–

3,105
2,677
2,186
2,338
–

3,780
2,528
4,108
–

Number of options

Granted
in the
year

Exercised
in the
year

At
30 June
2016

–
–
–
–
3,947

–
–
–
4,527

–
–
–
3,483

–
–
–
4,876

–
–
–
–
2,148

–
–
–
2,960

–
(5,354)
–
–
–

–
–
–
–

(3,105)
–
–
–
–

–
–
–
–

4,112
–
4,372
4,533
3,947

4,724
2,528
4,958
4,527

4,567
2,528
3,896
3,483

4,567
3,791
4,958
4,876

–
2,677
2,186
2,338
2,148

3,780
2,528
4,108
2,960

Total

75,610

21,941

(8,459)

89,092

Corporate governance

18 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Strategic report

continued

Corporate governance continued

Remuneration Committee continued

Directors’ interests in shares continued
Table 4: Sharesave

Market
value of
shares at
grant date
(£)

Vesting
date

Plan
cycle Grant date

2014-17 21 .05 .14

17 .32 01 .06 .17

2014-17 21 .05 .14

17 .32 01 .06 .17

2014-17 21 .05 .14

17 .32 01 .06 .17

2013-16 14 .05 .13
2015-18 22 .05 .15

14 .65 01 .06 .16
15 .46 01 .06 .18

2015-18 22 .05 .15

15 .46 01 .06 .18

2014-17 21 .05 .14

17 .32 01 .06 .17

Number of options

Granted
in the
year

Exercised
in the
year

At
30 June
2016

–

–
–

–

(767)1

–

649

1,298

–
727

1,455

1,298

(767)

6,725

At
1 July
2015

649

1,298

767
727

1,455

1,298

7,492

C A J Macdonald

N I Holmes

S J Jackson

A W Shepherd

R H Spencer

S P Wombwell

Total

Note

On 15 June 2016 Andrew Shepherd exercised options over 767 ordinary shares of 1p each under the terms of the Sharesave scheme granted on 14 May 2013 . The
exercise price was £11 .72 and the market price of the shares on exercise was £16 .76 .

Table 5: CSOP

N I Holmes

S J Jackson

A W Shepherd

R H Spencer

S P Wombwell

Total

Market
value of
shares at
grant date
(£)

Plan

cycle Grant date

Vesting
date

At
1 July
2015

Granted
in the
year

Exercised
in the
year

At
30 June
2016

Number of options

2013-16 21 .11 .13

14 .52 21 .11 .16

2013-16 21 .11 .13

14 .52 21 .11 .16

2013-16 21 .11 .13

14 .52 21 .11 .16

2013-16 21 .11 .13
2015-18 29 .10 .15

14 .52 21 .11 .16
17 .19 29 .10 .18

2013-16 21 .11 .13

14 .52 21 .11 .16

2,067

1,087
–

2,067

9,355

–

–
872

–

872

–

–
–

–

2,067

1,087
872

2,067

10,227

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 option grants are made at 80% of the closing mid market price on the day of the offer .

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 .

Corporate governance

Strategic report

continued

Corporate governance continued

Remuneration Committee continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 19

Enterprise Management Incentive Scheme (‘EMI’) continued
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 .

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 at any one time 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 .

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 £15,000 per annum paid to the Company .

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 .

R E PORT OF T H E DI R ECTOR S

20 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Report of the directors

The directors present herewith their
annual report, together with the
audited financial statements of the
group for the year ended 30 June
2016 .

Results and dividends

The profit before taxation for the year
ended 30 June 2016 was £15,856,000
(2015: £11,420,000) and the profit after
taxation was £12,739,000 (2015:
£9,151,000) .

The Company paid an interim
dividend during the year of 12 .0p
(2015: 10 .0p) per share . The directors
recommend a final dividend of 23 .0p
(2015: 20 .5p) per share . This results in
total dividends for the year of 35 .0p
(2015: 30 .5p) per ordinary share . These
dividends amount to a total distribution
to shareholders of £4,715,000 (2015:
£4,095,000) in the year .

Retirement and
re-appointment of directors

Christopher Knight, Chris Macdonald
and Colin Harris will retire by rotation
at the annual general meeting and are
eligible to nominate themselves for
re-election .

Directors’ indemnities

The Company has made qualifying
third party indemnity provisions for
the benefit of its directors and these
remain in force at the date of the
report .

Employment policies

Employees are encouraged to identify
and become involved with the
financial performance of the group
and are rewarded by involvement in
profit sharing arrangements .
Employees also have the opportunity
to participate in the group’s share
incentive plans .

Directors and their interests

The directors of the company, who were in office during the year and up to the
date of signing the financial statements, are listed below together with their
beneficial interests in the share capital of the Company .

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
R Price
D Seymour-Williams

At 30 June
2016
Number
of shares

At 30 June
2015
Number
of shares

71,585

230,764
55,995
30,534
50,153
229,848
54,189

6,086
–
5,000

835,410
54,895
79,534
47,915
776,743
89,189

6,086
–
5,000

Details of share options held by the directors at the beginning and the end of the year can be found within the
Remuneration Committee report on pages 12 to 19 .

The group considers that
communication with our employees
is very important and indeed vital for
the success of the group . Employees
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 fund 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 orientation .
Applications from disabled persons
are always considered and where
employees become disabled efforts
are made 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 .

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 .

Under the terms of the Pensions Act
2008, on commencing employment
all eligible employees are
‘auto-enrolled’ into the group
pension scheme .

C ON T I N U E D

R E PORT OF T H E DI R ECTOR S

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 21

Report of the directors

continued

Substantial shareholdings

As at 6 September 2016, the Company had received notification of substantial
interests in its shares of 3% or more as follows:

Substantial shareholdings

Liontrust Asset Management

Octopus Investments

Hargreave Hale

Standard Life Investments

Artemis Fund Managers

J M Gumpel

Invesco Asset Management

Number of
shares

Percentage
holding

2,676,393

19 .52

1,273,912

1,195,178

852,826

831,851

661,265

512,776

9 .29

8 .72

6 .22

6 .07

4 .82

3 .74

Events since the end of the year

Annual general meeting

The 2016 annual general meeting will
be held on 25 October 2016 at
72 Welbeck Street, London, W1G 0AY .
The notice of the meeting together
with details of the resolutions
proposed and explanatory notes have
been distributed separately to
shareholders and can also be found on
the group’s website .

On behalf of the Board of Directors,

S J Jackson
Finance Director

20 September 2016

Details of events after the reporting
date are set out in note 37 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 .

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 .

STAT E M E N T OF DI R ECTOR S ’ R E SPONSI BI L I T I E S

22 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Statement of directors’ responsibilities

Each of the directors, whose names
and functions are listed in the Report
of the directors confirm that, to the
best of their knowledge:

•

the group financial statements,
which have been prepared in
accordance with IFRSs as adopted
by the EU, give a true and fair view of
the assets, liabilities, financial
position and profit of the group; and

the Strategic report and the Report
of the directors include a fair 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 .

The directors are responsible for
keeping adequate accounting records
that are sufficient to show and explain
the company’s 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 and the Directors’
Remuneration Report 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 .

The directors are responsible for the
maintenance and integrity of the
company’s website . Legislation in the
United Kingdom governing the
preparation and dissemination of
financial statements may differ from
legislation in other jurisdictions .

The directors consider that the
Annual Report and Accounts, taken as
a whole, is fair, balanced and
understandable and provides the
information necessary for
shareholders to assess a company’s
performance, business model and
strategy .

The directors are responsible for
preparing the Annual Report, the
Directors’ Remuneration Report and
the financial statements in accordance
with applicable law and regulations .

Company law requires the directors to
prepare financial statements for each
financial year . Under that law the
directors have prepared the group and
parent company financial statements
in accordance with International
Financial Reporting Standards (IFRSs)
as adopted by the European Union .
Under company law the directors
must not approve the financial
statements unless they are satisfied
that they give a true and fair view of
the state of affairs of the group and the
company and of the profit or loss of
the company and group for that
period . In preparing these financial
statements, the directors are
required to:

•

select suitable accounting policies
and then apply them consistently;

• make judgements and accounting
estimates that are reasonable and
prudent;

•

state whether applicable IFRSs as
adopted by the European Union and
IFRSs issued by IASB have been
followed, subject to any material
departures disclosed and explained
in the financial statements; and

• prepare the financial statements on

the going concern basis unless it is
inappropriate to presume that the
company will continue in business .

Statement of directors’ responsibilities

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 23

Financial statements

Consolidated financial statements
Independent auditors’ report to the
members of Brooks Macdonald Group plc . . . . . . .
Consolidated statement of
26
comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27
Consolidated statement of financial position . . . .
28
Consolidated statement of changes in equity . . .
Consolidated statement of cash flows . . . . . . . . . . . . .
29
Notes to the consolidated financial statements . 30-64

24-25

65-66
67
68
69
70-79
IBC

I N DE PE N DE N T AU DI TOR S ’ R E PORT

TO T H E M E M BE R S OF BRO OK S M AC D ONA L D GROU P PLC

24 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Independent auditors’ report

to the members of Brooks Macdonald Group plc

Report on the group
financial statements

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

•

give a true and fair view of the state
of the group’s affairs as at 30 June
2016 and of its profit and cash flows
for the year then ended;

• have been properly prepared in

accordance with International
Financial Reporting Standards
(‘IFRSs’) as adopted by the European
Union; and

• have been prepared in accordance

with the requirements of the
Companies Act 2006 .

What we have audited
The financial statements, included
within the Annual Report & Accounts
(the ‘Annual Report’), comprise:

•

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

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

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

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

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

The financial reporting framework
that has been applied in the

preparation of the financial
statements is IFRSs as adopted by the
European Union, and applicable law .

Responsibilities for the
financial statements and
the audit

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

Opinion on other matter
prescribed by the Companies
Act 2006

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

Other matters on which we are
required to report by exception

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

Our responsibilities and those of
the directors
As explained more fully in the
Statement of Directors’
Responsibilities set out on page 22,
the directors are responsible for the
preparation of the financial
statements and for being satisfied
that they give a true and fair view .

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

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

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 .

TO T H E M E M BE R S OF BRO OK S M AC D ONA L D GROU P PLC |

C ON T I N U E D

I N DE PE N DE N T AU DI TOR S ’ R E PORT

Independent auditors’ report

to the members of Brooks Macdonald Group plc | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 25

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

Other matter

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

Natasha McMillan (Senior Statutory
Auditor) for and on behalf of
PricewaterhouseCoopers LLP
Chartered Accountants and
Statutory Auditors

London
20 September 2016

Responsibilities for the
financial statements and
the audit continued

What an audit of financial statements
involves continued

financial statements are free from
material misstatement, whether
caused by fraud or error . This includes
an assessment of:

• whether the accounting policies are

appropriate to the group’s
circumstances and have been
consistently applied and adequately
disclosed;

•

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

the overall presentation of the
financial statements .

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

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

CONSOL I DAT E D STAT E M E N T OF COM PR E H E NSI V E I NCOM E

FOR T H E Y E A R E N DE D 30 J U N E 2016

26 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Consolidated statement of comprehensive income

for the year ended 30 June 2016

Revenue
Administrative costs
Realised gain on investment
Other gains and losses

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
Revaluation reserve recycled to profit or loss

Total comprehensive income for the year

Earnings per share
Basic
Diluted

Note

2016
£’000

81,399
(67,794)
20
2,857

16,482

58
(577)
(107)

2015
£’000

77,686
(65,371)
540
(754)

12,101

86
(763)
(4)

15,856

11,420

(3,117)

12,739

(2,269)

9,151

(6)
–

12,733

94.41p
94.07p

–
68

9,219

68 .30p
68 .14p

The accompanying notes on pages 30 to 64 form an integral part of the consolidated financial statements .

CONSOL I DAT E D STAT E M E N T OF F I NA NC I A L PO SI T ION

A S AT 30 J U N E 2016

Consolidated statement of financial position

as at 30 June 2016

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 27

Assets
Non-current assets
Intangible assets
Property, plant and equipment
Available for sale financial assets
Investment in joint venture
Trade and other receivables
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
Deferred tax liabilities
Provisions

Total current liabilities

Net assets

Equity
Share capital
Share premium account
Other reserves
Retained earnings

Total equity

Note

2016
£’000

2015
£’000

65,849
3,309
1,715
207
150
551

71,781

23,958
1,000
19,478

44,436

116,217

(5,290)
(3,951)
(114)

(9,355)

(18,844)
(2,142)
(84)
(2,784)

(23,854)

83,008

137
35,997
5,517
41,357

83,008

65,258
3,539
1,532
628
–
709

71,666

21,402
3
19,274

40,679

112,345

(9,442)
(4,694)
(95)

(14,231)

(16,894)
(1,463)
(119)
(5,474)

(23,950)

74,164

136
35,600
5,101
33,327

74,164

The consolidated financial statements on pages 26 to 64 were approved by the Board of Directors and authorised for issue on
20 September 2016, 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 30 to 64 form an integral part of the consolidated financial statements .

CONSOL I DAT E D STAT E M E N T OF C H A NGE S I N EQU I T Y

FOR T H E Y E A R E N DE D 30 J U N E 2016

28 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Consolidated statement of changes in equity

for the year ended 30 June 2016

Balance at 1 July 2014

135

35,147

4,720

27,456

67,458

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 reserve recycled

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 12)

Total transactions with owners

Balance at 30 June 2015

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 12)

Total transactions with owners

Balance at 30 June 2016

–

1
–
–
–
–
–

–

453
–
–
–
–
–

453

136

35,600

–

1
–
–
–
–
–

–

397
–
–
–
–
–

397

–

9,151

–

9,151

9,219

–
1,315
(1,334)
–
332
–

313

5,101

–
–
1,334
(742)
–
(3,872)

(3,280)

454
1,315
–
(742)
332
(3,872)

(2,513)

33,327

74,164

–

12,739

(6)

–

(6)

12,739

12,733

–
943
(806)
–
285
–

422

–
–
806
(1,143)
–
(4,372)

(4,709)

398
943
–
(1,143)
285
(4,372)

(3,889)

137

35,997

5,517

41,357

83,008

The accompanying notes on pages 30 to 64 form an integral part of the consolidated financial statements .

FOR T H E Y E A R E N DE D 30 J U N E 2016

CONSOL I DAT E D STAT E M E N T OF CA SH F LOWS

Consolidated statement of cash flows

for the year ended 30 June 2016

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 29

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
Deferred consideration paid
Interest received
Purchase of financial assets at fair value through profit or loss
Proceeds of sale of property, plant and equipment
Proceeds of sale of financial assets at fair value through profit or loss
Investment in joint venture

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 financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Note

2016
£’000

17,536
(2,773)

14,763

(751)
(3,265)
(500)
–
(3,901)
58
(1,000)
3
–
(86)

(9,442)

398
(1,143)
(4,372)

(5,117)

204

19,274

19,478

2015
£’000

20,094
(1,757)

18,337

(1,558)
(1,879)
(250)
37
(9,218)
86
(40)
–
263
(400)

(12,959)

454
(742)
(3,872)

(4,160)

1,218

18,056

19,274

The accompanying notes on pages 30 to 64 form an integral part of the consolidated financial statements .

NOT E S TO T H E CONSOL I DAT E D F I NA NC I A L STAT E M E N TS

FOR T H E Y E A R E N DE D 30 J U N E 2016

30 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the consolidated financial statements

for the year ended 30 June 2016

1. General information

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

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

2. Principal accounting policies

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

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

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

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

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

The group has disclosed all of its subsidiary undertakings in note 42 of the parent company’s financial statements .

c) Changes in accounting policies
The group’s accounting policies that have been applied in preparing these financial statements are consistent with those
disclosed in the Annual Report and Accounts for the year ended 30 June 2015, except as explained below .

New accounting standards, amendments and interpretations adopted in the period
In the year ended 30 June 2016, 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 .

FOR T H E Y E A R E N DE D 30 J U N E 2016 |

C ON T I N U E D

NOT E S TO T H E CONSOL I DAT E D F I NA NC I A L STAT E M E N TS

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 31

2. Principal accounting policies continued

c) Changes in accounting policies continued

New accounting standards, amendments and interpretations adopted in the period continued
Other new standards, amendments and interpretations listed in the table below were newly adopted by the group but have
not had a material impact on the amounts reported in these financial statements . They may however impact the accounting
for future transactions and arrangements .

Standard, Amendment or Interpretation

Annual improvements (2011-2013 cycle)

Contributions to defined benefit plans (amendments to IAS 19)

Annual improvements (2010-2012 cycle)

Effective date

1 January 2015

1 February 2015

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 periods beginning after 1 July 2015:

Standard, Amendment or Interpretation

Disclosure initiative (amendments to IAS 1)

Accounting for acquisitions of interests in joint operations (amendments to IFRS 11)

Clarification of acceptable methods of depreciation and amortisation (amendments to IAS 16
and IAS 38)

Annual improvements (2012-2014 cycle)

Investment entities: applying the consolidation exception (amendments to IFRS 10, IFRS 12 and
IAS 28)

Recognition of deferred tax assets for unrealised losses (amendments to IAS 12)

Disclosure initiative (amendments to IAS 7)

Revenue from contracts with customers (IFRS 15)

Financial instruments (IFRS 9)

Clarification and measurement of share-based payment transactions (amendments to IFRS 2)

Leases (IFRS 16)

† Not yet endorsed for use in the EU

Effective date

1 January 2016

1 January 2016†

1 January 2017†

1 January 2018†

1 January 2019†

The impact of these changes is currently being reviewed and there is no intention to early adopt .

IFRS 16 ‘Leases’ is expected to have a significant impact on the group’s future consolidated financial statements . This new
standard will require the recognition a right-of-use asset and associated lease liability for the office premises that are leased
by the group . The asset would be depreciated over the lease term and the liability would accrue interest, resulting in a
front-loaded expense profile . This accounting treatment contrasts with the current treatment for operating leases, where no
asset or liability is recognised and the lease payments are charged to the Consolidated Statement of Comprehensive Income
on a straight line basis over the term of the lease .

IFRS 9 ‘Financial Instruments’ could change the classification and measurement of financial assets . IFRS 15 ‘Revenue from
Contracts with Customers’ could change how and when revenue is recognised from contracts with customers . The extent of
their impact has not yet been fully determined .

32 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

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 .

d) Critical accounting estimates and

Further information about key assumptions and sources of estimation uncertainty are set out below .

judgements

Intangible assets
The group has acquired client relationships and the associated investment management contracts as part of business
combinations (as described in note 13), through separate purchase and purchased with newly employed teams of fund
managers (as described in note 14) . 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 14 .

Deferred consideration
As described in note 22, the group has a deferred consideration balance in respect of the acquisition of Levitas Investment
Management Services Limited in July 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 estimated cost of capital . The group considers that reasonably possible 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 24 and 29) . 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 .

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 .

f) Business combinations

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 33

2. Principal accounting policies continued

f) Business combinations continued

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 group’s 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 .

34 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

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 .

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 .

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 35

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 to 20 years and those acquired with investment managers over 5 years . Both types of intangible asset are
reviewed annually to determine whether there exists an indicator of impairment or an indicator that the assumed useful
economic life has changed .

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) 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 .

o) 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 .

36 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

o) Financial investments

2. Principal accounting policies continued

o) Financial investments continued

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 assets as quoted in
active markets . Changes in fair value are recognised directly in equity, through the Consolidated Statement of Changes in
Equity, with the exception of impairment losses which are recognised in the Consolidated Statement of Comprehensive
Income . The cumulative gain or loss recognised in equity is recycled to the Consolidated Statement of Comprehensive
Income when an available for sale financial asset is derecognised or impaired .

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 .

p) 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 .

q) 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 .

r) 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 .

s) 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 .

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 37

2. Principal accounting policies continued

s) Taxation continued

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) Taxation

t) 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 .

u) 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 .

v) 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 .

w) 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 .

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 Structured Entity, as defined in note 36 . 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 Company purchases its own equity share capital (treasury shares) the consideration paid, including any directly
incremental costs (i .e . 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 .

2. Principal accounting policies

38 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

2. Principal accounting policies continued

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 .

3. Segmental information

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

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

Year ended 30 June 2016

Total segment revenue
Inter segment revenue

External revenue

Segment result
Unallocated items:
Changes in fair value of deferred consideration
Other unallocated items

Profit before tax
Taxation

Profit for the year

Investment
management
£’000

Financial
planning
£’000

Funds and
property
management
£’000

International
£’000

58,949
(238)

58,711

4,387
(136)

4,251

6,896
(64)

6,832

11,605
–

11,605

Total
£’000

81,837
(438)

81,399

17,825

(60)

(624)

453

17,594

3,343
(5,081)

15,856
(3,117)

12,739

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 39

3. Segmental information continued

Year ended 30 June 2015

Total segment revenue
Inter segment revenue

External revenue

Segment result
Unallocated items:
Changes in fair value of deferred consideration
Other unallocated items

Profit before tax
Taxation

Profit for the year

Investment
management
£’000

Financial
planning
£’000

Funds and
property
management
£’000

International
£’000

54,464
(101)

54,363

4,191
(69)

4,122

6,044
(43)

6,001

13,200
–

13,200

Total
£’000

77,899
(213)

77,686

15,774

(68)

(564)

1,315

16,457

(302)
(4,735)

11,420
(2,269)

9,151

3. Segmental information

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

United Kingdom
Channel Islands

Total revenue

2016
£’000

69,794
11,605

81,399

b) Major clients
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
Advisory and other income

Total revenue

5. Realised gain on investment

2016
£’000

69,273
125
12,001

81,399

2015
£’000

64,486
13,200

77,686

2015
£’000

66,443
235
11,008

77,686

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

40 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

6. Other gains and losses

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

Impairment of available for sale financial assets (note 16)
Impairment of investment in joint venture (note 17)
Loss from changes in fair value of financial assets at fair value through profit or loss
(note 20)
Gain from changes in fair value of deferred consideration (note 22)

Other gains and losses

7. Operating profit

Operating profit is stated after charging:

Staff costs (note 8)
Acquisition costs (see below)
Auditors’ remuneration (see below)
Financial Services Compensation Scheme Levy (see below)
Depreciation (note 15)
Amortisation (note 14)

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
– Other advisory services

Total auditors’ remuneration

2016
£’000

(311)
(400)

(3)
3,571

2,857

2016
£’000

38,716
–
380
475
969
2,674

2016
£’000

230
70
24

380

2015
£’000

(718)
–

(252)
216

(754)

2015
£’000

38,558
120
280
510
990
2,708

2015
£’000

185
34
–

280

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

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

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 41

8. 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

2016
£’000

33,491
3,053
1,145
1,027

38,716

2016

190
282

472

2015
£’000

32,670
3,129
1,331
1,428

38,558

2015

183
284

467

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

Short-term employee benefits
Post-employment benefits
Share-based payments

Total compensation

2016
£’000

2,466
25
445

2,936

d) Directors’ emoluments
Further details of directors’ emoluments are included within the Remuneration Committee report on pages 12 to 19 .

Salaries and bonuses
Non-executive directors’ fees
Benefits in kind

Pension contributions
Amounts receivable under long term incentive schemes

Total directors’ remuneration

2016
£’000

2,209
234
23

2,466
25
445

2,936

2015
£’000

2,434
25
346

2,805

2015
£’000

2,209
208
17

2,434
25
378

2,837

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

42 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

d) Directors’ emoluments

8. Employee information

8. Employee information continued

d) Directors’ emoluments continued

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

2016
£’000

500
93

593

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

9. Finance income and finance costs

Finance income
Bank interest on deposits

Total finance income

Finance costs
Bank interest payable
Finance cost of deferred consideration

Total finance costs

10. Taxation

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

UK Corporation Tax at 20 .00% (2015: 20 .75%)
Under/(over) provision in prior years

Total current tax
Deferred tax credits
Effect of change in tax rate on deferred tax

Income tax expense

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

2016
£’000

–
577

577

2016
£’000

3,262
448

3,710
(259)
(334)

3,117

2015
£’000

528
68

596

2015
£’000

3
760

763

2015
£’000

2,776
(231)

2,545
(276)
–

2,269

10. Taxation

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 43

10. Taxation continued

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 20 .00%

(2015: 20 .75%)

Tax effect of:
– Lower tax rates in other countries in which the group operates
– Disallowable expenses
– Change in rate of Corporation Tax applicable to deferred tax
– Under provision / (over provision) in prior years

Tax charge for the year

2016
£’000

15,856

2015
£’000

11,420

3,171

2,370

(77)
(91)
(334)
448

3,117

(255)
385
–
(231)

2,269

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

On 1 April 2016, the standard rate of Corporation Tax in the UK was reduced to 20% . As a result the effective rate of
Corporation Tax applied to the taxable profit for the year ended 30 June 2016 is 20 .00% (2015: 20 .75%) .

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

11. Earnings per share

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

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

Earnings attributable to ordinary shareholders
Acquisition costs (note 7)
Finance cost of deferred consideration (note 9)
Changes in fair value of deferred consideration (note 22)
Amortisation (note 14)
Tax impact of adjustments

Underlying earnings attributable to ordinary shareholders

2016
£’000

12,739
–
577
(3,571)
2,674
(556)

11,863

2015
£’000

9,151
120
760
70
2,708
(571)

12,238

44 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

11. Earnings per share continued

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

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

11. Earnings per share

Diluted weighted average number of shares in issue

Weighted average number of shares in issue
Effect of dilutive potential shares issuable on exercise of employee share options

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

2016
Number of
shares

13,493,316
48,220

13,541,536

2015
Number of
shares

13,399,031
30,996

13,430,027

Based on reported earnings:
Basic earnings per share
Diluted earnings per share

Based on underlying earnings:
Basic earnings per share
Diluted earnings per share

12. Dividends

2016
(p)

94.41
94.07

87.92
87.60

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 2015 of 20 .5p
(2014: 19 .0p) per share
Interim dividend paid for the year ended 30 June 2016 of 12 .0p
(2015: 10 .0p) per share

Total dividends

2016
£’000

2,758

1,614

4,372

Final dividend proposed for the year ended 30 June 2016 of 23 .0p (2015: 20 .5p) per share

3,101

The interim dividend of 12 .0p (2015: 10 .0p) per share was paid on 26 April 2016 .

2015
(p)

68 .30
68 .14

91 .33
91 .12

2015
£’000

2,535

1,337

3,872

2,757

A final dividend for the year ended 30 June 2016 of 23 .0p (2015: 20 .5p) per share was declared by the Board of Directors on
20 September 2016 and is subject to approval by the shareholders at the Company’s annual general meeting . It will be paid on
28 October 2016 to shareholders who are on the register at the close of business on 30 September 2016 . In accordance with
IAS 10 ‘Events After the Reporting Period’, this dividend has not been included as a liability in these financial statements .

13. Business combinations

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

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 45

14. Intangible assets

Cost
At 1 July 2014
Additions
Additions on acquisition of subsidiaries at fair value

At 30 June 2015
Additions

At 30 June 2016

Accumulated amortisation
At 1 July 2014
Amortisation charge

At 30 June 2015
Amortisation charge

At 30 June 2016

Net book value
At 1 July 2014
At 30 June 2015

At 30 June 2016

Goodwill
£’000

Computer
software
£’000

Acquired
client
relationship
contracts
£’000

Contracts
acquired with
fund
managers
£’000

24,793
–
11,213

36,006
–

36,006

–
–

–

24,793
36,006

36,006

411
1,405
–

1,816
3,265

5,081

269
129

398
132

530

142
1,418

4,551

32,747
–
–

32,747
–

32,747

3,771
2,167

5,938
2,177

8,115

28,976
26,809

24,632

3,048
474
–

3,522
–

3,522

2,085
412

2,497
365

2,862

963
1,025

660

Total
£’000

60,999
1,879
11,213

74,091
3,265

77,356

6,125
2,708

8,833
2,674

11,507

54,874
65,258

65,849

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

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

Based on the value-in-use calculation, at 30 June 2016 the calculated recoverable amount of the Brooks Macdonald
International CGU was £43,172,000, indicating that there is no impairment . The key underlying assumptions of the
calculation are the discount rate, the short-term growth in earnings and the long-term growth rate of the business . A pre-tax
discount rate of 8 .45% has been used, based on the group’s assessment of the risk-free rate of interest and specific risks
relating to Brooks Macdonald International . Annual earnings growth rates of between 23% and 65% are forecast over the next
five financial years, the period covered by the most recent forecasts, which reflect historic actual growth and planned
management actions and are considered to be achievable given current market and industry trends . The 2% long-term
growth rate applied is considered prudent in the context of the long-term average growth rate for the funds, investment
management and financial planning industries in which the CGU operates .

46 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

14. Intangible assets continued

a) Goodwill continued

In relation to the Levitas CGU, based on the value-in-use calculation the calculated recoverable amount at 30 June 2016 was
£17,910,000, indicating that there is no impairment . The key underlying assumptions of the calculation are the discount rate,
the growth in funds under management of the Levitas funds and the long-term growth rate of the business . A pre-tax discount
rate of 8 .45% has been used, based on the group’s assessment of the risk-free rate of interest and specific risks relating to
Levitas . Annual funds under management growth rates of between 20% and 48% are forecast in the next five financial years,
the period covered by the most recent forecasts, which reflect historic actual growth and planned management activities and
are considered to be achievable given current market and industry trends . The 2% long-term growth rate applied is
considered prudent in the context of the long-term average growth rate for the funds industry in which the CGU operates .

The key assumptions inherent in the value-in-use calculations for the Braemar CGU were similarly a pre-tax discount rate of
8 .45%, annual revenue growth rates ranging from 12% to 20% and a long-term growth rate of 2% .

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

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

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

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

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 47

15. Property, plant and equipment

Cost
At 1 July 2014
Additions
Disposals

At 30 June 2015
Additions
Disposals

At 30 June 2016

Accumulated depreciation
At 1 July 2014
Depreciation charge

At 30 June 2015
Disposals
Depreciation charge

At 30 June 2016

Net book value
At 1 July 2014
At 30 June 2015

At 30 June 2016

16. Available for sale financial assets

At beginning of year
Additions
Disposals
Loss from changes in fair value
Accumulated loss on revaluation reserve recycled
Impairment loss

At end of year

Motor
vehicles
£’000

Fixtures and
fittings
£’000

Equipment
and leasehold
improvements
£’000

35
25
–

60
–
(27)

13
15

28
(15)
9

22
32

2,087
69
(64)

2,092
19
–

2,111

959
307

1,266
–
232

1,498

1,128
826

613

5,814
1,528
–

7,342
732
–

8,074

3,993
668

4,661
–
728

5,389

1,821
2,681

2,685

2016
£’000

1,532
500
–
(6)
–
(311)

1,715

Total
£’000

7,936
1,622
(64)

9,494
751
(27)

10,218

4,965
990

5,955
(15)
969

6,909

2,971
3,539

3,309

2015
£’000

2,182
250
(250)
–
68
(718)

1,532

The group holds investments of 1,426,793 .64 class B ordinary shares, representing an interest of 10 .88%, in Braemar Group
PCC Limited Student Accommodation Cell (‘Student Accommodation Fund’); 750,000 zero dividend preference shares in
GLI Finance Limited (‘GLIF’), a listed company incorporated in Guernsey; and 500,000 redeemable preference shares in an
unlisted company incorporated in the UK .

48 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

16. Available for sale financial assets continued

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

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

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

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

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

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

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

and

• Level 3 – derived from inputs that are not based on observable market data .

Braemar Group PCC Limited Student Accommodation Cell
Unlisted redeemable preference shares
GLIF preference shares

Total

Level 1
£’000

Level 2
£’000

Level 3
£’000

–
–
744

744

–
–
–

–

471
500
–

971

Total
£’000

471
500
744

1,715

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

17. Investment in joint venture

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

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 49

17. Investment in joint venture continued

At beginning of year
Working capital advanced in the year
Impairment loss
Share of loss of joint venture

At end of year

2016
£’000

628
86
(400)
(107)

207

2015
£’000

232
400
–
(4)

628

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

18. Deferred income tax

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

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 10)
Credit recognised in other comprehensive income
Credit/(charge) recognised in equity
Additions on acquisition of subsidiaries

At 30 June

2016
£’000

190
361

551

(3,951)
(84)

(4,035)

2016
£’000

(4,104)
593
–
27
–

(3,484)

2015
£’000

207
502

709

(4,694)
(119)

(4,813)

2015
£’000

(4,308)
276
–
(72)
–

(4,104)

50 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

18. Deferred income tax continued

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

Deferred tax assets
At 1 July 2014
Charge to the Statement of Comprehensive Income
Charge to equity

At 30 June 2015
Charge to the Statement of Comprehensive Income
Charge to equity

At 30 June 2016

Share-based
payments
£’000

809
(28)
(72)

709
(185)
27

551

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

Deferred tax liabilities
At 1 July 2014
Credit to the Statement of Comprehensive Income
Charge to other comprehensive income

At 30 June 2015
Additions on acquisition of subsidiaries
Debit/(credit) to the Statement of Comprehensive Income
Charge to other comprehensive income

At 30 June 2016

19. Trade and other receivables

Non-current assets
Loans receivable

Total non-current trade and other receivables

Current assets
Trade receivables
Other receivables
Prepayments and accrued income

Total current trade and other receivables

Accelerated
capital
allowances
£’000

Available for
sale financial
assets
£’000

Intangible
asset
amortisation
£’000

2
117
–

119
–
(35)
–

–
–
–

–
–
–
–

–

5,115
(421)
–

4,694
–
(743)
–

3,951

2016
£’000

150

5,939
2,518
15,501

23,958

Total
£’000

5,117
(304)
–

4,813
–
(778)
–

4,035

2015
£’000

–

5,854
3,426
12,122

21,402

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

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 51

20. Financial assets at fair value through profit or loss

At beginning of year
Additions
Disposals
Loss from change in fair value

At end of year

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

21. Cash and cash equivalents

Cash at bank
Cash held in employee benefit trust

Total cash and cash equivalents

2016
£’000

3
1,000
–
(3)

1,000

2016
£’000

19,437
41

19,478

2015
£’000

478
40
(263)
(252)

2015
£’000

19,240
34

19,274

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

22. Deferred consideration

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

At 1 July
Added on acquisitions during the year
Finance cost of deferred consideration
Fair value adjustments
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

2016
£’000

13,826
–
577
(3,571)
(3,901)

6,931

1,641
5,290

6,931

2015
£’000

11,236
11,264
760
(216)
(9,218)

13,826

4,384
9,442

13,826

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

52 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

22. Deferred consideration continued

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

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

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

At 1 July
Added on acquisitions during the year
Finance cost of deferred consideration
Changes in fair value of deferred consideration
Transfer to current liabilities

At 30 June

2016
£’000

9,442
–
498
(3,343)
(1,307)

5,290

2015
£’000

2,943
11,264
482
–
(5,247)

9,442

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

23. Other non-current liabilities

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

At 1 July
Additional liability in respect of LTIS awards
Transfer to current liabilities

At 30 June

2016
£’000

95
76
(57)

114

2015
£’000

115
74
(94)

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

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 53

24. Trade and other payables

Trade payables
Other taxes and social security
Other payables
Accruals and deferred income

Total trade and other payables

2016
£’000

4,870
2,509
219
11,246

18,844

2015
£’000

2,854
2,580
1,429
10,031

16,894

Included within accruals and deferred income in 2016 is an accrual of £179,000 (2015: £282,000) in respect of employer’s
National Insurance contributions arising from share option awards under the LTIS (note 29b) .

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 29) . 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 29b)
was £84,000 (2015: £114,000) .

25. Provisions

At 1 July 2014
Charge to the Statement of Comprehensive Income
Added on acquisitions during the year
Finance cost of deferred consideration
Fair value adjustments
Transfer from non-current liabilities
Utilised during the year

At 30 June 2015
Charge to the Statement of Comprehensive Income
Added on acquisitions during the year
Finance cost of deferred consideration
Fair value adjustments
Transfer from non-current liabilities
Utilised during the year

At 30 June 2016

Client
compensation
£’000

Deferred
consideration
£’000

503
400
–
–
–
–
(202)

701
125
–
–
–
–
(153)

673

8,293
–
2,304
278
(216)
2,943
(9,218)

4,384
–
–
79
(228)
1,307
(3,901)

1,641

FSCS
levy
£’000

351
510
–
–
–
–
(472)

389
475
–
–
–
–
(394)

470

Total
£’000

9,147
910
2,304
278
(216)
2,943
(9,892)

5,474
600
–
79
(228)
1,307
(4,448)

2,784

54 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

25. Provisions continued

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

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

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

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

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

Operating profit
Adjustments for:
Depreciation of property, plant and equipment
Loss on sale of fixed assets
Amortisation of intangible assets
Other gains and losses
(Increase)/decrease in receivables
Increase in payables
Increase in provisions
Increase/(decrease) in non-current liabilities
Share-based payments

Net cash inflow from operating activities

2016
£’000

16,482

969
9
2,674
(2,857)
(2,706)
1,950
53
19
943

17,536

2015
£’000

12,101

990
–
2,708
1,004
67
1,693
236
(20)
1,315

20,094

In the year ended 30 June 2015, the group obtained control of Levitas . The net cash outflow resulting from this business
combination is presented in note 13(c) on page 43 of the 2015 Annual Report and Accounts .

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 55

27. Share capital and share premium account

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

At 1 July 2014
Shares issued:
– on exercise of options
– to Sharesave Scheme

At 30 June 2015
Shares issued:
– on exercise of options
– to Sharesave Scheme

At 30 June 2016

Number of
shares
£’000

13,592,175

Exercise
price
(p)

29,500
38,545

155 .5-290 .5
916 .0-1,054 .0

Share
capital
£’000

135

–
1

Share
premium
account
£’000

Total
£’000

35,147

35,282

50
403

50
404

13,660,220

136

35,600

35,736

19,400
29,550

215 .0-290 .5
1,054 .0-1,386 .0

–
1

53
344

53
345

13,709,170

137

35,997

36,134

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

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

Employee Benefit Trust
The group established an Employee Benefit Trust (‘EBT’) on 3 December 2010 to acquire ordinary shares in the Company
to satisfy awards under the group’s Long Term Incentive Scheme (‘LTIS’) and other share-based payment schemes (note 29) .
At 30 June 2016, the EBT held 228,208 (2015: 207,532) 1p ordinary shares in the Company, acquired for a total consideration
of £3,376,000 (2015: £2,803,000) with a market value of £3,774,000 (2015: £3,668,000) . They are classified as treasury shares
in the Consolidated Statement of Financial Position, their cost being deducted from retained earnings within
shareholders’ equity .

28. Other reserves and retained earnings

Other reserves are comprised of the following balances:

Share option reserve
Merger reserve
Available for sale reserve

Total other reserves

2016
£’000

5,331
192
(6)

5,517

2015
£’000

4,909
192
–

5,101

56 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

28. Other reserves and retained earnings

28. Other reserves and retained earnings continued

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

Available for sale reserve
At beginning of the year
Revaluation of available for sale financial assets
Recycling of reserve due to impairment

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

29. Equity-settled share-based payments

2016
£’000

4,909
943
(806)
285

5,331

–
(6)
–

(6)

2016
£’000

33,327
12,739
(1,143)
806
(4,372)

41,357

2015
£’000

4,596
1,315
(1,334)
332

4,909

(68)
–
68

–

2015
£’000

27,456
9,151
(742)
1,334
(3,872)

33,327

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 annualised volatility of up to
50%, covering the period to the end of the contractual life . Volatility has been estimated on the basis of the Company’s
historical share price subsequent to flotation . The risk-free annual rate of interest is deemed to be the yield on a gilt edged
security with a maturity term of 3 years, ranging from 0 .30% 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 26% to 27% with a dividend yield of 1 .77% to 2 .06%, an expected vesting period of three
years and a risk-free annual rate of interest of between 0 .61% and 1 .00% .

The share options issued under the various equity-settled share-based payment schemes have been valued at prices ranging
from £0 .58 to £16 .28 per share . The charge to the Consolidated Statement of Comprehensive Income for the year in respect of
these was £943,000 (2015: £1,315,000) . The weighted average remaining contractual life of all equity-settled share-based
payment schemes at 30 June 2016 was 1 .48 years (2015: 1 .62 years) . The weighted average share price of all options
exercised during the year was £17 .71 (2015: £14 .84) . The total charge to the Consolidated Statement of Comprehensive
Income for the year for all share-based payment schemes was £1,027,000 (2015: £1,428,000) .

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 57

29. Equity-settled share-based payments continued

The exercise price and fair value of share options granted during the year was as follows:

Company Share Option Plan
Long Term Incentive Scheme
Employee Sharesave Scheme

Exercise
price (p)

Fair value
(p)

1,719
nil
1,400

278
1,628
357

a) Enterprise Management Incentive Scheme (‘EMI’)
Under the approved EMI Scheme, certain employees hold options to subscribe for shares in the Company at prices ranging
from 215p 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

2016

2015

Weighted
average
exercise price
(£)

3.81
–
2.73

4.83

Number
of options

39,753
–
(19,400)

20,353

Weighted
average
exercise price
(£)

2 .90
–
1 .71

3 .81

Number
of options

69,253
–
(29,500)

39,753

The number of share options outstanding at the reporting date was as follows:

Scheme year (grant date)

2006
2007
2010

All years

Exercise
price (p)

Vesting
period

215 .0 2009 – 2016
290 .5 2010 – 2017
775 .0 2013 – 2020

2016
Number
of options

2015
Number
of options

–
12,250
8,103

20,353

4,500
27,150
8,103

39,753

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

2016
Number
of options

198,291
60,671
(45,794)
(4,429)

208,739

2015
Number
of options

233,496
70,624
(95,215)
(10,614)

198,291

58 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

29. Equity-settled share-based payments continued

b) Long Term Incentive Scheme (‘LTIS’) continued

The number of share options outstanding at the reporting date was as follows:

Scheme year (grant date)

2010
2011
2012
2013
2014
2015

All years

Exercise
price (p)

Vesting
period

–
–
–
–
–
–

2013
2014
2015
2016
2017
2018

2016
Number
of options

10,550
6,863
26,285
40,795
64,156
60,090

2015
Number
of options

10,550
10,622
68,320
42,163
66,636
–

208,739

198,291

c) Employee Benefit Trust (‘EBT’)
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 .

At 1 July
Acquired in the year
Exercised in the year

At 30 June

2016
Number
of shares

207,532
66,470
(45,794)

228,208

2015
Number
of shares

249,696
53,051
(95,215)

207,532

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 .

At 1 July
Granted in the year
Lapsed in the year

At 30 June

2016

2015

Weighted
average
exercise price
(£)

14.16
17.105
17.19

15.67

Number of
options

39,927
42,501
(1,164)

81,264

Weighted
average
exercise price
(£)

14 .52
13 .81
14 .07

14 .16

Number of
options

21,016
22,110
(3,199)

39,927

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 59

29. Equity-settled share-based payments continued

d) Company Share Option Plan (‘CSOP’) continued

The number of share options outstanding at the reporting date was as follows:

Scheme year (grant date)

2013
2014
2015

All years

Exercise
price (£)

14 .52
13 .81
17 .19

Vesting
period

2016
2017
2018

2016
Number
of options

2015
Number
of options

19,810
20,117
41,337

81,264

19,810
20,117
–

39,927

e) Employee Sharesave Scheme
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

The number of share options outstanding at 30 June 2016 was as follows:

2016

2015

Number
of options

223,664
54,837
(21,118)
(31,494)

225,889

Weighted
average
exercise
price (£)

12.86
14.00
12.79
11.60

13.32

Number
of options

231,472
96,466
(67,673)
(36,601)

223,664

Weighted
average
exercise
price (£)

12 .85
12 .37
13 .39
10 .48

12 .86

Scheme year (grant date)

2012
2013
2014
2015
2016

All years

30. Lease commitments

Exercise
price (p)

1,054 .0
1,172 .0
1,386 .0
1,237 .0
1,400 .0

Vesting
period

2015
2016
2017
2018
2019

2016
Number
of options

2015
Number
of options

–
920
85,153
84,979
54,837

3,922
30,656
92,620
96,466
–

225,889

223,664

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

2016
£’000

1,966
4,469
–

2015
£’000

1,234
5,892
1

60 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

31. Discretionary funds under management

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

32. Financial risk management

2016
£’000

773,899
7,528,077

8,301,976

2015
£’000

544,855
6,868,145

7,413,000

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 .

At 30 June 2016

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

On demand
£’000

Not more than
3 months
£’000

–

–
19,478
–
–

19,478

–
–

–

–
–
5,939
7,028

12,967

4,870
13,182

18,052

After
3 months but
not more than
1 year
£’000

After 1 year
but not more
than 6 years
£’000

Financial
assets with
no fixed
repayment
date
£’000

Total
£’000

–

–
–
–
133

133

–
2,314

2,314

–

–
–
–
–

–

–
5,874

5,874

1,715

1,000
–
–
–

2,715

–
–

–

1,000
19,478
5,939
7,161

35,293

4,870
21,370

26,240

9,053

Net liquidity gap

19,478

(5,085)

(2,181)

(5,874)

2,715

a) Liquidity risk

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 61

32. Financial risk management continued

a) Liquidity risk continued

At 30 June 2015

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

On demand
£’000

Not more than
3 months
£’000

–

–
19,274
–
–

19,274

–
–

–

–
–
5,854
9,936

15,790

2,854
12,331

15,185

After
3 months but
not more than
1 year
£’000

After 1 year
but not more
than 6 years
£’000

Financial
assets with
no fixed
repayment
date
£’000

Total
£’000

–

–
–
–
122

122

–
4,602

4,602

–

–
–
–
–

–

–
9,537

9,537

1,532

3
–
–
–

1,535

–
–

–

3
19,274
5,854
10,058

36,721

2,854
26,470

29,324

7,397

Net liquidity gap

19,274

605

(4,480)

(9,537)

1,535

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 £195,000 (2015: £190,000) . 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 16 and 20) . A 1% fall in the value of these financial instruments would have the impact of reducing
total comprehensive income by £27,000 (2015: £15,000) and profit before tax by £nil (2015: £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 2016 there was no significant concentration of credit risk in any particular counterparty (2015: none) .

Assets exposed to credit risk recognised on the Consolidated Statement of Financial Position total £19,478,000 (2015:
£19,274,000), being the group’s total cash and cash equivalents .

c) Credit risk

62 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

32. Financial risk management continued

c) Credit risk continued

Trade receivables with a carrying amount of £5,939,000 (2015: £5,854,000) 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 (2015: all) .

33. 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 2016 was £83,008,000 (2015: £74,164,000) . 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 2016 ICAAP
was approved in August 2016 . 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 .

34. Guarantees and contingent liabilities

Brooks Macdonald Asset Management Limited, a subsidiary company of the group, has an agreement with the Royal Bank of
Scotland plc to guarantee settlement for trading with CREST stock on behalf of clients . The group holds client assets to fund
such trading activity .

Additional levies by the Financial Services Compensation Scheme may give rise to further obligations based on the group’s
income in the current or previous years . Nevertheless, the ultimate cost to the group of these levies remains uncertain and is
dependent upon future claims resulting from institutional failures .

35. 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:

S J Jackson

Loan balance

Maximum amount

2016
£’000

2015
£’000

2016
£’000

2015
£’000

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 63

35. Related party transactions continued

Transactions between the Company and its subsidiaries, which are related parties, are eliminated on consolidation . The
Company’s individual financial statements include the amounts attributable to subsidiaries . These amounts are disclosed in
aggregate in the relevant company financial statements and in detail in the following table:

Brooks Macdonald Funds Limited
Braemar Facilities Management Limited
Braemar Estates (Residential) Limited
North Row Capital LLP
Levitas Investment Management Services Limited
Braemar Group Limited
Brooks Macdonald Financial Consulting Limited
Brooks Macdonald Asset Management Limited
Brooks Macdonald Nominees Limited

Amounts owed
by related parties

Amounts owed
to related parties

2016
£’000

1,252
5
–
6
9
661
–
–
–

2015
£’000

1,126
2
42
2
–
655
259
–
–

2016
£’000

–
–
81
–
–
–
475
9,456
2,583

2015
£’000

–
–
–
–
–
–
–
7,553
2,583

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 class B ordinary shares in Braemar Group PCC Limited Student Accommodation
Cell (note 16) . Financial assets at fair value through profit or loss include an investment of 563,689 .4025 class A units in the
IFSL Brooks Macdonald Balanced Fund made during the year (note 20) . These transactions were conducted on an arm’s
length basis at market value .

The group holds a 60% interest in North Row Capital LLP, a joint venture, details of which are given in note 17 .

36. Interest in unconsolidated structured entities

Structured entities are those entities that have been designed so that voting or similar rights are not the dominant factor in
deciding who has control, such as when any voting rights relate to administrative tasks only, or when the relevant activities
are directed by means of contractual arrangements . The group’s interests in consolidated and unconsolidated structured
entities are described below .

The only consolidated structured entity is the Employee Benefit Trust (‘EBT’), details of which are given in note 27 .

64 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the consolidated financial statements

for the year ended 30 June 2016 | continued

36. Interest in unconsolidated structured entities continued

The group has interests in structured entities as a result of contractual arrangements arising from the management of assets
on behalf of its clients . Assets under management within the Funds and property management segment include those
managed within structured entities . These structured entities consist of unitised vehicles such as Open Ended Investment
Companies (OEICs) which entitle investors to a percentage of the vehicle’s net asset value . The structured entities are
financed by the purchase of units or shares by investors . As fund manager, the group does not guarantee returns on its funds
or commit to financially support its funds . Where external finance is raised, the group does not provide a guarantee for the
repayment of any borrowings . The business activity of all structured entities, in which the group has an interest, is the
management of assets in order to maximise investment returns for investors from capital appreciation and/or investment
income . The group earns a management fee from its structured entities, based on a percentage of the entity’s net asset value .

The main risk the group faces from its interest in FUM managed on behalf of external investors is the loss of fee income as a
result of the withdrawal of funds by clients . Outflows from funds are dependent on market sentiment, asset performance and
investor considerations . The assets under management of unconsolidated structured entities total £625m (2015: £398m) .
Included in revenue on the consolidated statement of comprehensive income is management fee income of £3,027,000
(2015: £1,980,000) from unconsolidated structured entities managed by the group .

37. Events since the end of the year

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

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

TO T H E M E M BE R S OF BRO OK S M AC D ONA L D GROU P PLC

I N DE PE N DE N T AU DI TOR S ’ R E PORT

Independent auditors’ report

to the members of Brooks Macdonald Group plc

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 65

Report on the parent company
financial statements

Our opinion
In our opinion, Brooks Macdonald
Group plc’s parent company financial
statements (the ‘financial statements’):

•

give a true and fair view of the state
of the parent company’s affairs as at
30 June 2016 and of its 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 as applied in accordance
with the provisions of the
Companies Act 2006; and

• have been prepared in accordance

with the requirements of the
Companies Act 2006 .

What we have audited
The financial statements, included
within the Annual Report & Accounts
(the ‘Annual Report’), comprise:

•

the Company Statement of Financial
Position as at 30 June 2016;

the Company Statement of Cash
Flows for the year then ended;

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

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

The financial reporting framework
that has been applied in the
preparation of the financial
statements is IFRSs as adopted by
the European Union, and applicable
law, and as applied in accordance with
the provisions of the Companies
Act 2006 .

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

estimates, they have made
assumptions and considered future
events .

Opinion on other matter
prescribed by the Companies
Act 2006

Other matters on which we are
required to report by exception

Adequacy of information and
explanations received
Under the Companies Act 2006 we are
required to report to you if, in our
opinion:

• we have not received all the

information and explanations we
require for our audit; or

•

adequate accounting records have
not been kept by the parent
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 .

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 22,
the directors are responsible for the
preparation of the financial
statements and for being satisfied that
they give a true and fair view .

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

• whether the accounting policies are
appropriate to the parent 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 .

I N DE PE N DE N T AU DI TOR S ’ R E PORT

TO T H E M E M BE R S OF BRO OK S M AC D ONA L D GROU P PLC |

C ON T I N U E D

A S AT 30 J U N E 2016

COM PA N Y STAT E M E N T OF F I NA NC I A L PO SI T ION

66 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Independent auditors’ report

to the members of Brooks Macdonald Group plc | continued

Other matter

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

Natasha McMillan (Senior Statutory
Auditor) for and on behalf of
PricewaterhouseCoopers LLP
Chartered Accountants
and Statutory Auditors

London

20 September 2016

Responsibilities for the
financial statements and
the audit continued

What an audit of financial statements
involves continued

A S AT 30 J U N E 2016

COM PA N Y STAT E M E N T OF F I NA NC I A L PO SI T ION

Company statement of financial position

as at 30 June 2016

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 67

Assets
Non-current assets
Investment in subsidiaries
Available for sale financial 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

Total non-current liabilities

Current liabilities
Trade and other payables

Total current liabilities

Net assets

Equity
Share capital
Share premium account
Share option reserve
Revaluation reserve
Retained earnings

Total equity

Note

2016
£’000

2015
£’000

2014
£’000

65,610
971

66,581

2,121
994
1,831

4,946

71,527

(5,290)

(16,429)

49,808

137
35,997
4,767
–
8,907

49,808

64,462
782

65,244

1,846
–
526

2,372

67,616

(9,442)

(13,051)

45,123

136
35,600
4,404
–
4,983

45,123

51,883
1,432

53,315

6,730
–
5,254

11,984

65,299

–

(27,751)

37,548

135
35,147
4,202
(68)
(1,868)

37,548

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

C A J Macdonald
Chief Executive

S J Jackson
Finance Director

Company registration number: 4402058

The accompanying notes on pages 70 to 79 form an integral part of the company financial statements .

COM PA N Y STAT E M E N T OF C H A NGE S I N EQU I T Y

A S AT 30 J U N E 2016

FOR T H E Y E A R E N DE D 30 J U N E 2016

COM PA N Y STAT E M E N T OF CA SH F LOWS

68 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Company statement of changes in equity

as at 30 June 2016

Balance at 1 July 2014

135

35,147

(68)

4,202

(1,868)

37,548

Share capital
£’000

Share
premium
account
£’000

Other
reserves
£’000

Share option
reserve
£’000

Retained
earnings
£’000

Total
£’000

Comprehensive income
Profit for the year (note 40)
Other comprehensive income:
Revaluation reserve recycled

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
Dividends paid (note 41)

Total transactions with owners

–

1
–
–

–
–

–

453
–
–

–
–

453

Balance at 30 June 2015

136

35,600

Comprehensive income
Profit for the year (note 40)

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
Dividends paid (note 41)

Total transactions with owners

–

1
–
–

–
–

–

397
–
–

–
–

397

Balance at 30 June 2016

137

35,997

–

–
–
–

–
–

–

–
–
–

–
–

–

10,352

–

10,352

10,420

–
1,315
(1,113)

–
–

202

4,404

–
–
1,113

(742)
(3,872)

(3,501)

454
1,315
–

(742)
(3,872)

(2,845)

4,983

45,123

–

8,859

–
943
(580)

–
–

363

4,767

–
–
580

(1,143)
(4,372)

(4,935)

398
943
–

(1,143)
(4,372)

(4,174)

8,907

49,808

The accompanying notes on pages 70 to 79 form an integral part of the company financial statements .

FOR T H E Y E A R E N DE D 30 J U N E 2016

COM PA N Y STAT E M E N T OF CA SH F LOWS

Company statement of cash flows

for the year ended 30 June 2016

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 69

Cash flow from operating activities
Cash generated from operations

Net cash generated from operating activities

Cash flows from investing activities
Investment in subsidiaries
Purchase of available for sale financial assets
Purchase of financial assets at fair value through profit and loss
Deferred consideration paid

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 financing activities

Net increase/(decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Note

2016
£’000

9,419

(250)
(500)
(1,000)
(1,247)

(2,997)

398
(1,143)
(4,372)

(5,117)

1,305

526

1,831

2015
£’000

10,696

(11,264)
–
–
–

(11,264)

454
(742)
(3,872)

(4,160)

(4,728)

5,254

526

The accompanying notes on pages 70 to 79 form an integral part of the company financial statements .

NOT E S TO T H E COM PA N Y F I NA NC I A L STAT E M E N TS

FOR T H E Y E A R E N DE D 30 J U N E 2016

70 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the company financial statements

for the year ended 30 June 2016

38. Principal accounting policies

General information
Brooks Macdonald Group plc (the ‘Company’) is the parent company of a group of companies . The Company is a public limited
company, incorporated and domiciled in the United Kingdom under the Companies Act 2006 and listed on AIM . The address
of its registered office is 72 Welbeck Street, London, W1G 0AY .

Statement of compliance
The individual financial statements of the Company are presented as required by the Companies Act 2006 and have been
prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union . These
are the Company’s first financial statements prepared in accordance with IFRS and IFRS 1 “First time adoption of
International Financial Reporting Standards” has been applied . An explanation of how the transition to IFRS has affected the
reported financial position, financial performance and cash flows of the Company is provided in note 53 .

Developments in reporting standards and interpretations
Developments in reporting standards and interpretations are set out in note 2 to the consolidated financial statements .
The principal accounting policies adopted are set out below:

a) Basis of preparation
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 . As permitted by Section 408 of the Companies Act 2006, the
company has elected not to present its own Statement of Comprehensive Income for the financial year .

b) Investments in subsidiary companies
Where the Company has investments in subsidiary companies; whereby one entity (the ‘subsidiary’) is controlled by another
entity (the ‘parent’), the investments are stated at cost less, where appropriate, provision for impairment . The carrying values
of investments in subsidiary companies are reviewed annually to determine whether any indicator of impairment exists .

c) Retirement benefit costs
Contributions in respect of the group’s defined contribution pension scheme are recognised in the Income Statement as they
fall due .

d) 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 Income Statement on the
purchase, sale, issue or cancellation of these shares .

e) Other investments
Other quoted investments are designated as available for sale and re-valued each reporting period to their fair value
according to the most recently available market information .

Accounting policies in relation to impairment, dividend income, interest income, operating leases, foreign currency, taxation,
cash and cash equivalents and share based payments are set out in note 2 to the consolidated financial statements .

FOR T H E Y E A R E N DE D 30 J U N E 2016 |

C ON T I N U E D

NOT E S TO T H E COM PA N Y F I NA NC I A L STAT E M E N TS

Notes to the company financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 71

39. Critical accounting judgements and key sources of estimation and uncertainty

The critical accounting judgement and key source of estimation and uncertainty arise from the company’s acquisition of
Levitas Investment Management Services Limited in July 2014 . This is described in note 2(d) to the consolidated financial
statements .

40. Profit for the year

Brooks Macdonald Group plc reported profit after tax for year ended 30 June 2016 of £8,859,000 (2015: £10,352,000) .
Auditors’ remuneration is disclosed in note 7 of the consolidated financial statements . The average monthly number of
employees during the year was 10 (2015: 10) . Directors’ emoluments are set out in note 8 of the consolidated financial
statements .

41. Dividends

Details of the Company’s dividends paid and proposed, subject to approval at the annual general meeting, are set out in note
12 of the consolidated financial statements .

42. Investment in subsidiaries and related undertakings

Net book value

At 1 July 2014
Additions:
– Acquisition of subsidiary
– Capital contribution relating to share-based payments

At 30 June 2015
Additions:
– Investment in subsidiary
– Capital contribution relating to share-based payments

At 30 June 2016

Group
undertakings
£’000

51,883

11,264
1,315

64,462

250
898

65,610

In the year ended 30 June 2016, the Company invested £250,000 in the ordinary share capital of Brooks Macdonald
Retirement Services (International) Limited . In the year ended 30 June 2015 the Company acquired 100% of the share capital
of Levitas at a cost of £11,264,000 . The capital contribution relating to share-based payments reflects the share options
granted by the Company to employees of its subsidiary undertakings .

72 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the company financial statements

for the year ended 30 June 2016 | continued

42. Investment in subsidiaries and related undertakings continued

Details of the Company’s subsidiary undertakings at 30 June 2016, all of which were 100% owned and included in the
consolidated financial statements, are provided below:

Company

Braemar Estates (Mortgages & Finance) Limited

Braemar Estates (Residential) Limited

Braemar Facilities Management Limited

Braemar Group Limited

Brooks Macdonald Asset Management Limited

Brooks Macdonald Asset Management
(International) Limited

Brooks Macdonald Asset Management
(Tunbridge Wells) Limited

Brooks Macdonald Financial Consulting Limited

Brooks Macdonald Funds Limited

Brooks Macdonald Investment Services Limited

Brooks Macdonald Nominees Limited

Brooks Macdonald Retirement Services
(International) Limited

Type of shares
and par value

Country of
incorporation

Ordinary £1

Ordinary 1p

Ordinary £1

Nature of
business

Dormant

Property management

Investment management

Ordinary 1p &
Preference £1 Channel Islands

Investment management

Ordinary £1

Ordinary 5p

Ordinary £1

Non-trading

Financial consulting

Fund management

Dormant

Non-trading

Ordinary £1 Channel Islands

Retirement planning

Brooks Macdonald Tax Services Limited

Ordinary £1

Dormant

DPZ Capital Limited*

DPZ Nominees Limited

JGHP Limited

JPAM Limited

Levitas Investment Management Services Limited

Long Income REIT Limited

Secure Nominees Limited

UK Farming Limited

Ordinary £1 Channel Islands

Investment management

Ordinary £1 Channel Islands

Ordinary £1

Ordinary 50p

Non-trading

Fund Sponsor

Investment vehicle

Ordinary £1 Channel Islands

Non-trading

Ordinary 50p

UK Agricultural land investment

* DPZ Capital Limited ceased to exist as a separate entity following a legal merger with Brooks Macdonald Asset Management (International) Limited in December 2015 .

Associated undertakings of the Company and its subsidiaries also have a 60% interest in a joint venture as shown below:

Entity

North Row Capital LLP

Type of interest

Country of
incorporation

Nature of business

Members’ capital

Investment research

Notes to the company financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 73

43. Available for sale financial assets

At 1 July
Additions
Revaluation
Accumulated loss on revaluation reserve recycled
Impairment loss

At 30 June

2016
£’000

782
500
–
–
(311)

971

2015
£’000

1,432
–
–
68
(718)

782

2014
£’000

1,582
–
(150)
–
–

1,432

The Company holds investments of 1,426,793 .64 class B ordinary shares, representing an interest of 10 .88%, in Braemar
Group PCC Limited Student Accommodation Cell (‘Student Accommodation Fund’); and 500,000 redeemable preference
shares in an unlisted company incorporated in the UK .

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

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

An analysis of these financial instruments and the level within the fair value hierarchy into which they are categorised is
provided within note 16 of the consolidated financial statements .

44. Trade and other receivables

Amounts owed by subsidiary undertakings
Other receivables
Prepayments and accrued income

At 30 June

2016
£’000

1,934
25
162

2,121

2015
£’000

1,729
71
46

1,846

2014
£’000

6,461
269
–

6,730

Amounts owed by subsidiary companies are unsecured, interest-free and repayable on demand .

74 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the company financial statements

for the year ended 30 June 2016 | continued

45. Financial assets at fair value through profit or loss

At beginning of year
Additions
Loss from changes in fair value

At 30 June

2016
£’000

–
1,000
(6)

994

2015
£’000

–
–
–

–

2014
£’000

–
–
–

–

These investments are classified as Level 1 as defined in note 16 to the consolidated financial statements .

46. Deferred consideration

Deferred consideration is split between non-current liabilities and other payables within current liabilities (note 47) to the
extent that it is due for payment within one year of the reporting date . It reflects the directors’ best estimate of amounts
payable in the future in respect of certain client relationships and subsidiary undertakings that were acquired by the group .
Deferred consideration is measured at its fair value based on discounted expected future cash flows . The amount outstanding
at 30 June 2016 of £5,290,000 (2015: £9,442,000) related exclusively to amounts payable in respect of the acquisition of Levitas .

47. Trade and other payables

Trade payables
Amounts owed to subsidiary undertakings
Other payables
Accruals and deferred income

At 30 June

2016
£’000

144
12,596
1,641
2,048

16,429

2015
£’000

36
9,779
1,580
1,656

13,051

2014
£’000

27
21,307
4,705
1,712

27,751

Amounts owed to subsidiary companies are unsecured, interest-free and are repayable on demand . Included in other
payables is £1,641,000 (2015: £1,580,000; 2014: nil) 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 in 2015 .

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

Operating profit
Adjustments for:
Impairment of available for sale financial assets
Changes in fair value of financial assets at fair value through profit or loss
Changes in fair value of deferred consideration
(Increase)/decrease in receivables
Increase/(decrease) in payables
Share based payments
Increase in non-current liabilities

Net cash inflow from operating activities

2016
£’000

8,859

311
6
(3,343)
(275)
3,816
45
–

9,419

2015
£’000

10,352

718
–
–
4,884
(14,700)
–
9,442

10,696

Notes to the company financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 75

49. Share capital and share premium account

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

At 1 July 2013
Shares issued

At 30 June 2014
Shares issued

At 30 June 2015
Shares issued

At 30 June 2016

Number of
shares

13,347,974
244,201

13,592,175
68,045

13,660,220
48,950

13,709,170

Share
capital
£’000

133
2

135
1

136
1

137

Share
premium
account
£’000

31,867
3,280

35,147
453

35,600
397

35,997

Total
£’000

32,000
3,282

35,282
454

35,736
398

36,134

The total number of ordinary shares, issued and fully paid at 30 June 2016, was 13,709,170 (2015: 13,660,220; 2014:
13,592,175) with a par value of 1p per share . Excluding 228,208 (2015: 207,532; 2014: 249,696) treasury shares held by the
EBT, the Company had 13,480,962 (2015: 13,452,688; 2014: 13,342,479) ordinary 1p shares in issue as at 30 June 2016 . Details
of the shares issued are given in note 27 of the consolidated financial statements .

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 29) . 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 .

During the year, the Trust received instructions to exercise 45,794 (2015: 95,215; 2014: 11,376) options . The cost of the shares
released on exercise of these options amounted to £558,000 (2015: £1,113,000; 2014: £109,000) . At 30 June 2016, the number
of shares held by the Trust was 228,208 (2015: 207,532; 2014: 249,696) with a market value of £3,775,000 (2015: £3,668,000;
2014: £3,906,000) acquired for a total consideration of £3,376,000 (2015: £2,803,000; 2014: £3,168,000) . These shares are
presented as treasury shares in the group financial statements and their cost is deducted from retained earnings within
shareholders’ equity .

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 .

50. Lease commitments

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

2016
£’000

1,745
4,445
–

2015
£’000

1,012
5,315
–

76 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the company financial statements

for the year ended 30 June 2016 | continued

51. Related party transactions

The remuneration of key personnel of the Company, defined as the Company’s directors, is set out below:

Short-term employee benefits
Post-employment benefits
Share-based payments

Total compensation

2016
£’000

2,466
25
445

2,936

2015
£’000

2,434
25
346

2,805

Dividends totalling £562,000 (2015: £564,000) were paid in the year in respect of ordinary shares held by key management
personnel and their close family members .

During the year, the Company entered into the following transactions with its subsidiaries:

Dividends received:
– Brooks Macdonald Asset Management Limited
– Brooks Macdonald Asset Management (International) Limited

Total transactions with subsidiaries

2016
£’000

9,759
–

9,759

2015
£’000

13,589
865

14,454

The Company’s balances with fellow group companies at 30 June 2016 are set out in note 35 to the consolidated financial
statements . One director took advantage of the Group’s interest-free season ticket loan facility, details of which are disclosed
in the same note . All transactions with fellow group companies are carried out at arm’s length and all outstanding balances
are to be settled in cash . None of the balances are secured and no provisions have been made for doubtful debts in respect of
any of the amounts due from fellow group companies .

52. Financial risk management objectives and policies

The financial risk management objectives and policies applied by the Company are in line with those of the group as
disclosed in note 32 to the consolidated financial statements .

53. Explanation of transition to IFRS

As stated in note 38, these are the first set of financial statements prepared in accordance with IFRS . The accounting policies
set out in note 38 have been applied in preparing the financial statements for the year ended 30 June 2016, the comparative
information presented in these financial statements for the year ended 30 June 2015 and in preparation of an opening IFRS
Statement of Financial Position at 30 June 2014 (the opening position on 1 July 2014, the date of the transition to IFRS) . In
preparing its opening IFRS Statement of Financial Position, the Company has adjusted amounts reported previously in
financial statements prepared in accordance with UK Generally Accepted Accounting Principles (UK GAAP), see detailed
workings on pages 78 and 79 . An explanation of how the transition from previous UK GAAP to IFRS has affected the
Company’s reported financial position from previous UK GAAP to IFRS is set out in the following notes and tables .

Notes to the company financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 77

53. Explanation of transition to IFRS continued

Transitional arrangements
IFRS 1 “First time adoption of International Financial Reporting Standards” permits companies adopting IFRS for the first time
to take certain exemptions from the full requirements of IFRS in the transition period . The Company’s application of the
optional exemptions is as follows:

Assets and Liabilities measured at the group’s transition date to IFRS
The company has taken advantage of the option given in IFRS 1 to measure its assets and liabilities at the carrying value
amounts that were included in the group’s consolidated financial statements, based on the group’s transition to IFRS
on 1 July 2006 .

Investments in subsidiaries
The Company has elected to recognise all its investments in subsidiaries at their deemed cost, which was the carrying value
under UK GAAP .

Other Investments
The Company has elected to classify equity instruments with a carrying value at 1 July 2015 of £782,000 (2014: £1,432,000)
as available for sale financial assets .

Key impacts of IFRS
The significant differences between UK GAAP and IFRS which impact on the Company’s reported financial position, financial
performance and cash flows are set below:

IAS1 and IAS 39 – Presentation of Financial Statements and Financial Instruments: Recognition and Measurement
The Statement of Financial Position and applicable notes have been amended to reflect the presentational disclosures
required by IAS 1 and IAS 39 .

IAS 39 – Financial Instruments: recognition and measurement
In accordance with IAS 39, the Company has recognised gains or losses on revaluation of available for sale equity securities
in other comprehensive income .

IAS12 – Income Taxes
IAS 12 requires that deferred tax on equity items is recognised directly in equity . UK GAAP requires that all such deferred tax
is recognised in the Income Statement . In addition, deferred tax is recognised on available for sale assets under IAS12 . No
such deferred tax is recognised under UK GAAP . Reported profit after tax for the year ended 30 June 2015 and for 30 June
2014 has not changed because there was no deferred tax relating to the available for sale asset . 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 .

IAS 7 – Statement of cash flows
The Company has prepared its Statement of Cash Flows in accordance with IAS 7 . Under IAS 7, the Statement of Cash Flows
shows the movement in cash and cash equivalents, being defined as cash in hand, demand deposits and short term highly
liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of
change in value . Under UK GAAP, the Company was exempt from the requirement to prepare a Statement of Cash Flows .

78 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

Notes to the company financial statements

for the year ended 30 June 2016 | continued

53. Explanation of transition to IFRS continued

Reconciliation of the Statement of Financial Position at 1 July 2014 (date of transition to IFRS)

Assets
Non-current assets
Investments
Investment in subsidiaries
Available for sale financial assets

Total non-current assets

Current assets
Amounts owed by group undertakings
Other debtors
Trade and other receivables
Cash and cash equivalents

Total current assets

Total assets

Liabilities
Current liabilities
Trade creditors
Amounts owed to subsidiary undertakings
Accruals
Other creditors
Trade and other payables

Total current liabilities

Net assets

Equity
Share capital
Share premium account
Share option reserve
Revaluation reserve
Profit and loss account
Retained earnings

Total equity

Presentation
of financial
statements
(IAS 1 &
IAS 39)
£’000

UK GAAP
1 July 2014
£’000

IFRS
1 July 2014
£’000

53,315
–
–

53,315

6,461
269
–
5,254

11,984

65,299

(27)
(21,307)
(1,712)
(4,705)
–

(27,751)

37,548

135
35,147
4,202
(68)
(1,868)
–

37,548

(53,315)
51,883
1,432

–

(6,461)
(269)
6,730
–

–

27
21,307
1,712
4,705
(27,751)

–

–
–
–
–
1,868
(1,868)

–
51,883
1,432

53,315

–
–
6,730
5,254

11,984

65,299

–
–
–
–
(27,751)

(27,751)

37,548

135
35,147
4,202
(68)
–
(1,868)

–

37,548

Notes to the company financial statements

for the year ended 30 June 2016 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2016 | 79

53. Explanation of transition to IFRS continued

Reconciliation of the Statement of Financial Position at 30 June 2015

Assets
Non-current assets
Investments
Investment in subsidiaries
Available for sale financial assets

Total non-current assets

Current assets
Amounts owed by group undertakings
Other debtors
Trade and other receivables
Cash and cash equivalents

Total current assets

Total assets

Liabilities
Non-current liabilities
Deferred consideration

Total non-current liabilities

Current liabilities
Trade creditors
Amounts owed to subsidiary undertakings
Accruals
Other creditors
Trade and other payables

Total current liabilities

Net assets

Equity
Share capital
Share premium account
Share option reserve
Profit and loss account
Retained earnings

Total equity

Presentation
of financial
statements
(IAS 1 &
IAS 39)
£’000

IFRS
30 June 2015
£’000

UK GAAP
30 June 2015
£’000

65,244
–
–

65,244

1,729
117
–
526

2,372

67,616

(9,442)

(36)
(9,779)
(1,656)
(1,580)
–

(13,051)

45,123

136
35,600
4,404
4,983
–

45,123

(65,244)
64,462
782

–

(1,729)
(117)
1,846
–

–

36
9,779
1,656
1,580
(13,051)

–

–
–
–
(4,983)
4,983

–

–
64,462
782

65,244

–
–
1,846
526

2,372

67,616

(9,442)

–
–
–
–
(13,051)

(13,051)

45,123

136
35,600
4,404
–
4,983

45,123

80 | Brooks Macdonald Group plc | Annual Report and Accounts 2016

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