Brooks Macdonald Group plc Annual Report 2017

FY2017 Annual Report · Brooks Macdonald Group plc

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Annual Report
& Accounts
for the year ended 30 June 2017

Contents

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

01
02
03-06
07-24

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

25-26
27

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

30-36

38
Consolidated statement of financial position . . . . .
39
Consolidated statement of changes in equity . . . . .
Consolidated statement of cash flows . . . . . . . . . . . . .
40
Notes to the consolidated financial statements . 41-78

Company financial statements
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

79
80
81
82-89
90

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

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 01

Highlights of the year

Financial highlights

Business highlights

• Growth in underlying profits across all four business

segments

• An increased dividend and commitment to a progressive

dividend policy, reflecting the board’s continued confidence
in the strength of the business

• Announced the sale of Braemar Estates, the Group’s

property management division

• Discretionary funds under management reached £10 .5bn

with strong organic growth and investment performance

• Continued to invest for the future, delivering our IT system
development to migrate our Channel Islands data on to a
common platform for the Group

• Reflecting our commitment to treating clients fairly and

supporting relationships with our professional
intermediaries, proactively dealing with legacy matters
arising from the former Spearpoint business

• Expansion of our distribution capability with two new
strategic alliances, including our first internationally

• Extended our UK regional footprint with the opening of a

new investment management office in Cardiff

• Retained our Defaqto five star ratings for each of our main

discretionary services and received the prestigious
industry Gold Standard Award for service in discretionary
fund management

• Our Leamington Spa and Tunbridge Wells offices won

their geographical category in the 2017 Citywire Regional
Star Awards

+26%

Discretionary funds under management
30 June 2017: £10 .456 billion
30 June 2016: £8 .301 billion

+19%

Underlying† pre-tax profit
2017: £18 .426 million
2016: £15 .536 million

-49%

Statutory pre-tax profit
2017: £8 .044 million
2016: £15 .856 million

+17%

Total dividends per share
2017: 41 .0p*
2016: 35 .0p

+32%

Underlying† basic earnings per share
2017: 115 .76p
2016: 87 .92p

-55%

Statutory basic earnings per share
2017: 42 .95p
2016: 94 .41p

* Including a proposed final dividend of 26 .0p per share .

† Excludes finance costs of deferred consideration, changes in fair value of deferred consideration, amortisation of intangible assets, impairment

of goodwill and the exceptional costs of resolving legacy matters . A reconciliation between underlying profit before tax and statutory profit

before tax is shown in table 2 of the Strategic Report .

C H A I R M A N ’ S STAT E M E N T

02 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Chairman’s statement

I am pleased to report another year of
strong progress.

Christopher Knight Chairman

Caroline Connellan joined Brooks
Macdonald as Chief Executive in
April succeeding Chris Macdonald,
who remains on the board in a
non‑executive capacity. Caroline
brings more than 20 years’
experience in the financial services
industry, most recently as Head of UK
Premier and Wealth at HSBC. She
joins the group at an exciting point in
its development.

Our discretionary funds under
management grew substantially
during the year, surpassing the
significant milestone of £10bn in April
2017 and reaching £10.5bn as at
30 June 2017 (2016: £8.3bn), an
increase of 25.9%. This compares to a
10.5% increase in the FTSE UK Private
Investor Balanced Index and
represents a combination of
investment performance (14.5%) and
continued organic growth (11.5%).

sale of Braemar Estates, our
property management division,
which will enable us to focus on our
core businesses.

The board has recommended a final
dividend of 26.0p (2016: 23.0p) which,
subject to approval by shareholders,
will result in total dividends for the
year of 41.0p (2016: 35.0p). This
represents an increase of 17.1% on the
previous year and reaffirms the
board’s confidence in the strength of
the business and our commitment
to a progressive dividend policy.
The final dividend will be paid on
27 October 2017 to shareholders on
the register at the close of business on
29 September 2017.

Richard Spencer and Simon
Wombwell are not seeking re-election
to the board at this year’s AGM,
although both will continue as key
members of the Group Executive
Committee, as Chief Investment
Officer and Head of UK Distribution
respectively. This will reduce the
board to nine, made up of five
non-executive directors and four
executive directors, a board
composition in line with current
corporate governance practice.

The financial services industry is
going through an unprecedented
period of regulatory change, which
will have a profound impact on
businesses throughout the sector.
We recognise the demands this places

on the business and consequently
will be increasing investment in
regulatory and risk management
capabilities as outlined in the Chief
Executive’s Review below. This will
provide a strong foundation,
positioning the business for future
growth.

The result of the EU referendum in
2016 and the subsequent UK General
Election in June 2017 have begun to
impact on the UK’s macroeconomic
outlook and uncertainty surrounding
the nature of the UK’s future
relationship with the EU will persist
over the next eighteen months as
negotiations with the EU continue.
We have already seen a fall in
consumer spending. These factors,
combined with the global geopolitical
risks that have recently begun to
weigh on market sentiment, cause us
to remain cautious in our external
outlook. Nevertheless, the Group is
well-positioned to weather any
turbulence, with a strong balance
sheet (net cash £32.2m (2016:
£19.5m)). We are confident that the
Group will continue to prosper and
deliver high standards of service to
our clients as well as value for our
shareholders through our investment
to support future growth.

Christopher Knight
Chairman

20 September 2017

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 2017 | 03

Chief Executive’s review

As we continue to invest in the Group, I look forward
to building on our success to date and positioning the
business to deliver growth into the future.

Introduction

Having taken over as Chief Executive
of Brooks Macdonald in April 2017,
I am delighted to present my first
report covering a year when we have
continued to deliver strong
underlying Group performance,
although statutory profit has fallen
principally as a result of the
previously announced provision for
legacy matters . As a result of the hard
work and dedication of all our staff
under Chris Macdonald’s prior
leadership, I have joined a business
that is well positioned in the market
and I intend to build on this
strong foundation .

Since my arrival I have had the
opportunity to visit each of our offices,
meeting many of the advisers we
partner with as well as spending time
with our people, listening and learning
about the business first-hand . I have
been particularly impressed by our
culture with its strong emphasis on
client relationships and service . This
has been fundamental to our growth
to date and it will remain central to our
success going forward . I would like to
thank everyone at Brooks Macdonald
for making me feel welcome and Chris
for his support during the handover .

Discretionary fund management is
our core business and we will be
looking for opportunities to grow it
further, including enhancing our

offering and service levels, as well as
continuing to adapt – given the fast
changing external environment – to
retain our strong market position . We
have already announced additional
investment in our regulatory and risk
management capabilities to build a
stronger platform both now and for
delivering sustainable growth in the
future . Pursuing greater efficiency in
the business is another of my priorities
in order to continue to improve our
margins . This focus on our core
offering and our drive to improve
margins has also led to the agreed sale
of Braemar Estates, our property
management business, expected to
complete by the calendar year end .

Growth in funds under
management and
underlying profit

A conducive market environment for
risk assets continued through the year
with interest rates across the
developed world at highly
accommodative levels and inflation
subdued . There were bouts of
volatility stemming from political risk
including the negotiations around
Brexit, and the UK, US and French
elections, although any equity market
sell-off was short lived . Bond returns
were more mixed with the US Federal
Reserve’s decision to increase
US interest rates weighing on
sentiment . Within the UK, equities with

Caroline Connellan Chief Executive
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 2017

Chief Executive’s review

continued

Growth in funds continued

international earnings benefitted from
sterling weakness whilst those with a
domestic focus underperformed as
real wages fell . With heightened
valuations across equity markets,
geo-political risks and central banks
tapering asset purchases, we reduced
our overweight position in equities
and rebalanced client portfolios
accordingly . Within the non-equity
space we have reduced our bond
holdings given the uncertainty over
future interest rate levels and central
bank policies .

Against this backdrop, the Group
maintained momentum throughout
the financial year, achieving annual
growth in our discretionary funds
under management (“FUM”) of 25 .9%,
to stand at £10 .5bn at 30 June 2017
(2016: £8 .3bn) . Of the £2 .2bn increase,
£1 .0bn (11 .5%) was net new business
and £1 .2bn (14 .5%) was investment
performance . As a comparison, the
FTSE UK Private Investor Balanced
Index increased by 10 .5% over
the year .

Underlying profit before tax for the
year was £18 .4m (2016: £15 .5m), an
increase of 18 .6% on the previous
year, representing an underlying
profit margin of 20 .1% (2016: 19 .1%) .
Underlying earnings per share also
increased by 31 .7% to 115 .76p (2016:
87 .92p) . While this is a strong result for
the underlying business, statutory
profit before tax for the year fell by
49 .3% to £8 .0m (2016: £15 .9m)
predominantly due to the provision
for legacy matters detailed below, as
well as amortisation and an
impairment to the goodwill recorded
for the Levitas business, although the
latter is more than offset by a
reduction in deferred consideration .
A full reconciliation of underlying and
statutory profit can be found in the
Strategic Report, and segmental
information on underlying and
statutory profit is given in note 3 to the
consolidated financial statements .

Review of business
performance and development

UK Investment Management
continues to be our largest and most
profitable segment . We have
maintained strong new business
flows, largely driven by our close
relationships with advisers . We
remain confident in the growth
opportunity and believe there
continues to be significant scope to
increase the breadth and depth of our
adviser relationships and benefit from
the continuing trend of professional
intermediaries outsourcing
investment management .

We continue to add value through our
centralised investment process, with
portfolios across all risk mandates
achieving above-benchmark returns
according to Asset Risk Consultants
(ARC) private client indices over one,
three and five year periods . In
November we were, for the second
consecutive year, awarded the
prestigious industry Gold Standard
Award for service in discretionary
fund management and we were once
again proud to receive five star ratings
from Defaqto for each of the main
discretionary offerings: our Bespoke
Portfolio Service (“BPS”), direct
Managed Portfolio Service (“MPS”)
and our platform MPS . We were
successful at the Citywire Regional
Star Awards in 2017, with professional
advisers voting for our Leamington
Spa and Tunbridge Wells offices as
winners of their respective
geographical categories . We thank
our adviser partners for their
continued support .

Our UK BPS, a premium and fully
personalised offering to private
clients, charities and pension funds
now represents £6 .5bn (62 .3% of FUM)
and remains our principal offering .
The pension opportunity, in particular
Self-Invested Personal Pensions
(“SIPPs”), continues to be significant,

as does the growth of ISAs and our
AIM Portfolio Service . We expect to
be able to offer Lifetime ISAs to
clients shortly .

Our UK MPS, consisting of ten
portfolios with distinct risk profiles
and objectives, is available to those
investing smaller amounts and allows
our investment management
capabilities to be accessed by a wider
range of individuals through their
financial advisers . Assets now exceed
£1 .2bn (11 .6% of FUM), held either
directly with us or through a platform .
Our MPS proposition has seen rapid
growth throughout the year, a trend
that we expect to continue as the
popularity of model multi-asset
portfolios continues to grow .

As a Group, we have maintained the
focus on our Strategic Alliances which
form a major part of our approach to
the adviser market . We are pleased
that we have completed two further
Strategic Alliances, including our first
international partnership with Abacus
Financial Consultants based in the
UAE . In the UK, we were co-founders
of the DFM Alliance, a joint initiative
with other leading discretionary fund
managers offering advisers a platform
for improving client outcomes
through information, education and
collaboration . We have also continued
to invest in our geographic footprint of
offices across the UK to deliver high
service levels to our local adviser
partners and I am delighted to confirm
that we opened a new office in Cardiff
in July 2017, allowing us to access new
growth opportunities in a region we
have not previously been able to
serve fully .

Our Funds business passed the £1bn
milestone of FUM, enjoying its most
successful year to date and generating
a profit for the first time . It remains our
intention to complete the previously
announced move of the Funds
business into Investment

Review of business

Chief Executive’s review

continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 05

Review of business continued

Management this financial year, subject
to regulatory approval . The IFSL Brooks
Macdonald Defensive Capital Fund,
within the targeted absolute return
sector, celebrated an impressive
seventh anniversary year, with FUM
reaching £393m as at 30 June 2017
(2016: £223m) and now over £425m .
The fund received several positive
ratings in 2017, including an Elite Rating
by FundCalibre and Five Crowns by
Financial Express (FE) Crown Fund
Ratings based on its performance . Our
Multi-Asset Funds also saw significant
growth during the year . Earlier this
year, the partners of North Row Capital
LLP, in which the Group held a 60%
stake, decided to terminate the fund,
resulting in an impairment loss of
£0 .2m (2016: £0 .4m) .

Our International business based in
the Channel Islands delivered good
growth, with discretionary FUM
increasing by 13 .4% from £1 .3bn to
£1 .5bn over the past year and having
doubled since acquisition in 2012 .
Whilst we have seen local professional
intermediary relationships impacted to
some extent by the legacy matters
referred to below, the successful
restructuring of BM Retirement
Services International (“BMRSI”) to a
restricted financial planning business
in the Channel Islands, the expansion
of our distribution efforts to include
international advisers and our work to
build business flow from South Africa
have all borne fruit this past year .
We have now largely completed the
move away from advisory work and
our discretionary fund management
offering has performed well, winning
the award for Best International
Discretionary Fund Manager at the
International Fund and Product
Awards . Together with the actions we
are taking to deal proactively with the
legacy matters, we start the coming
year in a stronger position .

Financial Planning also had a strong
year, driven in part by a number of

one-off pension advice opportunities,
generating record revenue and profits .
We continue to focus on delivering a
comprehensive independent financial
planning service to private clients and
on seeking new opportunities to
support future growth .

Sale of our Property
Management business

We recently completed a review of
Braemar Estates and have taken the
decision to sell the business, enabling
us to focus more closely on our core
offerings . This will allow us to operate
with a more streamlined business and
will contribute over time to improved
margins . We exchanged contracts on
20 September 2017 and on completion
of the sale, which is expected by the
calendar year end, the Group’s property
management division will cease to
exist . Investment management of the
Ground Rents Income Fund will be
retained by Funds .

In the financial year completed,
Braemar Estates represented 3 .2% of
the Group’s revenue (£2 .9m), 0 .7% of its
underlying profit (£126,000), 1 .4% of its
statutory profit (£112,000) and -0 .6% of
its net assets (Braemar has net liabilities
of £0 .5m) . The sale price is £1 .9m, with
an initial 50% to be paid on completion
and the remainder deferred, payable
over a two-year period from the
completion date .

Legacy matters arising from the
former Spearpoint business

As announced in July, following a
detailed review, we decided to deal
proactively with certain legacy matters
arising from the former Spearpoint
business which we acquired in 2012 .
These matters relate to a number of
discretionary portfolios formerly
managed by Spearpoint, now managed
by our International business, and a
Dublin-based fund, for which
Spearpoint acted as investment
manager . While we accept no legal

liability, we have a deep commitment to
treating customers fairly and seeking
to protect our clients’ best interests .
We believe that by taking this action it
will assist us in building stronger
relationships with professional
intermediaries in the Channel Islands
and their clients . We are now in contact
with the relevant parties . We anticipate
that this action will cost £6 .5m and
have made a provision for it
accordingly . As this is an exceptional
cost it is not included in our underlying
profit for the year .

Investment in our infrastructure

Our IT system development was
delivered as planned at the end of
June 2017 . This involved the migration
of data from two legacy systems in the
Channel Islands on to a common
platform shared with our UK portfolio
management business . As part of this
process we consolidated our two back
office functions into one, based in the
City of London, to serve all clients of
the Group moving forwards . As a
consequence, our Guernsey-based
back office will close in September,
resulting in the redundancy of the
impacted staff . The redundancy costs
were provided for in the financial year
completed . Some further post
migration work remains, which will
complete by the calendar year end .

We are continuing to review the
opportunity to align and simplify
processes and take further actions to
deliver economies of scale as the Group
grows . We will continue to invest
further in our infrastructure to support
our investment teams, to enhance
our service to clients and to facilitate
the ease of interactions with the
intermediaries we work with, as well
as delivering broader efficiencies .
The appointment of a Chief Operating
Officer will be an important step in
ensuring we can grow our business
materially and sustainably, whilst
pursuing greater efficiency and
progressively improving our margins .

06 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Chief Executive’s review

continued

Investing in our risk
management framework

The investment management industry
is currently experiencing a period of
significant regulatory change and the
Group has been preparing for the
introduction of MiFID II, Senior
Managers and Certification Regime
(“SMCR”) and the General Data
Protection Regulation (“GDPR”),
amongst other changes . Extension of
the SMCR to investment firms is
expected in 2018, with the Group
included within the ‘Enhanced Regime’
as we are now categorised as a
significant investment firm for
prudential purposes under FCA rules .
This categorisation has also increased
the regulatory reporting requirements
for the Group more broadly .

Given this context and to position
the business for future growth, it is
important that we now invest more
broadly in our regulatory and risk
management capabilities . We
announced in July an increase in our
capabilities, including the appointment
of a Chief Risk Officer, to provide the
support needed to our investment
teams and ensure that we can continue
to meet and exceed the expectations of
our clients and regulators, as well as the
aforementioned plan to appoint a Chief
Operating Officer . This will result in a
much stronger platform for delivering
sustainable growth in the future .
These investments are expected
to result in additional operating
expenditure of approximately £4m
in the next financial year, of which
approximately £2m will recur in
subsequent years .

Outlook

As we continue to invest in the Group,
I look forward to building on our
success to date and positioning the
business to deliver growth into the
future . To achieve this, our principal
focus will be on delivering value for our
clients and partners through enhancing
the services we provide, improving
business efficiency and continuing to
adapt to the fast changing competitive
and regulatory environment .

During the financial year we have seen
further consolidation across the sector
given the need for investment in
technology and in response to
regulatory changes . We expect this to
continue as companies seek scale and
cost savings . We strongly believe in our
future as an independent discretionary
fund manager and will continue to look
at acquisition opportunities when they
arise, to complement our organic
growth plans .

We have started our new financial
year with positive momentum and
we look forward with confidence
notwithstanding our relative caution
around markets and client sentiment .

I would like to reiterate my thanks to
everyone at Brooks Macdonald for their
welcome, and for their hard work and
commitment to the business .

Caroline Connellan
Chief Executive

20 September 2017

ST R AT EGIC R E PORT

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 07

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 nine 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 of London .

A summary of our services
Brooks Macdonald managed £10 .5 billion for its clients as of 30 June 2017, 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 to high net-worth families 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 management service for private individuals, institutions and property fund managers .

A breakdown of the split of the discretionary funds under management (“FUM”) is shown in the graph below:

Investment Management (UK)

Investment Management (Channel Islands)

Funds

ST R AT EGIC R E PORT

C ON T I N U E D

08 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

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
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
Statutory profit before tax
Underlying profit before tax¹
Underlying earnings per share
Dividends per share²
Underlying margin3

2017
£m

8,301

951
1,204

2,155

10,456

11.5
25.9

2016
£m

7,413

863
25

888

8,301

11 .6
12 .0

2017
£m
(unless stated)

2016
£m
(unless stated)

91.7
(83.7)
0.0
8.0
18.5
115.76p
41.0p
20.1%

81 .4
(67 .8)
2 .3
15 .9
15 .5
87 .92p
35 .0p
19 .1%

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

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

Underlying profit as a percentage of total revenue .

Total revenue
Total Group revenue grew by 12 .7% during the year compared to 4 .8% in 2016, reflecting the strong growth in FUM within the
Investment Management segment of the Group together with increased revenue in both the Financial Planning and Funds
and Property Management segments as highlighted in more detail in note 3 to the consolidated financial statements .

Operating costs
As in previous years, the major component of the Group’s operating costs is our staff, comprising 54 .6% of administrative
expenses (2016: 57 .1%) . During the year we saw an increase in the average number of employees from 472 to 500 . Of the total
staff costs, 30 .8% (2016: 27 .2%) were variable costs . We have continued to invest in our IT systems across all parts of the
Group, to support our investment teams and to enhance the service offered to our clients . At the end of the year we delivered
our large IT project to provide a common portfolio management platform across both the UK and Channel Islands, involving
the migration of data from two legacy systems . The new system will provide increased consistency and capacity across the
Group and with the planned closure of our Guernsey-based back office in September 2017 it will enable us to deliver further
operational efficiencies . Some additional post migration work remains to be completed over the course of the next financial
year and we will continue to take additional action to align and simplify processes so that we benefit from further economies
of scale .

Group performance

Strategic report

continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 09

Group performance continued

Operating costs continued
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 2017, we saw the costs of the levy paid to
the Financial Services Compensation Scheme (“FSCS”) stabilise at £0 .5m (2016: £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 21 to the consolidated financial statements, there
was a fair value reduction of £2 .2m (2016: £3 .6m) resulting in a gain to consolidated income . As well as a reduction in the
deferred consideration payable, this lower level of FUM has resulted in an impairment charge of £2 .0m to the carrying value
of goodwill in respect of Levitas as detailed in note 13 to the consolidated financial statements .

As disclosed more fully in note 16 to the consolidated financial statements, the partners of North Row Capital LLP, in which
the Group held a 60% interest, decided to terminate the fund resulting in an impairment loss of £0 .2m (2016: £0 .4m) .

Included in the total net financial income and gains for the year is both the fair value reduction for Levitas and the impairment
charge to goodwill, 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 .

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
Impairment of carrying value of goodwill
Exceptional costs of resolving legacy matters

Statutory profit before tax

2017
£m

18.4
(3.9)
(0.2)
2.2
(2.0)
(6.5)

8.0

2016
£m

15 .5
(2 .6)
(0 .6)
3 .6
–
–

15 .9

Amortisation of intangible assets (note 13)
As explained in notes 2(d) and 2(m), client relationship intangible assets and contracts acquired with fund managers are
created in the course of acquiring funds under management . The total amortisation charge for the year of £3 .9m
(2016: £2 .6m) associated with these and other intangible assets has been excluded from underlying profit as the directors
consider these costs can distort the results of a particular period . During the year the Group completed a large software
project in order to provide a more fully integrated investment management system covering both the onshore and offshore
businesses, with an improved client portal and client relationship management system . This resulted in an increase in the
software amortisation charge of £1 .2m as part of the overall increase in amortisation of intangible assets for the year of £1 .3m .

Group performance

10 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Strategic report

continued

Group performance continued

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 .

Impairment in carrying value of goodwill
As explained in note 13 to the consolidated financial statements, goodwill is reviewed annually for impairment based on the
carrying value of the asset compared to its expected recoverable amount . As a result of a lower level of FUM in Levitas,
resulting in reduction in the deferred consideration as detailed above, there has been an impairment to the carrying value of
£2 .0m due to a reduction in the estimated value-in-use of the business . 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 .

Exceptional costs of resolving legacy matters
As detailed in note 24 to the consolidated financial statements we have decided to deal with two legacy matters arising from
the former Spearpoint business in the Channel Islands which we acquired in 2012 . These matters relate to the investment
management of a number of discretionary client portfolios and a Dublin-based fund and we have decided to make a
provision of £6 .5m in order to resolve them . The board consider that this is an exceptional item relating to historic matters
and its impact on statutory profit does not give a true reflection of the underlying performance of the Group .

Cash resources and regulatory capital
The Group is cash generative and, as detailed in the Consolidated Statement of Cash Flows, there was an increase in cash
resources at the year end of £12 .7m to £32 .2m (2016: £19 .5m) . The Group had no borrowings at 30 June 2017 (2016: £nil) .

As required under Financial Conduct Authority (FCA) rules and those of 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 71 .7%
(2016: 72 .1%) of the Group revenue . 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 8 .

Group performance

Strategic report

continued

Group performance continued

Segmental review continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 11

Financial planning
The Financial Planning business continues to deliver both fee based financial advice to high net-worth families, and
employee benefit consultancy to small and medium sized employers throughout the UK . The division remains a major
introducer of new investment management funds to the investment management part of the Group and it was the growth in
this area which was the major contributor to the 19% increase in revenue and the profit for the year of £0 .3m compared to the
previous year’s loss of £0 .1m .

Funds and property management
The funds business continues to grow in scale with total FUM increased by 45 .6% to £1,159m (2016: £796m) at 30 June 2017 .
This growth was achieved organically through net new investment across the range of funds with the Defensive Capital Fund
now over £400m FUM .

The Property Management business had another improved year with an increase in revenue of 16 .4% over the previous year
and reported a profit for the year compared to breakeven in 2016 .

International
The business saw an increase of FUM during the year of 13 .4% to £1 .5bn (2016: £1 .3bn) with new business from a number of
sources and the first strategic alliance with an overseas introducer in Dubai together with increased flows from South Africa .

Revenue in the year increased by 8 .4% although increased legal costs continuing to deal with some legacy matters and the
closure costs of £0 .3m associated with the transfer of the operations department from Guernsey to London have resulted in
a fall in underlying profit to £0 .5m (2016: £0 .8m) .

Following the results of a review we have decided to deal proactively with certain legacy matters where the former
Spearpoint business acted as investment manager to a number of discretionary clients and to a Dublin based fund . As well as
these issues consuming management time, the Group was incurring associated costs, so in order to treat our clients fairly and
to protect their best interests we have made a provision during the year of £6 .5m in order to resolve these matters, resulting in
a statutory loss before tax for the year of £6 .6m (2016: £0 .4m profit) .

Since the acquisition of the Channel Islands business discretionary FUM have grown from £0 .6bn to over £1 .5bn at 30 June
2017 and following the satisfactory resolution of the former Spearpoint matters the board believes that the business will see
an increase in profit in the next financial year .

Group and consolidation adjustments
The costs charged through this segment represent the costs of running the Group’s parent company, including the costs of
the board members, the costs of running the plc and other central costs which are not directly related to the trading segments
of the Group .

Consolidation adjustments, impairment of goodwill, amortisation of client relationship intangible assets and changes in the
fair value of deferred consideration in respect of the Company’s assets are included within this segment .

Corporate governance

The board’s primary focus is to ensure the business is successful in the long-term for the benefit of our shareholders and other
stakeholders . The board had eight meetings during the year and met informally on a number of occasions . As part of the
preparation for each board meeting written papers are prepared on the progress of the each part of the Group together with
updates on the progress of agreed strategic initiatives .

The board includes the Chairman, the Deputy Chairman and three other non-executive directors . It considers Colin Harris,
the Senior Independent Director, Diane Seymour-Williams and Richard Price to be independent . Biographies of each of the
directors are available on the Brooks Macdonald Group website (www .brooksmacdonald .com) .

12 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Strategic report

continued

Corporate governance continued

The board is supported in its work by four committees: the Audit Committee; the Nominations Committee; the Remuneration
Committee; and the Risk and Compliance Committee . The detailed terms of reference of each of the committees are also
available on the Brooks Macdonald Group website . Commentary on the work of each of the committees is set out below .

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 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, the Finance Director and by representatives of the external auditors by
way of invitation . 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 .
The committee considered the significant financial and audit issues, the judgements made in connection with the financial
statements and reviewed the narrative within the Annual Report and Accounts and the Half Yearly Financial Report .

Specifically, the committee discussed the provision of £6 .5m for the exceptional costs relating to the resolution of legacy
matters in the International business summarised in note 24 to the consolidated financial statements and the impairment
charge of £2 .0m in respect of the carrying value of the Levitas cash generating unit as disclosed in note 13 to the consolidated
financial statements .

The committee also agreed the audit fee shown in note 7 to the financial statements and reviewed the audit engagement letter .

Nominations Committee
The Nominations Committee was established as a committee of the board on 13 March 2017 with Christopher Knight as
Chairman and the Company’s three non-executive directors, Colin Harris, Diane Seymour-Williams and Richard Price, as
members . Chris Macdonald was appointed a member of the committee on 11 April 2017 on his retirement as Chief Executive
and his becoming a non-executive director . Since then the committee has met on one occasion .

The terms of reference have been approved by the Group board and will be reviewed regularly . Responsibilities of the
committee include evaluating the effectiveness of the Group board taking into consideration its structure, size and
composition (including the skills, knowledge, experience and diversity) and for making recommendations to the Group board
with regard to any changes . It is also responsible for succession planning for directors and other senior executives, taking into
account the challenges and opportunities facing the Group, and the skills and expertise needed on the board in the future . An
important part of this is to consider the diversity of the Group board and senior management in all respects, including gender .

Prior to the formal establishment of the committee the same group of non-executive directors (excluding Chris Macdonald)
were responsible for planning for the appointment of a successor to Chris Macdonald as Chief Executive . The planning
process involved consideration of the role and of the experience and attributes the role required, the appointment of
recruitment consultants, the assessment of and interviews with internal and external candidates, leading to the decision in
October 2016 to appoint Caroline Connellan as the next Chief Executive .

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 13

Strategic report

continued

Corporate governance continued

Remuneration Committee
The Remuneration Committee comprises Diane Seymour-Williams (Chair), Christopher Knight and Colin Harris . The
committee, following 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 met on six occasions during the year and is wholly responsible for determining the
remuneration of the Chief Executive and senior risk and compliance staff . 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 the
long-term incentive schemes .

Remuneration policy
Brooks Macdonald recognises the importance of its directors and 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 compliant where appropriate . External third party data is used to validate rather than to benchmark
the total reward .

The remuneration policy, which applies to directors and employees of the Group, is based on the following key principles:

• designed to encourage the retention of staff through deferred variable compensation, where appropriate;

•

to ensure a market competitive balanced package of benefits;

inclusion of both annual and long term elements;

fair for both the director/employee 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 .

14 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Strategic report

continued

Corporate governance continued

Remuneration Committee continued

The remuneration of directors in 2017 and 2016 is set out in the table below . Executive director remuneration includes legacy
Long Term Incentive Scheme (“LTIS”) awards made in 2013 and 2012 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

2017

2016

2017

2016

2017

2016

20173

20164

2017

2016

2017

2016

2017

2016

Executives

C Connellan
(appointed
11 April 2017)

N I Holmes

S J Jackson

A W Shepherd

R H Spencer

S P Wombwell

C A J Macdonald
(resigned 10
April 2017)

Non-executives

C J Knight
(Chairman)

C A J Macdonald
(Deputy
Chairman
appointed
11 April 2017)

C R Harris (Senior
independent
director)

D Seymour-
Williams

R Price

Total

Notes

184

195

204

195

201

–

169

191

200

191

197

203

257

1,244 1,205

–

2202

160

136

–

192

144

176

132

120

–

150

240

–

23 1,018 1,004

320

445

109

–

1,526 1,439

23 1,018 1,004

320

445

–

292

416

347

436

375

348

–

471

419

458

373

388

432

593

– 2,646 2,702

–

109

–

– 2,928 2,936

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 LTIS as disclosed below in table 2 .

The annual bonus includes an amount of £100,000 on commencement of employment in lieu of a sacrificed bonus granted to Caroline Connellan by her previous
employer for which she was no longer eligible immediately following her appointment as Chief Executive of the Group .

The amounts represent the value vested in the year from three-year LTIS awards arising from the deferred element of the 2013 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 1 November 2016 and the closing market price on that
day was £17 .84 .

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 that date was £17 .34 .

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 15

Strategic report

continued

Corporate governance continued

Remuneration Committee continued

Notes to the single total figure of remuneration for each director table
Salary and fees
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 2016 by a total of 2 .0% compared to an
overall average increase for all employees of 3 .7% .

Non-executive directors’ fees
The non-executive directors’ fees were similarly reviewed and increased with the approval of the executive board members
to reflect their additional responsibilities and commitments as the Group grows .

The Chairman’s fee was increased from £92,000 to £115,000 on 1 October 2016 and the basic non-executive director’s fee was
increased from £42,000 to £46,000 on 1 October 2016 . Non-executive directors also receive an additional responsibility fee of
£4,000 per annum in recognition of their chairing a committee . Colin Harris receives an additional fee of £10,000 for being the
Senior Independent Director .

Chris Macdonald was appointed to the board as an additional non-executive director on 11 April 2017 and receives an annual
fee of £75,000 for his services .

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 34 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 .

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 2017, including the amounts deferred into
shares but excluding Chris Macdonald who resigned during the year, represents 10 .1% (2016: 8 .8%) of Group pre-tax profit .
The total bonus payment to all senior employees who participate in this scheme is 15 .6% (2016: 12 .2%) .

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 .

16 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Strategic report

continued

Corporate governance continued

Remuneration Committee continued

Long Term Incentive Scheme
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 .

The committee may seek the recovery of awards at any time before the vesting of awards (malus) or within three years of
vesting (clawback) if it determines that the financial results of the Company were materially misstated, if the Group is subject
to a material adverse event (for example regulatory censure) or if an error was made in the calculation of the awards .

The Group established an employee benefit trust (“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 .

Pension related benefits
Executive directors may participate in the pension arrangements of the Group or receive cash in lieu of pension . The Group’s
contributions in respect of executive directors are currently 15% of base salary .

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

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 17

Strategic report

continued

Corporate governance continued

Remuneration Committee continued

Directors’ interests in shares
At 30 June 2017, directors’ shareholdings were as set out in table 1 .

Table 1: Directors’ shareholdings and interest in shares at 30 June 2017

Interest in shares

LTIS1

Sharesave

EMI
schemes

CSOP

Total

Number of shares or options

Executives
C M Connellan (appointed 11 April 2017)
N I Holmes
S J Jackson
A W Shepherd
R H Spencer
S P Wombwell

Non-executives
C J Knight (Chairman)
C A J Macdonald (Deputy Chairman)
(appointed 11 April 2017)
C R Harris (Senior Independent Director)
D Seymour-Williams
R Price

Total

Notes

Beneficially
owned
shares

–
63,293
30,534
50,153
229,848
54,189

–
21,934
17,781
23,153
11,298
16,329

71,585

–

239,248
6,086
5,000
–

12,024
–
–
–

–
–
2,333
727
1,455
1,298

–

649
–
–
–

749,936

102,519

6,462

–
–2
–
–
–
–

–

–
–
–
–

–

–
2,067
2,067
2,067
1,959
2,067

–

–
–
–
–

–
24,001
22,181
25,947
14,712
19,694

–

12,673
–
–
–

10,227

119,208

In the year ended 30 June 2017 further awards were made to the executive directors under the LTIS 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 2017 .

On 9 November 2016 Nicholas Holmes exercised his options over 6,000 ordinary shares of 1p each under the terms of the EMI scheme award dated 17 October 2007
at an option price of £2 .905 per share . The closing market price for the shares on 9 November 2016 was £17 .25 .

Table 2: Monetary value of awards made under LTIS

Executives
C M Connellan (appointed 11 April 2017)
N I Holmes
S J Jackson
A W Shepherd
R H Spencer
S P Wombwell

Total

Deferred
bonus
£’000

Additional
awards
£’000

Total
£’000

30
40
24
40
34
24

–
40
20
40
20
20

30
80
44
80
54
44

192

140

332

Corporate governance

18 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Strategic report

continued

Corporate governance continued

Remuneration Committee continued

Directors’ interests in shares continued
Table 3: LTIS

N I Holmes

S J Jackson

A W Shepherd

R H Spencer

S P Wombwell

C A J Macdonald

Plan
cycle

Performance
period end
date

Vesting
date

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
2016-19 30 .06 .2019 09 .11 .2019

2010-13 30 .06 .2013 27 .10 .2013
2013-16 30 .06 .2016 01 .11 .2016
2014-17 30 .06 .2017 14 .10 .2017
2015-18 30 .06 .2018 29 .10 .2018
2016-19 30 .06 .2019 09 .11 .2019

At
1 July
2016

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
–

4,112
4,372
4,533
3,947
–

Number of options

Granted
in the
year

Exercised
in the
year

At
30 June
2017

–
–
–
–
5,197

–
–
–
–
3,307

–
–
–
–
4,961

–
–
–
–
1,949

–
–
–
–
2,953

–
–
–
–
3,544

–
–
–
–
–

(4,112)
(4,372)
–
–
–

4,724
2,528
4,958
4,527
5,197

4,567
2,528
3,896
3,483
3,307

4,567
3,791
4,958
4,876
4,961

2,677
2,186
2,338
2,148
1,949

3,780
2,528
4,108
2,960
2,953

–
–
4,533
3,947
3,544

Total

89,092

21,911

(8,484)

102,519

In succession to Chris Macdonald, Caroline Connellan was appointed as Chief Executive Officer of the Group on 11 April 2017
and the following LTIS awards were made on 21 August 2017 part in lieu of sacrificed awards granted to Caroline Connellan
by her previous employer which have lapsed as a result of her appointment as Chief Executive of the Company (the “Outgoing
Awards”) . Accordingly, the vesting dates of part of the LTIS awards coincide with the vesting dates of the Outgoing Awards,
had they not lapsed .

Corporate governance

Strategic report

continued

Corporate governance continued

Remuneration Committee continued

Directors’ interests in shares continued

C M Connellan (appointed 11 April 2017)

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 19

Performance
period end
date

Vesting date

13 .03 .2018 13 .03 .2018
13 .03 .2019 13 .03 .2019

Number of
options

4,163
2,312

In addition a further LTIS incentive award was granted on 21 August 2017 to Caroline Connellan as part of the remuneration
agreed on the commencement of her appointment as detailed below .

C M Connellan (appointed 11 April 2017)

Table 4: Sharesave

N I Holmes

S J Jackson

A W Shepherd

R H Spencer

S P Wombwell

C A J Macdonald

Total

Notes

Performance
period end
date

Vesting date

Number of
options

10 .04 .2020 10 .04 .2020

7,458

Number of options

Plan
cycle Grant date

Exercise
price1
£

Vesting
date

At
1 July
2016

Granted
in the
year

Exercised
in the
year

At
30 June
2017

2014-17 21 .05 .14

13 .86 01 .06 .17

2014-17 21 .05 .14
2017-20 17 .05 .17

13 .86 01 .06 .17
17 .38 01 .06 .20

2015-18 22 .05 .15

12 .37 01 .06 .18

2015-18 22 .05 .15

12 .37 01 .06 .18

2014-17 21 .05 .14

13 .86 01 .06 .17

2014-17 21 .05 .14

13 .86 01 .06 .17

1,298

1,298
–

727

1,455

1,298

649

–

(1,298)2

–

–
1,035

–

–
–

–

1,298
1,035

727

1,455

1,298

649

6,725

1,035

(1,298)

6,642

The exercise price represents a 20% discount to the market price on the day on which the pricing of the awards is set under the rules of the scheme .

On 6 June 2017 Nick Holmes exercised 1,298 shares maturing under the 2014 Sharesave Scheme at option price of £13 .86 . The closing mid market price for the
shares on 6 June 2017 was £24 .60 .

Table 5: CSOP

N I Holmes

S J Jackson

A W Shepherd

R H Spencer

Plan
cycle Grant date

Exercise
price
£

Vesting
date

At
1 July
2016

Granted
in the
year

Exercised
in the
year

At
30 June
2017

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

2,067

1,087
872

2,067

10,227

–

–
–

–

–
–

–

2,067

1,087
872

2,067

10,227

S P Wombwell

2013-16 21 .11 .13

14 .52 21 .11 .16

Total

Notes

As part of the remuneration agreed on the commencement of her employment, Caroline Connellan was made a CSOP award of 1,491 shares on 18 August 2017 at an

exercise price of £20 .11 with a vesting date of 18 August 2020 .

Corporate governance

20 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Strategic report

continued

Corporate governance continued

Remuneration Committee continued

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 .

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 of the group board 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 have a letter of appointment rather than contracts of employment . 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 .

Corporate governance

Strategic report

continued

Corporate governance continued

Remuneration Committee continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 21

Plans for 2017/18
The committee has reviewed the remuneration policy in relation to senior executive directors, including those on the Group
board during the year and have sought external advice from New Bridge Street, a part of AON . In particular, consideration
was given to how well the existing policy was linked with strategy; the alignment of management interests with those of
shareholders; and quanta . The committee consulted with major shareholders on a new remuneration structure and policy
for these senior executive directors . This review and consultation occurred at a time when there were considerable
developments in the debate amongst shareholders and their representatives, government and advisory bodies . As a result of
feedback and in recognition of the ongoing industry debate, the committee resolved to introduce changes to the annual
bonus arrangements with effect for the 2017/18 financial year and, during the course of that year, to review further the
arrangements for an equity based long-term incentive scheme to replace the current Long Term Incentive Scheme .

The overriding objectives remain for the policy to be linked to the Group’s strategy, aligned with shareholders’ interests with
significant long term equity participation with both annual and long term elements and to be compliant with the relevant FCA
regulations and other guidance . The scheme will be aligned with the board’s appetite for risk and aims to be fair for both
employee and Company with due regard to market competitiveness, whilst retaining some element of discretion .

The changes agreed by the committee in relation to the annual bonus for senior executive directors are:

• The existing uncapped profit-sharing arrangement is replaced with a bonus structure under which participants have a defined

maximum opportunity, set as a percentage of salary, which will not exceed 150% of salary for any executive .

• The bonus will be based on the following three measures in 2017/18:

• Underlying profit before tax (40%);

• Net organic growth in funds under management (20%); and

• Personal/strategic objectives (40%) .

•

It is expected that the personal/strategic weighting is reduced in future years but, for 2017/18, a higher weighting is appropriate
as the new CEO undertakes a thorough review of the business and its strategy, begins to implement it and as the Group prepares
for the challenges resulting from MiFID II . The actual targets and objectives are commercially sensitive and therefore will not be
disclosed in advance; however, the committee will seek to report the targets in next year’s report and provide commentary on
how any bonus was arrived at .

• For financial metrics, a sliding scale of targets will be set around the budget for the year and account will be taken of market

consensus .

• One third of any bonus earned will be deferred in shares for 2 years .

• Robust malus and clawback provisions will apply to any bonus earned, including the deferred element .

The committee has also considered the obligations of the Group under CRD IV to comply with the Remuneration Code
under the FCA SYSC 19A Handbook . In accordance with the FCA’s guidance, the Group has dis-applied certain remuneration
provisions relating to variable pay on the grounds of proportionality . These are the provisions known as the ‘pay-out process’
rules .

22 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Strategic report

continued

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 business-unit level, first-line systems and controls are employed to ensure business activities are conducted in
compliance with internal policies and procedures . First-line supervision teams carry out monitoring of business activities on
a day-to-day basis . In the second line of defence, an independent compliance monitoring function carries out further checks
independent of the business . Output from both first and second line monitoring is reported to the relevant management
committee and management information is reported to the business-level risk committees, the Executive Risk Management
Committee, and the Risk and Compliance committee through the Group’s escalation policy . The risk function works with
each business unit and central functions to implement a programme of risk and control self assessments to improve the
identification and understanding of risk in the first line . Identified risks at each business unit are tracked in a business-level
risk register and used as the basis for a consolidated risk register that provides the Risk and Compliance Committee with an
overview of the key risks across the organisation .

The membership of the Risk and Compliance Committee comprises: Colin Harris (Chair), Christopher Knight, Richard Price
and Diane Seymour-Williams . 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, key regulatory
changes and developments, as well as changes to the risk register . The Risk and Compliance Committee is principally
responsible for monitoring identified risks and the effectiveness of mitigating action, keeping risk assessment processes
under review, reviewing the impact of key regulatory changes on the Group, assessing material breaches of risk limits and
regulations as well as reviewing client complaints .

The Risk and Compliance Committee met on two occasions during the year ended 30 June 2017 .

The Group’s risk management framework is subject to ongoing review . The Group has been investing to meet the
requirements of key regulatory changes, such as MiFID II, the General Data Protection Regulation and the Senior Managers &
Certification Regime, and will continue to do so in the coming year . As a priority, the Group will be focusing on enhancing its
risk management framework and increasing its capabilities with the appointment of a Chief Risk Officer .

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

Strategic report

continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 23

Risk and Compliance Committee continued

Non-financial risks
The significant non-financial risks faced by the 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 attract new clients, which would lead to a fall in
financial income . Such risk could arise from events such as
poor investment performance, poor client service or
regulatory censure .

Mitigation
This risk is minimised by ensuring the Group maintains a
culture of high ethical and professional standards whilst
focussing on delivering a first class service to all of our
clients and intermediaries . The Group maintains separate,
independent risk and compliance departments, which
ensures conformity with the regulations of its key regulators,
as well as relevant statutes, in all of our dealings with
our clients .

Regulatory risk

Impact
The sector in which the Group operates is heavily regulated
and any breach of regulations could lead to fines or
disciplinary action against the Group or its staff . Through
the business activities of its subsidiaries the Group is
exposed to regulatory risks including those associated with
the provision of investment and financial advice, the holding
and custody of client money and assets, the suitability of its
investment portfolios and financial crime .

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 .
The Group continued to invest in its Risk and Compliance
functions during the year and is committed to further adding
to the capabilities of these functions, in order to meet the
challenges posed by future regulatory changes such as
MIFID II, GDPR, etc .

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 . The retention of staff who
are not investment professionals e .g . those in Group and
central functions is also a risk for the organisation .

Cyber and data security risk

Impact
The Group holds approximately 40,000 client records in its
systems containing personal data and financial data related
to the Group’s clients . The Group represents a target for
hackers and is at significant risk of attack .

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 .

Mitigation
The Group’s systems employ firewalls and other
technological security features to prevent unauthorised
access . User identification and password details are required
in order to access the Group’s network and systems .
Individual user access is restricted to specific areas of the
network relevant to the user’s job role . As such, any access
would be likely to be limited to specific areas of the network .
Regular technological security checks are undertaken to
validate the access rights of existing users . The IT system is
duplicated in two remote data centres and data is carried
over dark fibre connections . Data records are updated to
provide a recovery point objective of one hour and a
recovery time objective of one hour .

24 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Strategic report

continued

Risk and Compliance Committee continued

Non-financial risks continued

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 on-boarding
of outsourcing partners and ongoing support from them .
The Group’s most significant outsourcing risk relates to its IT
network infrastructure, which is provided by an outsourced
service provider .

Operational risk

Impact
There is a risk that the Group suffers a loss of business
resulting from inadequate systems or controls, failed
internal processes or human error .

Portfolio mandate risk

Impact
There is a risk that the Group breaches its investment
mandates, agreed limits, investment objectives or client
specified restrictions and benchmarks for its discretionary
investment management clients .

Mitigation
Due diligence takes place prior to the commencement of any
outsourcing or supplier relationship, 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 . The Company has required that its outsourced
IT services provider agrees contracts with third-party
services providers that would allow for contracts to be
novated immediately to Brooks Macdonald in the event of a
business failure of the outsourced service provider .

Mitigation
The Group’s risk-management framework comprises
ongoing monitoring, the application of detective and
preventative controls and reporting of operational incidents
by both the first and second line teams . The risk function
works with businesses to conduct risk and control
assessments, and external auditors and third party
consultancies provide further ad hoc assurance .

Mitigation
The Group uses a centralised investment proposition though
which asset allocation is determined for a range of risk
profiles . Investment managers have some flexibility within
the asset allocation model but are monitored to ensure
individual portfolios do not fall outside the broad asset
allocation model . Portfolios are also monitored by a
dedicated team using specialist portfolio risk management
tools to ensure individual portfolios do not fall outside the
permitted asset allocation model .

R E PORT OF T H E DI R ECTOR S

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 25

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 2017 .

Results and dividends

The profit before taxation for the year
ended 30 June 2017 was £8,044,000
(2016: £15,856,000) and the profit after
taxation was £5,814,000 (2016:
£12,739,000) .

The Company paid an interim
dividend during the year of 15p
(2016: 12 .0p) per share . The directors
recommend a final dividend of 26 .0p
(2016: 23 .0p) per share . This results in
total dividends for the year of 41 .0p
(2016: 35 .0p) per ordinary share .
These dividends amount to a total
distribution to shareholders of
£5,545,000 (2016: £4,715,000) in
the year .

Retirement and re-appointment
of directors

All of the directors of the Group board
will retire by rotation at the annual
general meeting and are eligible to
nominate themselves for re-election .
Richard Spencer and Simon
Wombwell will not be seeking
re-election to the board .

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 Connellan (appointed 11 April 2017)
N I Holmes
S J Jackson
A W Shepherd
R H Spencer
S P Wombwell

Non-executives
C A J Macdonald
C R Harris
R Price
D Seymour-Williams

At 30 June
2017
Number
of shares

At 30 June
2016
Number
of shares

71,585

–
63,293
30,534
50,153
229,848
54,189

239,248
6,086
–
5,000

–
55,995
30,534
50,153
229,848
54,189

230,764
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 13 to 21 .

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 members of 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 members of 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 .

R E PORT OF T H E DI R ECTOR S

C ON T I N U E D

26 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Report of the directors

continued

Substantial shareholdings

As at 1 September 2017, 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

Aberdeen Standard Investments

Artemis Investment Management

J M Gumpel

Invesco Asset Management

Number of
shares

Percentage
holding

2,789,425

1,614,536

1,235,517

780,484

708,028

675,692

472,401

20 .22

11 .70

8 .96

5 .66

5 .13

4 .90

3 .42

Events since the end of the year

Annual general meeting

The 2017 annual general meeting
will be held on 24 October 2017 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 2017

Details of events after the reporting
date are set out in note 36 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

Statement of directors’ responsibilities

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 27

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 and Company 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 .

28 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

[PAGE LEFT INTENTIONALLY BLANK]

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 29

Financial statements

Consolidated financial statements
Independent auditors’ report to the
members of Brooks Macdonald Group plc . . . . . . .
Consolidated statement of
37
comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38
Consolidated statement of financial position . . . .
39
Consolidated statement of changes in equity . . .
Consolidated statement of cash flows . . . . . . . . . . . . .
40
Notes to the consolidated financial statements . 41-78

30-36

79
80
81
82-89
90

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

30 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Independent auditors’ report

to the members of Brooks Macdonald Group plc

Report on the audit of the
financial statements

Opinion
In our opinion, Brooks Macdonald
Group plc’s group financial statements
and company financial statements
(the “financial statements”):

•

give a true and fair view of the state
of the group’s and of the company’s
affairs as at 30 June 2017 and of the
group’s profit, and the group’s and
company’s cash flows for the year
then ended;

• have been properly prepared in

accordance with IFRSs as adopted
by the European Union and, as
regards the company’s financial
statements, 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 .

We have audited the financial
statements, included within the
Annual Report and Accounts (the
“Annual Report”), which comprise:
the group and parent company
statements of financial position as at
30 June 2017, the group statement of
comprehensive income, the group
and parent company statements of
cash flows, and the group and parent
company statements of changes in
equity for the year then ended; and
the notes to the financial statements,
which include a description of the
significant accounting policies .

Basis for opinion
We conducted our audit in
accordance with International
Standards on Auditing (UK) (“ISAs
(UK)”) and applicable law . Our
responsibilities under ISAs (UK) are
further described in the Auditors’
responsibilities for the audit of the
financial statements section of our
report . We believe that the audit
evidence we have obtained is
sufficient and appropriate to provide a
basis for our opinion .

Independence
We remained independent of the
group in accordance with the ethical
requirements that are relevant to our
audit of the financial statements in the
UK, which includes the FRC’s Ethical
Standard, as applicable to listed
entities, and we have fulfilled our
other ethical responsibilities in
accordance with these requirements .

Our audit approach
Overview

• Overall group materiality: £727,000 (2016: £778,000), based on 5% of profit before tax, adjusted by

the provision for resolving legacy matters .

• Overall company materiality: £502,000 (2016: £432,000), based on 1% of net assets .

• The group has four business segments, Investment Management, Financial Planning, Funds and

Property Management, and International, consisting of 21 legal entities operating in the UK and
Channel Islands .

• We audited the complete financial information of three legal entities, due to their size and specific

scope on a further three legal entities .

• Taken together, our audit work accounted for more than 84% of group revenues and 97% of group

profit before tax and 81% of group total assets .

• Valuation of Levitas goodwill and related deferred consideration

• Completeness of the provision for resolving legacy matters

• Recognition of investment management fee revenue

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 2017 | 31

Report on the audit of the
financial statements continued

The scope of our audit
As part of designing our audit, we
determined materiality and assessed
the risks of material misstatement in
the financial statements . In particular,
we looked at where the directors
made subjective judgements, for
example in respect of significant
accounting estimates that involved
making assumptions and considering
future events that are inherently
uncertain . As in all of our audits we
also addressed the risk of
management override of internal
controls, including evaluating
whether there was evidence of bias by
the directors that represented a risk of
material misstatement due to fraud .

Key audit matters
Key audit matters are those matters
that, in the auditors’ professional
judgement, were of most significance
in the audit of the financial statements
of the current period and include the
most significant assessed risks of
material misstatement (whether or not
due to fraud) identified by the
auditors, including those which had
the greatest effect on: the overall audit
strategy; the allocation of resources in
the audit; and directing the efforts of
the engagement team . These matters,
and any comments we make on the
results of our procedures thereon,
were addressed in the context of our
audit of the financial statements as a
whole, and in forming our opinion
thereon, and we do not provide a
separate opinion on these matters .
This is not a complete list of all risks
identified by our audit .

32 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Independent auditors’ report

to the members of Brooks Macdonald Group plc | continued

Key audit matter

How our audit addressed the key audit matter

Valuation of Levitas goodwill and related deferred
consideration

We obtained management’s impairment review of the
Levitas goodwill and performed the following:

Refer to note 2 Principal accounting policies, note 13 Intangible
assets and note 21 Deferred consideration.

The valuation of the Levitas Investment Management
Limited (‘Levitas’) cash generating unit requires
management to make a number of significant judgements
which may materially affect the valuation, such as
forecasted funds under management (‘FUM’), and related
cash-flows, discount and growth rates, in order to calculate
the ‘value in use’ . Forecasted FUM also drives
management’s fair valuation of deferred consideration
payable, initially recognised at the time of acquisition .

The Levitas goodwill represents £9 .3m of the group’s
intangible assets after recognising a £2 .0m impairment loss
during the year . The deferred consideration at the balance
sheet date was £3 .4m, with a gain of £2 .2m recognised
during the year in relation to the decrease in fair value .

The size of the balances and the significant degree of
judgement involved in the group’s valuations makes this a
key audit matter .

• We evaluated management’s valuation methodology

against the requirements in IAS 36 ‘Impairment of assets’ .

• We obtained the 5-year forecasted FUM and related

revenues and expenses that were board approved and
challenged the drivers of the forecasted FUM and
considered the accuracy of management’s forecasting
process, with reference to historic results .

• We tested and challenged the reasonableness of key

assumptions including the discount rate and long term
growth rates using available market information .

• We tested management’s sensitivity analysis to determine

the impact of changes in the key assumptions .

• We evaluated the appropriateness of the impairment

disclosures included in the group financial statements .

We performed the following procedures over management’s
deferred consideration fair valuation:

• We agreed the basis of the calculation to the contractual

terms and evaluated management’s valuation methodology
against the requirements in IFRS 13 ‘Fair value’ .

• We tested the mathematical accuracy of management’s
calculation, agreed the FUM at the 2017 contractual
measurement date to the external administrator statement
and agreed cash payments during the year to bank
statements .

• We agreed forecasted FUM up to the final contractual

measurement date (November 2018) to management’s
forecasted FUM which we tested as part the goodwill
impairment testing .

• We reviewed the disclosures made in the financial

statements to determine their adequacy .

Based on the work performed above, management’s
impairment review and deferred consideration valuation
approaches are reasonable .

Independent auditors’ report

to the members of Brooks Macdonald Group plc | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 33

Key audit matter

How our audit addressed the key audit matter

Completeness of the provision for legacy matters

Refer to note 2 Principal accounting policies and note 24
Provisions.

The group recognised a provision of £6 .5m in relation to
legacy matters in the International business . The size of the
provision makes this a key audit matter .

Management is required to make estimates in respect of the
completeness of the provision in accordance with IAS 37
‘provisions, contingent liabilities and contingent assets’ .

Recognition of investment management fee income

Refer to note 2 Principal accounting policies and note 4
Revenue.

Investment management fee income is generated by the
Brooks Macdonald Asset Management Limited (‘BMAM’)
and Brooks Macdonald Asset Management (International)
Limited (‘BMI’) entities and is included within portfolio
management fee income in the notes to the financial
statements . The investment management fee income
component represents 57% of the group’s £91 .7m total
revenue . This is a key audit matter due to its size and the
significant audit effort involved in testing this revenue
stream .

The fees are calculated by applying each client’s fee rate to
their FUM . The calculation is largely automated, however
there are a number of inherent risks including the
interpretation and manual input of key contractual terms
and the completeness and valuation of funds under
management, which could result in errors .

We performed the following procedures in relation to the
completeness of the provision for legacy matters:

• We understood the nature of the legacy matters and

assessed management’s accounting treatment in line with
the IAS 37 conditions to recognise a provision .

• We understood from management and board members
the rationale for estimating the amount of provision to be
recognised .

• We evaluated the methodology used, and the supporting

evidence to calculate the provision .

• We read correspondence with legal advisors, consultants
and regulators, as well as the group’s press releases, for
any matters which we were not previously made aware
of and which could indicate that the provision may not
be complete .

• We reviewed the disclosures made in the financial

statements to determine their adequacy .

On the basis of the procedures performed the provision
recognised appears reasonable .

We performed the following procedures in relation to
investment management fee income:

• We understood and evaluated the design and

implementation of key controls, including relevant
Information Technology (IT) controls, in place around the
investment management fee process .

• We tested IT general controls over the BMAM portfolio

management system and relevant automated controls over
the mathematical accuracy of the investment management
fee calculation and the pricing data feed used to value FUM .

• For BMI, we tested the accuracy of fees, by recalculating the

fee for a sample of clients .

For both BMAM and BMI:

• We agreed, for a sample, fee rates input into the systems to

client contracts .

• We tested a sample of management’s FUM reconciliations to

external custodians .

• We tested the valuation of a sample of assets against

independent market prices .

• We reconciled the fees calculated by the portfolio

management systems to the general ledger postings and
investigated material differences .

Our testing did not identify any evidence of material
misstatement .

34 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Independent auditors’ report

to the members of Brooks Macdonald Group plc | continued

We determined that there were no key audit matters applicable to the company to communicate in our report .

How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the geographic structure of the group, the accounting processes and controls, and
the industry in which the group operates .

The group is composed of the company, incorporated in the UK, and subsidiary entities in the UK and Channel Islands . The
group’s accounting process is structured around a centralised finance function in the UK .

In establishing the overall approach to the audit of the group, we considered our assessment of the risk of material
misstatement . We determined that three entities (Brooks Macdonald group plc, Brooks Macdonald Asset Management
Limited and Brooks Macdonald Asset Management (International) Limited) generated significant activities or balances to the
results of the group through the consideration of various factors such as their contribution to the group’s profit before tax and
to provide sufficient evidence over each line item in the group’s financial statements . We supplemented this with additional
testing over certain balances (such as cash, property, plant and equipment and trade and other receivables and payables)
which were recognised within entities not fully in scope of the group audit . Taken together, our audit work accounted for
more than 84% of group revenues and 97% of group profit before tax and 81% of group total assets .

We determined the audit work that needed to be performed by us, as the group engagement team, or by local PwC network
firms . Where the work was performed by a local audit team, we determined the level of involvement we needed to have in the
audit work to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion
on the group financial statements as a whole . In connection with this year’s audit the group team met with the local Channel
Islands audit team leader and held regular discussions with the team throughout the audit process .

The group consolidation, financial statement disclosures and a number of group items, including valuation of goodwill and
intangibles, share based payments, expense recharges and the provision for resolving legacy matters were audited by the
group engagement team .

Materiality
The scope of our audit was influenced by our application of materiality . We set certain quantitative thresholds for materiality .
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and
extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial statements as a whole .

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Overall materiality

How we determined it

Rationale for benchmark applied

Group financial statements

Company financial statements

£727,000 (2016: £778,000) .

£502,000 (2016: £432,000) .

5% of profit before tax, adjusted for the
provision for resolving legacy matters .

1% of net assets .

We have adjusted profit before tax for
the provision for resolving legacy
matters of £6 .5m, which we consider to
be an exceptional and non-recurring
item . Due to its size, this item distorts
the basis of the calculation .

1% of net assets is a commonly used
industry benchmark for holding entities
such as the company .

For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality .
Certain components were audited to a local statutory audit materiality that was also less than our overall group materiality .

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £36,000
(group audit) (2016: £39,000) and £25,000 (company audit) (2016: £22,000) as well as misstatements below those amounts
that, in our view, warranted reporting for qualitative reasons .

Independent auditors’ report

to the members of Brooks Macdonald Group plc | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 35

Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when:

•

the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt
about the group’s and company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve
months from the date when the financial statements are authorised for issue .

However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s and
company’s ability to continue as a going concern .

Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon . The directors are responsible for the other information . Our opinion on the financial statements does
not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon .

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in
the audit, or otherwise appears to be materially misstated . If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial
statements or a material misstatement of the other information . If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact . We have nothing to report based
on these responsibilities .

With respect to the Strategic Report and Report of the Directors, we also considered whether the disclosures required by the
UK Companies Act 2006 have been included .

Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to
report certain opinions and matters as described below .

Strategic Report and Report of the Directors
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and
Report of the Directors for the year ended 30 June 2017 is consistent with the financial statements and has been prepared in
accordance with applicable legal requirements .

In light of the knowledge and understanding of the group and company and their environment obtained in the course of the
audit, we did not identify any material misstatements in the Strategic Report and Report of the Directors .

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

36 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Independent auditors’ report

to the members of Brooks Macdonald Group plc | continued

Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities set out on page 27, the directors are responsible for the
preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a
true and fair view . The directors are also responsible for such internal control as they determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error .

In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or the company or to cease operations, or have no realistic
alternative but to do so .

Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion . Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists . Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of
these financial statements .

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www .frc .org .uk/auditorsresponsibilities . This description forms part of our auditors’ report .

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

Other required reporting

Opinion
Under the Companies Act 2006 we are required to report to you if, in our opinion:

• we have not received all the information and explanations we require for our audit; or

•

adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received
from branches not visited by us; or

certain disclosures of directors’ remuneration specified by law are not made; or

the company financial statements are not in agreement with the accounting records and returns .

We have no exceptions to report arising from this responsibility .

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

London
20 September 2017

FOR T H E Y E A R E N DE D 30 J U N E 2017

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

Consolidated statement of comprehensive income

for the year ended 30 June 2017

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 37

Revenue
Administrative costs
Realised gain on investments
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/(expense):

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

2017
£’000

91,716
(83,704)
4
266

8,282

70
(263)
(45)

8,044

(2,230)

5,814

2016
£’000

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

16,482

58
(577)
(107)

15,856

(3,117)

12,739

3
6

(6)
–

5,823

12,733

42.95p
42.76p

94 .41p
94 .07p

The accompanying notes on pages 41 to 78 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

FOR T H E Y E A R E N DE D 30 J U N E 2017

38 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Consolidated statement of financial position

for the year ended 30 June 2017

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

2017
£’000

2016
£’000

62,648
3,203
658
–
–
1,271

67,780

22,693
1,185
32,183

56,061

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

71,781

23,958
1,000
19,478

44,436

123,841

116,217

(1,720)
(3,415)
(157)

(5,292)

(21,169)
(2,082)
–
(9,592)

(32,843)

85,706

138
37,101
6,480
41,987

85,706

(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

The consolidated financial statements on pages 37 to 78 were approved by the Board of Directors and authorised for issue on
20 September 2017, signed on their behalf by:

C M Connellan
Chief Executive

S J Jackson
Finance Director

Company registration number: 4402058

The accompanying notes on pages 41 to 78 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 2017

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

Consolidated statement of changes in equity
Consolidated statement of changes in equity

for the year ended 30 June 2017
for the year ended 30 June 2017

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 39
Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 39

Balance at 1 July 2015

136

35,600

5,101

33,327

74,164

Share capital
£’000

Share
premium
account
£’000

Other
reserves
£’000

Retained
earnings
£’000

Total
equity
£’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 2016

Comprehensive income
Profit for the year
Other comprehensive income:
Revaluation of available for sale financial asset
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 2017

–

1
–
–
–
–
–

–

397
–
–
–
–
–

397

–

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

–

–
–

–

1
–
–
–
–
–

–

–
–

–

1,104
–
–
–
–
–

1,104

138

37,101

–

3
6

5,814

–
–

3
6

5,814

5,823

–
1,237
(724)
–
441
–

954

6,480

–
–
724
(786)
–
(5,122)

(5,184)

1,105
1,237
–
(786)
441
(5,122)

(3,125)

41,987

85,706

The accompanying notes on pages 41 to 78 form an integral part of the consolidated financial statements .

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

FOR T H E Y E A R E N DE D 30 J U N E 2017

40 | Brooks Macdonald Group plc | Annual Report and Accounts 2017
40 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Consolidated statement of cash flow
Consolidated statement of cash flow

for the year ended 30 June 2017
for the year ended 30 June 2017

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
Deferred consideration paid
Finance income
Purchase of financial assets at fair value through profit or loss
Proceeds of sale of property, plant and equipment
Proceeds of sale of available for sale asset
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

2017
£’000

24,521
(3,186)

21,335

(892)
(2,651)
(5)
(1,580)
70
–
13
1,219
(1)

(3,827)

1,105
(786)
(5,122)

(4,803)

12,705

19,478

32,183

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

The accompanying notes on pages 41 to 78 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 2017

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 2017

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 41

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 and financial assets at fair value through
profit or loss 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 41 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 2016, except as explained below .

New accounting standards, amendments and interpretations adopted in the period
In the year ended 30 June 2017, 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 .

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 2017 |

C ON T I N U E D

42 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

c) Changes in accounting policies

2. Principal accounting policies continued

c) Changes in accounting policies 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

Equity method in Separate Financial Statements (Amendments to IAS 27)

Disclosure Initiative (Amendments to IAS 1)

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

Effective date

1 January 2016

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

1 January 2016

Annual improvements (2012-2014 cycle)

1 January 2016

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

1 January 2016

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 2016:

Standard, Amendment or Interpretation

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)

Annual improvements (2014-2016 cycle) – IFRS 12

Annual improvements (2014-2016 cycle) – IFRS 1 and IAS 28

Uncertainty over income tax treatments (IFRIC 23)

†

Not yet endorsed for use in the EU

Effective date

1 January 2017†

1 January 2018

1 January 2018†

1 January 2019†

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 15 ‘Revenue from Contracts with Customers’
IFRS 15 could change how and when revenue is recognised . The primary impact is expected to be around the recognition of
performance fees . Under IFRS 15, the Group will be required to make an assessment as to whether the work performed to
earn such fees constitutes the transfer of services and, therefore, fulfils any performance obligation(s) . If so, these fees can be
recognised when charged; if not, the fees can only be recognised in the period the services are provided .

The Group currently recognises these when the probability of meeting the performance criteria is virtually certain . Some
client agreements may need to be amended to ensure that any performance criteria are fully documented, but based upon a
preliminary assessment the Group does not expect a material change to the recognition of its revenue arising from these
revenue streams .

The Group is still in the process of making an impact assessment and as yet any further impact has not been quantified .

FOR T H E Y E A R E N DE D 30 J U N E 2017 |

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 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 43

2. Principal accounting policies continued

c) Changes in accounting policies continued

IFRS 9 ‘Financial Instruments’
IFRS 9 changes the classification and measurement of financial assets . Financial assets will be classified into one of three
categories: amortised cost, fair value through profit or loss (FVTPL) or fair value through other comprehensive income
(FVOCI) . The held to maturity, loans and receivables and available for sale categories available under IAS 39 have been
removed . In addition, the classification criteria for allocating financial assets between categories are different under IFRS 9 .
There is no material change to the classification of financial liabilities .

The Group does not expect the new classification bases to have a material impact on its financial assets . Those currently
carried at amortised cost (including cash and cash equivalents, trade and other receivables) will continue to be classified as
such . Some of the Group’s available for sale assets may be reclassified as FVTPL under IFRS 9 where the Group does not
collect all contractual cash flows . Other available for sale assets comprise preference share holdings and these will likely be
classified as FVOCI as the Group’s intention is to collect all contractual cash flows, being solely payments of principal and
interest .

IFRS 16 ‘Leases’
IFRS 16 will require the recognition of 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 . The total cost of the lease over the lease term is expected to be unchanged under the new standard .

d) Critical accounting estimates and judgements
The preparation of financial information requires the use of assumptions, estimates and judgements about future conditions .
Use of currently available information and application of judgement are inherent in the formation of estimates . Actual results
in the future may differ from those reported . In this regard, the directors believe that the accounting policies where
judgement is necessarily applied are those that relate to the measurement of intangible assets, deferred consideration, the
estimation of the fair value of share-based payments and client compensation provisions .

The underlying assumptions made are reviewed on an ongoing basis . Revisions to accounting estimates are recognised in the
period in which the estimate is revised only if the revision affects both current and future periods .

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

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

Deferred consideration
As described in note 21, 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 .

44 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

d) Critical accounting estimates and

judgements

2. Principal accounting policies continued

d) Critical accounting estimates and judgements continued

Share-based payments
The Group operates various share-based payment schemes in respect of services received from certain employees .
Estimating the fair value of these share-based payments requires the Group to apply an appropriate valuation model and
determine the inputs to that model (note 28) . 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
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 . The accounting
policy for provisions and contingent liabilities is outlined in note 2(p) .

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 and 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 .

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 .

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 45

2. Principal accounting policies continued

g) Fees, commissions and interest
Portfolio management fees and financial services commission
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 virtually certain that it will be received .

Advisory fees
Advisory 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 .

Fund management fees
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 .

Property management fees
Property management fees are charged using a fixed fee agreement . Fees are recognised over the contractual period .

Interest
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 .

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 .

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 .

46 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

2. Principal accounting policies continued

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 .

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
Costs incurred on internally developed computer software are initially recognised at cost and when the software is available
for use, the costs are amortised on a straight line basis over an estimated useful life of four years . Initial research costs and
planning prior to a decision to proceed with development of software are recognised in the statement of profit and loss
when incurred .

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 .

n) Investments in joint ventures

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 47

2. Principal accounting policies continued

n) Investments in joint ventures continued

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 .

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 and contingent liabilities
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 .

Where the outflow is not probable or cannot be reliably measured, the potential obligation is disclosed as a contingent liability
in the financial statements .

Insurance recoveries relating to legal fees are recognised when, and only when, it is virtually certain that reimbursement will
be received if the corresponding obligation is settled . Reimbursements received are disclosed net in the Consolidated
Statement of Comprehensive Income and gross in the Consolidated Statement of Financial Position .

Client compensation
Complaints are assessed on a case-by-case basis and provisions for compensation are made where it is judged necessary .

48 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

2. Principal accounting policies continued

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 .

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 .

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 .

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 49

2. Principal accounting policies continued

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 35 . 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 .

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 .

50 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

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 to the Group board of directors, which is the Group’s chief operating decision
maker . In accordance with IFRS 8 ‘Operating Segments’, disclosures are required to reflect the information which the board of
directors uses internally for evaluating the performance of its operating segments and allocating resources to those
segments . The information presented in this note is consistent with the presentation for internal reporting .

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 Group and consolidation adjustments . 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 2017

Total segment revenue
Inter segment revenue

External revenue

Investment
Management
£’000

Financial
Planning
£’000

Funds and
Property
Management
£’000

International
£’000

Group &
consolidation
adjustments
£’000

66,038
(321)

65,717

5,211
(222)

4,989

8,483
(56)

8,427

12,583
–

12,583

–
–

–

Total
£’000

92,315
(599)

91,716

Underlying profit before tax

21,134

275

587

452

(4,022)

18,426

Finance cost of deferred consideration
Changes in fair value of deferred
consideration
Amortisation of intangible assets
Goodwill impairment
Exceptional costs of resolving legacy
matters

–

–
(2,235)
–

–

–
(6)
–

–

Profit before tax
Taxation

Profit for the year

18,899

269

–

–
(18)
–

–

569

–

(263)

–
(506)
–

(6,500)

(6,554)

2,230
(1,098)
(1,986)

–

(5,139)

2,230
(3,863)
(1,986)

(6,500)

8,044
(2,230)

5,814

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 51

3. Segmental information continued

Year ended 30 June 2016*

Total segment revenue
Inter segment revenue

External revenue

Investment
Management
£’000

Financial
Planning
£’000

Funds and
Property
Management
£’000

International
£’000

Group &
consolidation
adjustments
£’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

Underlying profit before tax

19,100

(57)

(558)

800

(3,749)

15,536

Finance cost of deferred consideration
Changes in fair value of deferred
consideration
Amortisation of intangible assets

Profit before tax
Taxation

Profit for the year

–

3
(1,252)

17,851

–

–
(3)

(60)

–

(78)

(499)

(577)

–
(33)

(591)

225
(576)

371

3,343
(810)

(1,715)

3,571
(2,674)

15,856
(3,117)

12,739

* Re-presented to show the segmental underlying profit before tax and a reconciliation between underlying profit and statutory profit by segment .

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

2017
£’000

79,133
12,583

91,716

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

4. Revenue

Portfolio management fee income
Financial services commission
Advisory fees
Fund management fees
Property management fees

Total revenue

* Comparative information has been re-presented to bring the prior year headings in line with the current year .

2017
£’000

77,352
94
5,843
5,505
2,922

91,716

2016
£’000

69,794
11,605

81,399

2016*
£’000

69,273
125
5,169
4,322
2,510

81,399

3. Segmental information

52 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

5. Realised gain on investments

During the year ended 30 June 2017, the Group realised a net gain of £4,000 (2016: £20,000) on disposal of investments . This
comprised of a gain of £13,000 on the investment in the Braemar Group PCC Limited Student Accommodation Cell and a loss
of £9,000 on the investment in GLI Finance Limited redeemable preference shares . The £20,000 gain in the year ended
30 June 2016 related to the final disposal of the Group’s investment in Sancus Holdings Limited, through the voluntary
winding up of the company .

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 goodwill (note 13)
Impairment of available for sale financial assets (note 15)
Impairment of investment in joint venture (note 16)
Gain/(loss) from changes in fair value of financial assets at fair value through profit or loss
(note 19)
Gain from changes in fair value of deferred consideration (note 21)

Other gains and losses

7. Operating profit

Operating profit is stated after charging:

Staff costs (note 8)
Auditors’ remuneration (see below)
Financial Services Compensation Scheme Levy (see below)
Depreciation (note 14)
Amortisation (note 13)
Impairment of goodwill (note 13)
Exceptional cost of resolving legacy matters (note 24)

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

Fees payable to the Company’s auditors for the audit of the consolidated Group and
parent company financial statements
Fees payable to the Company’s auditors and its associates for other services:
– Audit of the Company’s subsidiaries pursuant to legislation
– Audit-related assurance services
– Other services

Total auditors’ remuneration

2017
£’000

(1,986)
–
(163)

185
2,230

266

2017
£’000

45,679
420
459
989
3,863
1,986
6,500

2017
£’000

102

138
179
1

420

2016
£’000

–
(311)
(400)

(3)
3,571

2,857

2016
£’000

38,716
380
475
969
2,674
–
–

2016
£’000

230
70
24

380

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 53

7. Operating profit continued

7. Operating profit

Financial Services Compensation Scheme levies
Administrative costs for the year ended 30 June 2017 include a charge of £459,000 (2016: £475,000) in respect of the
Financial Services Compensation Scheme (“FSCS”) levy . This comprises the Group’s estimated levy for the 2017/18 scheme
year of £621,000 and a net rebate of £162,000 for the 2016/17 scheme year .

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

2017
£’000

38,912
4,197
1,312
1,258

45,679

2017

191
309

500

2016
£’000

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

38,716

2016

190
282

472

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

2017
£’000

2,571
33
320

2,924

2016
£’000

2,466
25
445

2,936

54 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

8. Employee information

8. Employee information continued

d) Directors’ emoluments
Further details of directors’ emoluments are included within the Remuneration Committee report on pages 13 to 21 .

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

Pension contributions
Amounts receivable under long term incentive schemes

Total directors' remuneration

2017
£’000

2,262
282
27

2,571
33
320

2,924

2016
£’000

2,209
234
23

2,466
25
445

2,936

The aggregate amount of gains made by directors on the exercise of share options during the year was £161,000
(2016: £109,000) . Retirement benefits are accruing to two directors (2016: one) under a defined contribution pension scheme .

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

Remuneration and benefits in kind
Amounts receivable under long term incentive schemes

Total remuneration

2017
£’000

368
68

436

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 nil (2016: £25,000) .

9. Finance income and finance costs

Finance income
Dividend income
Bank interest on deposits

Total finance income

Finance costs
Finance cost of deferred consideration

Total finance costs

2017
£’000

43
27

263

2016
£’000

–
58

577

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 55

10. Taxation

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

UK Corporation Tax at 19 .75% (2016: 20 .00%)
Under provision in prior years

Total current tax
Deferred tax credits
Research and development tax credit
Effect of change in tax rate on deferred tax

Income tax expense

2017
£’000

3,648
167

3,815
(1,026)
(433)
(126)

2,230

2016
£’000

3,262
448

3,710
(259)
–
(334)

3,117

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

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

Profit before taxation

Profit multiplied by the standard rate of tax in the UK of 19 .75% (2016: 20 .00%)

Tax effect of:
– Lower tax rates in other countries in which the Group operates
– Overseas tax losses not available for UK tax purposes
– Disallowable expenses
– Impairment charges
– Non-taxable income
– Losses utilised (no deferred tax thereon)
– Research and development tax credit
– Change in rate of Corporation Tax applicable to deferred tax
– Under provision in prior years

Tax charge for the year

2017
£’000

8,044

1,590

–
955
149
424
(433)
(63)
(433)
(126)
167

2,230

2016
£’000

15,856

3,171

(77)
–
238
143
(472)
–
–
(334)
448

3,117

Non-taxable income includes the gain from changes in fair value of deferred consideration .

During the year, the Group made a claim for research and development tax relief in relation to qualifying expenditure on
software development incurred in the years ended 30 June 2014 and 30 June 2015 . This resulted in a reduction in the
Corporation Tax liabilities in the respective years, and a repayment of £433,000 (2016: £nil) from HMRC . The Group will
consider whether claims can also be made for qualifying expenditure incurred in the year ended 30 June 2016 and thereafter
in due course .

56 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

10. Taxation

10. Taxation continued

The deferred tax credits for the year arise from:

Share option reserve
Accelerated capital allowances
Amortisation of acquired client relationship contracts
Unused overseas trading losses

Deferred tax credits

2017
£’000

194
84
409
339

1,026

2016
£’000

(185)
35
409
–

259

On 1 April 2017, the standard rate of Corporation Tax in the UK was reduced to 19% . As a result the effective rate of
Corporation Tax applied to the taxable profit for the year ended 30 June 2017 is 19 .75% (2016: 20 .00%) .

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 to 17% 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
17% (2016: 18%) 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 finance
costs of deferred consideration, changes in the fair value of deferred consideration, goodwill impairment, amortisation of
intangible assets and the exceptional costs of resolving legacy matters . 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:

Reported earnings attributable to ordinary shareholders
Goodwill impairment (note 13)
Finance cost of deferred consideration (note 21)
Changes in fair value of deferred consideration (note 21)
Amortisation of intangible assets (note 13)
Exceptional costs of resolving legacy matters (note 24)
Tax impact of adjustments

Underlying earnings attributable to ordinary shareholders

2017
£’000

5,814
1,986
263
(2,230)
3,863
6,500
(525)

15,671

2016
£’000

12,739
–
577
(3,571)
2,674
–
(556)

11,863

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 .

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 57

11. Earnings per share continued

11. Earnings per share

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

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

Diluted weighted average number of shares in issue

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

2017
Number of
shares

13,537,222
59,872

13,597,094

2016
Number of
shares

13,493,316
48,220

13,541,536

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

2017
(p)

42.95
42.76

115.76
115.25

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 2016 of 23 .0p
(2015: 20 .5p) per share
Interim dividend paid for the year ended 30 June 2017 of 15 .0p
(2016: 12 .0p) per share

Total dividends

2017
£’000

3,101

2,021

5,122

Final dividend proposed for the year ended 30 June 2017 of 26 .0p (2016: 23 .0p) per share

3,524

The interim dividend of 15 .0p (2016: 12 .0p) per share was paid on 21 April 2017 .

2016
(p)

94 .41
94 .07

87 .92
87 .60

2016
£’000

2,758

1,614

4,372

3,101

A final dividend for the year ended 30 June 2017 of 26 .0p (2016: 23 .0p) per share was declared by the board of directors on
20 September 2017 and is subject to approval by the shareholders at the Company’s annual general meeting . It will be paid on
27 October 2017 to shareholders who are on the register at the close of business on 29 September 2017 . In accordance with
IAS 10 ‘Events After the Reporting Period’, the aggregate amount of the proposed dividend expected to be paid out of retained
earnings is not recognised as a liability in these financial statements .

58 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

13. Intangible assets

Cost
At 1 July 2015
Additions

At 30 June 2016
Additions
Adjustment in respect of prior periods

At 30 June 2017

Accumulated amortisation and impairment
At 1 July 2015
Amortisation charge

At 30 June 2016
Amortisation charge
Impairment

At 30 June 2017

Net book value
At 1 July 2015
At 30 June 2016

At 30 June 2017

Goodwill
£’000

Computer
software
£’000

Acquired
client
relationship
contracts
£’000

Contracts
acquired with
fund
managers
£’000

36,006
–

36,006
–
–

36,006

–
–

–
–
1,986

1,986

36,006
36,006

34,020

1,816
3,265

5,081
2,651
–

7,732

398
132

530
1,328
–

1,858

1,418
4,551

5,874

32,747
–

32,747
–
(2)

32,745

5,938
2,177

8,115
2,200
–

10,315

26,809
24,632

22,430

3,522
–

3,522
–
(1)

3,521

2,497
365

2,862
335
–

3,197

1,025
660

324

Total
£’000

74,091
3,265

77,356
2,651
(3)

80,004

8,833
2,674

11,507
3,863
1,986

17,356

65,258
65,849

62,648

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 2017 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 £9,227,000 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 2017 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 five years . Cash flows are then extrapolated beyond
the forecast period using an expected long-term growth rate .

Based on a value-in-use calculation, the recoverable amount of the Levitas CGU at 30 June 2017 was £9,319,000 . This was
lower than the carrying amount of the CGU, reflecting both a reduction in forecast funds under management growth and an
increase in the discount rate applied, indicating that it should be impaired . An impairment loss of £1,986,000 (2016: £nil) has
been recognised against the goodwill attributable to the CGU and is shown in the Consolidated Statement of Comprehensive
Income within other gains and losses .

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 59

13. Intangible assets continued

a) Goodwill continued

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 10% (2016: 8%) has been used, based on the
Group’s assessment of the risk-free rate of interest and specific risks pertaining to Levitas . Annual funds under management
growth rates of between 5% and 18% 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, which are considered to be achievable
given current market and industry trends . A 2% long-term growth rate is applied to cash flows beyond the forecast period and
is considered prudent in the context of the long-term average growth rate for the funds industry in which the CGU operates .

Reasonably possible changes in the key assumptions and the impact of these changes on the calculated recoverable amount
are:

•

A 1% change in the pre-tax discount rate would result in a £1,041,000 change in the recoverable amount .

A 10% change in the forecast funds under management would result in a £630,000 change in the recoverable amount .

A 0 .5% change in the long-term average growth rate would result in a £489,000 change in the recoverable amount .

As the Levitas CGU has been impaired in the year, any future adverse change in any of the key assumptions would cause the
CGU’s carrying amount to exceed its recoverable amount, and an additional impairment would then be recognised .

Based on a value-in-use calculation, the recoverable amount of the Brooks Macdonald International CGU at 30 June 2017 was
£42,043,000, indicating that there is no impairment . The key underlying assumptions of the calculation are the discount rate,
the short-term growth in earnings and the long-term growth rate of the business . A pre-tax discount rate of 10% has been used,
based on the Group’s assessment of the risk-free rate of interest and specific risks relating to Brooks Macdonald International .
Annual earnings growth rates of between 18% and 48% 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 .

The key assumptions inherent in the value-in-use calculations for the Braemar CGU were a pre-tax discount rate of 11%,
annual revenue growth rates ranging from 10% to 28% and a long-term growth rate of 2% .

Headroom exists in the calculations of the respective recoverable amounts of the Brooks Macdonald International and
Braemar 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
Computer software costs are amortised on a straight line basis over an estimated useful life of four years . Costs incurred on
internally developed computer software are initially recognised at cost and when the software is available for use, the costs
are amortised on a straight line basis over an estimated useful life of four years .

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 .

60 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

14. Property, plant and equipment

Cost
At 1 July 2015
Additions
Disposals

At 30 June 2016
Additions
Disposals

At 30 June 2017

Accumulated depreciation
At 1 July 2015
Disposals
Depreciation charge

At 30 June 2016
Disposals
Depreciation charge

At 30 June 2017

Net book value
At 1 July 2015
At 30 June 2016

At 30 June 2017

15. Available for sale financial assets

At beginning of year
Additions
Reclassification of loan (non–cash transfer)
Net gain/(loss) from changes in fair value
Accumulated loss on revaluation reserve recycled
Disposals
Impairment loss

At end of year

Motor
vehicles
£’000

Fixtures and
fittings
£’000

Equipment
and leasehold
improvements
£’000

60
–
(27)

33
–
(25)

28
(15)
9

22
(16)
2

32
11

–

2,092
19
–

2,111
52
–

2,163

1,266
–
232

1,498
–
196

1,694

826
613

469

7,342
732
–

8,074
840
–

8,914

4,661
–
728

5,389
–
791

6,180

2,681
2,685

2,734

2017
£’000

1,715
5
150
1
6
(1,219)
–

658

Total
£’000

9,494
751
(27)

10,218
892
(25)

11,085

5,955
(15)
969

6,909
(16)
989

7,882

3,539
3,309

3,203

2016
£’000

1,532
500
–
(6)
–
–
(311)

1,715

At 1 July 2016, the Group held 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”), an AIM-listed company incorporated in Guernsey; and 500,000
redeemable preference shares in an unlisted company incorporated in the UK .

The Student Accommodation Fund was promoted by Brooks Macdonald Funds Limited, a subsidiary of the Company . In May
2016 the shareholders of the fund approved a resolution to sell the underlying property portfolio of the fund to a third party
and in the year ended 30 June 2017 the shares were compulsorily redeemed by the fund . A gain of £13,000 was realised on
receipt of the final redemption monies of £484,000 . During the year, the Group also disposed of its holding in GLIF at a market
value of £735,000, realising a loss of £9,000 . The net gain of £4,000 has been recognised in the Consolidated Statement of
Comprehensive Income for the year ended 30 June 2017 within realised gain on investments (note 5) .

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 61

15. Available for sale financial assets continued

In addition, accumulated losses of £6,000 in respect of GLIF were realised upon disposal and the revaluation reserve was
recycled through Other Comprehensive Income .

During the year ended 30 June 2017, the Group acquired an offshore bond at a cost of £5,000 . A revaluation gain due to a
change in the fair market value of the bond of £3,000 was recognised within Other Comprehensive Income .

The Group also converted an existing loan of £150,000, issued by Brooks Macdonald Asset Management (International)
Limited to a third party, into redeemable preference share capital during the year . The loan was previously included within
trade and other receivables as a non-current asset and has been reclassified as an available for sale financial asset . The
preference shares carry an entitlement to a fixed preferential dividend at a rate of 8% per annum .

In the year ended 30 June 2016 an impairment loss of £311,000 was recognised in relation to the investment in the Student
Accommodation Fund, reflecting the permanent diminution in the net asset value of the fund . No impairment losses were
recognised in the Consolidated Statement of Comprehensive Income during the year ended 30 June 2017 .

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 .

At 1 July 2016
Additions
Reclassification of loan (non cash transfer)
Net (loss)/gain from changes in fair value
Revaluation reserve recycled
Disposals

At 30 June 2017

Comprising:
Offshore bond
Unlisted redeemable preference shares

Total

Level 1
£’000

Level 2
£’000

Level 3
£’000

744
–
–
(15)
6
(735)

–

–
–

–

–
–
–
–
–
–

–

–
–

–

971
5
150
16
–
(484)

658

8
650

658

Total
£’000

1,715
5
150
1
6
(1,219)

658

8
650

658

Unlisted preference shares are valued using a perpetuity income model which is based upon the preference dividend cash
flows . Offshore bonds are valued using the value of the underlying securities, some of which are illiquid and therefore prices
are not readily available in the market .

A 1% reduction in the value of available for sale financial assets would result in a £7,000 reduction to total comprehensive
income .

62 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

16. 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 .

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

At end of year

2017
£’000

207
1
(163)
(45)

–

2016
£’000

628
86
(400)
(107)

207

During the year ended 30 June 2017, the carrying amount of the Group’s investment in North Row Capital LLP has been
further reduced to an estimated recoverable amount of £nil by recognising an impairment loss of £163,000 (2016: £400,000)
against the investment in joint venture . The expense is included within other gains and losses in the Condensed Consolidated
Statement of Comprehensive Income . The impairment arose as the forecast future cash flows from the partnership were
estimated to accumulate slower than originally anticipated and as a result the Group will not realise a return on its investment
in the joint venture .

The partners decided to terminate the fund and the application was approved by the FCA on 17 March 2017 . Clients were
informed on 24 March 2017 . Dealing within the Fund was suspended on 25 April 2017 and the final report and financial
statements for the Fund are to be prepared by 30 September 2017 .

17. 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
Credit recognised in equity

At 30 June

2017
£’000

688
583

1,271

(3,415)
–

(3,415)

2017
£’000

(3,484)
1,152
188

(2,144)

2016
£’000

190
361

551

(3,951)
(84)

(4,035)

2016
£’000

(4,104)
593
27

(3,484)

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 63

17. 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 2015
Charge to the Statement of Comprehensive Income
Charge to equity

At 30 June 2016
Charge to the Statement of Comprehensive Income
Charge to equity

At 30 June 2017

Share–based
payments
£’000

Trading
losses carried
forward
£’000

709
(185)
27

551
193
188

932

–
–
–

–
339
–

339

Total
£’000

709
(185)
27

551
532
188

1,271

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 2015
Credit to the Statement of Comprehensive Income

At 30 June 2016
Credit to the Statement of Comprehensive Income

At 30 June 2017

18. 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

Intangible
asset
amortisation
£’000

119
(35)

84
(84)

–

4,694
(743)

3,951
(536)

3,415

2017
£’000

–

1,723
1,187
19,783

22,693

Total
£’000

4,813
(778)

4,035
(620)

3,415

2016
£’000

150

5,939
2,518
15,501

23,958

At 30 June 2016 there was a non-current loan receivable outstanding, issued by Brooks Macdonald Asset Management
(International) Limited to a third party for £150,000 . During the year the loan was converted into redeemable preference
shares and has been re-classified as an available for sale financial asset (note 15) .

64 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

19. Financial assets at fair value through profit or loss

At beginning of year
Additions
Gain/(loss) from change in fair value

At end of year

These investments are classified as Level 1 as defined in note 15 .

20. Cash and cash equivalents

Cash at bank
Cash held in employee benefit trust

Total cash and cash equivalents

2017
£’000

1,000
–
185

1,185

2017
£’000

32,128
55

32,183

2016
£’000

3
1,000
(3)

1,000

2016
£’000

19,437
41

19,478

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 .

21. Deferred consideration

Deferred consideration is split between non-current liabilities (see below) and provisions within current liabilities (note 24) 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
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

2017
£’000

6,931
263
(2,230)
(1,580)

3,384

1,664
1,720

3,384

2016
£’000

13,826
577
(3,571)
(3,901)

6,931

1,641
5,290

6,931

No additions to deferred consideration were recognised in the year . Payments totalling £1,580,000 (2016: £3,901,000)
were made during the year to the vendors of Levitas . Full details of the Levitas acquisition are disclosed in note 13 of the
2015 Annual Report and Accounts .

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 65

21. Deferred consideration continued

A total reduction in the fair value of deferred consideration of £2,230,000 (2016: £3,571,000) was recognised during the year,
all in respect of Levitas (2016: £3,343,000), with a corresponding gain recognised within other gains and losses in the
Consolidated Statement of Comprehensive Income . 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 made in
the year ended 30 June 2016 also included a reduction in the fair value of the deferred consideration attributable to DPZ by
£225,000 and to JPAM by £3,000, to the amount of the final payments made to the vendors . The deferred consideration
relating to these acquisitions was fully paid as at 30 June 2016 .

Deferred consideration is classified as Level 3 within the fair value hierarchy, as defined in note 15 .

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

At 1 July
Finance cost of deferred consideration
Fair value adjustments
Transfer to current liabilities

At 30 June

2017
£’000

5,290
263
(2,230)
(1,603)

1,720

2016
£’000

9,442
498
(3,343)
(1,307)

5,290

During the year, no deferred consideration was recognised on acquisitions . An amount of £1,603,000 (2016: £1,307,000),
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 .

22. 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

2017
£’000

114
51
(8)

157

2016
£’000

95
76
(57)

114

The additional liability was recognised during the year of £51,000 (2016: £76,000) in respect of existing LTIS awards, granted
in previous years, that are expected to vest in the future . During the year, an amount of £8,000 (2016: £57,000) was transferred
to current liabilities, reflecting awards that are expected to vest within the next 12 months .

66 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

23. Trade and other payables

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

Total trade and other payables

2017
£’000

3,025
2,345
361
15,438

21,169

2016
£’000

4,870
2,509
219
11,246

18,844

Included within accruals and deferred income in 2017 is an accrual of £366,000 (2016: £179,000) in respect of employer’s
National Insurance contributions arising from share option awards under the LTIS (note 28b) and an accrual of £307,000
(2016: £nil) in respect of redundancy costs relating to the closure of the Guernsey back office .

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 28) . The total charge to the Consolidated Statement of Comprehensive Income for the year for employer’s National
Insurance contributions arising from share option awards under the LTIS (note 28b) was £228,000 (2016: £84,000) .

24. Provisions

At 1 July 2015
Charge to the Statement of Comprehensive Income
Finance cost of deferred consideration
Fair value adjustments
Transfer from non–current liabilities
Utilised during the year

At 30 June 2016
Charge to the Statement of Comprehensive Income
Transfer from non–current liabilities
Utilised during the year

At 30 June 2017

Exceptional
costs of
resolving
legacy
matters
£’000

Deferred
consideration
£’000

Client
compensation
£’000

701
125
–
–
–
(153)

673
208
–
(74)

807

–
–
–
–
–
–

–
6,500
–
–

6,500

4,384
–
79
(228)
1,307
(3,901)

1,641
–
1,603
(1,580)

1,664

FSCS
levy
£’000

389
475
–
–
–
(394)

470
621
–
(470)

621

Total
£’000

5,474
600
79
(228)
1,307
(4,448)

2,784
7,329
1,603
(2,124)

9,592

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 67

24. 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 . The amount
recognised within provisions for client compensation represents management’s best estimate of the potential liability . The
timing of the corresponding outflows is uncertain as these are made as and when claims arise .

b) Exceptional costs of resolving legacy matters
Following a review into legacy matters arising from the former Spearpoint business, which was acquired by the Group in
2012, a provision of £6,500,000 (2016: £nil) was recognised for costs of resolving these including associated expenses . These
matters relate to a number of discretionary portfolios formerly managed by Spearpoint, now managed by Brooks Macdonald
Asset Management (International) Limited, and a Dublin-based fund, for which Spearpoint acted as investment manager .

c) 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 2017 was £1,664,000 (2016: £1,641,000) and relates
entirely to the Levitas acquisition . The amount of deferred consideration included within provisions is due to be settled in
November 2017 . Subsequent annual payments will be made in November of each year until the final payment in November
2020, with the final amount being calculated in November 2018 .

An amount of £1,603,000 (2016: £1,307,000) 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 £1,580,000 (2016:
£3,901,000) were utilised during the year on payment of £1,580,000 to the vendors of Levitas (2016: £1,247,000 to the
vendors of Levitas; £524,000 to the vendor of JPAM; and £2,130,000 to the vendors of DPZ) .

d) FSCS levy
Following confirmation by the FSCS in April 2017 of its final industry levy for 2017/18, the Group has made a provision of
£621,000 (2016: £470,000) for its estimated share . This includes a supplementary levy of £100,000 that is likely to be raised in
January 2018 .

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

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

Net cash inflow from operating activities

2017
£’000

8,282

989
(4)
(4)
6
3,863
(266)
1,265
2,325
6,785
43
1,237

2016
£’000

16,482

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

24,521

17,536

68 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

26. Share capital and share premium account

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

At 1 July 2015
Shares issued:
– on exercise of options
– to Sharesave Scheme

At 30 June 2016
Shares issued:
– on exercise of options
– to Sharesave Scheme

At 30 June 2017

Number of
shares

13,660,220

Exercise
price
(p)

19,400
29,550

215 .0 – 290 .5
1,054 .0 – 1,386 .0

Share
capital
£’000

136

–
1

Share
premium
account
£’000

Total
£’000

35,600

35,736

53
344

53
345

13,709,170

137

35,997

36,134

11,857
72,373

290 .5 – 1,452 .0
1,172 .0 – 1,400 .0

–
1

103
1,001

103
1,002

13,793,400

138

37,101

37,239

The total number of ordinary shares issued and fully paid at 30 June 2017 was 13,793,400 (2016: 13,709,170) 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 2017 (2016: £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 (note 28b) . At 30 June 2017, the EBT held 243,465
(2016: 228,208) 1p ordinary shares in the Company, acquired for a total consideration of £3,816,000 (2016: £3,376,000)
with a market value of £5,820,000 (2016: £3,774,000) . They are classified as treasury shares in the Consolidated Statement
of Financial Position, their cost being deducted from retained earnings within shareholders’ equity .

27. 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

2017
£’000

6,285
192
3

6,480

2016
£’000

5,331
192
(6)

5,517

a) Share option reserve
The share option reserve represents the cumulative charge to the Consolidated Statement of Comprehensive Income for the
Group’s equity settled share-based payment schemes, as described in note 28 .

b) Merger reserve
The merger reserve arises when the consideration and nominal value of the shares issued during a merger and the fair value
of assets transferred during the business combination differ .

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 69

27. Other reserves and retained earnings continued

c) Available for sale reserve
The available for sale reserve reflects the changes in fair value of available for sale assets . Upon sale of the corresponding
asset, the accumulated gain or loss is recycled through the Consolidated Statement of Comprehensive Income as a gain or
loss on disposal .

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

27. Other reserves and retained earnings

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

28. Equity-settled share-based payments

2017
£’000

5,331
1,237
(724)
441

6,285

(6)
3
6

2017
£’000

41,357
5,814
(786)
724
(5,122)

41,987

2016
£’000

4,909
943
(806)
285

5,331

–
(6)
–

(6)

2016
£’000

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

41,357

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 .17% 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 1 .79%, an expected vesting period of three
years and a risk-free annual rate of interest of between 0 .17% and 0 .34% .

The share options issued under the various equity-settled share-based payment schemes have been valued at prices ranging
from £2 .31 to £16 .33 per share . The charge to the Consolidated Statement of Comprehensive Income for the year in respect of
these was £1,237,000 (2016: £943,000) . The weighted average remaining contractual life of all equity-settled share-based
payment schemes at 30 June 2017 was 1 .32 years (2016: 1 .48 years) . The weighted average share price of all options
exercised during the year was £10 .45 (2016: £17 .71) . The total charge to the Consolidated Statement of Comprehensive
Income for the year for all share-based payment schemes was £1,465,000 (2016: £1,027,000) .

70 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

28. 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)

1,725
–
1,738

Fair
value
(p)

268
1,633
648

Number of
options

31,728
69,637
67,590

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
Exercised in the year

At 30 June

2017

2016

Weighted
average
exercise price
(£)

4.83
2.905

5.64

Number
of options

20,353
(6,000)

14,353

Weighted
average
exercise price
(£)

3 .81
2 .73

4 .83

Number
of options

39,753
(19,400)

20,353

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

Scheme year (grant date)

2007
2010

All years

At 30 June 2017, all options are able to be exercised .

Exercise
price
(£)

Vesting
period

2017
Number
of options

2016
Number
of options

2 .905 2010 – 2017
7 .75 2013 – 2020

6,250
8,103

14,353

12,250
8,103

20,353

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

2017
Number
of options

208,739
69,637
(27,038)
(6,551)

244,787

2016
Number
of options

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

208,739

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 71

28. 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
2016

All years

Exercise
price (£)

Vesting
period

–
–
–
–
–
–
–

2013
2014
2015
2016
2017
2018
2019

2017
Number
of options

6,438
6,517
25,985
18,173
60,806
57,909
68,959

2016
Number
of options

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

244,787

208,739

At 30 June 2017, options for schemes up to and including the 2013 scheme have vested and are able to be exercised .

c) Employee Benefit Trust
Brooks Macdonald Group plc established an employee benefit trust (“EBT”) on 3 December 2010 to acquire ordinary shares in
the Company to satisfy awards under the LTIS . All finance costs and administration expenses connected with the EBT are
charged to the Consolidated Statement of Comprehensive Income as they accrue . The EBT has waived its rights to dividends .
The following table shows the number of shares held by the EBT that have not yet vested unconditionally .

At 1 July
Acquired in the year
Exercised in the year

At 30 June

2017
Number
of shares

228,208
42,295
(27,038)

243,465

2016
Number
of shares

207,532
66,470
(45,794)

228,208

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
Exercised in the year
Forfeited in the year

At 30 June

2017

2016

Weighted
average
exercise price
(£)

15.67
16.66
14.52
17.21

16.14

Number of
options

81,264
31,728
(5,857)
(4,487)

102,648

Weighted
average
exercise price
(£)

14 .16
17 .11
–
17 .19

15 .67

Number of
options

39,927
42,501
–
(1,164)

81,264

72 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

d) Company Share Option Plan (‘CSOP’)

28. 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
2016

All years

Exercise
price (£)

14 .52
13 .81
17 .19
17 .25

Vesting
period

2016
2017
2018
2019

2017
Number
of options

13,953
21,204
38,309
29,182

102,648

2016
Number
of options

19,810
21,204
40,250
–

81,264

At 30 June 2017, options for the 2013 scheme have vested and are able to be exercised .

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
Exercised in the year
Forfeited in the year

At 30 June

The number of share options outstanding at 30 June 2017 was as follows:

2017

2016

Number
of options

225,889
67,590
(74,371)
(19,355)

199,753

Weighted
average
exercise
price (£)

13.32
17.38
13.83
13.34

14.51

Number
of options

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

225,889

Weighted
average
exercise
price (£)

12 .86
14 .00
11 .60
12 .79

13 .32

Scheme year (grant date)

2013
2014
2015
2016
2017

All years

Exercise
price (p)

1,172 .0
1,386 .0
1,237 .0
1,400 .0
1,738 .0

Vesting
period

2016
2017
2018
2019
2020

2017
Number
of options

2016
Number
of options

–
7,916
76,697
47,860
67,280

920
85,153
84,979
54,837
–

199,753

225,889

At 30 June 2017, options for the 2014 scheme have vested and are able to be exercised .

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 73

29. Lease commitments

The Group leases various office premises under non-cancellable operating lease arrangements . The future aggregate
minimum payments in relation to these leases, which are not recognised as liabilities in the financial statements, are analysed
by their contractual payment dates as follows:

Within one year
After one year but not more than five years
After five years

Total future minimum lease payments

2017
£’000

1,949
4,312
137

6,398

2016
£’000

1,966
4,469
–

6,435

30. 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

2017
£’000

751,595
9,704,108

10,455,703

2016
£’000

773,899
7,528,077

8,301,976

74 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

31. Financial risk management

The Group has identified the financial risks arising from its activities and has established policies and procedures as part of a
formal structure for managing risk, including establishing risk lines, reporting lines, mandates and other control procedures .
The structure is reviewed regularly . The Group does not use derivative financial instruments for risk management purposes .

a) Liquidity risk
Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its financial liabilities when
they fall due .

The primary objective of the Group’s treasury policy is to manage short-term liquidity requirements and to ensure that the
Group maintains a surplus of immediately realisable assets over its liabilities, such that all known and potential cash
obligations can be met .

The table below shows the cash inflows and outflows from the Group under non-derivative financial assets and liabilities,
together with cash and bank balances available on demand .

Net liquidity gap

32,183

(10,914)

(2,449)

(2,341)

1,843

At 30 June 2017

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

–

–
32,183
–
–

32,183

–
–

–
–
1,723
13,987

15,710

3,025
23,599

26,624

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

658

–

–
–
–
179

179

–
2,628

2,628

–

–
–
–
–

–

–
2,341

2,341

–

–
–
–
133

133

–
2,314

2,314

–

–
–
–
–

–

–
5,874

5,874

1,185
–
–
–

1,843

–
–

–

1,000
–
–
–

2,715

–
–

–

1,185
32,183
1,723
14,166

49,915

3,025
28,568

31,593

18,322

Total
£’000

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

35,293

4,870
21,370

26,240

9,053

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

1,715

Net liquidity gap

19,478

(5,085)

(2,181)

(5,874)

2,715

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 75

31. Financial risk management continued

31. Financial risk management

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 £322,000 (2016: £195,000) . 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 15 and 19) . A 1% fall in the value of these financial instruments would have the impact of reducing
total comprehensive income by £18,000 (2016: £27,000) and profit before tax by £12,000 (2016: £10,000) . 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
2017 there was no significant concentration of credit risk in any particular counterparty (2016: none) .

Assets exposed to credit risk recognised on the Consolidated Statement of Financial Position total £32,183,000
(2016: £19,478,000), being the Group’s total cash and cash equivalents .

Trade receivables with a carrying amount of £1,723,000 (2016: £5,939,000) 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 (2016: three months) .

76 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

32. 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 2017 was £85,706,000 (2016: £83,008,000) . 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 2017 ICAAP
will be approved in October 2017 . 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 .

33. Guarantees and contingent liabilities

A claim for unspecified losses has been made by a client against Brooks Macdonald Financial Consulting Limited, a
subsidiary of the Group, in relation to alleged negligent financial advice . The claimant has not yet advised the quantum of
their claim so it is not possible to reliably estimate the potential impact of a ruling in their favour . There remains significant
uncertainty surrounding the claim and the Group’s legal advice indicates that it is not probable that the claim will be upheld,
therefore no provision for any liability has been recognised at this stage .

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 .

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 77

34. 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

2017
£’000

2016
£’000

2017
£’000

2016
£’000

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:

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

Amounts owed
by related parties

Amounts owed
to related parties

2017
£’000

–
5
661
–
–
–
1,126
–
9
1

2016
£’000

–
5
661
–
–
–
1,252
–
9
6

2017
£’000

252
–
–
10,011
1
2,026
–
2,583
–
–

2016
£’000

81
–
–
9,456
–
475
–
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 . At 30 June 2017, financial
assets at fair value through profit or loss included an investment of 563,689 .4025 class A units (2016: 563,689 .4025 class A
units) in the IFSL Brooks Macdonald Balanced Fund (note 19) . At 30 June 2016, available for sale financial assets included an
investment of 1,426,793 .64 class B ordinary shares in Braemar Group PCC Limited Student Accommodation Cell (note 15)
which was disposed of during the current year . These transactions were conducted on an arm’s length basis .

The Group holds a 60% interest in North Row Capital LLP, a joint venture, details of which are given in note 16 .

78 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the consolidated financial statements

for the year ended 30 June 2017 | continued

35. 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 Brooks Macdonald Group Employee Benefit Trust, details of which are given in
note 26 .

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 £1,034m (2016: £625m) .
Included in revenue on the consolidated statement of comprehensive income is management fee income of £4,463,000
(2016: £3,027,000) from unconsolidated structured entities managed by the Group .

36. Events since the end of the year

Since the end of the financial year, the Group has agreed to dispose of the entire share capital of two subsidiary companies,
Braemar Estates (Residential) Limited and Braemar Facilities Management Limited, to Rendall & Rittner Limited . The disposal
exchanged on 20 September 2017 and is expected to complete on 1 December 2017 . Consideration will comprise an initial
amount payable on completion plus a deferred amount payable over a two-year period from the completion date .

Braemar Estates (Residential) Limited provides property management and advisory services and its subsidiary, Braemar
Facilities Management Limited, provides on-site management services to some of the units managed by its parent . Both
subsidiaries are included within the Funds and Property Management reporting segment (see note 3) .

A S AT 30 J U N E 2017

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 2017

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 79

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
Retained earnings

Total equity

Note

2017
£’000

2016
£’000

64,646
500

65,146

1,820
1,180
2,684

5,684

70,830

(1,720)

(18,892)

50,218

138
37,101
5,901
7,078

50,218

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

The Company financial statements were approved by the board of directors and authorised for issue on 20 September 2017,
signed on their behalf by:

C M Connellan
Chief Executive

S J Jackson
Finance Director

Company registration number: 4402058

The accompanying notes on pages 82 to 89 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

FOR T H E Y E A R E N DE D 30 J U N E 2017

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

80 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Company statement of changes in equity

for the year ended 30 June 2017

Balance at 1 July 2015

136

35,600

4,404

4,983

45,123

Share capital
£’000

Share
premium
account
£’000

Share option
reserve
£’000

Retained
earnings
£’000

Total
£’000

Comprehensive income
Profit for the year (note 39)

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 40)

Total transactions with owners

Balance at 30 June 2016

Comprehensive income
Profit for the year (note 39)

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 40)

Total transactions with owners

Balance at 30 June 2017

–

1
–
–
–
–

–

397
–
–
–
–

397

–

8,859

–
943
(580)
–
–

363

–
–
580
(1,143)
(4,372)

(4,935)

398
943
–
(1,143)
(4,372)

(4,174)

137

35,997

4,767

8,907

49,808

–

1
–
–
–
–

–

1,104
–
–
–
–

1,104

138

37,101

–

3,976

–
1,237
(103)
–
–

1,134

5,901

–
–
103
(786)
(5,122)

(5,805)

1,105
1,237
–
(786)
(5,122)

(3,566)

7,078

50,218

The accompanying notes on pages 82 to 89 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 2017

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 2017

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 81

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
Proceeds of sale 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 in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Note

2017
£’000

6,752

–
–
484
–
(1,580)

(1,096)

1,105
(786)
(5,122)

(4,803)

853

1,831

2,684

2016
£’000

9,419

(250)
(500)
–
(1,000)
(1,247)

(2,997)

398
(1,143)
(4,372)

(5,117)

1,305

526

1,831

The accompanying notes on pages 82 to 89 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 2017

82 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the company financial statements

for the year ended 30 June 2017

37. 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 .

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 .
Any impairment is recognised immediately in the Income Statement and is not subsequently reversed .

c) Subsidiary company guarantees and contingent liabilities
As required by section 479C of the Companies Act, the Company guarantees all outstanding liabilities to which its unaudited
subsidiary companies are subject at the end of the financial year . Where the outflow is not probable or cannot be reliably
measured, the potential obligation is disclosed as a contingent liability in the financial statements .

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

e) 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 .

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

The critical accounting judgement and key source of estimation and uncertainty arise from the calculation and valuation of
deferred consideration in relation to the Company’s acquisition of Levitas Investment Management Services Limited in July
2014 . This is described in note 37(b) to the Company financial statements .

FOR T H E Y E A R E N DE D 30 J U N E 2017 |

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 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 83

39. Profit for the year

Brooks Macdonald Group plc reported profit after tax for the year ended 30 June 2017 of £3,976,000 (2016: £8,859,000) .
Auditors’ remuneration is disclosed in note 7 of the consolidated financial statements . The average monthly number of
employees during the year was 10 (2016: 10) . Directors’ emoluments are set out in note 8 of the consolidated financial
statements .

40. 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 .

41. Investment in subsidiaries and related undertakings

Net book value

At 1 July 2015
Additions:
– Investment in subsidiary
– Capital contribution relating to share-based payments

At 30 June 2016
Additions:
– Capital contribution relating to share-based payments
– Impairment of subsidiary

At 30 June 2017

Group
undertakings
£’000

64,462

250
898

65,610

1,022
(1,986)

64,646

During the year, the Company recognised an impairment in relation to a subsidiary company, Levitas Investment
Management Services Limited . Based on a value-in-use calculation, the recoverable amount of the Levitas CGU at 30 June
2017 was £9,319,000 . This falls short of the carrying amount of the Company’s investment in Levitas Investment
Management Services Limited and reflects both the reduction in forecast funds under management growth and an increase
in the discount rate, indicating that it should be impaired . An impairment loss of £1,986,000 (2016: £nil) has been recognised
against the investment in subsidiary .

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

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 2017 |

C ON T I N U E D

84 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the company financial statements

for the year ended 30 June 2017 | continued

41. Investment in subsidiaries and related undertakings continued

Details of the Company’s subsidiary undertakings at 30 June 2017, 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

Brooks Macdonald Tax Services Limited

JGHP Limited

JPAM Limited

Levitas Investment Management Services Limited

Project Morzine III Limited

Long Income REIT Limited

Secure Nominees Limited

UK Farming Limited

Type of shares
and par value

Country of
incorporation

Ordinary £1

Ordinary 1p

Ordinary £1

Ordinary 1p &
Preference £1 Channel Islands

Ordinary £1

Ordinary 5p

Ordinary £1

Nature of
business

Dormant

Property management

Investment management

Non-trading

Financial consulting

Fund management

Dormant

Non-trading

Ordinary £1 Channel Islands

Retirement planning

Ordinary £1

Ordinary 50p

Ordinary £1 Channel Islands

Dormant

Non-trading

Fund Sponsor

Dormant

Non-trading

Ordinary 50p

Agricultural land investment

The registered office for all subsidiaries is 72 Welbeck Street, London, W1G 0AY except for the following:

Company

Registered office

Braemar Estates (Mortgages & Finance) Limited

Richmond House, Heath Road, Hale, Altrincham, WA14 2XP

Braemar Estates (Residential) Limited

Richmond House, Heath Road, Hale, Altrincham, WA14 2XP

Braemar Facilities Management Limited

Richmond House, Heath Road, Hale, Altrincham, WA14 2XP

Braemar Group Limited

Richmond House, Heath Road, Hale, Altrincham, WA14 2XP

Brooks Macdonald Asset Management
(International) Limited

1st Floor, Royal Chambers, St Julian’s Avenue, St Peter Port,
Guernsey, GY1 2HH

Brooks Macdonald Retirement Services
(International) Limited

Secure Nominees Limited

1st Floor, Liberation House, Castle Street, St . Helier, Jersey, JE2 3AT

West Suite 2, Royal Chambers, St Julian’s Avenue, St Peter Port,
Guernsey, GY1 2HH

Notes to the company financial statements

for the year ended 30 June 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 85

41. Investment in subsidiaries and related undertakings continued

Brooks Macdonald Group plc has guaranteed the liabilities of the following subsidiaries in order that they qualify for the
exemption from audit under Section 479A of the Companies Act 2006 in respect of the year ended 30 June 2017:

41. Investment in subsidiaries and related

undertakings

Braemar Estates (Residential) Limited
Braemar Facilities Management Limited
Braemar Estates (Mortgages & Finance) Limited
Braemar Group Limited
Brooks Macdonald Asset Management (Tunbridge Wells) Limited
Brooks Macdonald Nominees Limited
JGHP Limited
JPAM Limited
Levitas Investment Management Services Limited
UK Farming Limited

As a condition of the exemption, the Company has guaranteed the year-end liabilities of the relevant subsidiaries until they
are settled in full . The liabilities of the subsidiaries at 30 June 2017 were £1,209,000 . No guarantee was made for the liabilities
of subsidiaries in the prior year .

Associated undertakings of the Company and its subsidiaries also include 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

The registered office of North Row Capital LLP is 72 Welbeck Street, London, W1G 0AY . During the year, the investment value
in the Group financial statements was impaired to nil . See note 16 within the consolidated financial statements for further
details .

42. Available for sale financial assets

At 1 July
Additions
Net gain/(loss) from changes in fair value
Disposals
Impairment loss

At 30 June

2017
£’000

971
–
13
(484)
–

500

2016
£’000

782
500
–
–
(311)

971

The Company holds an investment of 500,000 redeemable preference shares in an unlisted company incorporated in the UK .
These were acquired in the year ended 30 June 2016 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 . At 30 June 2017, the fair value of the preference shares was estimated at £500,000
(2016: £500,000) based on a discounted cash flow analysis .

At 30 June 2016 the Company also held an investment 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”) . The Student
Accommodation Fund was promoted by Brooks Macdonald Funds Limited, a subsidiary of the Company . In May 2016 the
shareholders of the fund approved a resolution to sell the underlying property portfolio of the fund to a third party and in the
year ended 30 June 2017 the shares were compulsorily redeemed by the fund . A gain of £13,000 was recognised on receipt of
the final redemption monies of £484,000 .

86 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the company financial statements

for the year ended 30 June 2017 | continued

42. Available for sale financial assets continued

During the year ended 30 June 2016 an impairment loss of £311,000 was recognised in the Income Statement in relation to
the investment in the Student Accommodation Fund, reflecting the permanent diminution in the net asset value of the fund .
No impairment losses in relation to available for sale financial assets were recognised in the Income Statement during the
year ended 30 June 2017 .

An analysis of these financial instruments and the level within the fair value hierarchy into which they are categorised is
provided within note 15 of the consolidated financial statements .

43. Trade and other receivables

Amounts owed by subsidiary undertakings
Other receivables
Prepayments and accrued income

At 30 June

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

44. Financial assets at fair value through profit or loss

At beginning of year
Adjustment in respect of prior periods
Additions
Gain/(loss) from changes in fair value

At 30 June

2017
£’000

1,803
–
17

1,820

2017
£’000

994
1
–
185

1,180

2016
£’000

1,934
25
162

2,121

2016
£’000

–
–
1,000
(6)

994

These investments are classified as Level 3 as defined in note 15 to the consolidated financial statements . All investments
were designated as fair value through profit or loss upon initial recognition .

45. Deferred consideration

Deferred consideration is split between non-current liabilities and other payables within current liabilities (note 46) 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
2017 of £1,720,000 (2016: £5,290,000) related exclusively to amounts payable in respect of the acquisition of Levitas . Payments
of £1,580,000 (2016: £1,247,000) were made to the vendors of Levitas during the year .

Notes to the company financial statements

for the year ended 30 June 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 87

46. Trade and other payables

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

At 30 June

2017
£’000

147
14,674
1,863
2,208

18,892

2016
£’000

144
12,596
1,641
2,048

16,429

Amounts owed to subsidiary companies are unsecured, interest-free and are repayable on demand . Included in other
payables is £1,664,000 (2016: £1,641,000) which is the directors’ best estimate of the deferred consideration payable in
respect of the client relationships and subsidiary undertakings that were acquired by the Company in 2015 .

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

Operating profit
Adjustments for:
Impairment of available for sale financial assets
Impairment of subsidiary
Changes in fair value of financial assets at fair value through profit or loss
Revaluation of financial assets
Changes in fair value of deferred consideration
Decrease/(increase) in receivables
Increase in payables
Share based payments

Net cash inflow from operating activities

48. Share capital and share premium account

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

2017
£’000

3,976

–
1,986
(185)
(13)
(2,230)
301
2,705
212

6,752

2016
£’000

8,859

311
–
6
–
(3,343)
(275)
3,816
45

9,419

At 1 July 2015
Shares issued

At 30 June 2016
Shares issued

At 30 June 2017

Number of
shares

13,660,220
48,950

13,709,170
84,230

13,793,400

Share
capital
£’000

136
1

137
1

138

Share
premium
account
£’000

35,600
397

35,997
1,104

37,101

Total
£’000

35,736
398

36,134
1,105

37,239

The total number of ordinary shares, issued and fully paid at 30 June 2017, was 13,793,400 (2016: 13,709,170) with a par value
of 1p per share . Excluding 243,465 (2016: 228,208) treasury shares held by the Employee Benefit Trust (see below), the
Company had 13,549,935 (2016: 13,480,962) ordinary 1p shares in issue as at 30 June 2017 . Details of the shares issued are
given in note 26 of the consolidated financial statements .

88 | Brooks Macdonald Group plc | Annual Report and Accounts 2017

Notes to the company financial statements

for the year ended 30 June 2017 | continued

48. Share capital and share premium account continued

Employee Benefit Trust
The Company established an employee benefit trust (“EBT”) on 3 December 2010 to acquire ordinary shares in the Company
to satisfy awards under the Group’s Long Term Incentive Scheme (see note 28b to the consolidated financial statements) . All
finance costs and administration expenses connected with the Trust are charged to the Statement of Comprehensive Income
as they accrue . The EBT has waived its rights to dividends .

During the year, the EBT received instructions to exercise 27,038 (2016: 45,794) options . The cost of the shares released on
exercise of these options amounted to £346,000 (2016: £558,000) . At 30 June 2017, the number of shares held by the EBT was
243,465 (2016: 228,208) with a market value of £5,820,000 (2016: £3,775,000) acquired for a total consideration of £3,816,000
(2016: £3,376,000) . 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 .

49. Lease commitments

The Company leases various office premises under non-cancellable operating lease arrangements . The future aggregate
minimum payments in relation to these leases, which are not recognised as liabilities in the financial statements, are analysed
by their contractual payment dates as follows:

Within one year
After one year but not more than five years

Total future minimum lease payments

50. Related party transactions

2017
£’000

1,773
3,148

4,921

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

2017
£’000

2,571
33
320

2,924

2016
£’000

1,745
4,445

6,190

2016
£’000

2,466
25
445

2,936

Dividends totalling £281,000 (2016: £562,000) were paid in the year in respect of ordinary shares held by key management
personnel and their close family members .

Notes to the company financial statements

for the year ended 30 June 2017 | continued

Brooks Macdonald Group plc | Annual Report and Accounts 2017 | 89

50. Related party transactions continued

50. Related party transactions

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

Dividends received:
– Brooks Macdonald Asset Management Limited

Total transactions with subsidiaries

2017
£’000

8,046

2016
£’000

9,759

The Company’s balances with fellow group companies at 30 June 2017 are set out in note 34 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 .

51. 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 31 to the consolidated financial statements .

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

Directors and advisers

Directors

C J Knight

C Connellan

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