Annual Report
& Accounts
for the year ended 30 June 2018
Contents
Business Performance
Highlights of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chairman’s Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chief Executive’s Review . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Strategic Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of the Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Statement of Directors’ Responsibilities . . . . . . . . . .
01
02
03-06
07-33
34-35
36
Consolidated financial statements
Independent Auditors’ Report to the
Members of Brooks Macdonald Group plc . . . . . . . .
Consolidated Statement of
Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38-44
45
Consolidated Statement of Financial Position . . .
Consolidated Statement of Changes in Equity . . .
Consolidated Statement of Cash Flows . . . . . . . . . . .
Notes to the consolidated financial statements . .
46
47
48
49-88
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89
90
91
92-98
100
H IGH L IGH TS OF T H E Y E A R
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 01
Highlights of the year
Financial highlights
Business highlights
• Discretionary funds under management (“FUM”) reached
£12 .4bn with market leading organic growth and strong
investment performance
• Crossed the £100m revenue threshold
• An increased dividend and commitment to a progressive
dividend policy, reflecting the Board’s continued confidence
in the strength of the business
• Continued to invest for the future in our risk management
and operating framework, as well as completing delivery of
both MiFID II and GDPR
• Channel Islands legacy issues resolution progressing
broadly as planned, we continue to discuss with all
stakeholders and the relevant regulators
• Extended our UK regional footprint with the opening of a
new Wales 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 with top of the class satisfaction scores
• Our Leamington Spa, York and Hampshire offices won their
geographical categories in the 2018 Citywire Regional Star
Awards
18.7%
Discretionary funds under management
30 June 2018: £12 .4 billion
30 June 2017: £10 .5 billion
6.1%
Underlying1 profit before tax
2018: £18 .0 million
20172: £17 .0 million
-16.4%
Statutory profit before tax
2018: £6 .7 million
2017: £8 .0 million
14.6%
Total dividends per share
2018: 47 .0p3
2017: 41 .0p
12.0%
Underlying1 basic earnings per share
2018: 117 .7p
20172: 105 .1p
-8.2%
Statutory basic earnings per share
2018: 39 .4p
2017: 43 .0p
1
Excludes finance income and changes in fair value of contingent consideration; finance costs and changes in fair value of deferred consideration; amortisation of client
relationship contracts and contracts acquired with fund managers; impairment of goodwill; impairment of software; the exceptional costs of resolving legacy matters;
business disposal costs; and profit from discontinued operations . A reconciliation between underlying and statutory profit before tax is shown in the Strategic Report
on page 13 .
2 Prior periods have been restated to separate the results of discontinued operations, consistent with the presentation in the current period .
3 Including a final dividend of 30 .0p per share .
Note: figures presented are rounded to one decimal place and percentage changes used to three decimal places in the calculation .
C H A I R M A N ’ S STAT E M E N T
02 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Chairman’s statement
We have maintained strong commercial
performance and strengthened our
business for future growth.
Christopher Knight Chairman
I am pleased to report that the Group
continues to make strong progress .
Our funds under management
increased during the financial year
from £10 .5bn to £12 .4bn, an increase of
18 .7% . Our revenues have
exceeded £100m for the first time, and
after absorbing £4m of additional cost
in our risk management and
operational framework (£2m one-off,
£2m ongoing) we have reported an
increase in underlying profit before tax
from £17 .0m to £18 .0m . Underlying
earnings per share have risen 12 .0%
from 105 .1p to 117 .7p, partly driven by
a reduced tax charge due to a research
and development credit .
Statutory profit before tax has fallen
from £8 .0m in FY17 to £6 .7m in FY18,
the reduction principally due to a
write down of capitalised software
assets and a charge related to the
deferred consideration for the Levitas
transaction . Statutory earnings per
share were 39 .4p (FY17: 43 .0p) .
I am pleased to highlight that our
investment performance continues to
be ahead of the Asset Risk Consultants
(“ARC”) Private Client Index
benchmarks across all risk mandates,
over one, three and five years .
We opened an office in Wales during
the financial year, underscoring the
importance of our regional network
which is responsible for over half of
the Group’s UK FUM .
The Board has recommended a final
dividend of 30 .0p (FY17: 26 .0p) which,
subject to approval by shareholders,
will result in total dividends for the
year of 47 .0p (FY17: 41 .0p) . This
represents an increase of 14 .6% 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
2 November 2018 to shareholders on
the register at the close of business on
28 September 2018 .
There have been several changes to
the Board during the last year . Chris
Macdonald retired as a Non-Executive
director in March but remains an
adviser to the business he co-founded
twenty seven years ago . Ben Thorpe
has joined us as Finance Director
since the year end, succeeding
Simon Jackson who resigned in April .
We have been pleased to appoint two
Non-Executive directors –
David Stewart, a former
Chief Executive of the Coventry
Building Society, who joined the Board
in May, and John Linwood, a former
Chief Technology Officer for the BBC,
whose appointment takes effect today .
In Caroline Connellan’s first full year
as Chief Executive, we have
maintained strong commercial
performance and strengthened our
business for future growth . We have
invested in risk management and
delivered major regulatory projects . In
parallel we have upgraded our
functional capability more broadly,
adding key skills to the leadership
team to complement our existing
client focused leadership and
investment expertise . We recognise
that there is more to do to take Brooks
Macdonald to a position where we can
fully realise economies of scale which
are commensurate with our growth,
and Caroline and her team will
continue to drive forward that
programme of work .
Looking ahead, there is material
uncertainty in the UK’s
macroeconomic outlook, especially
given that the nature of the UK’s future
relationship with the EU remains
unclear with only six months left
before Brexit . Further, global
geopolitical risks, in particular the
emerging risk of trade wars, are
weighing on market sentiment, and
we remain cautious in our external
outlook . However, we are confident
that the Group is well positioned for
most scenarios, supported by a strong
balance sheet with net cash of £30 .9m
at year end . We expect to deliver both
enhanced profit margins in the
medium term and strong future
growth driven by our continued focus
on meeting client and adviser
expectations and our robust
investment performance .
Christopher Knight
Chairman
19 September 2018
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 2018 | 03
Chief Executive’s review
We remain focused on meeting the needs
of our clients and advisers, while delivering
business effi ciency and eff ectiveness to
improve margins in the medium term.
Caroline Connellan Chief Executive
Introduction
I am pleased that my fi rst full year as
Chief Executive of Brooks Macdonald
has seen the business continue its
market-leading levels of organic
growth which is testament to the
strength of our core off erings and our
client and adviser relationships .
During the year, we have also invested
to support future growth, driven a
renewed focus on cost discipline and
taken steps to ensure a strong pipeline
of growth opportunities . I would like
to thank all our teams, who have
worked hard in these areas
throughout the year, while
maintaining focus on supporting our
clients and advisers .
We have reinforced our strong
foundations through developing a
clear articulation of the guiding
principles underpinning our client-
centric culture, by ensuring that the
benefi ts of our Group Centralised
Investment Process are delivered
consistently to all our clients, and
undertaking a review of how we best
serve our major strategic adviser
partners, present and future, building
on the strength of our existing
relationships . We have taken the fi rst
steps to achieve our medium-term
goal of increasing margins through
cost discipline, made progress in
addressing the Channel Islands legacy
matters and upgraded the Group’s
functional capabilities, both through
senior appointments and the
investment in our risk and operational
framework . As announced at the half
year, we completed the sale of
Braemar Estates, our Property
Management business, in line with the
emphasis on our core off erings and
margin improvement .
Looking forward, our focus remains
on meeting client and adviser needs
and delivering market-leading levels
of organic growth, with work
underway to enhance our off ering . For
example, our revamped Court of
Protection service and our
Responsible Investing proposition will
be launched in the coming months .
Our core business is discretionary
fund management and fi nancial
planning both in the UK and
internationally through our Channel
Islands subsidiaries . Building on our
improved cost discipline, we are now
moving to develop our operating
model to make Brooks Macdonald
easier to deal with for both clients and
advisers, make it easier for our people
to perform their roles effi ciently and
eff ectively, and deliver increased
value from our growth . This will
involve re-engineering of core
processes, eliminating duplication
and accumulated ineffi ciencies, and
capturing digital opportunities to
support our current off ering . We
recognise that what we have achieved
this year is only a fi rst step and there is
some way to go – but we have made a
good start and we are confi dent of
delivering the full potential inherent
in the Brooks Macdonald business
over the coming years .
Growth in funds under
management, revenue and
underlying profi t
At the start of 2018 the ‘goldilocks’
environment seen in the second half
of 2017 was called into question as the
eff ects of quantitative tightening from
the US Federal Reserve began to be
felt . This shortage of USD liquidity led
to several bouts of volatility, initially
catalysed by infl ation concerns in
February then concerns about the
viability of emerging market debt
burdens in May . The corporate
earnings backdrop however has been
strong and this has supported
sentiment . These earnings, together
with largely range bound equity
markets, have brought equity
valuations closer to their longer term
averages in the US as well as the rest of
the world . In light of this we have
retained our weightings to equity
sectors, particularly our preferred
themes of Technology and
Healthcare, whilst making some
changes to the non-equity portion of
the portfolio . We have cut our
exposure to the UK commercial
property sector given the lower yields
and possibility of higher volatility
from the asset class should we see a
downturn in the UK economic
outlook . In addition we have gradually
been reducing our exposure to
corporate credit in favour of gilts as we
have concerns over the deteriorating
quality of this asset class at a time
when spreads are very low and
leverage is rising .
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 2018
Chief Executive’s review
continued
Growth in funds under
management, revenue and
underlying profit continued
Against this backdrop, the Group
maintained momentum throughout
the financial year, achieving annual
growth in our discretionary funds
under management of 18 .7%, to stand
at a new record of £12 .4bn at
30 June 2018 (FY17: £10 .5bn) . Of the
£2 .0bn increase, £1 .4bn was net new
business (13 .1% of opening FUM) and
£0 .6bn came from investment
performance (5 .7%, compared to a
4 .2% increase in the MSCI Wealth
Management Association (“WMA”) UK
Private Investor Balanced Index over
the year) .
Revenue crossed the £100m
threshold for the first time, reaching
£101 .6m (FY17: £88 .8m), with all four
businesses contributing strongly .
Revenue yield in our core UK
Investment Management business
stabilised over the financial year after
declining in the second half of FY17
and into early FY18 .
Underlying profit before tax for the
year was £18 .0m (FY17: £17 .0m), an
increase of 6 .1% on the previous year,
representing an underlying profit
margin of 17 .7% (FY17: 19 .1%) . The
margin decline was driven by the
one-off £2 .0m investment in our risk
management and operational
framework, without which the margin
would have been 19 .7% . This increase
has been achieved while absorbing an
increased level of regulatory and
functional spend . Underlying earnings
per share increased by 12 .0% to 117 .7p
(FY17: 105 .1p) . While this is a strong
result for the underlying business,
statutory profit before tax for the year
fell by 16 .4% to £6 .7m (FY17: £8 .0m)
held back by a write-down in the value
of software intangible assets, as well as
an increase in the fair value of the
deferred consideration relating to the
Levitas business . A full reconciliation
of underlying and statutory profit can
be found in the Strategic Report .
Review of business
performance
UK Investment Management (“UKIM”)
continues to be our largest and most
profitable business . Over the year, we
maintained strong new business flows,
despite a short setback in the markets
around March which temporarily
affected investor sentiment . UKIM
profit margins were affected by the
costs of regulatory change and
investment in our risk management
and operational framework . Our
success in maintaining market-leading
levels of organic growth is driven by
the strength of our relationships with
advisers and we continue to work to
maintain and improve these through
high service levels and ongoing
enhancements to our offering . The
level of penetration of the adviser
community by discretionary fund
managers remains low and we are
confident that regulatory and
commercial trends mean that the flow
of firms looking to outsource
investment management will
remain strong .
Our Centralised Investment Process
continues to deliver consistently
strong investment performance,
notably during the brief market
setback earlier this year . Our
portfolios across all risk mandates are
delivering above benchmark returns
according to ARC private client
indices over one, three and five year
periods . In May this year we were, for
the third 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 . In
addition, we came top for adviser
satisfaction across the 14 aspects of
service covered in the survey .
We were successful at the Citywire
Regional Star Awards in 2018, with
professional advisers voting our York,
Hampshire and Leamington Spa
offices as winners of their respective
geographical categories . We thank all
our adviser partners for their
continued support .
BPS is a premium and fully
personalised service for private
clients, charities and pension funds,
and remains our principal offering,
representing £7 .7bn of FUM in the UK
(62 .0% of Group FUM) . 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 . In line with the industry we
have seen a reduction in demand for
Defined Benefit transfers in recent
months as the sector adjusts to the
servicing and suitability assessment
demands of the product . However,
although not reaching the highs of
recent years, we expect this to
improve over time, given the ongoing
and growing need for individuals to
seek financial planning advice before
and through retirement .
MPS consists of ten model portfolios
with distinct risk profiles and
objectives, and is available to those
investing smaller amounts, allowing
our investment management
capabilities to be accessed by a wider
range of individuals through their
financial advisers . Assets in the UK now
stand at £1 .5bn (FY17: £1 .2bn), which
accounts for 12 .0% of total FUM, having
seen rapid growth (22 .9%) over the
year . These assets are held either
directly with us or through a third party
platform, with platform assets seeing
particularly strong growth in the year .
We expect asset accumulation in MPS
to continue as the popularity of model
multi-asset portfolios continues to grow
due to their lower charges and ease of
access .
Chief Executive’s review
continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 05
Review of business
performance continued
Our Funds business grew to £1 .5bn
FUM, an increase of 32 .4% over the year
(FY17: £1 .2bn) . We have now completed
the previously announced move of this
business into UK Investment
Management, with the exception of our
property funds (the Ground Rents
Income Fund and UK Agricultural Land
Fund) and we will report on that basis
going forward . The IFSL Brooks
Macdonald Defensive Capital Fund,
within the targeted absolute return
sector, had another strong year with
38 .1% growth in FUM and our Multi-
Asset Funds also saw 20 .4% growth
during the year . The fastest growing
part of our Funds business in this year
was our third party investment solution
funds, which grew by 50 .9% . We expect
this white labelling approach to be a
major focus for growth going forward
as we explore new routes to bring the
benefits of our Centralised Investment
Process to advisers in a way that best
suits their business model .
Our International business based in the
Channel Islands delivered net organic
growth well up on last year at 6 .4%
(FY17: 1 .3%) . Since the financial year
end, the business has experienced an
increase in attrition, as expected
following the departure of one of our
client-facing teams .
Financial Planning also had a good
year, with revenue slightly below last
year’s record levels . We continue to
focus on delivering a comprehensive
independent financial planning service
to private clients and on seeking new
opportunities to support future growth,
robustly managing any perceived
channel conflict .
Legacy matters arising from the
former Spearpoint business
We announced in July 2017 our
decision to deal proactively with
certain legacy matters arising from the
former Spearpoint business which we
acquired in 2012 . These matters relate
both to a number of discretionary
portfolios formerly managed by
Spearpoint, now managed by our
Jersey office, and a Dublin-based fund,
for which Spearpoint acted as
investment manager . While we accept
no legal liability in these matters, we
have a deep commitment to treating
customers fairly and seeking to protect
our clients’ best interests . We
developed a plan to resolve these
matters and accordingly we made a
£6 .5m provision in the financial results
for the year to 30 June 2017 .
As subsequently announced with our
interim results in March 2018, it became
apparent that the calculation of the
goodwill offers for the discretionary
portfolio clients was affected by quality
issues with data derived from legacy
systems . To ensure that the calculation
was fair to clients, we therefore initiated
a comprehensive review of the data
sources, calculations and methodology,
requiring extensive use of third party
expertise to extract the data, and to
provide advice and quality assurance .
Having concluded this review, we issued
final goodwill offer letters by the end of
March 2018 . 75% of the clients receiving
a goodwill offer have now accepted,
with these acceptances accounting for
66% of the offers by value .
In parallel, we have been in extensive
and prolonged discussions with the
Board of the Dublin-based fund,
seeking to deal with the matter
proactively . A goodwill proposal for the
fund’s shareholders was made to the
directors . We have made some progress
but we have been unable to reach
agreement with the directors as yet . We
remain committed to reaching a
settlement on terms in line with the
initial goodwill proposal and we
continue to engage with the directors .
Throughout the discussion, our focus
has been on treating customers fairly
and seeking to protect the fund’s
shareholders’ best interests .
The effect of movements in the
expected total cost of goodwill offers
and associated expenses is an increase
of £5 .5m from the previous provision to
£12 .0m . We provided for the additional
amount as an exceptional item in the
financial report for the six months to
31 December 2017; as such, it reduces
statutory profit but does not affect
underlying profit . To date, £5 .8m of the
provision has been utilised .
We continue to be in discussions with
all stakeholders and relevant
regulators, as we seek to bring these
matters to a conclusion .
Delivering our strategy
We have worked over this year to refine
our strategy in the context of the
market opportunity and external
trends, and will continue to build out
over coming months . Our strategy is
based on three pillars:
• Build on a foundation of success,
leveraging our strengths;
• Focus our business to deliver
increased value from our future
growth, through greater efficiency
and effectiveness, delivering
improved profit margins over the
medium term;
•
Seek new opportunities for growth,
continuing to grow FUM organically
with new segments, propositions and
partnerships .
For the business to remain competitive,
maximise the opportunity from our
market positioning and deliver greater
value to shareholders, successful
delivery across all three pillars is
critical . We see several phases in
delivering the strategy, with the
emphasis across the three pillars
changing as we move forward .
Our success to date has been built on
our commitment to the adviser
community and strength of
relationships, our consistent
investment performance and our
client-centric culture . In the past year,
06 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Chief Executive’s review
continued
Delivering our strategy continued
Outlook
We are pleased to report another strong
year, and we look forward to building
on our success to date and continuing
to position the business to deliver
sustainable growth into the future .
Throughout this journey we remain
focused on meeting the needs of our
clients and advisers, while delivering
business efficiency and effectiveness to
improve margins in the medium term
and achieve increased value from our
growth opportunities .
We have started our new financial year
dealing with the industry-wide impact
of macroeconomic uncertainty and
regulatory trends . Notwithstanding our
relative short-term caution around
markets and client sentiment, we are
confident in the strength of our client
and adviser relationships and our
core offerings .
Finally, I would like to reiterate my
thanks to everyone at Brooks
Macdonald for their passion, energy
and commitment to our business .
Caroline Connellan
Chief Executive
19 September 2018
as a first phase, we have reinforced
these foundations through a series of
actions . We have built functional
capability and bolstered the leadership
team, complementing the existing
client and investment management
expertise which has brought the
business to where it is today . Secondly,
we have articulated the guiding
principles which underpin our client-
centric, “can do” culture . We have
placed further emphasis on ensuring
the benefits of our Centralised
Investment Process are delivered
consistently to all our clients . We have
upgraded our risk management and
operational framework, in parallel with
delivering a demanding regulatory
change agenda . And we have driven
greater cost discipline through the
business . All of this has contributed to
the improved margin (excluding
one-offs) we have delivered in FY18 .
The changes we have made so far have
resulted in a stronger platform to
support future growth but we recognise
there is more to do to ensure we are
easy to do business with and to deliver
increased value from our franchise . We
are moving into a phase of driving for
efficiency and effectiveness –
streamlining processes, eliminating
duplication and making sure the
overall business is scalable, enabling us
to capture economies of scale
commensurate with our growth and
delivering increased profit margins in
the medium term . In parallel, we will
expand the pipeline of growth
opportunities through product
proposition development, deepening
and widening our adviser relationships,
capturing digital opportunities to
support our current offering, and
identifying opportunities in new or
under-served client segments where
we can leverage our expertise and
proposition .
ST R AT EGIC R E PORT
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 07
Strategic report
Brooks Macdonald, our services and strategy
We are an independent investment management fi rm providing a wide range of investment and wealth management
services to private clients, pension funds, charities, professional intermediaries and trustees through our three businesses:
• UK Investment Management (including Funds1) – providing discretionary fund management services and open-ended
investment company products to clients and their introducers as well as other discretionary managers from 10 offi ces across
the UK
•
•
Financial Planning – providing wealth management services to UK clients from our London offi ce
International – providing discretionary fund management and wealth management services to clients and their introducers
across Europe, South Africa and the UAE from offi ces in Jersey and Guernsey .
What we stand for
Our belief is that our clients and their advisers benefi t most from our services over the long term and we are focused on
providing high quality service as well as investment performance over that timeframe . We are proud of our strong client-
centric culture and we are driven by the following guiding principles:
1
In the segmental reporting (note 3), four businesses are listed with Funds shown separately . However, this is an historic view, since the Funds business has now
integrated into UK Investment Management from 1 July 2018 and will not be reported separately going forward .
ST R AT EGIC R E PORT
C ON T I N U E D
08 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Strategic report
continued
Our services
Brooks Macdonald manages £12 .4 billion for its clients as of 30 June 2018, 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 individuals and families, and through our funds we
provide multi-asset and specialist fund products to the retail sector .
UK Investment Management
Within our UK Investment Management business, we have six distinct service lines:
Bespoke Portfolio Service
Bespoke Portfolio Service (“BPS”) is our flagship offering, designed for clients who want an individual investment portfolio
constructed to meet their specific requirements . The investment manager maintains a detailed knowledge of the client’s
investment requirements, including their risk appetite, allowing the manager to construct focused, efficient portfolios
supporting the delivery of risk-adjusted investment returns appropriate to the client’s needs . The range of investments
includes unit trusts, open-ended investment companies, exchange-traded funds, investment trusts and cash, as well as
individual equity and bond securities . Investment managers for the BPS service follow our Group-level Centralised
Investment Process, which is based on the three key principles of our investment philosophy:
• Using a proven active investment process – we have central asset allocation and investment committees which combine
strategic and tactical approaches to asset allocation with rigorous individual security selection, leveraging the broad expertise
and experience of the Committee members as well as the in-depth knowledge of our specialist sector research teams
• Effective risk management – we seek to produce strong “risk-adjusted” returns, not just generating profits but also working to
limit the potential for losses . We have embedded qualitative and quantitative risk controls into our investment process
• Maintaining a portfolio focus – we give our individual investment managers a level of discretion in managing client portfolios to
their individual mandates, within defined boundaries set by our investment and asset allocation committees, ensuring that the
benefit of the Centralised Investment Process is delivered to all our clients
AIM Portfolio Service
Our AIM Portfolio Service (“APS”) provides clients with access to a carefully selected portfolio of AIM-listed companies, with
preference given to companies that we judge to have attractive long-term investment potential . We restrict our investment
universe to companies that we believe qualify for Business Property Relief (“BPR”), allowing investors to benefit from
Inheritance Tax (“IHT”) exemptions . As APS portfolios are typically invested in a concentrated group of small-to-medium
sized UK companies, we consider APS to be “high risk” . While APS is monitored and overseen by the central investment
committee, it does not follow the Centralised Investment Process .
Managed Portfolio Service
Managed Portfolio Service (“MPS”) provides a choice of investment into a range of risk-managed model portfolios, each
investing in an array of different assets . Each model portfolio is designed to achieve specific investment objectives within a
specific risk profile . MPS portfolios are managed by a dedicated team of investment managers, applying our Centralised
Investment Process .
Multi-Asset Funds
Our Multi-Asset Fund (“MAF”) range allows investors to gain access to our discretionary management expertise and proven
Centralised Investment Process through a pooled fund solution . We offer a range of four risk-managed multi-asset funds:
Defensive Income, Cautious Growth, Balanced and Strategic Growth . By differing their levels of equity exposure, the range
caters for both investors seeking capital growth and more cautious investors looking to generate income while preserving
their capital .
Third Party Funds
We design specific investment propositions for advisers and intermediaries who are looking for investment solutions
meeting specific investment objectives for their clients . These are delivered in pooled fund formats to which we provide
investment management, leveraging our broad investment management and asset allocation expertise . This capability and
the associated intellectual capital were developed initially to support the Levitas relationship .
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 09
Strategic report
continued
Our services continued
UK Investment Management continued
Specialist funds
We also provide investment management to a small number of specialist funds . The largest is our highly successful Defensive
Capital Fund (“DCF”) which has grown to £543 million at 30 June 2018 . We also provide investment management to the
Ground Rents Income Fund (FUM at 30 June 2018: £103 million) and the UK Agricultural Land Fund (FUM at 30 June 2018:
£4 million) .
Financial Planning
Our Financial Planning business provides wealth management services to high net worth individuals and families . We
provide independent “whole of market” financial advice, enabling clients to build, manage and protect their wealth . Our
service is advice-driven, rather than product-driven, providing clients with a coherent, affordable strategy, aimed at achieving
their long-term goals . In addition to our financial planning service, we work in collaboration with other professional advisers,
such as solicitors, accountants and wealth managers, to help them provide a comprehensive service to their clients . We
provide a comprehensive fee-based service, encompassing both financial advice and mortgage services .
International
Our International business, based in the Channel Islands, has a similar range of investment management and financial
planning services . The services are designed to meet the particular requirements of the offshore and international markets
and the investment management follows our Group-level Centralised Investment Process . We provide a comprehensive
range of investment services to private clients, trusts and advisers, available in sterling, euros or US dollars:
•
•
•
•
International Bespoke Portfolio Service
International Managed Portfolio Service
International Multi-Asset Funds (also available in Singapore dollars)
Single-strategy solutions, which invest directly in the traditional asset classes of bonds and equities for ultra high net worth
clients, with higher entry thresholds . Our Corporate Bond Strategy invests in a diversified portfolio of investment-grade bonds
to provide a balance of income, security and liquidity, while the Direct Equity Strategy is structured to provide capital
appreciation and income growth through direct investment in high quality stocks .
The International business also has a financial planning arm, Brooks Macdonald Retirement Services, where we provide a
comprehensive service for private clients who require wider planning around their investments, also focusing on financial
protection, pensions and investments .
10 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Strategic report
continued
Our business model
Our successful business model works to provide bespoke investment solutions with high-quality professional staff delivering
outstanding client and adviser propositions, investment excellence and value for money . We aim to add value to:
•
Investment Management clients, through strong investment performance and excellent service;
• Advisers and introducers, through bespoke propositions designed to add value to their business models; and
• Financial Planning clients, through robust holistic financial planning and relationship management .
Adding value to our clients and professional adviser partners through these services is of benefit not just to them but
ultimately also to employees and shareholders .
Our strategy
Our strategy is based on the three pillars of foundation, focus and growth . We plan to
• Build on a foundation of success, leveraging our strengths:
• Unparalleled relationships with advisers, particularly our strategic partners
• A client-centric, “can do” culture
• Level of service to clients and intermediaries
•
Strong Centralised Investment Process
•
Focus our business to deliver increased value, through greater efficiency and effectiveness, thereby delivering improved profit
margins over the medium term:
• Making Brooks Macdonald easy to do business with
• Maintaining robust risk management
• Delivering high quality technology and using digital
• Making the operating platform scalable
• Attracting and retaining talent, and providing opportunities through thorough succession planning
•
Seek new opportunities for growth, continuing to grow FUM organically with new segments, propositions and partnerships:
• Building on our strong branding and reputation
• Leveraging our core capabilities and strong relationships
• Bringing the “best of BM” to all our clients through improved cross-business collaboration
•
Selectively expanding the UK geographic footprint
Strategic report
continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 11
Group performance
Results
The Group’s underlying profit before tax increased by 6 .1% in the year to £18 .0m (FY17: £17 .0m) . Total revenue increased
14 .4% to £101 .6m (FY17: £88 .8m) . Total underlying costs increased by 16 .4% to £83 .7m (FY17: £71 .9m) . Underlying earnings
per share were 117 .7p (FY17: 105 .1p), an increase of 12 .0% . The Group’s underlying profit margin fell to 17 .7% (FY17: 19 .1%) .
Profit before tax from continuing operations fell 22 .0% to £6 .2m (FY17: £7 .9m) and underlying adjustments increased by
29 .7% to £11 .8m (FY17: £9 .1m) . Statutory basic earnings per share from continuing operations fell 15 .7% to 35 .5p (FY17: 42 .1p) .
Statutory profit before tax fell 16 .4% to £6 .7m (FY17: £8 .0m) which includes profit from discontinued operations which was
£0 .5m (FY17: £0 .1m) .
Table 1
Total revenue
Underlying costs
Underlying net finance income
Underlying profit before tax2
Underlying margin3
Underlying adjustments
Profit before tax from continuing operations
Profit from discontinued operations
Statutory profit before tax
Taxation
Profit after tax
Underlying basic earnings per share4
Statutory basic earnings per share from continuing operations
Statutory basic earning per share
Dividends per share5
2018
£m
(unless stated)
2017
restated1
£m
(unless stated)
101.6
(83.7)
0.1
18.0
17.7%
(11.8)
6.2
0.5
6.7
(1.3)
5.4
117.7p
35.5p
39.4p
47.0p
88 .8
(71 .9)
0 .1
17 .0
19.1%
(9 .1)
7 .9
0 .1
8 .0
(2 .2)
5 .8
105 .1p
42 .1p
43 .0p
41 .0p
¹
Prior periods have been restated to separate the results of discontinued operations, consistent with the presentation in the current period .
2
3
4
A reconciliation between underlying profit before tax and profit before tax is shown in Table 2 on page 13
Underlying profit as a percentage of total revenue
Underlying earnings per share for comparative periods have been restated to include software amortisation and exclude discontinued operations, consistent with the
treatment in the current period
5
The total interim dividend and the final dividend for the financial year .
Underlying performance measures
We use underlying profit before tax, underlying costs, underlying earnings per share and underlying margin to measure and
report on the financial performance of the Group, in order to aid comparability between periods . These underlying measures
are used by both the Board and management for planning and reporting, whilst also providing useful insight for investors and
analysts .
The underlying profit figure is calculated based on statutory profit before tax adjusted to exclude any items of income or
expense that are infrequent or unusual and exclude the impact of discontinued operations . These items are considered to be
outside the ordinary course of business .
Other adjusted-for items of income or expense may recur from one period to the next . Although they recur over multiple
periods they are the result of events or decisions which the directors consider to be outside the ordinary course of business .
Income or expenditure adjusted for historically has included impairment of carrying value of intangible assets and changes
12 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Strategic report
continued
Group performance continued
Underlying performance measures continued
in fair value of deferred consideration and contingent consideration which are not considered to be reflective of the Group’s
underlying business performance . Provisions made to cover costs of resolving legacy matters are also adjusted for on this
basis .
Additionally, the amortisation expense of acquired client relationships and contracts acquired with fund managers is an
expense which investors and analysts typically add back when considering profit before tax or earnings per share ratios .
In previous years, the amortisation expense of software was excluded when calculating underlying profit . This has now
become material and continuing in nature resulting in the amortisation expense of software now included when calculating
underlying profit .
Funds Under Management
As at 30 June 2018, discretionary FUM totalled £12,414m (FY17: £10,456m) . Over the year, FUM grew by £1,958m (18 .7%) . Of
this, £1,365m (13 .1%) was net new business and £594m (5 .7%) was investment performance . As a comparison, the MSCI WMA
Private Investor Balanced Index grew by 4 .2% over the year .
Opening discretionary FUM
Net new discretionary business
Investment growth
Total FUM growth
Closing FUM
Organic growth (net of markets) %
Total growth %
2018
£m
10,456
1,365
594
1,958
12,414
13.1
18.7
2017
£m
8,301
951
1,204
2,155
10,456
11 .5
25 .9
Revenue
Total Group revenue grew by 14 .4% (FY17: 12 .7%), passing the £100m threshold at £101 .6m (FY17: £88 .8m) .
Portfolio management fees and associated transactional income increased by 13 .6% to £87 .9m (FY17: £77 .4m) . Fee income
increased in line with FUM . However, the first half of the year saw slower transactional volumes due to lower portfolio
turnover rates with activity stabilising in the second half of the financial year .
Fund management fees increased 42 .1% to £7 .8m (FY17: £5 .5m) due to higher average FUM as the business continued to build
scale .
Advisory fees and financial services commission were flat at £5 .7m (FY17: £5 .8m) .
Underlying costs
Underlying costs increased by £11 .8m (16 .4%) to £83 .7m (FY17: £71 .8m) . These costs represent 82 .4% (FY17: 80 .8%) of income
and increased in the year due to our focus on enhancing and embedding our risk management framework, strengthening the
leadership team and delivering key regulatory requirements (MiFID II and GDPR) .
The largest driver of underlying costs are our permanent staff and during the year we saw an increase in the average number
of employees from 4521 to 470 (4 .0%) and we finished the year with 480 employees (full time equivalent) . We continue to
operate in an increasingly regulated environment and in particular strengthened our risk, compliance and change functions .
The Group operates an annual review cycle for salaries and benefits with annual inflationary and performance based
increases being effective from August each year .
1 Restated to exclude employees of discontinued operations .
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 13
Strategic report
continued
Group performance continued
Underlying costs continued
There was an increase in the number of temporary staff working to assist in the successful delivery of our regulatory and
strategic change agenda . In addition to this we also saw higher recruitment costs relating to the now complete build out of our
executive leadership team and the changing composition of the Board with two additional Non-Executive directors joining
the Board . Variable staff costs continued to be tightly controlled at a group level with the majority of the increase in the year
due to client facing teams .
Non staff related costs include costs relating to information technology, property, depreciation, custody and dealing,
marketing and the use of professional advisers and delivery partners . They now also include the cost of software
amortisation which was historically reported outside of underlying performance measures . Prior year comparatives have
been restated for this change .
In order to accelerate the delivery of our risk management and controls framework we saw higher costs relating to external
delivery partners in the year . We also had higher property costs as we opened a new office in Cardiff and absorbed above
inflationary increases in business rates . We further invested in the core IT platform to enhance resilience and meet business
and regulatory requirements .
Underlying profit before tax
Underlying profit before tax excludes expenditure and income falling into the categories explained below and a
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
Exceptional costs of resolving legacy matters
Software impairment
Amortisation of client relationship contracts and contracts acquired with fund managers
Changes in fair value of deferred consideration
Finance cost of deferred consideration
Disposal costs
Impairment of carrying value of goodwill
Results of discontinued operations
Statutory profit before tax
2018
£m
18.0
(5.5)
(2.5)
(2.4)
(1.2)
(0.2)
(0.1)
–
0.5
6.7
2017
restated1
£m
17 .0
(6 .5)
–
(2 .5)
2 .2
(0 .3)
–
(2 .0)
0 .1
8 .0
¹
Underlying profit before tax for 2017 has been restated to include software amortisation and exclude discontinued operations, consistent with the treatment in the
current period .
* Note that rounded numbers are used above, see note 3 in the financial statements for detailed amounts
Exceptional costs of resolving legacy matters
As detailed in note 24 to the consolidated financial statements we have continued 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 further provision of £5 .5m (FY17: £6 .5m) in order to resolve them . Progress has been made and two thirds of the offers
by value have now been accepted and the Group continues to work with all stakeholders and the relevant regulators to move
matters forward . The Group also continues to be in dialogue with the directors of the Dublin based fund . 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 .
14 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Strategic report
continued
Group performance continued
Software impairment (note 14)
The current year includes an impairment of £2 .5m relating to software intangible assets (FY17: £nil) . As part of the year end
process we conducted a review of our software assets as at 30 June 2018 and concluded that one component was now
obsolete post implementation of the Group common operating platform .
Amortisation of client relationship contracts and contracts acquired with fund managers (note 14)
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 £2 .4m (FY17:
£2 .5m) associated with these intangible assets has been excluded from underlying profit as the directors consider these costs
can distort the results of a particular period .
Finance cost and changes in fair value of deferred consideration (note 21)
The Group acquired Levitas in 2014 which involved acquiring funds under management and in order to continue to
incentivise and motivate the vendors, the sale proceeds included 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 were based on
future projections of funds under management and where the actual payment is different from the original estimates then
charges or credits are 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 (note 14)
Goodwill is reviewed annually for impairment based on the carrying value of the asset compared to its expected recoverable
amount . The value in use of each of the three cash generating units exceeds their expected recoverable amount and therefore
there was no impairment loss recognised in the year . In the year ended 30 June 2017, an impairment charge of £2 .0m was
recognised in relation to the goodwill associated with the Levitas acquisition . Further details are provided in note 14 to the
consolidated financial statements .
In the event of an impairment loss, 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 .
Discontinued operations (note 11)
The Group disposed of two subsidiaries during the year: Braemar Estates (Residential) Limited and Braemar Facilities
Management Limited (“discontinued operations”) . As a result, the loss of the discontinued operations and gain recognised on
disposal has been split out in the Group’s financial statements for both the years ended 30 June 2018 and 2017 . The sale
proceeds included an element of contingent consideration receivable based on certain performance criteria . Initial estimates
of the contingent consideration are recognised in the financial statements at their discounted present value based on an
inherent rate of implied interest . As a result, the directors consider that the results of discontinued operations are not part of the
Group’s underlying business and therefore the Group’s underlying profit excludes: the loss from discontinued operations, gain
on disposal, disposal costs, finance income of contingent consideration and changes in fair value of contingent consideration .
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 15
Strategic report
continued
Group performance continued
Segmental review
For the year ended 30 June 2018, the Group reported its results in four key operating segments: Investment Management;
Funds; Financial Planning; and International . From 1 July 2018 the Funds business has been integrated into the Investment
Management segment .
Investment Management
The UK based Investment Management service continues to remain the core part of the Group, contributing 73 .7% (FY17:
71 .7%) 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 12 .
Financial Planning
The Financial Planning business continues to deliver both fee based financial advice to high net-worth families, and
employee benefits 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 segment of the Group . The segment broke
even for the year (FY17: profit £0 .3m) .
Funds
The Funds business continues to grow in scale as total FUM increased by 32 .4% to £1,534m (FY17: £1,159m) at 30 June 2018 .
This growth was achieved organically through net new investment across the range of funds with the Defensive Capital Fund
now over £500m FUM and investment solutions successfully grew by 50 .9% to £587m .
International
The business saw an increase of FUM during the year of 10 .7% to £1,693m (FY17: £1,529m) 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 12 .6% which has driven an increase in underlying profit to £1 .4m (FY17: £0 .4m) .
We have continued 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 . During the year it became apparent that
the calculation of the goodwill offers for the discretionary portfolio clients was affected by quality issues with data derived
from legacy systems . To ensure that the calculation was fair to clients, we therefore initiated a comprehensive review of the
data sources, calculations and methodology, requiring extensive use of third party expertise to extract the data, and to
provide advice and quality assurance . As a result we have made an additional provision during the year of £5 .5m (FY17:
£6 .5m) in order to resolve these matters, resulting in a statutory loss before tax for the year of £4 .5m (FY17: £6 .6m loss) .
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 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 Group’s assets are included within this segment .
Dividend Policy
The Group’s dividend policy is to grow dividends in line with the Group’s adjusted earnings . Its aim is to ensure that
shareholders benefit from the growth of the Group . The Board recognises the importance of dividends to shareholders and
the benefit of providing sustainable shareholder returns .
In determining the level of dividend in any year the Board considers a number of factors such as the level of retained
earnings, future cash commitments, statutory profit cover, capital and liquidity requirements and the level of profit retention
required to sustain the growth of the Group .
16 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Strategic report
continued
Group performance continued
Dividend Policy continued
The retained earnings of the Group at 30 June 2018 were £46 .3m (FY17: £42 .0m) .
The Group is well positioned to continue funding dividend payments in accordance with its policy .
Cash resources and regulatory capital
The Group’s financial position remains strong with net assets increasing to £88 .0m (FY17: £85 .7m) and tangible net assets (net
assets excluding intangibles) up to £27 .4m (FY17: £23 .1m) . Regulatory capital resources are £30 .4m (FY17: £26 .5m) after
taking into account deductions for current and non-current deferred tax liabilities of £3 .0m (FY17: £3 .4m) .
The Group had net cash outflows of £1 .2m during the year . This includes payments made in relation to the exceptional costs
of resolving legacy matters of £5 .8m (FY17: £nil) . Total cash resources at the end of the year were £30 .9m (FY17: £32 .2m) . The
Group had no borrowings at 30 June 2018 (FY17: £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) .
Going Concern
The directors believe the Group is well positioned to manage its business risks successfully . The Group’s forecasts containing
potential adverse changes in trading performance show the Group has adequate resources to continue operations for the
foreseeable future . Having considered the Group’s prospects for a period exceeding 12 months from the date the financial
statements are approved, the directors continue to adopt the going concern basis for the preparation of the consolidated
financial statements .
Strategic report
continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 17
Corporate governance
The main objective of the Board is to ensure the long-term success of the Group for the benefit of its shareholders and other
stakeholders . The Board is responsible for providing entrepreneurial leadership, setting the Group’s strategic objectives,
ensuring the Group has adequate human and financial resources available to meet its objectives, monitoring and reviewing
the performance of senior managers, setting the Group’s culture and values, and ensuring the Group meets its obligations to
its shareholders and other stakeholders .
The Board comprised the following Executive and Non-Executive directors during the year:
Composition of the Board
Name
Appointments as at 30 June 2018
Notes
Non-Executive directors
Christopher Knight
Colin Harris
Richard Price
Diane Seymour-Williams
Chris Macdonald
David Stewart
Executive directors
Caroline Connellan
Simon Jackson
Andrew Shepherd
Nick Holmes
Richard Spencer
Simon Wombwell
Chairman; Chair of the Nominations Committee
Senior Independent Director;
Chair of the Risk and Compliance Committee
Chair of the Audit Committee
Chair of the Remuneration Committee
Non-Executive director
Chief Executive
Deputy Chief Executive
Executive Director
Resigned on 31 March 2018
Appointed on 25 May 2018
Resigned on 30 April 2018
Resigned as a director on 24 October 2017
Resigned as a director on 24 October 2017
The Board considers that Colin Harris, Richard Price, Diane Seymour-Williams and David Stewart are independent directors .
Though they resigned from the Board of directors on 24 October 2017, Richard Spencer and Simon Wombwell remain
employees of the Group .
Since the end of the financial year:
• Ben Thorpe was appointed as the Group’s Finance Director and joined the Board on 6 August 2018; and
•
John Linwood joined the Board on 19 September 2018 as an independent Non-Executive director .
There have been a number of changes to the composition of the Board over the year, as set out in the table above . During the
year ended 30 June 2018, the Board comprised an appropriate combination of Executive and Non-Executive directors,
including independent Non-Executive directors such that no individual or small group of individuals could dominate
decision making .
Biographies of all current board members are provided on the Group’s website at www .brooksmacdonald .com .
The UK Corporate Governance Code (“the Code”) requires that, except for smaller companies, at least half the Board,
excluding the Chairman, should comprise Non-Executive directors determined by the Board to be independent . The Code
requires that smaller companies should have at least two independent Non-Executive directors . Brooks Macdonald Group plc
is a ‘smaller company’ within the meaning of the Code (having been below the FTSE 350 throughout the year ended 30 June
2018) . As at 30 June 2018, the Board, excluding the Chairman, comprised four Non-Executive directors, determined by the
Board to be independent, and three Executive directors .
18 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Strategic report
continued
Corporate governance continued
Composition of the Board continued
The Board held formal meetings on 10 occasions during the year and also met informally on a number of occasions . The
Chairman and Non-Executive directors also held a number of meetings without Executive directors present . The following
table sets out directors’ attendance at board meetings:
Attendance at board meetings
Name
Christopher Knight
Colin Harris
Richard Price
Diane Seymour-Williams
Chris Macdonald
David Stewart
Caroline Connellan
Simon Jackson
Andrew Shepherd
Nick Holmes
Richard Spencer
Simon Wombwell
Maximum possible attendance
Actual attendance
10
10
10
10
8
1
10
8
10
10
2
3
10
10
10
9
7
1
10
6
9
10
2
2
The Board is supported by five committees: Audit Committee; Disclosure Committee; Nominations Committee; Remuneration
Committee; and Risk and Compliance Committee . The terms of reference for each of these are provided on the Group’s
website . Commentary on the work of each of the Committees is set out below .
Audit Committee
Role and responsibilities
The purpose of the Committee is to assist the Board in meeting responsibilities for matters including review and challenge of
the consistency of the Group’s accounting policies and standards and of the integrity of its financial statements; oversight and
monitoring of the internal audit function; and assessing the independence of the external auditors .
The Committee provides oversight, review and challenge of the Group’s consolidated financial reporting and accounting
policies . The responsibilities of the Committee in respect of internal controls and risk management, internal audit and the
external auditors encompass the Group as a whole, including responsibilities carried out on behalf of subsidiary legal entity
boards as appropriate .
The full responsibilities of the Committee are outlined in the Committee’s Terms of Reference, a copy of which can be found at
www .brooksmacdonald .com/investor-relations/shareholder-services .
Composition
The Committee comprises Richard Price (Chair), Colin Harris and David Stewart . On 25 May 2018, Christopher Knight resigned
from the Committee and David Stewart joined the Committee on the same date . Membership of the Committee is restricted to
independent Non-Executive directors with recent and relevant financial experience . The Group Finance Director, Chief Risk
Officer and, by way of invitation, representatives of the external auditors shall also routinely attend meetings . The Committee
meets with representatives of the external auditors without management present at least once a year .
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 19
Strategic report
continued
Corporate governance continued
Audit Committee continued
The composition of the Committee and attendance during the year ended 30 June 2018 is set out in the table below .
Attendance at Audit Committee
Name
Richard Price
Colin Harris
Christopher Knight
David Stewart
Maximum possible attendance
Actual attendance
7
7
7
–
7
7
7
–
Colin Harris resigned from the Committee on 19 September 2018 and John Linwood joined the Committee on the same date .
Activities during the year
The Committee met on seven occasions during the year with meetings structured around the financial calendar of the Group .
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 conducted a review of the Group’s third-line controls with a particular focus on internal audit .
Working with the Group’s Head of Compliance and executive management, they considered a number of options for the
improvement of third-line controls before proposing that the Group’s internal audit function should be outsourced to a
service provider . The Committee considered that an outsourced service provider could deliver a cost-effective but robust
internal audit function that would be able to conduct a more comprehensive programme of review than an in-house function .
The Committee led the search for an appropriate service provider, devising a scope of work and seeking proposals from a
number of providers before appointing KPMG to provide outsourced internal audit services .
The Committee also discussed the provision of £5 .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 reviewed the audit
engagement letter and agreed the audit fee shown in note 7 to the financial statements .
Disclosure Committee
The Disclosure Committee was established as a committee of the Board on 24 July 2018 . The Committee members are: the
Chairman, who chairs the Committee; the Chair of the Audit Committee; the Chief Executive; and the Finance Director . The
Group General Counsel is an attendee . The purpose of the Committee is to determine whether specified information relating
to the Group is inside information in terms of the Market Abuse Regulation or price sensitive information in terms of the AIM
Rules for Companies, which should therefore be disclosed to the market . It meets on an ad hoc basis as required . Any member
of the Board has the right to attend meetings .
Nominations Committee
The Nominations Committee comprises Christopher Knight (Chair), Colin Harris, Diane Seymour-Williams and Richard Price .
Only members of the Committee may vote on Committee business but other members of the Board and the Head of HR may
attend all or part of a meeting by invitation . The purpose of the Committee is to help the Board to monitor the balance of skills,
knowledge, experience and diversity on the Board, to recommend Board and Board Committee appointments, and to monitor
succession planning at the senior management level .
20 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Strategic report
continued
Corporate governance continued
Nominations Committee continued
The composition of the Committee and attendance during the year ended 30 June 2018 is set out in the table below .
Attendance at Nominations Committee
Name
Maximum possible attendance
Actual attendance
Christopher Knight
Colin Harris
Diane Seymour-Williams
Richard Price
4
4
4
4
4
4
4
4
There have been several changes to the Group Board over the course of the year ended 30 June 2018 and the Nominations
Committee has sought to ensure that the Board is composed of an appropriate combination of Executive and Non-Executive
(particularly independent Non-Executive) directors with an appropriate balance of skills, knowledge, experience and
diversity .
Chris Macdonald retired as a Non-Executive director on 31 March 2018 and Simon Jackson resigned as an Executive director
on 30 April 2018 . One new independent Non-Executive director, David Stewart, was appointed during the year and, since the
end of the financial year, one further independent Non-Executive director, John Linwood, and one Executive director,
Ben Thorpe, have been appointed .
The search for new Non-Executive directors was led by Christopher Knight (Non-Executive Chairman) . Recruitment
consultants, Korn Ferry, were appointed to assist with the search . Korn Ferry provided the Nominations Committee with a
long-list of candidates who were put through a process of initial screening before attending interviews with members of the
Nominations Committee . Further interviews were then held with Executive directors and other senior employees, as
appropriate, before recommendations were made by the Nominations Committee . David Stewart was appointed as a Non-
Executive director on 25 May 2018, and John Linwood was appointed on 19 September 2018 .
Following Simon Jackson’s notice of resignation, the search for a new Finance Director was commenced . Korn Ferry were
again appointed to assist with the search . Korn Ferry provided a long-list of candidates, from which a short-list was identified
for interview following initial screening . A series of interviews were then held with Non-Executive and Executive directors,
and other members of the senior management team, as appropriate . Members of the Finance team were also involved in the
process before an offer was made . Following the search process, Ben Thorpe was appointed as Finance Director on
6 August 2018 .
Caroline Connellan’s husband was formerly employed by Korn Ferry but gave notice of his intention to resign and was on
gardening leave from May 2017, finally leaving his role in November 2017 . This potential conflict was registered on the
Group’s conflicts register . The potential conflict was managed in that Caroline Connellan was not involved in the appointment
of Korn Ferry for these searches . Further, Mrs Connellan’s husband did not participate in the exercises . Korn Ferry was first
engaged by the Group before Mrs Connellan’s appointment as Chief Executive . Aside from this, Korn Ferry does not have and
has never had any connection with the Group other than as a recruitment consultant engaged to assist with senior
appointments .
The Nominations Committee is responsible for maintaining an effective policy on diversity (including but not limited to
gender diversity) . In March 2018 the Group published its gender pay gap and narrative connected to the data . Diversity has
been a topic of discussion at board and executive level, and a key focus of the Executive People Committee . Since the end of
the financial year, the Group has signed up to the Women in Finance Charter, and will publish a gender diversity target before
the end of September . A number of initiatives are also in progress to improve diversity in the organisation .
Remuneration Committee
The Remuneration Committee comprises Diane Seymour-Williams (Chair) and Colin Harris . Since the year end Christopher
Knight resigned from the Committee on 11 September 2018 and John Linwood joined the Committee on 19 September 2018 .
The composition of the Committee and attendance during the year ended 30 June 2018 is set out in the table below .
Attendance at Remuneration Committee
Name
Maximum possible attendance
Actual attendance
Diane Seymour-Williams
Christopher Knight
Colin Harris
9
9
9
9
9
9
The Committee exercises independent judgment in the determination, implementation and operation of the overall
Remuneration Policy for the Group . The Committee also:
• Provides oversight of the design and application of the Remuneration Policy and recommendation to the Board of the
overarching principles for all Group employees;
• Ensures the policy is consistent with the risk appetite of the Group and its strategic goals;
• Reviews and approves the remuneration policies and remuneration for Executive directors, members of the executive
committee and any other employees for whom enhanced oversight is either appropriate or a regulatory requirement .
Full terms of reference for the Committee are reviewed annually and are available on the Group’s website .
Development of our Executive director remuneration policy
As detailed in last year’s Annual Report, the Committee introduced a number of changes to the remuneration policy for our
senior executive directors for the year ended 30 June 2018 . The changes were designed to improve alignment of the policy with
the Group’s strategy and the interests of shareholders, and to take account of best practice principles . The changes included:
• Replacement of the previous profit-sharing arrangement with a capped annual bonus scheme, with a maximum of 150% of
base salary, payable for outstanding performance;
•
Introduction of a transparent scorecard of performance metrics for annual bonus, which, for the year ended 30 June 2018,
included underlying profit before tax (40% weighting); net organic growth in funds under management (20% weighting); and
non-financial objectives (40% weighting);
• Deferral of one third of the annual bonus in Company shares for two years (as a transition towards a longer deferral in future); and
• The application of robust malus and clawback arrangements .
During the course of the year ended 30 June 2018, the Committee reviewed the existing Long Term Incentive Scheme
(“LTIS”) . The Committee Chair consulted with key shareholders on proposed changes to the scheme for future awards . After
taking account of feedback, the Committee proposed replacing the existing long-term incentive scheme (which was not
individually capped) with a new ‘restricted share plan’ based on the following clear principles:
• Executive directors will be considered each year for a conditional award of shares of up to 50% of base salary;
• The award will vest after three years subject to continued service and the achievement of three key underpinning performance
criteria relating to: funds under management; maintenance of the dividend; and a satisfactory risk, compliance, internal control
and governance environment over the period;
• Post-vesting, recipients will be required to hold the shares, net of sales to settle income tax and National Insurance contributions
due on vesting, for a further two years . This will create further long-term alignment with shareholders’ interests by creating a
combined vesting and holding period of five years; and
• Robust malus and clawback principles will apply .
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 21
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 21
Strategic report
Strategic report
continued
continued
Corporate governance continued
Remuneration Committee
The Remuneration Committee comprises Diane Seymour-Williams (Chair) and Colin Harris . Since the year end Christopher
Knight resigned from the Committee on 11 September 2018 and John Linwood joined the Committee on 19 September 2018 .
The composition of the Committee and attendance during the year ended 30 June 2018 is set out in the table below .
Attendance at Remuneration Committee
Name
Maximum possible attendance
Actual attendance
Diane Seymour-Williams
Christopher Knight
Colin Harris
9
9
9
9
9
9
The Committee exercises independent judgment in the determination, implementation and operation of the overall
Remuneration Policy for the Group . The Committee also:
• Provides oversight of the design and application of the Remuneration Policy and recommendation to the Board of the
overarching principles for all Group employees;
• Ensures the policy is consistent with the risk appetite of the Group and its strategic goals;
• Reviews and approves the remuneration policies and remuneration for Executive directors, members of the executive
committee and any other employees for whom enhanced oversight is either appropriate or a regulatory requirement .
Full terms of reference for the Committee are reviewed annually and are available on the Group’s website .
Development of our Executive director remuneration policy
As detailed in last year’s Annual Report, the Committee introduced a number of changes to the remuneration policy for our
senior executive directors for the year ended 30 June 2018 . The changes were designed to improve alignment of the policy with
the Group’s strategy and the interests of shareholders, and to take account of best practice principles . The changes included:
• Replacement of the previous profit-sharing arrangement with a capped annual bonus scheme, with a maximum of 150% of
base salary, payable for outstanding performance;
•
Introduction of a transparent scorecard of performance metrics for annual bonus, which, for the year ended 30 June 2018,
included underlying profit before tax (40% weighting); net organic growth in funds under management (20% weighting); and
non-financial objectives (40% weighting);
• Deferral of one third of the annual bonus in Company shares for two years (as a transition towards a longer deferral in future); and
• The application of robust malus and clawback arrangements .
During the course of the year ended 30 June 2018, the Committee reviewed the existing Long Term Incentive Scheme
(“LTIS”) . The Committee Chair consulted with key shareholders on proposed changes to the scheme for future awards . After
taking account of feedback, the Committee proposed replacing the existing long-term incentive scheme (which was not
individually capped) with a new ‘restricted share plan’ based on the following clear principles:
• Executive directors will be considered each year for a conditional award of shares of up to 50% of base salary;
• The award will vest after three years subject to continued service and the achievement of three key underpinning performance
criteria relating to: funds under management; maintenance of the dividend; and a satisfactory risk, compliance, internal control
and governance environment over the period;
• Post-vesting, recipients will be required to hold the shares, net of sales to settle income tax and National Insurance contributions
due on vesting, for a further two years . This will create further long-term alignment with shareholders’ interests by creating a
combined vesting and holding period of five years; and
• Robust malus and clawback principles will apply .
22 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Strategic report
continued
Corporate governance continued
Remuneration Committee continued
The proposed plan rules will be submitted in a resolution to shareholders at the forthcoming AGM for approval .
The Committee has also decided to make a number of other important changes to executive remuneration policy, to
accompany the introduction of the replacement long-term incentive plan:
• A minimum shareholding requirement will be introduced for Executive directors of at least 200% base salary for the CEO, and
150% of base salary for other Executive directors;
• The weighting on non-financial performance metrics for the year ending 30 June 2019 annual bonus plan for Executive
directors will be reduced from the current 40% to 30% of the maximum bonus . For this element, the Committee will set
challenging non-financial performance targets for the executive team members, aligned to the strategic goals of the Group,
including the areas of strategy delivery, client service, risk management, people and leadership . This element will be further
reduced in future years; and
• With the increase in the weighting on financial performance in the annual bonus, the Committee will introduce operating
margin as an important additional metric to accompany the existing underlying profit before tax and FUM growth metrics .
The changes referred to above have a number of benefits for the Group and its shareholders:
•
•
•
•
•
•
It strengthens the alignment of our Executive directors with the interests of shareholders;
It provides a focus on long-term, sustained performance, through post-vesting holding of Long Term Investment (“LTI”) shares
and a minimum shareholding requirement;
It reinforces our focus on achieving our annual financial targets;
It places clear caps on the maximum level of annual bonus and LTI that can be awarded . The cap on the level of LTI award at
50% of base salary is around half the level that would normally apply in a performance share plan – this takes account of the
types of performance criteria that will apply under the new plan;
It simplifies remuneration; and
It facilitates the retention of our senior management team, for the benefit of shareholders .
Further information on the proposed policy changes is provided later in this remuneration report .
Other Committee activities during year ended 30 June 2018
The Committee has overseen significant enhancements to our remuneration structures and practices over the year . This
activity included:
• Reviewing regulatory and market practice analysis;
• Gaining insight through a firm-wide feedback exercise into which elements of reward are key in motivating, engaging and
retaining our employees;
• Reviewing market alignment of roles across the organisation; and
• Reviewing our benefits package and its competitiveness .
During the year, the Committee received advice from PwC and Aon .
Following this analysis, enhancements were introduced to the Group’s benefits package for all employees which included
increased pension provision to encourage our staff to save more for retirement . Benefits have been more closely aligned
across the Group to ensure that they are fair, transparent, and encourage a diverse workforce .
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 23
Strategic report
continued
Corporate governance continued
Remuneration Committee continued
The mix between fixed and variable pay was also analysed and imbalances addressed . Further work will be undertaken this
year with the aim of ensuring our compensation structures are aligned to strategic outcomes, regulation and shareholder
interests, and to enable the Group to attract and retain talent .
Overall, significant progress has been made in evolving our compensation and benefit structures and the work undertaken
has been welcomed by employees . The Committee intends to develop further our remuneration approach to ensure that
firm-wide, it supports the Group’s strategic objectives and creates long-term shareholder value .
Single figure of directors’ total remuneration
Salary and
fees
Taxable
benefits
Pension
related
benefits
Annual
bonus1
Long term
incentives2 Sharesave3
Other
payment4,5
Total
£’000
Executives
C M Connellan
N I Holmes
A W Shepherd
S J Jacksona
R H Spencerb
S P Wombwellb
C A J Macdonaldc
Total Executive
remuneration
Non-Executives
C J Knight (Chairman)
C R Harris
R S Price
D Seymour-Williams
C A J Macdonaldc
D Stewartd
Total Non-Executive
remuneration
Total remuneration
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
298
62
198
184
183
204
278
195
62
195
64
201
–
203
1,083
1,244
141
109
67
58
57
49
57
49
46
17
4
–
372
282
1,455
1,526
2
1
2
3
2
4
3
7
3
5
3
6
–
1
45
9
10
24
–
–
–
–
–
–
–
–
–
–
407
150
148
200
223
200
100
120
65
170
60
120
–
150
83
–
98
44
98
66
77
44
46
38
81
44
–
–
–
–
5
–
5
–
–
4
5
–
–
–
–
–
100
100
–
–
–
–
93
–
–
–
–
–
–
–
935
322
461
455
511
474
551
370
181
408
208
371
–
354
15
27
55
33
1,003
1,110
483
236
15
4
193 2,847
100 2,754
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
141
109
67
58
57
49
57
49
46
17
4
–
372
282
15
27
55
33
1,003
1,110
483
236
15
4
193 3,219
100 3,036
24 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Strategic report
continued
Corporate governance continued
Remuneration Committee continued
Notes to the total remuneration table
1
2
3
4
5
a
The amounts represent the total annual bonus value awarded in respect of the relevant financial year, comprising both cash and share awards . For FY18 the cash
payment comprised 66 .7% (FY17: 80 .0%) of total annual bonus value and the share option award 33 .3% (FY17: 20 .0%)
The amounts represent the value at vesting of the three-year Long Term Incentive Scheme granted on 14 October 2014 . These 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 value of any vesting annual bonus deferrals awarded in FY14 is excluded from this view .
Value of benefit associated with discount of the 2018 scheme .
The amount for C M Connellan in the years ended 30 June 2017 and 2018 represents delivery of a non-recurring cash payment agreed at hire .
Payments to S J Jackson reflects an ex gratia payment made at the time of leaving the Group .
Resigned 30 April 2018 .
b Resigned 24 October 2017 (remains in the employment of the Group) .
c Resigned as an Executive director on 10 April 2017 and as a Non-Executive director on 31 March 2018 .
d Appointed 25 May 2018 .
The current total remuneration for an Executive director has four main elements: base salary and benefits, performance
related annual 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 .
Base salary
The core, fixed component of the package is paid monthly via payroll and determined by the Committee . Fixed pay levels are
reviewed annually with increases effective 1 August . Other, exceptional increases may be made at other times of the year
where it is deemed appropriate by the Committee .
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 August 2017 by a total of 2 .7% compared to an overall average increase for all employees of 2 .7% . This component of
directors’ salaries is designed to attract and retain high calibre individuals .
Through the base salary review, it has been necessary to address some inconsistencies in the pension payments of directors
which were impacting the calculation of bonus payments . From 1 August 2018, all Executive directors have a base salary plus
a fixed pension contribution of 10%, which they may either have paid into the Group’s defined contribution pension scheme
or received as a taxable cash allowance . In aligning pension contributions, some adjustments to base salaries were effected to
ensure that Executives’ total compensation opportunity under the annual bonus was not impacted .
Annual bonus
Awards to Executive directors and some other senior employees of the Group of performance related bonuses are made
annually and a new incentive structure was implemented for the year ended 30 June 2018 . The annual bonus rewards
annual financial performance and the achievement of key non-financial strategic objectives .
Awards to individual Executive directors are determined by the Committee taking into account a balanced scorecard of
metrics and targets . Under the incentive structure, all participants have a defined maximum opportunity, set as a percentage
of fixed pay, which will not exceed 150% of fixed pay for any Executive . Individual Executive director targets are as follows,
wherein Threshold, Target and Maximum are expressed as a percentage of pay-out at target:
Strategic report
continued
Corporate governance continued
Remuneration Committee continued
C M Connellan
N I Holmes
A W Shepherd
Annual bonus performance targets
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 25
Threshold
75%
75%
75%
Target
100%
100%
100%
Maximum
150%
125%
125%
The bonus was based on the following three metrics (% weighting within total bonus opportunity indicated):
• Underlying profit before tax (“UPBT”) compared to the budget (40%);
• Net organic growth in funds under management (“Net FUM”) compared to the target (20%); and
•
Strategic and personal objectives (40%) .
For both financial metrics, a sliding scale of targets was set around the budget for the year and account was taken of market
consensus . A number of Group objectives were set for each Executive director’s strategic objectives with a focus on strategic,
financial, customer, people, risk and leadership .
In addition, individual objectives were set around specific personal projects and deliverables and role requirements . These
measures were 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, leadership of their
teams, and cost control within each individual’s area of responsibility .
The targets and target ranges were as follows:
UPBT (£'000s)
Net FUM (£'000s)
Strategic and personal objectives
The following performance was achieved:
UPBT ('000s)
Net FUM ('000s)
Strategic and personal objectives
Threshold
12,114
486,500
Target
Maximum
16,152
973,000
Discretionary range: 0% to 50%
20,190
1,459,500
Performance achieved
£
% of total bonus
16,152*
1,364,811
40%*
24% to 28%
15% to 50%
*actual UPBT performance was delivered at £18,018,000, 11 .6% higher than target . However the pay-out was reduced to Target (£16,152,000) to reflect external market
influence in UPBT delivery . This discretionary adjustment was approved by the Committee .
Following the calculation of bonus awards against the stated performance measures, additional ex-ante risk adjustments
were considered by the Committee and implemented for some Executive directors .
In respect of the application of deferral into shares, the Committee determined that as a transitional measure towards a three
year deferral period, 33 .3% of the annual bonus awarded will be made in shares deferred for a period of two years vesting in
two tranches, half after 12 months and the remaining half after a further 12 months .
26 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Strategic report
continued
Corporate governance continued
Remuneration Committee continued
Long Term Incentive Scheme
The amounts in the total remuneration table represent the value vested in the year from three-year LTIS awards arising from
the deferred element of the 2014 annual bonus, which was subject to a post-award performance condition 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 .
In October 2017 the Remuneration Committee made annual awards under the LTIS to certain Executive directors and senior
employees . These represented amounts in respect of the deferred element of the profit-related annual bonus, and annual
LTIS awards . The awards vest after three years in a single tranche, subject to continued service and 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
they vest . To the extent that they vest, these awards will be shown in the total remuneration table for the financial year ending
30 June 2021 .
The Remuneration Committee intends to make awards under the proposed restricted share plan in October 2018 . The plan
will be submitted to shareholders at the AGM, and has the following features:
•
•
the maximum annual award under the scheme will be 50% of base salary in terms of the face value of the shares at grant . The
Remuneration Committee may in any year make awards at a lower level by taking into account prior year performance and the
share price at the time of grant;
the awards will vest in one tranche, three years from the date of award, subject to achievement of the underpinning
performance conditions;
• post vesting, recipients will be required to hold the net of tax vested shares for a further two years; and
• malus and clawback provisions will ensure that ex-post adjustments may be executed in accordance with defined scenarios
and relevant events . These would include, but would not be limited to reputational damage, material financial loss,
misstatement of performance, failure of risk management or serious misconduct .
Performance conditions will be introduced to underpin the awards over the three-year period . These will be:
•
•
a requirement for the dividend to be at least maintained throughout the period above that paid for the last financial year prior to
award;
a requirement for average funds under management in the last complete financial year to be above the average level of the last
complete financial year prior to award; and
• maintenance of a satisfactory risk, compliance, governance and internal control environment across the plan period .
In the case of a ‘bad’ leaver, all unvested awards would normally lapse . A ‘bad’ leaver is an Executive who leaves other than on
retirement, redundancy, due to ill health or on the sale of the business, or for another reason at the discretion of the
Remuneration Committee .
The Committee can seek the recovery of awards at any time before the vesting of awards (malus) or after the vesting of
awards (clawback) if it determines that the financial results of the Group 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 Group
in connection with the deferred annual bonus . The EBT is also used for other long-term awards to members of the Board and
senior employees of the Group .
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 27
Strategic report
continued
Corporate governance continued
Remuneration Committee continued
Pension 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 have been 15% of base salary but will reduce to 10% of base salary for the
financial year ending 30 June 2019 which more closely aligns to other employees’ entitlements within the Group . Base salary
adjustments have been made in relation to the changes to this contractual benefit .
Other benefits
Benefits are provided to Executive directors to complement their remuneration package and are broadly aligned to the wider
employee population, with some enhancements . The benefits package includes private medical insurance for Executive
directors and their dependants, death-in-service cover, critical illness and permanent health insurance, annual medical
assessments, and the Sharesave scheme (“SAYE”) .
Sharesave
This benefit shown in the total remuneration table is the value of the discount on the Sharesave options granted in the year .
Non-Executive directors’ fees
The Non-Executive directors’ fees were reviewed in October 2017 following analysis by our third party advisers . The fees
were increased with the approval of the Executive Board members to reflect their additional responsibilities and
commitments as the Group grows and to reflect the time commitment required during a period of significant change for the
Group .
Directors’ interests in shares
At 30 June 2018, active directors’ shareholdings were as set out in Table 3 .
Table 3: Directors’ shareholdings
Number of shares or options
Executives
C M Connellan
N I Holmes
A W Shepherd
Non-executives
C J Knight (Chairman)
C R Harris (Senior Independent Director)
R S Price
D Seymour-Williams
D Stewart
Total
Notes
Beneficially
owned
shares
2,081
59,655
47,880
71,585
6,086
–
4,000
–
LTIS1
Sharesave
CSOP
11,295
21,279
22,655
–
1,204
1,204
1,491
2,067
2,067
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
options
and shares
14,867
84,205
73,806
71,585
6,086
–
4,000
–
191,287
55,229
2,408
5,625
254,549
1
In the year ended 30 June 2018 further awards were made to the Executive directors under the LTIS together with the deferred element of the annual bonus
award . The cash value of the awards are shown in Table 4 and the actual number of shares awarded will be determined based on the share price at the grant date in
October 2018 .
28 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Strategic report
continued
Corporate governance continued
Remuneration Committee continued
Table 4: Monetary value of awards made under LTIS and deferred element of annual bonus
Deferred
bonus
£’000
Additional
awards
£’000
136
49
74
259
173
21
86
280
Maximum
receivable
at 30 June
2018
11,295
1,491
–
21,2791
2,0671,4
1,204
22,6551
2,0671,4
1,204
FY19
Options
Vesting
FY20
Options
Vesting
2,312
–
–
4,527
–
–
4,876
–
–
7,458
–
–
5,197
–
–
4,961
–
–
Total
£’000
309
70
160
539
FY21
Options
Vesting
1,525
1,4913
–
4,069
–
1,2045
4,069
–
1,2045
Executives
C M Connellan
N I Holmes
A W Shepherd
Total
Table 5: Share Awards
C M Connellan
N I Holmes
A W Shepherd
LTIS2
CSOP
Sharesave
LTIS2
CSOP
Sharesave
LTIS2
CSOP
Sharesave
Notes
1 Includes shares vested before and during the year ended 30 June 2018 .
2 Exercise price of all LTIS options is nil .
3 Exercise price £20 .11 .
4 Exercise price £14 .52 .
5 Exercise price £14 .94 .
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 .
Company Share Option Plan (“CSOP”)
The CSOP 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 Enterprise Management Incentive (“EMI”) Scheme 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 .
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 29
Strategic report
continued
Corporate governance continued
Remuneration Committee continued
Policy on share ownership
From the financial year ended 30 June 2019, Executive directors are required to build up a minimum shareholding through the
retention of shares vesting under the Group’s incentive plans, within 5 years of commencing in role . The CEO and Executive
directors are required to build up share ownership equal to 200% and 150% of base salary respectively . The CEO and Finance
Director are newer to their roles and will however have the opportunity to build up a holding within the required time period .
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 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 Group has service contracts with its Executive directors with a notice period of 12 months and it is Group policy that such
contracts should not normally contain periods of more than 12 months .
External appointments
Executive directors are normally permitted to take on an external appointment as a Non-Executive director . Prior board
approval is required for any new appointment . Fees in excess of £15,000 per annum are paid to the Group .
Non-Executive directors
Non-Executive directors have a letter of appointment rather than contracts of employment . The Committee Chair and the
Executive directors are responsible for reviewing and approving recommendations in respect of the amount of fees payable
to Non-Executive directors; such recommendations being proposed on the basis of independent, market-based advice .
Changes to policy for the year ended 30 June 2019
The remuneration policy, which applies to Executive directors and other employees of the Group, continues to be based on
the following key principles:
•
linked to our strategy and designed to drive commercial outcomes aligned with shareholders’ and clients’ interests;
• designed to attract, retain and motivate high-calibre staff at the appropriate level of pay to meet business objectives;
•
to place a strong link between pay, performance and behaviours and differentiate on this basis;
• maintain appropriate proportions of fixed and variable incentives to drive performance over the short and longer term;
•
•
•
•
•
•
to ensure a market competitive, balanced package of benefits;
inclusion of both annual and long term elements aligned to the interests of shareholders and clients, with significant long
term equity participation at senior levels;
fair for both the Executive director / employee and the Group with some element of discretion;
an emphasis on variable, performance driven remuneration bonus payments funded from retained profits, with an element
of discretion;
clarity, transparency and fairness of process; and,
flexible to recognise the evolving nature of the business .
The Committee continues to monitor the remuneration regulatory requirements applicable to the Group . In response to
relevant regulations, the Group is transitioning certain aspects of its remuneration practices, where appropriate . In
accordance with the FCA’s guidance, and taking account of the Group’s business characteristics and risk profile, the Group has
dis-applied certain remuneration principles relating to variable pay on the grounds of proportionality, such as certain
‘pay-out process rules’ .
30 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Strategic report
continued
Corporate governance continued
Remuneration Committee continued
As outlined earlier in the Remuneration Committee report, the Committee plans to implement a number of changes to the
remuneration policy for Executive directors, designed to further align the policy with the principles above . The table below
summarises the key changes that have been made between the years ended 30 June 2017 and 2018, and the changes
planned for the year ended 30 June 2019 .
Element of pay
Year ended 30 June 2017 policy
Year ended 30 June 2018 policy
Year ended 30 June 2019 proposed policy
Type of plan: no change .
Maximum award: no change .
Performance measures:
rebalanced so that there is a greater
weighting on financial measures .
Weightings are as follows: 30%
Profit Before Tax, 25% Net Organic
Growth in Funds under
Management, 15% Net Operating
Margin, and 30% strategic and
personal objectives .
Deferral: One-third of bonus
deferred over three years, with
tranche vesting .
Malus and clawback: requirements
have been expanded .
No changes are currently proposed .
Annual Bonus
Structure: awards based on a
share of profits .
Maximum award: awards were
made from a pool of profits .
Deferral: 20% of any bonus was
subject to compulsory deferral .
Long Term
Incentive
Type of plan: annual award of
performance shares, with
modest performance .
Maximum award: No maximum
in the plan rules .
Performance conditions: EPS
hurdle only, with a hurdle
growth rate of RPI+2% per
annum .
Performance and vesting
periods: three years .
Post-vesting holding period:
none .
Malus and clawback provisions:
only for material misstatement
or error .
Type of plan: profit share was
replaced with a capped bonus
plan, with a performance
scorecard .
Maximum award: 150% of base
salary .
Performance measures and
weightings: 40% Profit Before
Tax, 20% Net Organic Growth in
Funds under Management, and
40% strategic and personal
objectives .
Deferral: Increase in mandatory
deferral: one third of any bonus
awarded is deferred in shares
for two years .
Malus and clawback: rules
apply .
Type of plan: annual award of
restricted shares .
Maximum award: 50% of base
salary .
Performance conditions:
underpins apply to ensure pay
for performance alignment .
These include dividend stream,
funds under management and
risk and conduct .
Performance and vesting
periods: three years .
Post-vesting holding period: a
two-year post-vesting holding
period will apply . This will
result in a combined vesting
and holding period of five years .
Malus and clawback: provisions
have been expanded .
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 31
Strategic report
continued
Corporate governance 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 . In the second line of defence, independent Group-level Compliance and
Risk teams carry out further monitoring .
The Group Compliance function consists of Advisory and Monitoring teams; Advisory supports the business and Monitoring
challenges the business .
The Group 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 Group-level
Risk and Compliance Committee with an overview of the key risks across the organisation .
Output from both first and second line monitoring is reported to relevant committees . Risks and issues are escalated through
the business-level risk committees, the Executive Risk Management Committee, and the Group Level Risk & Compliance
Committee .
The membership of the Risk and Compliance Committee comprises: David Stewart (Chair), Colin Harris, Richard Price and
Diane Seymour-Williams . Christopher Knight resigned from the Committee on 25 May 2018 and David Stewart joined the
Committee on this date . Business managers and representatives from the Legal, Risk and Compliance functions attend
committee meetings as necessary to report on the results of risk and control assessments, changes to the risk register,
monitoring output as well as key regulatory changes and developments . The Group-level Risk and Compliance Committee is
principally responsible for monitoring identified risks and the effectiveness of mitigating actions, 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 composition of the Committee and attendance during the year ended 30 June 2018 is set out in the table below .
Attendance at Risk and Compliance Committee
Name
David Stewart
Colin Harris
Christopher Knight
Richard Price
Diane Seymour-Williams
Maximum possible attendance
Actual attendance
–
6
6
6
6
–
6
6
6
6
Since the year end, Colin Harris stepped down as Chair, but still remained on the Committee and David Stewart was
appointed Chair of the Committee on 19 September 2018 .
The Risk and Compliance Committee met on six occasions during the year ended 30 June 2018 .
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 .
32 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Strategic report
continued
Corporate governance continued
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
ensure conformity with the regulations of the Group’s
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 . There is also
a risk of missing emerging regulations and / or
misinterpreting existing ones .
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 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 these clients . The Group therefore represents a target for
hackers and is at risk of attack .
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 .
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 relevant 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 also
provided by the Group’s Learning and Development team .
Mitigation
The Group’s employs 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 role profile . As such, any access would 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 secure
connections . Data records are updated to provide a recovery
point and objective of one hour .
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 33
Mitigation
Due diligence takes place prior to the commencement of any
outsourcing or material supplier relationship, to maintain a
robust procurement process and good contract governance .
The Group keeps key outsourcing partners under review
and has in place procedures to regularly assess the
performance of such suppliers as well as identifying suitable
and viable alternatives . The Group has required that its
outsourced IT service provider agrees contracts with third-
party service 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 that identify operational risks and auditors and
third party consultancies provide further assurance .
Mitigation
The Group uses a Centralised Investment Process through
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 model . Portfolios
are also monitored by a dedicated team using specialist
portfolio risk management tools .
Strategic report
continued
Corporate governance continued
Risk and Compliance Committee continued
Outsourcing risk
Impact
Where key systems are provided by outsourced providers,
there is a risk of failure of the third party or external supplier .
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 resulting from
inadequate systems or controls, failed internal processes or
human error .
Portfolio mandate risk
Impact
There is a risk that the Group breaches investment objectives
or client specified restrictions for its discretionary
investment management clients .
By order of the Board of directors,
S P Broomfield
Company Secretary
19 September 2018
R E PORT OF T H E DI R ECTOR S
34 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
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
2018 . See page 100 for statutory
Group information .
Results and dividends
The statutory profit before taxation for
the year ended 30 June 2018 was
£6,722,000 (FY17: £8,044,000) and the
profit after taxation was £5,394,000
(FY17: £5,814,000) .
The Group paid an interim dividend
during the year of 17 .0p (FY17: 15 .0p)
per share . The directors recommend a
final divided of 30 .0p (FY17: 26 .0p) per
share . This results in total dividends
for the year ended 30 June 2018 of
47 .0p (FY17: 41 .0p) per ordinary share .
These dividends amount to a total
distribution to shareholders of
£6,435,000 for the year ended 30 June
2018 (FY17: £5,545,000) .
Retirement and re-appointment
of directors
All of the directors of the Group Board
will retire at the annual general
meeting and are eligible to nominate
themselves for re-election .
Directors’ indemnities
The Company has made qualifying
third-party indemnity provisions for
the benefit of its directors and these
remain in force at the date of this report .
Employment policies
Employees are encouraged to
contribute to the financial
performance of the Group as well as to
risk identification and mitigation .
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 M Connellan
N I Holmes
A W Shepherd
B L Thorpe (appointed 6 August 2018)
S J Jackson (resigned 30 April 2018)
R H Spencer (resigned 24 October 2017)
S P Wombwell (resigned 24 October 2017)
Non-Executives
C A J Macdonald (resigned 31 March 2018)
C R Harris
R S Price
D Seymour-Williams
D Stewart (appointed 25 May 2018)
At 30 June
2018
Number
of shares
At 30 June
2017
Number
of shares
71,585
71,585
2,081
59,655
47,880
–
6,840
229,848
63,093
248,177
6,086
–
4,000
–
–
62,293
50,153
–
30,534
229,848
54,189
239,248
6,086
–
5,000
–
Details of share options held by the directors at the beginning and end of the year can be found in the
Remuneration Committee report on pages 21 to 30 .
Employee performance is assessed on
the basis of a ‘balanced scorecard’ and
share in the success of the Group .
Employees also have an opportunity
to participate in the Group’s share
incentive plans .
The Group considers that employee
engagement is extremely important to
the long-term success of the business .
Employees are engaged actively in
discussions on important issues and
their views are sought on key strategy
decisions . Employees are engaged
through a number of means, including
large-group forums and ‘town-hall’
meetings, smaller group meetings,
‘cascade’ calls, employee surveys,
team meetings and one-to-one
meetings .
The Group seeks to engage actively in
the training and development of
employees . Training is delivered
in-house and through externally-
facilitated courses, and the Learning
and Development team provide a
number of continuing professional
development (“CPD”) activities . All
employees are encouraged to use the
Group’s CPD planning and reporting
tools and to log CPD activities
centrally . Staff discuss specific
training and development needs with
line managers, who liaise with the
Learning and Development team to
facilitate appropriate courses . A
programme of compulsory training
courses is also delivered through a
mix of online and in-person seminars
and e-learning modules .
The Group provides a graduate
training scheme for trainee
investment fund managers and
trainee financial planning consultants .
It also offers apprenticeships and
traineeships to trainees employed in
business functional areas .
The Group is an equal opportunities
employer . It aims to be inclusive and
to treat all applicants, employees and
contractors fairly and on merit,
regardless of race, gender, age,
C ON T I N U E D
R E PORT OF T H E DI R ECTOR S
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 35
Report of the directors
continued
Substantial shareholdings
As at 31 August 2018, the Company had received notification of substantial
interests in its shares of 3% or more as follows:
Substantial shareholdings
Liontrust Asset Management
Octopus Investments
Canaccord Genuity Wealth Management
Brooks Macdonald Asset Management
J M Gumpel
Aberdeen Standard Investments
Artemis Investment Management
Invesco Perpetual Asset Management
Number of
shares
Percentage
holding
2,894,504
1,558,119
1,378,925
1,045,715
626,760
523,777
504,504
480,393
20 .81
11 .20
9 .92
7 .52
4 .51
3 .83
3 .63
3 .45
Employment policies continued
Events since the end of the year
disability, religious belief, sexual
orientation or marital status .
Applications from disabled persons
are always considered and, where
employees become disabled, efforts
are made to continue their
employment within the Group by
providing the training and equipment
necessary to enable them to continue
in their role .
Wellness and wellbeing are important
to the Group, which aims to provide an
appropriate work-life balance to all
staff and to keep all employees
engaged, motivated and performing
well . A comprehensive and flexible
benefits package is offered to all
employees . Employees are consulted
on the range of benefits offered to
ensure the package continues to offer
benefits that are important and
meaningful to employees .
Further information about activities to
improve diversity are set out in the
Nominations Committee report on
page 19 .
Details of events after the reporting
date are set out in note 36 to the
consolidated financial statements .
Main business activities
and indication of future
developments
The main business activities of the
Group over the financial year ended
30 June 2018 are set out in the
Strategic Report on pages 7 to 33 .
The directors consider that the best
opportunities for the business lie in its
core investment management
services, which are based on its
Centralised Investment Process, and
on its financial planning services . The
directors intend to focus on these
areas, which have been successful in
the past, and to build on them,
promoting the core services through
the business’s key distribution
channels: the intermediary market,
professional relationships and
international intermediaries . More
information about the strategic
outlook and future developments for
the business is set out in the Strategic
Report on pages 7 to 33 .
Independent auditors
The Audit Committee has
recommended to the Board that the
incumbent auditor,
PricewaterhouseCoopers LLP, is
reappointed for a further term .
PricewaterhouseCoopers LLP have
expressed their willingness to
continue in office as the Group’s
appointed auditor and a resolution to
reappoint them will be proposed at
the forthcoming general meeting .
Each of the directors in office at the
date of the signing of this report
confirms that, so far as they are aware,
there is no relevant audit information
of which the Group’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 Group’s auditor is
aware of that information .
Annual general meeting
The 2018 annual general meeting will
be held on 31 October 2018 at
72 Welbeck Street, London, W1G 0AY .
The notice of the meeting together
with details of the resolutions
proposed and explanatory notes are
enclosed with this report and can also
be found on the Group’s website .
By order of the Board of directors,
S P Broomfield
Company Secretary
19 September 2018
STAT E M E N T OF DI R ECTOR S ’ R E SPONSI BI L I T I E S
36 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Statement of directors’ responsibilities
Directors’ confirmations
In the case of each director in office at
the date the Report of the directors is
approved:
•
•
so far as the director is aware, there
is no relevant audit information of
which the Group and Company’s
auditors are unaware; and
they have taken all the steps that
they ought to have taken as a
director in order to make
themselves aware of any relevant
audit information and to establish
that the Group and Company’s
auditors are aware of that
information .
The directors are also responsible for
safeguarding the assets of the Group
and Company and hence for taking
reasonable steps for the prevention
and detection of fraud and other
irregularities .
The directors are responsible for
keeping adequate accounting records
that are sufficient to show and explain
the Group and Company’s
transactions and disclose with
reasonable accuracy at any time the
financial position of the Group and
Company and enable them to ensure
that the financial statements comply
with the Companies Act 2006 and, as
regards the Group financial
statements, Article 4 of the IAS
Regulation .
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 are responsible for
preparing the Annual Report and the
financial statements in accordance
with applicable law and regulation .
Company law requires the directors to
prepare financial statements for each
financial year . Under that law the
directors have prepared the Group
financial statements in accordance
with International Financial Reporting
Standards (“IFRSs”) as adopted by the
European Union and Company
financial statements in accordance
with 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 Company and of the profit or loss of
the Group and Company for that
period . In preparing the financial
statements, the directors are
required to:
•
•
select suitable accounting policies
and then apply them consistently;
state whether applicable IFRSs as
adopted by the European Union
have been followed for the Group
financial statements and IFRSs as
adopted by the European Union
have been followed for the
Company financial statements,
subject to any material departures
disclosed and explained in the
financial statements;
• make judgements and accounting
estimates that are reasonable and
prudent; and
• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Group and Company will continue
in business .
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 37
Financial statements
Consolidated financial statements
Independent Auditors’ Report to the
Members of Brooks Macdonald Group plc . . . . . . .
Consolidated Statement of
45
Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46
Consolidated Statement of Financial Position . . .
47
Consolidated Statement of Changes in Equity . . .
Consolidated Statement of Cash Flows . . . . . . . . . . .
48
Notes to the consolidated financial statements . 49-88
38-44
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89
90
91
92-98
100
Independence
We remained independent of the
Group in accordance with the ethical
requirements that are relevant to our
audit of the fi nancial statements in the
UK, which includes the FRC’s Ethical
Standard, as applicable to listed
entities, and we have fulfi lled our
other ethical responsibilities in
accordance with these requirements .
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
38 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Independent auditors’ report
to the members of Brooks Macdonald Group plc
Report on the audit of the
fi nancial statements
Opinion
In our opinion, Brooks Macdonald
Group plc’s Group fi nancial statements
and Company fi nancial statements
(the “fi nancial statements”):
•
give a true and fair view of the state
of the Group’s and of the Company’s
aff airs as at 30 June 2018 and of the
Group’s profi t and the Group’s and
the Company’s cash fl ows for the
year then ended;
• have been properly prepared in
accordance with International
Financial Reporting Standards
(“IFRSs”) as adopted by the
European Union and, as regards the
Company’s fi nancial 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 fi nancial
statements, included within the
Annual Report & Accounts (the
“Annual Report”), which comprise: the
Group and Company Statements of
Financial Position as at 30 June 2018;
the Group Consolidated Statement of
Comprehensive Income for the year
ended 30 June 2018, the Group and
Company Statements of Cash Flows
for the year ended 30 June 2018, and
the Group and Company Statements
of Changes in Equity for the year
ended 30 June 2018; and the notes to
the fi nancial statements, which
include a description of the signifi cant
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
fi nancial statements section of our
report . We believe that the audit
evidence we have obtained is
suffi cient and appropriate to provide a
basis for our opinion .
Our audit approach
Overview
• Overall Group materiality: £711,900 (FY17: £727,000), based on 5% of profi t before tax, adjusted for
the provision for exceptional costs of resolving legacy matters and the soft ware impairment .
• Overall Company materiality: £478,500 (FY17: £502,000), based on 1% of net assets .
• The Group has four business segments, Investment Management, Financial Planning, Funds, and
International, consisting of 10 legal entities that operated in the UK and Channel Islands during the
reporting period .
• We audited the complete fi nancial information of three legal entities, due to their size and specifi c
scope on a further two legal entities .
• Taken together, our audit work accounted for more than 88% of Group revenues and 87% of Group
profi t before tax and 87% of Group total assets .
• Completeness of the provision for exceptional costs of 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
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 39
Independent auditors’ report
to the members of Brooks Macdonald Group plc | continued
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 .
40 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Independent auditors’ report
to the members of Brooks Macdonald Group plc | continued
Key audit matter
How our audit addressed the key audit matter
Completeness of the provision for exceptional costs of
resolving legacy matters
We performed the following procedures in relation to the
completeness of the provision for legacy matters:
Refer to note 2 Principal accounting policies and note 24
Provisions.
• 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 .
The Group recognised an additional provision of £5 .5m in
the year in relation to the legacy matters in the International
business, bringing the total provision to £12 .0m . A total of
£5 .8m has been utilised during the year resulting in a
provision of £6 .2m as at 30 June 2018 . The size of the
provision makes this a key audit matter .
• 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 additional provision raised in the
year .
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’ .
• We re-performed the calculation of goodwill offers at the
underlying client level to ensure calculations have been
performed in line with the documented methodology .
• We agreed a sample of goodwill payments to clients to
supporting documentation and bank statements .
• We reviewed the number and value of unsettled cases and
assessed the reasonableness of the outstanding provision .
• We obtained support for the level of legal and professional
expenses accrued, and agreed a sample of payments to
supporting documentation .
• We reviewed the disclosures made in the financial
statements to determine their adequacy .
Our testing did not identify any evidence of material
misstatement .
Independent auditors’ report
to the members of Brooks Macdonald Group plc | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 41
Key audit matter
How our audit addressed the key audit matter
Recognition of investment management fee revenue
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 64% of the Group’s £101 .6m 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 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 BMAM
and BMI 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 .
• Whilst we did not rely on access controls over the system,
we tested relevant automated controls over the
mathematical accuracy of the investment management fee
calculation and the pricing data feed used to value FUM .
• We tested management’s control over the performance of
external client cash and unit reconciliations .
• We tested, on a sample basis, cash and unit holding positions
to external custody confirmations .
• We agreed, for a sample, fee rates to client contracts .
• We tested the valuation of a sample of assets against
independent market prices .
• We tested the accuracy of fees, by recalculating the
quarterly fee for a sample of clients .
• We reconciled the fees calculated by the portfolio
management system to the general ledger postings .
Our testing did not identify any evidence of material
misstatement .
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 structure of the Group and the Company, the accounting processes and
controls, and the industry in which they operate .
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 property, plant and equipment, trade and other receivables & payables, available for sale financial assets, and
expenses) which were recognised within entities not fully in scope of the Group audit . Taken together, our audit work
accounted for more than 88% of Group revenues, 87% of Group profit before tax and 87% of Group total assets .
42 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Independent auditors’ report
to the members of Brooks Macdonald Group plc | continued
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
£711,900 (FY17: £727,000) .
£478,500 (FY17: £502,000) .
1% of net assets .
1% of net assets is a commonly used
industry benchmark for holding entities
such as the Company .
5% of profit before tax (“PBT”) , adjusted
for the provision for exceptional costs of
resolving legacy matters and the
software impairment .
As with prior years, the most
appropriate metric to apply to Group
materiality is PBT on the basis that the
Group is primarily measured on its
financial performance via its Income
Statement . We have adjusted PBT for
exceptional costs of resolving legacy
matters and the software impairment
due to the non-recurring nature and
size of these items .
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality .
The range of materiality allocated across components was between £97,000 and £615,000 . 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 £34,100
(Group audit) (FY17: £36,000) and £23,900 (Company audit) (FY17: £25,000) as well as misstatements below those amounts
that, in our view, warranted reporting for qualitative reasons .
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
Independent auditors’ report
to the members of Brooks Macdonald Group plc | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 43
Report on other information continued
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 2018 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 .
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 36, 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 .
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
44 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Independent auditors’ report
to the members of Brooks Macdonald Group plc | continued
Other required reporting
Companies Act 2006 exception reporting
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
19 September 2018
FOR T H E Y E A R E N DE D 30 J U N E 2018
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 2018
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 45
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 period from continuing operations
Profit from discontinued operations
Profit for the period attributable to equity holders of the Company
Other comprehensive (expense) / income:
Items that may be reclassified subsequently to profit or loss
Revaluation of available for sale financial assets
Revaluation reserve recycled to profit or loss
Total other comprehensive (expense) / income
Total comprehensive income for the year
Earnings per share
Basic
Diluted
Note
4
5
6
7
9
9
10
11
16
16
12
12
2018
£’000
101,556
(91,703)
–
(3,643)
6,210
128
(152)
–
6,186
(1,328)
4,858
536
5,394
2017
restated*
£’000
88,794
(80,878)
4
266
8,186
56
(263)
(45)
7,934
(2,230)
5,704
110
5,814
(2)
–
(2)
3
6
9
5,392
5,823
39.4p
39.3p
43 .0p
42 .8p
The accompanying notes on pages 49 to 88 form an integral part of the consolidated financial statements .
* Prior periods have been restated to separate the results of discontinued operations, consistent with the presentation in the current period . Refer to note 11 for details
of the results of discontinued operations .
† Brooks Macdonald Funds Limited, a subsidiary of Brooks Macdonald Group plc, held a 60% interest in North Row Capital LLP, a UK Limited Liability Partnership . The
investment was fully impaired in the year ended 30 June 2017 and the partnership was dissolved in April 2018 .
CONSOL I DAT E D STAT E M E N T OF F I NA NC I A L PO SI T ION
A S AT 30 J U N E 2018
46 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Consolidated statement of financial position
as at 30 June 2018
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Available for sale financial assets
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
2018
£’000
2017
£’000
14
15
16
17
18
19
20
21
17
22
23
17
24
26
26
27
27
60,556
3,996
1,578
1,176
67,306
26,019
1,267
30,939
58,225
62,648
3,203
658
1,271
67,780
22,693
1,185
32,183
56,061
125,531
123,841
(1,479)
(2,565)
(157)
(4,201)
(23,291)
(1,325)
(425)
(8,332)
(33,373)
87,957
138
38,404
3,114
46,301
87,957
(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
The consolidated financial statements on pages 45 to 88 were approved by the Board of directors and authorised for issue on
19 September 2018, signed on their behalf by:
C M Connellan
Chief Executive
B L Thorpe
Finance Director
Company registration number: 4402058
The accompanying notes on pages 49 to 88 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 2018
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
for the year ended 30 June 2018
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 47
Balance at 1 July 2016
137
35,997
5,517
41,357
83,008
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 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 13)
Total transactions with owners
Balance at 30 June 2017
Comprehensive income
Profit for the year from continuing operations
Loss for the year from discontinued operations
Gain on disposal of discontinued operations
Other comprehensive income:
Revaluation of available for sale financial asset
Total comprehensive income
Transactions with owners
Issue of ordinary shares
Share-based payments
Share-based payments transfer
Tax on share options
Dividends paid (note 13)
Total transactions with owners
Balance at 30 June 2018
–
–
–
–
1
–
–
–
–
–
1
–
–
–
–
1,104
–
–
–
–
–
1,104
138
37,101
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,303
–
–
–
–
1,303
–
3
6
9
5,814
5,814
–
–
3
6
5,814
5,823
–
1,237
(724)
–
441
–
954
6,480
–
–
–
(2)
(2)
–
–
724
(786)
–
(5,122)
(5,184)
1,105
1,237
–
(786)
441
(5,122)
(3,125)
41,987
85,706
4,858
(326)
862
4,858
(326)
862
–
(2)
5,394
5,392
–
1,669
(4,763)
(270)
–
(3,364)
–
–
4,763
–
(5,843)
(1,080)
1,303
1,669
–
(270)
(5,843)
(3,141)
138
38,404
3,114
46,301
87,957
The accompanying notes on pages 49 to 88 form an integral part of the consolidated financial statements .
CONSOL I DAT E D STAT E M E N T OF CA SH F LOWS
FOR T H E Y E A R E N DE D 30 J U N E 2018
48 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Consolidated statement of cash flows
for the year ended 30 June 2018
Cash flows 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
Proceeds from sale of subsidiaries
Finance income
Proceeds of sale of property, plant and equipment
Proceeds of sale of available for sale financial asset
Investment in joint venture
Cash flows from investing activities of discontinued operations
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 (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Note
25
15
14
16
21
11
9
16
11
13
20
2018
£’000
13,610
(2,673)
10,937
(1,829)
(5,069)
–
(1,852)
1,005
102
–
–
–
2
(7,641)
1,303
–
(5,843)
(4,540)
2017
£’000
24,521
(3,186)
21,335
(892)
(2,651)
(5)
(1,580)
–
56
13
1,219
(1)
14
(3,827)
1,105
(786)
(5,122)
(4,803)
(1,244)
12,705
32,183
30,939
19,478
32,183
The accompanying notes on pages 49 to 88 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 2018
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 2018
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 49
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,
acts as fund manager to regulated OEICs and provides specialist funds in the property and structured return sectors .
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 liabilities at fair value
through profit or loss and deferred consideration such that they are measured at their fair value .
During the year, the Group disposed of two subsidiary companies, Braemar Estates (Residential) Limited and Braemar
Facilities Management Limited (“discontinued operations”) . As a result, prior periods have been restated to separate the
results of discontinued operations, consistent with the presentation in the current period . Refer to note 11 for details of
discontinued operations .
At the time of approving the financial statements, the directors have a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence for the foreseeable future . Accordingly, they continue to
adopt the going concern basis in preparing the financial statements .
b) Basis of consolidation
The Group’s financial statements are a consolidation of the financial statements of the Company and its subsidiaries . The
underlying financial statements of the subsidiaries are prepared for the same reporting year as the Company, using consistent
accounting policies . Subsidiaries and structured entities are all entities controlled by the Company, deemed to exist where
the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect
those returns through its power over the entity . The financial statements of the subsidiaries are included from the date on
which control is transferred to the Group to the date that control ceases .
All intercompany transactions and balances between group companies are eliminated on consolidation .
The Group has disclosed all of its subsidiary undertakings in note 42 of the 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 2017, except as explained below .
New accounting standards, amendments and interpretations adopted in the period
In the year ended 30 June 2018, the Group did not adopt any new standards or amendments issued by the International
Accounting Standards Board (“IASB”) or interpretations issued by the 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 2018 |
C ON T I N U E D
50 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the consolidated financial statements
for the year ended 30 June 2018 | 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
Recognition of deferred tax assets for unrealised losses (amendments to IAS 12)
Disclosure initiative (amendments to IAS 7)
Annual improvements to IFRS standards 2014-2016 cycle (IFRS 12)
Effective date
1 January 2017
1 January 2017
1 January 2017
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 2017:
Standard, Amendment or Interpretation
Annual improvements to IFRS standards 2014-2016 cycle (IFRS 1 and IAS 28)
Revenue from Contracts with Customers (IFRS 15)
Clarifications to IFRS 15 ‘Revenue from Contracts with Customers’
Financial Instruments (IFRS 9)
Foreign Currency Transactions and Advance Consideration (IFRIC 22)
Classification and measurement of share-based payment transactions (amendments to IFRS 2)
Leases (IFRS 16)
Effective date
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2019
Annual improvements to IFRS standards 2015–2017 cycle (IFRS 3, IFRS 11, IAS 12, IAS 23)
1 January 2019†
† Not yet endorsed for use in the EU .
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 is effective from 1 January 2018 and replaces existing revenue recognition guidance . The Group has not adopted this
standard in preparing these consolidated financial statements .
IFRS 15 changes how and when revenue is recognised from contracts with customers . The Group has assessed the impact of
adopting the standard, on its existing revenue streams, as well as on its policy of capitalising the cost of obtaining customer
contracts .
Performance fees
IFRS 15 was assessed for its impact on how and when revenue is recognised . Under IFRS 15, the Group is 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 have been amended to ensure that any performance criteria are fully documented, but after making its assessment
the Group does not expect any material change to the recognition of its revenue arising from these revenue streams .
After the Group has assessed the impact of the changes required under IFRS 15 it has concluded that there is no quantifiable
impact on recognition of revenue to disclose .
FOR T H E Y E A R E N DE D 30 J U N E 2018 |
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 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 51
2. Principal accounting policies continued
c) Changes in accounting policies continued
Contract costs
Under IFRS 15 the scope requirements are broader such that costs to obtain any contract with a customer should be
capitalised if those costs are incremental and the entity expects to recover them . The Group’s policy for capitalising contract
costs currently recognises the fair value of the future benefits accruing to the Group from the 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 of 15 to 20 years .
The Group has assessed the impact of the new standard and concluded that the current policies in place are sufficient and
therefore will remain unchanged .
Impact of adoption of IFRS 15
The Group has assessed the impact that the initial application of IFRS 15 will have on its consolidated financial statements
across its four principal revenue streams:
Portfolio management fee income
The only performance condition identifiable for such contracts with customers is the continued management of the clients’
assets . The Group does not envisage any change in the recognition of such revenues .
Financial services commission
Commission is charged to clients based on an hourly rate and is recognised over the period the service is provided . Under
IFRS 15 the Group is required to identify distinct performance conditions in order to recognise ‘work in progress’ commission
revenue . The Group is reviewing the agreements in place with its clients to identify performance conditions for part-
completion of advisory services . If no such performance conditions exist, all ‘work in progress’ revenue would be deferred
until completion of the services, which is typically two weeks to one month later . However, the ‘work in progress’ revenue
year to year is relatively consistent, so the Group does not expect this to cause a material restatement .
Advisory fees
Advisory fees are billed on completion . There are no other performance conditions and so the treatment of such revenues is
not expected to change .
Fund management fees
The treatment of fund management fees is expected to follow that of portfolio management fee income . The Group does not
anticipate a material impact on this revenue stream .
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 has reassessed the treatment of its available for sale financial assets (note 16) on an individual basis . The Group’s
investments in preference shares, totalling £650,000 at 30 June 2018 (2017: £650,000) , would generally fall under the FVTPL
class of asset under IFRS 9 . However, the Group intends to make use of the irrevocable election to classify these assets as
FVOCI, as the Group’s intention is to collect all contractual cash flows, being solely payments of principal and interest . IFRS 9
does not allow the Group to recycle accumulated fair value adjustments for such assets through profit or loss upon sale and
any such gains or losses will instead be reclassified within equity to retained earnings upon sale . The Group has made this
election as such investments are not considered to reflect the trading activities of the Group and such fair value adjustments
are excluded from trading profits .
The Group’s trade and other receivables (note 18) have historically been held at cost and the Group will continue with this
treatment under IFRS 9 as any differences between cost and fair value are immaterial .
52 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
2. Principal accounting policies continued
c) Changes in accounting policies continued
Impairment of financial assets
Under IFRS 9, an expected credit loss (“ECL”) model is used to measure the impairment of financial assets . Under an ECL
model a credit loss provision is recognised once a loss is expected to arise, instead of when it occurs as previously required
under IAS 39 .
Under the ECL model, a dual measurement approach applies whereby a financial asset will attract a loss allowance equal to either:
• 12 month expected credit losses: losses resulting from defaults within the next 12 months; or
•
lifetime expected credit losses: losses resulting from possible defaults over the remaining life of the financial asset .
Measuring the ECL model estimate of credit losses is the difference between the present value of cash flows that are due to the
entity in accordance with the contract and the present value cash flows that the Group expects to receive . The difference
between the two measurements has been assessed and no material difference is expected .
Impact of adoption of IFRS 9
The Group has assessed the initial impact of IFRS 9 on the consolidated financial statements and based on the profile of its
financial instruments, and after assessing the ECL credit loss measurement of the Group’s cash flows, it is concluded that the
adoption of IFRS 9 will not result in any material adjustments to equity or the carrying amount of financial assets and
liabilities in the Consolidated Statement of Financial Position .
IFRS 16 ‘Leases’
IFRS 16 is effective for periods commencing on or after 1 January 2019 . The standard was endorsed by the EU during 2017 .
The Group has not adopted this standard early .
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,
contingent consideration receivable, 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 14) . In
assessing the fair value of these assets the Group has estimated their finite life based on information about the typical length
of existing client relationships . Contracts acquired with fund managers and acquired client relationship contracts are
amortised on a straight line basis over their estimated useful lives, ranging from 5 to 20 years .
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 53
2. Principal accounting policies continued
d) Critical accounting estimates and judgements continued
Goodwill recognised as part of a business combination is reviewed annually for impairment, or when a change in
circumstances indicates that it might be impaired . The recoverable amounts of cash generating units are determined by
value in use calculations, which require the use of estimates to derive the projected future cash flows attributable to each unit .
Details of the more significant assumptions are given in note 14 .
Deferred consideration
As described in note 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 interest rate .
Contingent consideration
As described in note 11, the Group has a contingent consideration balance in respect of the disposal of Braemar Estates
(Residential) Limited and Braemar Facilities Management Limited in December 2017 . Contingent consideration is recognised
at its fair value, being an estimate of the amount that will ultimately be receivable in future periods . This has been calculated
from forecast revenue of the business disposed, discounted by the estimated interest rate .
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) .
As described in note 24, the Group has recognised a provision in respect of exceptional costs of resolving legacy matters . The
Group has a present obligation relating to a number of discretionary portfolios formerly managed by Spearpoint which was
acquired by the Group in 2012 and the provision has been reliably measured at the value of expenditures expected to be
required to settle the obligation .
d) Critical accounting estimates and
judgements
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 .
54 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
f) Business combinations
2. Principal accounting policies continued
f) Business combinations continued
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 and liabilities assumed . If the consideration is lower than the fair value of the net assets acquired, the
difference is recognised as a gain on a bargain purchase in the Consolidated Statement of Comprehensive Income .
Impairment
Goodwill and other intangible assets with an indefinite life are tested annually for impairment . For the purposes of
impairment testing, goodwill acquired in a business combination is allocated to each of the Group’s cash generating units that
are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquisition are assigned
to those units . The carrying amount of each cash generating unit is compared to its recoverable amount, which is determined
using a discounted future cash flow model .
Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill
associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or
loss on disposal of the operation . Goodwill disposed of in this circumstance is measured based on the relative values of the
operation disposed of and the portion of the cash generating unit retained .
g) Fees, commissions and interest
Portfolio management 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 is 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 .
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 .
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 55
2. Principal accounting policies continued
i) Share-based payments
Equity-settled schemes
The Group engages in equity-settled share-based payment transactions in respect of services received from certain
employees . The fair value of the services received is measured by reference to the fair value of the shares or share options on
the grant date . This cost is then recognised in the Consolidated Statement of Comprehensive Income over the vesting period,
with a corresponding credit to equity .
The fair value of the options granted is determined using option pricing models, which take into account the exercise price of
the option, the current share price, the risk free rate of interest, the expected volatility of the Company’s share price over the
life of the award and other relevant factors .
j) Segmental reporting
The Group determines and presents operating segments based on the information that is provided internally to the Group
board of directors, which is the Group’s chief operating decision maker .
k) Fiduciary activities
The Group commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf
of individuals, trusts, retirement benefit plans and other institutions . These assets and income arising thereon are excluded
from these financial statements, as they are not assets of the Group .
The Group holds money on behalf of some clients in accordance with the client money rules of the Financial Conduct
Authority . Such monies and the corresponding liability to clients are not included within the Consolidated Statement of
Financial Position as the Group is not beneficially entitled thereto .
l) Property, plant and equipment
All property, plant and equipment is included in the Consolidated Statement of Financial Position at historical cost less
accumulated depreciation and impairment . Costs include the original purchase cost of the asset and the costs attributable to
bringing the asset into a working condition for its intended use .
Provision is made for depreciation to write off the cost less estimated residual value of each asset, using a straight line
method, over its expected useful life as follows:
Fixtures and fittings
Equipment
Leasehold improvements
Motor vehicles
3 to 6 .67 years
5 years
over the term of the lease
4 years
The assets’ residual values and useful economic lives are reviewed, and adjusted if appropriate, at the end of each reporting
period . Gains and losses arising on disposal are determined by comparing the proceeds with the carrying amount . These are
included in the Consolidated Statement of Comprehensive Income .
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 .
m) Intangible assets
56 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
2. Principal accounting policies continued
m) Intangible assets continued
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 Consolidated Statement of
Comprehensive Income 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 .
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
o) Financial Investments
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 57
2. Principal accounting policies continued
o) Financial Investments continued
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 .
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 .
58 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
2. Principal accounting policies continued
u) Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers . These are classified as current liabilities if payment is due within 12 months or less (or in the normal operating
cycle of the business if longer) . Otherwise, they are presented as non-current liabilities in the Consolidated Statement of
Financial Position .
Trade payables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest
method .
v) Operating lease payments
Rent payments due under operating leases are charged to the Consolidated Statement of Comprehensive Income on a
straight line basis over the term of the lease . Where leases include lease incentives such as rent-free periods, the benefit of
these incentives is recognised over the lease term as a reduction in the rental expense .
w) Financial instruments
The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial
liability or an equity instrument in accordance with the substance of the contractual arrangement . Financial instruments are
recognised in the Consolidated Statement of Financial Position at fair value when the Group becomes a party to the
contractual provisions of the instrument .
x) Employee Benefit Trust (“EBT”)
The Company provides finance to an EBT to purchase the Company’s shares on the open market in order to meet its
obligation to provide shares when an employee exercises certain options or awards made under the Group’s share-based
payment schemes . The administration and finance costs connected with the EBT are charged to the Consolidated Statement
of Comprehensive Income . The cost of the shares held by the EBT is deducted from equity . A transfer is made between other
reserves and retained earnings over the vesting periods of the related share options or awards to reflect the ultimate
proceeds receivable from employees on exercise . The trustees have waived their rights to receive dividends on the shares .
The EBT is considered to be a Structured Entity, as defined in note 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 .
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 59
3. Segmental information
For management purposes the Group’s activities are organised into four operating divisions: Investment Management,
Funds, Financial Planning 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 Statement of Financial Position .
Year ended 30 June 2018
Total segment revenue
Inter segment revenue
External revenue
Investment
Management
£’000
75,746
(832)
74,914
Financial
Planning
£’000
International
£’000
Group &
consolidation
adjustments
£’000
4,962
(314)
4,648
14,170
–
14,170
–
–
–
Funds
£’000
7,824
–
7,824
Total
£’000
102,702
(1,146)
101,556
Underlying profit / (loss) before tax
17,790
3,141
(5)
1,448
(4,356)
18,018
Finance cost of deferred consideration
Finance income of contingent
consideration
Changes in fair value of deferred
consideration
Changes in fair value of contingent
consideration
Amortisation of client relationships and
contracts acquired with fund managers
Software impairment
Disposal costs
Exceptional costs of resolving legacy
matters
Profit / (loss) before tax
Taxation
–
–
–
–
(890)
(2,518)
–
–
-
26
-
(16)
–
–
–
–
–
–
–
–
–
–
–
–
14,382
3,151
(5)
Profit for the year from continuing operations
Profit from discontinued operations
Profit for the year attributable to equity holders of the Company
–
–
–
–
(152)
(152)
–
26
(1,191)
(1,191)
–
(16)
(420)
–
–
(5,531)
(4,503)
(1,051)
–
(89)
–
(6,839)
(2,361)
(2,518)
(89)
(5,531)
6,186
(1,328)
4,858
536
5,394
60 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
3. Segmental information continued
Year ended 30 June 2017 restated*
Total segment revenue
Inter segment revenue
External revenue
Investment
Management
£’000
66,038
(321)
65,717
Funds
£’000
5,505
–
5,505
Financial
Planning
£’000
5,211
(222)
4,989
International
£’000
12,583
–
12,583
Group &
consolidation
adjustments
£’000
–
–
–
Total
£’000
89,337
(543)
88,794
Underlying profit / (loss) before tax1
19,903
459
269
379
(4,022)
16,988
Finance cost of deferred consideration
Changes in fair value of deferred
consideration
Amortisation of client relationships and
contracts acquired with fund managers
Goodwill impairment
Exceptional costs of resolving legacy
matters
Profit / (loss) before tax
Taxation
Profit for the year from continuing
operations
Profit from discontinued operations
Profit for the period attributable to
equity holders of the Company
–
–
(1,004)
–
–
–
–
–
–
–
–
–
–
–
–
18,899
459
269
–
–
(433)
–
(6,500)
(6,554)
(263)
(263)
2,230
2,230
(1,098)
(1,986)
–
(5,139)
(2,535)
(1,986)
(6,500)
7,934
(2,230)
5,704
110
5,814
3. Segmental information
* Re-presented to show the restated segmental underlying profit before tax and a reconciliation between underlying profit and statutory profit by segment .
1
Underlying profit before tax has been restated to include computer software amortisation and exclude discontinued operations, consistent with the treatment in the
current period .
4. Revenue
Portfolio management fee income
Financial services commission
Advisory fees
Fund management fees
Total revenue
* Restated to exclude revenue from discontinued operations (note 11) .
2018
£’000
87,908
151
5,673
7,824
101,556
2017
restated*
£’000
77,352
94
5,843
5,505
88,794
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 61
4. Revenue continued
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 .
4. Revenue
United Kingdom
Channel Islands
Total revenue
* Restated to exclude revenue from discontinued operations (note 11) .
2018
£’000
87,386
14,170
101,556
2017
restated*
£’000
76,211
12,583
88,794
b) Major clients
The Group is not reliant on any one client or group of connected clients for the generation of revenues .
5. Realised gain on investments
During the year ended 30 June 2018, the Group had no realised gains on investments . In the year ended 30 June 2017, the
Group realised a gain of £4,000 on the final disposal of its investment in Sancus Holding 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 14)
Impairment of investment in joint venture
Impairment of software (note 14)
Gain from changes in fair value of financial assets at fair value through profit or loss
(note 19)
Loss from changes in fair value of contingent consideration receivable (note 11)
(Loss) / gain from changes in fair value of deferred consideration payable (note 21)
Other (losses) / gains
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 15)
Amortisation of computer software (note 14)
Amortisation of client relationships and contracts acquired with fund managers (note 14)
Impairment of goodwill (note 14)
Exceptional cost of resolving legacy matters (note 24)
2018
£’000
–
–
(2,518)
82
(16)
(1,191)
(3,643)
2018
£’000
48,490
842
664
1,186
1,518
2,362
–
5,531
2017
£’000
(1,986)
(163)
–
185
–
2,230
266
2017
£’000
45,679
420
459
989
1,328
2,535
1,986
6,500
62 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
7. Operating profit continued
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
– Assurance services
– Other non-audit services
7. Operating profit
Total auditors’ remuneration
2018
£’000
257
143
181
–
261
842
2017
£’000
102
138
179
1
–
420
Financial Services Compensation Scheme levies
Administrative costs for the year ended 30 June 2018 include a charge of £664,000 (FY17: £459,000) in respect of the
Financial Services Compensation Scheme (“FSCS”) levy . This comprises the Group’s estimated levy for the 2018/19 scheme
year of £689,000 and a net rebate of £25,000 for the 2010/11 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 from continuing operations
Total staff from discontinued operations
Total staff
2018
£’000
40,861
4,652
1,327
1,650
48,490
2018
170
300
470
20
490
2017
£’000
38,912
4,197
1,312
1,258
45,679
2017
165
287
452
48
500
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 63
8. Employee information continued
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 .
8. Employee information
Short-term employee benefits
Post-employment benefits
Share-based payments
Total compensation
2018
£’000
2,666
55
483
3,204
d) Directors’ emoluments
Further details of directors’ emoluments are included within the Remuneration Committee report on pages 21 to 30 .
Salaries and bonuses
Non-Executive directors' fees
Benefits in kind
Pension contributions
Amounts receivable under long term incentive schemes
Total directors’ remuneration
2018
£’000
2,279
372
15
2,666
55
483
3,204
2017
£’000
2,571
33
320
2,924
2017
£’000
2,262
282
27
2,571
33
320
2,924
The aggregate amount of gains made by directors on the exercise of share options during the year was £643,000 (FY17:
£161,000) . Retirement benefits are accruing to two directors (FY17: two) 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
2018
£’000
807
83
890
2017
£’000
368
68
436
The amount of gains made by the highest paid director on the exercise of share options during the year was £83,000
(FY17: £nil) .
64 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
9. Finance income and finance costs
Finance income
Dividend income
Finance income of contingent consideration (note 11)
Bank interest on deposits
Total finance income
Finance costs
Finance cost of deferred consideration
Total finance costs
* Restated to exclude finance income from discontinued operations (note 11) .
10. Taxation
The tax charge on profit for the year was as follows:
UK Corporation Tax at 19 .00% (FY17: 19 .75%)
(Over) / 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
2018
£’000
50
26
52
128
152
152
2018
£’000
3,396
(613)
2,783
(600)
(855)
–
1,328
2017
restated*
£’000
43
–
13
56
263
263
2017
£’000
3,648
167
3,815
(1,026)
(433)
(126)
2,230
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions .
10. Taxation
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 65
10. Taxation continued
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the time apportioned tax
rate applicable to profits of the consolidated entities in the UK as follows:
Profit before taxation from continued operations
Profit before taxation from discontinued operations
Profit before taxation
Profit multiplied by the standard rate of tax in the UK of 19 .00% (FY17: 19 .75%)
Tax effect of:
– 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
– (Over) / under provision in prior years
2018
£’000
6,186
536
6,722
1,277
454
717
535
(187)
-
(855)
–
(613)
2017
£’000
7,934
110
8,044
1,590
955
149
424
(433)
(63)
(433)
(126)
167
Tax charge for the year
1,328
2,230
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 2016 and 30 June 2017 . This resulted in a reduction in the
Corporation Tax liabilities in the respective years, and a repayment of £855,000 (FY17: £433,000) is due from HMRC . The
Group will consider whether claims can also be made for qualifying expenditure incurred in the year ended 30 June 2018
and thereafter in due course .
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
2018
£’000
1
8
425
166
600
2017
£’000
194
84
409
339
1,026
On 1 April 2017, the standard rate of Corporation Tax in the UK was reduced to 19 .00% . As a result the effective rate of
Corporation Tax applied to the taxable profit for the year ended 30 June 2018 is 19 .00% (FY17: 19 .75%) .
In addition to the change in the rate of UK Corporation Tax disclosed above, the Finance (No .2) Act 2015, which was
substantively enacted in October 2015, will further reduce the main rate 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% (FY17: 17%) and will be reviewed in future years subject to new legislation .
66 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
11. Discontinued operations
11. Discontinued operations
On 1 December 2017, the Group disposed of its Property Management division, comprising the wholly owned subsidiaries
Braemar Estates (Residential) Limited and Braemar Facilities Management Limited (“the disposal group”) . Profit from
discontinued operations is disclosed separately in the Consolidated Statement of Comprehensive Income, being the results of
the disposal group to 1 December 2017 and the gain on disposal .
(Loss) / profit of discontinued operations
Gain on disposal of discontinued operations
Profit from discontinued operations
2018
£’000
(326)
862
536
a) Profit or loss of discontinued operations
The results of discontinued operations for the period prior to disposal on 1 December 2017 are shown below .
Revenue
Administrative costs
Operating (loss) / profit
Finance income
(Loss) / profit before tax
Taxation
b) Gain on disposal of discontinued operations
(Loss) / profit of discontinued operations
2018
£’000
1,195
(1,523)
(328)
2
(326)
–
(326)
2017
£’000
110
–
110
2017
£’000
2,922
(2,826)
96
14
110
–
110
b) Gain on disposal of discontinued operations
The gain on disposal of discontinued operations is the total consideration received or receivable less the fair value of the net
assets of the disposal group . The gain is recognised in the Consolidated Statement of Comprehensive Income during the year
ended 30 June 2018 .
Consideration received or receivable
Initial consideration received
Additional consideration received
Fair value of contingent consideration (note 16)
Total disposal consideration
Fair value of net assets
Fair value of goodwill (see note 14)
Fair value of acquired client relationship contracts
Total net assets on disposal
Gain on disposal of discontinued operations
£’000
£’000
966
39
913
(459)
(230)
(367)
1,918
(1,056)
862
Initial cash consideration of £966,000 was received on completion, and a further £39,000 was received post completion .
Additional cash consideration will also be receivable, contingent on the disposal group generating revenue equal to or in
excess of a ‘target’ revenue amount during the period 1 July 2017 to 30 June 2019 . On disposal, all conditions were expected
to be met . Therefore the maximum contingent consideration of £966,000 was recognised at its fair value of £913,000 based
on the discounted forecast cash flows in the half yearly financial report for the six months ended 31 December 2017 . This gain
is presented within profit from discontinued operations in the Consolidated Statement of Comprehensive Income for the year
ended 30 June 2018 .
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 67
11. Discontinued operations continued
b) Gain on disposal of discontinued operations continued
There was a reduction of £16,000 in the fair value of contingent consideration since the disposal date as a result of a
downward revision to the forecast revenue provided by management of the buyer . Finance income of £26,000 was
recognised in the year ended 30 June 2018 in relation to the discounting of the contingent consideration receivable (note 9) .
The performance criteria for the year ended 30 June 2018 were met and full receipt of the first contingent consideration
receivable of £483,000 was received in September 2018 .
Disposal costs of £89,000 were incurred during the year ended 30 June 2018 in relation to the sale .
12. 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, finance income of contingent consideration, changes in fair value of deferred consideration,
changes in fair value of contingent consideration, goodwill impairment, amortisation of client relationships and contracts
acquired with fund managers, finance income from contingent consideration, exceptional costs of resolving legacy matters,
business disposal costs and profit or loss from discontinued operations . The tax effect of these adjustments has also been
considered .
Earnings for the year used to calculate earnings per share as reported in these consolidated financial statements were as
follows:
Earnings from continued operations
Profit from discontinued operations
Earnings attributable to ordinary shareholders
Goodwill impairment (note 14)
Software impairment (note 14)
Disposal costs (note 11)
Finance cost of deferred consideration (note 21)
Finance income of contingent consideration (note 11)
Changes in fair value of deferred consideration (note 21)
Changes in fair value of contingent consideration (note 11)
Amortisation of acquired client relationship contracts (note 14)
Amortisation of contracts acquired with fund managers (note 14)
Exceptional costs of resolving legacy matters (note 24)
Tax impact of adjustments
Underlying profit from discontinued operations (note 11)
2018
£’000
4,858
536
5,394
–
2,518
89
152
(26)
1,191
16
2,156
206
5,531
(588)
(536)
2017
£’000
5,704
110
5,814
1,986
–
–
263
–
(2,230)
–
2,200
335
6,500
(525)
(110)
Underlying earnings attributable to ordinary shareholders1
16,103
14,233
1
Underlying earnings for comparative periods have been restated to include software amortisation and exclude discontinued operations, consistent with the treatment
in the current period .
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 .
68 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
12. Earnings per share
12. Earnings per share continued
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:
Based on reported earnings:
Basic earnings per share from:
– Continuing operations
– Discontinued operations
Total basic earnings per share
Diluted earnings per share from:
– Continuing operations
– Discontinued operations
Total diluted earnings per share
Based on underlying earnings1:
Basic earnings per share
Diluted earnings per share
2018
Number of
shares
13,677,910
28,318
13,706,228
2017
Number of
shares
13,537,222
59,872
13,597,094
2018
p
35.5
3.9
39.4
35.4
3.9
39.3
117.7
117.5
2017
p
42 .1
0 .9
43 .0
42 .0
0 .8
42 .8
105 .1
104 .7
1
Underlying earnings for comparative periods have been restated to include software amortisation and exclude discontinued operations, consistent with the treatment
in the current period .
13. Dividends
Amounts recognised as distributions to equity holders of the Company in the year were as follows:
Final dividend paid for the year ended 30 June 2017 of 26 .0p
(FY16: 23 .0p) per share
Interim dividend paid for the year ended 30 June 2018 of 17 .0p
(FY17: 15 .0p) per share
Total dividends
2018
£’000
3,524
2,319
5,843
Final dividend proposed for the year ended 30 June 2018 of 30 .0p (FY17: 26 .0p) per share
4,116
The interim dividend of 17 .0p (FY17: 15 .0p) per share was paid on 19 April 2018 .
2017
£’000
3,101
2,021
5,122
3,524
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 69
13. Dividends continued
A final dividend for the year ended 30 June 2018 of 30 .0p (FY17: 26 .0p) per share was declared by the Board of directors on
19 September 2018 and is subject to approval by the shareholders at the Company’s annual general meeting . It will be paid on
2 November 2018 to shareholders who are on the register at the close of business on 28 September 2018 . 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 .
13. Dividends
14. Intangible assets
Cost
At 1 July 2016
Additions
Adjustment in respect of prior periods
At 30 June 2017
Additions
Disposals
Reclassification to Property, Plant and Equipment
Impairment
At 30 June 2018
Accumulated amortisation and impairment
At 1 July 2016
Amortisation charge
Impairment
At 30 June 2017
Amortisation charge
Disposals
Reclassification to Property, Plant and Equipment
Impairment
At 30 June 2018
Net book value
At 1 July 2016
At 30 June 2017
At 30 June 2018
Goodwill
£’000
Computer
software
£’000
Acquired
client
relationship
contracts
£’000
Contracts
acquired with
fund
managers
£’000
36,006
–
–
36,006
–
(230)
–
–
35,776
–
–
1,986
1,986
–
–
–
–
1,986
36,006
34,020
33,790
5,081
2,651
–
7,732
5,069
(77)
(943)
(4,013)
32,747
–
(2)
32,745
–
(584)
–
–
7,768
32,161
530
1,328
–
1,858
1,518
(63)
(791)
(1,495)
8,115
2,200
–
10,315
2,156
(217)
–
–
1,027
12,254
4,551
5,874
6,741
24,632
22,430
19,907
3,522
–
(1)
3,521
–
–
–
–
3,521
2,862
335
–
3,197
206
–
–
–
3,403
660
324
118
Total
£’000
77,356
2,651
(3)
80,004
5,069
(891)
(943)
(4,013)
79,226
11,507
3,863
1,986
17,356
3,880
(280)
(791)
(1,495)
18,670
65,849
62,648
60,556
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 2018 comprises £3,320,000
(FY17: £3,550,000) in respect of the Braemar Group Limited (“Braemar”) CGU, £21,243,000 (FY17: £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 (FY17: £9,227,000) in respect of the
Levitas Investment Management Services Limited (“Levitas”) CGU .
14. Intangible assets
70 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
14. Intangible assets continued
a) Goodwill continued
Goodwill is reviewed annually for impairment and its recoverability has been assessed at 30 June 2018 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 Brooks Macdonald International CGU at 30 June 2018 was
£29,676,000, 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 up to 13% are forecast over the next five financial years, the period covered by the most
recent forecasts, which reflect historic actual growth and planned management actions and are considered to be achievable
given current market and industry trends . The 2% long-term growth rate applied is considered prudent in the context of the
long-term average growth rate for the funds, investment management and financial planning industries in which the CGU
operates .
In relation to the Levitas CGU, based on the value-in-use calculation the calculated recoverable amount at 30 June 2018 was
£12,659,000, indicating that there is no impairment . The key underlying assumptions of the calculation are the discount rate,
the growth in funds under management of the Levitas funds and the long-term growth rate of the business . A pre-tax discount
rate of 11% has been used, based on the group’s assessment of the risk-free rate of interest and specific risks relating to Levitas .
Annual funds under management growth rates of between 9% and 15% are forecast in the next five financial years, the period
covered by the most recent forecasts, which reflect historic actual growth and planned management activities and are
considered to be achievable given current market and industry trends . The 2% long-term growth rate applied is considered
prudent in the context of the long-term average growth rate for the funds industry in which the CGU operates . At 30 June 2017,
the recoverable amount of the Levitas CGU was £9,319,000, which was lower than the carrying amount of the CGU being
£11,305,000 indicating that it should be impaired . An impairment loss of £1,986,000 was recognised against the goodwill
attributable to the Levitas CGU in the year ended 30 June 2017 . For further details on the impairment, please see note 13 in the
Brooks Macdonald Group plc Annual Report & Accounts for the year ended 30 June 2017 .
Based on a value-in-use calculation, the recoverable amount of the Braemar CGU at 30 June 2018 was £38,667,000, indicating
that there is no impairment . The key underlying assumptions of the calculation are the discount rate, the growth in funds
under management of the funds business and the long-term growth rate . Annual funds under management growth rates of
between 3% and 38% for the various funds are forecast in the next five financial years, the period covered by the most recent
forecasts, which reflect historic actual growth and planned management activities and are considered to be achievable given
current market and industry trends . The 2% long-term growth rate applied is considered prudent in the context of the
long-term average growth rate for the funds industry in which the CGU operates .
Headroom exists in the calculations of the respective recoverable amounts of these CGUs over the carrying amounts of the
goodwill allocated to them . On this basis, the directors have concluded that there is no impairment . The directors consider
that no reasonably foreseeable change in any of the key assumptions would result in an impairment of goodwill, given the
margin by which the estimated recoverable amounts of the CGUs exceed the carrying amounts of the goodwill allocated to
each .
During the year ended 30 June 2018, £230,000 of goodwill attributable to the Braemar CGU was disposed of . This reflects the
amount of goodwill within the Braemar CGU that is attributable to the disposal group, which was previously included within
this CGU . Refer to note 11 for details of the disposal .
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 71
14. Intangible assets continued
b) Computer software
Costs incurred on internally developed computer software are initially recognised at cost and when the software is available
for use, the costs are amortised on a straight line basis over an estimated useful life of four years .
During the year, the Group impaired an item of computer software with a net book value of £2,518,000 that is no longer in use
and does not provide any further economic benefit to the Group .
c) Acquired client relationship contracts
This asset represents the fair value of future benefits accruing to the Group from acquired client relationship contracts . The
amortisation of client relationships is charged to the Consolidated Statement of Comprehensive Income on a straight line
basis over their estimated useful lives (15 to 20 years) .
d) Contracts acquired with fund managers
This asset represents the fair value of the future benefits accruing to the Group from contracts acquired with fund managers .
Payments made to acquire such contracts are stated at cost and amortised on a straight line basis over an estimated useful life
of five years .
15. Property, plant and equipment
Motor
vehicles
£’000
Fixtures and
fittings
£’000
Equipment
and leasehold
improvements
£’000
Cost
At 1 July 2016
Additions
Disposals
At 30 June 2017
Additions
Disposals
Reclassification from intangible assets
At 30 June 2018
Accumulated depreciation
At 1 July 2016
Disposals
Depreciation charge
At 30 June 2017
Disposals
Depreciation charge
Reclassification from intangible assets
At 30 June 2018
Net book value
At 1 July 2016
At 30 June 2017
At 30 June 2018
33
–
(25)
8
–
(8)
–
–
22
(16)
2
8
(8)
–
–
–
11
–
–
2,111
52
–
2,163
43
(53)
–
2,153
1,498
–
196
1,694
(53)
178
–
1,819
613
469
334
Total
£’000
10,218
892
(25)
11,085
1,829
(64)
943
8,074
840
–
8,914
1,786
(3)
943
11,640
13,793
5,389
–
791
6,180
(1)
1,008
791
7,978
2,685
2,734
3,662
6,909
(16)
989
7,882
(62)
1,186
791
9,797
3,309
3,203
3,996
72 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
16. Available for sale financial assets
16. Available for sale financial assets
At beginning of year
Additions
Finance income of contingent consideration
Reclassification of loan (non-cash transfer)
Net (loss) / gain from changes in fair value
Accumulated profit on revaluation reserve recycled
Disposals
At end of year
2018
£’000
658
913
26
–
(19)
–
–
1,578
2017
£’000
1,715
5
–
150
1
6
(1,219)
658
At 1 July 2017, the Group held an investment of 500,000 redeemable £1 preference shares in an unlisted company
incorporated in the UK, £150,000 preference share capital in an unlisted company incorporated in the Channel Islands and
an offshore bond with market value at that date of £8,000 . The preference shares carry an entitlement to a fixed preferential
dividend at a rate of eight per cent per annum .
During the year ended 30 June 2018, the Group disposed of two subsidiary companies, Braemar Estates (Residential) Limited
and Braemar Facilities Management Limited . The Group recognised a corresponding contingent consideration receivable in
respect of deferred consideration receivable by the Group from the purchaser at its fair value of £923,000, including finance
income from deferred consideration of £26,000 and reduction in fair value of £16,000 . Full details of the disposal are set out in
note 11 .
At 30 June 2018, the offshore bond had a market value of £5,000 (FY17: £8,000) , with the loss from changes in fair value of
£2,000 for the year ended 30 June 2018 being recognised in other comprehensive income (FY17: £3,000 gain) .
The table below provides an analysis of the financial instruments that, subsequent to initial recognition, are measured at fair
value . These are grouped into the following levels within the fair value hierarchy, based on the degree to which the inputs
used to determine the fair value are observable:
• Level 1 – derived from quoted prices in active markets for identical assets or liabilities at the measurement date;
• Level 2 – derived from inputs other than quoted prices included within level 1 that are observable, either directly or indirectly;
and
• Level 3 – derived from inputs that are not based on observable market data .
Level 1
£’000
Level 2
£’000
Level 3
£’000
At 1 July 2017
Additions
Finance income of contingent consideration
Reclassification of loan (non cash transfer)
Net loss from changes in fair value
Revaluation reserve recycled
Disposals
At 30 June 2018
Comprising:
Offshore bond
Unlisted redeemable preference shares
Contingent consideration receivable
Total
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
658
913
26
–
(19)
–
–
658
913
26
–
(19)
–
–
1,578
1,578
5
650
923
5
650
923
1,578
1,578
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 73
16. Available for sale financial assets continued
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 . Contingent consideration receivable is valued using the net present value of the
expected amount receivable based off management revenue forecasts for Braemar Estates (Residential) Limited and Braemar
Facilities Management Limited (see note 11) .
A 1% reduction in the value of available for sale financial assets would result in a £16,000 reduction to total comprehensive
income .
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
(Charge) / credit recognised in equity
At 30 June
The change in deferred income tax assets and liabilities during the year was as follows:
2018
£’000
444
732
1,176
(2,565)
(425)
(2,990)
2018
£’000
(2,144)
600
(270)
(1,814)
Deferred tax assets
At 1 July 2016
Credit to the Statement of Comprehensive Income
Credit to equity
At 30 June 2017
Credit to the Statement of Comprehensive Income
Charge to equity
At 30 June 2018
Share–based
payments
£’000
Trading
losses carried
forward
£’000
Accelerated
capital
allowances
£’000
551
193
188
932
1
(270)
663
–
339
–
339
166
–
505
–
–
–
–
8
–
8
2017
£’000
688
583
1,271
(3,415)
–
(3,415)
2017
£’000
(3,484)
1,152
188
(2,144)
Total
£’000
551
532
188
1,271
175
(270)
1,176
74 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
17. Deferred income tax
17. Deferred income tax continued
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 2016
Credit to the Statement of Comprehensive Income
At 30 June 2017
Credit to the Statement of Comprehensive Income
At 30 June 2018
18. Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
Total current trade and other receivables
19. Financial assets at fair value through profit or loss
At beginning of year
Gain from change in fair value
At end of year
These investments are classified as Level 1 as defined in note 16 .
20. Cash and cash equivalents
Cash at bank
Cash held in employee benefit trust
Total cash and cash equivalents
Accelerated
capital
allowances
£’000
Intangible
asset
amortisation
£’000
84
(84)
–
–
–
3,951
(536)
3,415
(425)
2,990
2018
£’000
1,542
1,481
22,996
26,019
2018
£’000
1,185
82
1,267
2018
£’000
30,884
55
30,939
Total
£’000
4,035
(620)
3,415
(425)
2,990
2017
£’000
1,723
1,187
19,783
22,693
2017
£’000
1,000
185
1,185
2017
£’000
32,128
55
32,183
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 .
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 75
21. Deferred consideration
Deferred consideration payable 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
2018
£’000
3,384
152
1,191
(1,852)
2,875
1,396
1,479
2,875
2017
£’000
6,931
263
(2,230)
(1,580)
3,384
1,664
1,720
3,384
No additions to deferred consideration payable were recognised in the year . Payments totalling £1,852,000 (FY17: £1,580,000)
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 .
A total increase in the fair value of deferred consideration of £1,191,000 (FY17: reduction of £2,230,000) was recognised
during the year in respect of Levitas, 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 . The actual growth in FUM for the current year exceeded the expectations and the FUM
forecast was subsequently revised and the estimated future deferred consideration payments increased accordingly .
Deferred consideration is classified as Level 3 within the fair value hierarchy, as defined in note 16 .
Amounts falling due after more than one year from the reporting date are presented in non-current liabilities as shown below:
At 1 July
Finance cost of deferred consideration
Fair value adjustments
Transfer to current liabilities
At 30 June
2018
£’000
1,720
152
1,191
(1,584)
1,479
2017
£’000
5,290
263
(2,230)
(1,603)
1,720
An amount of £1,584,000 (FY17: £1,603,000) , 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 .
76 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
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
2018
£’000
157
63
(63)
157
2017
£’000
114
51
(8)
157
The additional liability was recognised during the year of £63,000 (FY17: £51,000) in respect of existing LTIS awards, granted
in previous years, that are expected to vest in the future . During the year, an amount of £63,000 (FY17: £8,000) was
transferred to current liabilities, reflecting awards that are expected to vest within the next 12 months .
23. Trade and other payables
Trade payables
Other taxes and social security
Other payables
Accruals and deferred income
Total trade and other payables
2018
£’000
4,762
2,501
531
15,497
23,291
2017
£’000
3,025
2,345
361
15,438
21,169
Included within accruals and deferred income in 2018 is an accrual of £255,000 (FY17: £366,000) in respect of employer’s
National Insurance contributions arising from share option awards under the LTIS (note 28b) . Accruals and deferred income
in 2017 included an accrual of £307,000 in respect of redundancy costs relating to the closure of the Guernsey back office in
September 2017 .
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 nil (FY17: £228,000) .
24. Provisions
At 1 July 2016
Charge to the Statement of Comprehensive Income
Transfer from non-current liabilities
Utilised during the year
At 30 June 2017
Charge to the Statement of Comprehensive Income
Transfer from non-current liabilities
Utilised during the year
At 30 June 2018
Exceptional
costs of
resolving
legacy
matters
£’000
Deferred
consideration
£’000
Client
compensation
£’000
673
208
–
(74)
807
(407)
–
(378)
22
–
6,500
–
–
6,500
5,531
–
(5,806)
6,225
1,641
–
1,603
(1,580)
1,664
–
1,584
(1,852)
1,396
FSCS
levy
£’000
470
621
–
(470)
621
627
–
(559)
689
Total
£’000
2,784
7,329
1,603
(2,124)
9,592
5,816
1,584
(8,660)
8,332
24. Provisions
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 77
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 £5,531,000 (FY17: £6,500,000) 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 2018 was £1,396,000 (FY17: £1,664,000) and relates
entirely to the Levitas acquisition . The amount of deferred consideration included within provisions is due to be settled in
November 2018 . 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 £1,584,000 (FY17: £1,603,000) 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 £1,852,000 (FY17:
£1,580,000) were utilised during the year on payment to the vendors of Levitas .
d) FSCS levy
Following confirmation by the FSCS in April 2018 of its final industry levy for 2018/19, the Group has made a provision of
£689,000 (FY17: £621,000) for its estimated share . This includes a supplementary levy of £132,000 (FY17: £100,000) that is
expected to be raised in early 2019 .
25. Reconciliation of operating profit to net cash inflow from operating activities
Operating profit
- Continuing operations
- Discontinued operations (note 11)
Operating profit
Adjustments for:
Depreciation of property, plant and equipment
Loss / (gain) 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
(Increase) / decrease in receivables
Increase in payables
(Decrease) / increase in provisions
Increase in non-current liabilities
Discontinued operations
Share-based payments
Net cash inflow from operating activities
2018
£’000
6,210
(328)
5,882
1,186
–
–
–
3,880
3,643
(3,323)
2,122
(992)
–
(457)
1,669
2017
£’000
8,186
96
8,282
989
(4)
(4)
6
3,863
(266)
1,265
2,325
6,785
43
–
1,237
13,610
24,521
78 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the consolidated financial statements
for the year ended 30 June 2018 | 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 2016
Shares issued:
– on exercise of options
– to Sharesave Scheme
At 30 June 2017
Shares issued:
– on exercise of options
– to Sharesave Scheme
At 30 June 2018
Number of
shares
13,709,170
Exercise
price
(p)
Share
capital
£’000
137
Share
premium
account
£’000
Total
£’000
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
27,838
81,795
290 .5 – 1,452 .0
1,237 .0 – 1,738 .0
–
–
210
1,093
210
1,093
13,903,033
138
38,404
38,542
The total number of ordinary shares issued and fully paid at 30 June 2018 was 13,903,033 (FY17: 13,793,400) with a par value
of 1p per share .
There were no shares issued on exercise of options and to Sharesave Scheme members in share capital in the year ended 30
June 2018 (FY17: £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 2018, the EBT held 164,582 (FY17:
243,465) 1p ordinary shares in the Company, acquired for a total consideration of £2,699,000 (FY17: £3,816,000) with a
market value of £3,263,000 (FY17: £5,820,000) . 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
2018
£’000
2,921
192
1
3,114
2017
£’000
6,285
192
3
6,480
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 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 79
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
Profit from discontinued operations
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
2018
£’000
6,285
1,669
(4,763)
(270)
2,921
3
(2)
–
1
2018
£’000
41,987
4,858
536
–
4,763
(5,843)
46,301
2017
£’000
5,331
1,237
(724)
441
6,285
(6)
3
6
3
2017
£’000
41,357
5,704
110
(786)
724
(5,122)
41,987
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 .14% 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 25 .37% to 26 .13% with a dividend yield of 1 .53% to 2 .43%, an expected vesting period
between eleven months and three years and a risk-free annual rate of interest of between 0 .14% and 0 .50% .
The share options in issue under the various equity-settled share-based payment schemes have been valued at prices
ranging from £2 .31 to £19 .65 per share . The charge to the Consolidated Statement of Comprehensive Income for the year in
respect of these was £1,653,000 (FY17: £1,237,000) . The weighted average remaining contractual life of all equity-settled
share-based payment schemes at 30 June 2018 was 1 .51 years (FY17: 1 .32 years) . The weighted average share price of all
options exercised during the year was £19 .75 (FY17: £10 .45) .
80 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
28. Equity-settled share-based
payments
28. Equity-settled share-based payments continued
The total charge to the Consolidated Statement of Comprehensive Income for the year for all share-based payment schemes,
including employer’s National Insurance contributions, was £1,773,000 (FY17: £1,465,000) .
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
£
Fair
value
£
Number of options
19 .66 – 20 .23
–
14 .94
2 .86 – 2 .87
18 .30 – 19 .65
5 .00
7,435
95,857
118,741
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
2018
2017
Weighted
average
exercise price
(£)
5.64
5.64
Number
of options
14,353
(14,353)
–
Weighted
average
exercise price
(£)
4 .83
2 .905
5 .63
Number
of options
20,353
(6,000)
14,353
The number of share options outstanding at the reporting date was as follows:
Scheme year (grant date)
2007
2010
All years
Exercise
price
(£)
Vesting
period
2018
Number
of options
2017
Number
of options
2 .905 2010 - 2017
7 .750 2013 - 2020
–
–
–
6,250
8,103
14,353
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
2018
Number
of options
244,787
95,857
(78,883)
(8,105)
253,656
2017
Number
of options
208,739
69,637
(27,038)
(6,551)
244,787
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 81
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)
Exercise
price (£)
Vesting
period
2010
2011
2012
2013
2014
2015
2016
2017 (off-cycle)
2017 (off-cycle)
2017 (off-cycle)
2017
All years
–
–
–
–
–
–
–
–
–
–
–
2013
2014
2015
2016
2017
2018
2019
2018
2019
2020
2020
2018
Number
of options
3,413
4,883
7,087
11,921
24,385
49,365
62,051
–
2,312
7,458
80,781
2017
Number
of options
6,438
6,517
25,985
18,173
60,806
57,909
68,959
–
–
–
–
253,656
244,787
b) Long Term Incentive Scheme (“LTIS”)
At 30 June 2018, options for schemes up to and including the 2014 scheme have vested and are able to be exercised .
The off-cycle awards were issued in August 2017 to one member of senior management and vest in three instalments in
March 2018, 2019 and 2020 respectively . The first tranche vested during the year ended 30 June 2018 and was exercised
before the end of the year .
c) Employee Benefit Trust (“EBT”)
Brooks Macdonald Group plc established an employee benefit trust on 3 December 2010 to acquire ordinary shares in the
Company to satisfy awards under the LTIS . 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
2018
Number
of shares
243,465
-
(78,883)
164,582
2017
Number
of shares
228,208
42,295
(27,038)
243,465
d) Company Share Option Plan (“CSOP”)
The Company has established a Company Share Option Plan which was approved by HMRC in November 2013 . The CSOP is a
discretionary scheme whereby employees or directors are granted an option to purchase the Company’s shares in the future
at a price set on the date of the grant . The maximum award under the terms of the scheme is a total market value of £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 .
82 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
28. Equity-settled share-based payments continued
d) Company Share Option Plan (“CSOP”) continued
At 1 July
Granted in the year
Exercised in the year
Forfeited in the year
At 30 June
2018
2017
Weighted
average
exercise price
£
15.97
19.75
13.91
17.23
16.70
Number of
options
102,648
7,435
(13,485)
(5,922)
90,676
Weighted
average
exercise price
£
15 .67
16 .66
14 .52
17 .21
15 .97
Number of
options
81,264
31,728
(5,857)
(4,487)
102,648
d) Company Share Option Plan (“CSOP”)
The number of share options outstanding at the reporting date was as follows:
Scheme year (grant date)
2013
2014
2015
2016
2017 (off-cycle)
2017
All years
Exercise
price (£)
Vesting
period
2018
Number
of options
2017
Number
of options
14 .52
13 .81
17 .19
17 .25
20 .23
19 .66
2016
2017
2018
2019
2020
2020
11,886
9,423
36,679
25,761
1,491
5,436
90,676
13,953
21,204
38,309
29,182
–
–
102,648
At 30 June 2018, options for the 2014 scheme have vested and are able to be exercised . The off-cycle award was issued in
August 2017 to one member of senior management and vests in March 2020 .
e) Employee Sharesave Scheme (“SAYE”)
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
2018
2017
Weighted
average
exercise
price
£
14.50
14.94
12.57
16.64
15.21
Number
of options
199,753
118,741
(79,797)
(27,453)
211,244
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 .50
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 83
28. Equity-settled share-based payments continued
e) Employee Sharesave Scheme (“SAYE”) continued
The number of share options outstanding at 30 June 2018 was as follows:
e) Employee Sharesave Scheme (“SAYE”)
Scheme year (grant date)
2014
2015
2016
2017
2018
All years
Exercise
price
£
13 .86
12 .37
14 .00
17 .38
14 .94
Vesting
period
2017
2018
2019
2020
2021
2018
Number
of options
–
4,145
44,076
44,282
118,741
2017
Number
of options
7,916
76,697
47,860
67,280
–
211,244
199,753
At 30 June 2018, options for the 2015 scheme have vested and are able to be exercised .
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
2018
£’000
2,234
3,280
2
5,516
2017
£’000
1,949
4,312
137
6,398
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 at
the end of the reporting period is shown below:
Client money bank accounts
Client assets under management
Total client funds under management
2018
£’000
763,591
11,650,740
12,414,331
2017
£’000
751,595
9,704,108
10,455,703
84 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the consolidated financial statements
for the year ended 30 June 2018 | 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 .
At 30 June 2018
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
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
–
–
–
923
655
1,578
–
30,939
–
–
–
–
1,542
24,185
30,939
25,727
–
–
–
4,762
23,533
28,295
–
–
–
292
292
–
2,085
2,085
–
–
–
–
923
–
1,479
1,479
1,267
–
–
–
1,922
–
–
–
Net liquidity gap
30,939
(2,568)
(1,793)
(556)
1,922
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
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
–
–
–
–
179
179
–
2,628
2,628
–
–
–
–
–
–
–
2,341
2,341
1,185
–
–
–
1,843
–
–
–
Net liquidity gap
32,183
(10,914)
(2,449)
(2,341)
1,843
658
658
1,267
30,939
1,542
24,477
59,803
4,762
27,097
31,859
27,944
Total
£’000
1,185
32,183
1,723
14,166
49,915
3,025
28,568
31,593
18,322
Notes to the consolidated financial statements
for the year ended 30 June 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 85
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 £310,000 (FY17: £322,000) . An increase of 1% would have
an equal and opposite effect .
Foreign exchange risk
The Group does not have any material exposure to transactional foreign currency risk and therefore no analysis of foreign
exchange risk is provided .
Price risk
Price risk is the risk that the fair value of the future cash flows from financial instruments will fluctuate due to changes in
market prices (other than those arising from interest rate risk or currency risk) . The Group is exposed to price risk through its
holdings of equity securities and other financial assets, which are measured at fair value in the Consolidated Statement of
Financial Position (notes 16 and 18) . A 1% fall in the value of these financial instruments would have the impact of reducing
total comprehensive income by £28,000 (FY17: £18,000) and profit before tax by £13,000 (FY17: £12,000) . 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
2018 there was no significant concentration of credit risk in any particular counterparty (FY17: none) .
Assets exposed to credit risk recognised on the Consolidated Statement of Financial Position total £30,939,000
(FY17: £32,183,000) , being the Group’s total cash and cash equivalents .
Trade receivables with a carrying amount of £1,542,000 (FY17: £1,723,000) 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 (FY17: three months) .
86 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the consolidated financial statements
for the year ended 30 June 2018 | 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 2018 was £87,957,000 (FY17: £85,706,000) . 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 2018 ICAAP
will be approved in December 2018 . 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 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 87
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
2018
£’000
–
2017
£’000
6
2018
£’000
–
2017
£’000
10
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
All of the above amounts are interest-free and are repayable on demand .
Amounts owed
by related parties
Amounts owed
to related parties
2018
£’000
–
–
–
–
–
–
–
–
9
–
2017
£’000
–
5
661
–
–
–
1,126
–
9
1
2018
£’000
–
–
2,339
6,615
4
4,322
3,986
2,583
–
–
2017
£’000
252
–
–
10,011
1
2,026
–
2,583
–
–
The Group manages a number of collective investment funds that are considered related parties . At 30 June 2018, financial
assets at fair value through profit or loss included an investment of 563,689 .4025 class A units (FY17: 563,689 .4025 class A
units) in the IFSL Brooks Macdonald Balanced Fund (note 19) . These transactions were conducted on an arm’s length basis .
88 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the consolidated financial statements
for the year ended 30 June 2018 | 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 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 funds under management of unconsolidated structured entities total £1,428m (FY17: £1,034m) . Included in revenue on
the consolidated statement of comprehensive income is management fee income of £6,134,000 (FY17: £4,463,000) from
unconsolidated structured entities managed by the Group .
36. Events since the end of the year
No material events have occurred between the reporting date and the date of signing the financial statements .
A S AT 30 J U N E 2018
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 2018
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 89
Assets
Non-current assets
Intangible 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
2018
£’000
2017
£’000
41
42
43
44
45
46
47
49
49
1,811
71,540
500
73,851
85
1,262
266
1,613
75,464
(1,479)
(1,479)
(23,466)
(23,466)
50,519
138
38,404
3,192
8,785
50,519
–
64,646
500
65,146
1,820
1,180
2,684
5,684
70,830
(1,720)
(1,720)
(18,892)
(18,892)
50,218
138
37,101
5,901
7,078
50,218
The Company financial statements were approved by the Board of directors and authorised for issue on 19 September 2018,
signed on their behalf by:
C M Connellan
Chief Executive
B L Thrope
Finance Director
Company registration number: 4402058
The accompanying notes on pages 92 to 98 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 2018
90 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Company statement of changes in equity
for the year ended 30 June 2018
Balance at 1 July 2016
137
35,997
4,767
8,907
49,808
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 2017
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
Adjustment for investment in share options of
subsidiaries
Purchase of own shares by employee benefit trust
Dividends paid (note 40)
Total transactions with owners
Balance at 30 June 2018
–
–
1
–
–
–
–
1
–
–
1,104
–
–
–
–
1,104
138
37,101
–
–
3,976
3,976
3,976
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
–
–
–
–
–
–
–
–
–
–
–
–
–
9,417
9,417
9,417
9,417
1,303
–
–
–
490
(3,199)
–
–
–
–
–
–
–
–
3,199
(5,066)
–
(5,843)
1,303
490
–
(5,066)
–
(5,843)
1,303
(2,709)
(7,710)
(9,116)
138
38,404
3,192
8,785
50,519
The accompanying notes on pages 92 to 98 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 2018
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 2018
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 91
Cash flow from operating activities
Cash generated from operations
Net cash generated from operating activities
Cash flows from investing activities
Purchase of intangible assets
Investment in subsidiaries
Proceeds of sale of available for sale financial assets
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 (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Note
48
41
42
43
46
40
2018
£’000
17,810
17,810
(1,836)
(12,000)
–
(1,852)
(15,688)
1,303
–
(5,843)
(4,540)
(2,418)
2,684
266
2017
£’000
6,752
6,752
–
–
484
(1,580)
(1,096)
1,105
(786)
(5,122)
(4,803)
853
1,831
2,684
The accompanying notes on pages 92 to 98 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 2018
92 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the company financial statements
for the year ended 30 June 2018
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 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) Intangible assets
Amortisation of intangible assets is charged to administrative expenses in the Statement of Comprehensive Income on a
straight line basis over the estimated useful lives of the assets .
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 Comprehensive
Income when incurred .
c) 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 Statement of Comprehensive Income and is not subsequently reversed .
d) 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 .
e) Retirement benefit costs
Contributions in respect of the Group’s defined contribution pension scheme are recognised in the Statement of
Comprehensive Income as they fall due .
f) Employee Benefit Trust
Where the Company holds its own equity shares through an Employee Benefit Trust these shares are shown as a reduction in
shareholders’ equity . Any consideration paid or received for the purchase or sale of these shares is shown as a reduction in
the reconciliation of movements in shareholders’ funds . No gain or loss is recognised in the Statement of Comprehensive
Income on the purchase, sale, issue or cancellation of these shares .
FOR T H E Y E A R E N DE D 30 J U N E 2018 |
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 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 93
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 . 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
interest rate .
39. Profit for the year
Brooks Macdonald Group plc reported profit after tax for the year ended 30 June 2018 of £9,417,000 (FY17: £3,976,000) .
Auditors’ remuneration is disclosed in note 7 of the consolidated financial statements . The average monthly number of
employees during the year was 8 (FY17: 10) . Directors’ emoluments are set out in note 8(d) 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 13 of the consolidated financial statements .
41. Intangible assets
Cost
At 1 July 2017
Additions
At 30 June 2018
Accumulated amortisation
At 1 July 2017
Amortisation charge
At 30 June 2018
Net book value
At 1 July 2017
At 30 June 2018
Software
£’000
–
1,836
1,836
–
25
25
–
1,811
During the year, the Company incurred costs on internally developed computer software which 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 .
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 2018 |
C ON T I N U E D
94 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the company financial statements
for the year ended 30 June 2018 | continued
42. Investment in subsidiaries and related undertakings
Net book value
At 1 July 2016
Additions:
– Capital contribution relating to share-based payments
– Impairment of subsidiary
At 30 June 2017
Additions:
– Investment in subsidiaries
– Capital contribution relating to share-based payments
At 30 June 2018
Group
undertakings
£’000
65,610
1,022
(1,986)
64,646
12,000
(5,106)
71,540
During the year ended 30 June 2018, the Company invested £11,000,000 in the ordinary share capital of Brooks Macdonald
Asset Management (International) Limited and £1,000,000 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 .
Details of the Company’s subsidiary undertakings at 30 June 2018, all of which were 100% owned and included in the
consolidated financial statements, are provided below:
Company
Braemar Group Limited
Brooks Macdonald Asset Management Limited
Type of shares
and par value
Country of
incorporation
Nature of
business
Ordinary 1p
Ordinary £1
UK
UK
Investment management
Investment management
Brooks Macdonald Asset Management
(International) Limited
Ordinary 1p &
Preference £1 Channel Islands
Brooks Macdonald Financial Consulting Limited
Brooks Macdonald Funds Limited
Brooks Macdonald Nominees Limited
Brooks Macdonald Retirement Services
(International) Limited
Ordinary 5p
Ordinary £1
Ordinary £1
UK
UK
UK
Investment management
Financial consulting
Fund management
Non-trading
Ordinary £1 Channel Islands
Retirement planning
Levitas Investment Management Services Limited
Ordinary £1
UK
Secure Nominees Limited
Ordinary £1 Channel Islands
Fund Sponsor
Non-trading
The registered office for all subsidiaries is 72 Welbeck Street, London, W1G 0AY except for the following:
Company
Registered office
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
1st Floor, Royal Chambers, St . Julian’s Avenue, St . Peter Port, Guernsey,
GY1 2HH
Notes to the company financial statements
for the year ended 30 June 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 95
42. 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 2018:
42. Investment in subsidiaries and related
undertakings
– Braemar Group Limited
– Brooks Macdonald Nominees Limited
– Levitas Investment Management Services 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 2018 were £13,000 .
43. Available for sale financial assets
At 1 July
Net gain from changes in fair value
Disposals
At 30 June
2018
£’000
500
–
–
500
2017
£’000
971
13
(484)
500
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 2018, the fair value of the preference shares was estimated at £500,000
(FY17: £500,000) based on a discounted cash flow analysis .
An analysis of these financial instruments and the level within the fair value hierarchy into which they are categorised is
provided within note 16 of the consolidated financial statements .
44. Trade and other receivables
Amounts owed by subsidiary undertakings
Prepayments and accrued income
Total trade and other receivables
2018
£’000
9
76
85
2017
£’000
1,803
17
1,820
Amounts owed by subsidiary companies are unsecured, interest-free and repayable on demand .
96 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the company financial statements
for the year ended 30 June 2018 | continued
45. Financial assets at fair value through profit or loss
At beginning of year
Adjustment in respect of prior periods
Gain from changes in fair value
At 30 June
2018
£’000
1,180
–
82
1,262
2017
£’000
994
1
185
1,180
These investments are classified as Level 3 as defined in note 16 to the consolidated financial statements . All investments
were designated as fair value through profit or loss upon initial recognition .
46. Deferred consideration
Deferred consideration is split between non-current liabilities and other payables within current liabilities (note 47) to the
extent that it is due for payment within one year of the reporting date . It reflects the directors’ best estimate of amounts
payable in the future in respect of certain client relationships and subsidiary undertakings that were acquired by the
Company . Deferred consideration is measured at its fair value based on discounted expected future cash flows . The amount
outstanding at 30 June 2018 of £1,479,000 (FY17: £1,720,000) is the non-current liability related exclusively to amounts
payable in respect of the acquisition of Levitas . The amount due within one year at 30 June 2018 of £1,396,000
(FY17: £1,664,000) is recognised in other payables in note 47 . Payments of £1,852,000 (FY17: £1,580,000) were made to the
vendors of Levitas during the year .
47. Trade and other payables
Trade payables
Amounts owed to subsidiary undertakings
Other payables
Accruals and deferred income
Total trade and other payables
2018
£’000
98
19,848
1,396
2,124
23,466
2017
£’000
147
14,674
1,863
2,208
18,892
Amounts owed to subsidiary companies are unsecured, interest-free and are repayable on demand . Included in other
payables is £1,396,000 (FY17: £1,664,000) which is the directors’ best estimate of the deferred consideration payable in
respect of the acquisition of Levitas (see note 46) .
Notes to the company financial statements
for the year ended 30 June 2018 | continued
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 97
48. Reconciliation of operating profit to net cash inflow from operating activities
Operating profit
Adjustments for:
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 in receivables
Increase in payables
Share based payments
Net cash inflow from operating activities
49. Share capital and share premium account
The movements in share capital and share premium during the year were as follows:
2018
£’000
9,417
–
(82)
–
1,191
1,710
5,084
490
17,810
2017
£’000
3,976
1,986
(185)
(13)
(2,230)
301
2,705
212
6,752
At 1 July 2016
Shares issued
At 30 June 2017
Shares issued
At 30 June 2018
Number of
shares
13,709,170
84,230
13,793,400
109,633
13,903,033
Share
capital
£’000
137
1
138
-
138
Share
premium
account
£’000
35,997
1,104
37,101
1,303
38,404
Total
£’000
36,134
1,105
37,239
1,303
38,542
The total number of ordinary shares, issued and fully paid at 30 June 2018, was 13,903,033 (FY17: 13,793,400) with a par
value of 1p per share . Excluding 164,582 (FY17: 243,465) treasury shares held by the Employee Benefit Trust (see below), the
Company had 13,738,451 (FY17: 13,549,935) ordinary 1p shares in issue as at 30 June 2018 . Details of the shares issued are
given in note 26 of the consolidated financial statements .
Employee Benefit Trust
The Company established an employee benefit trust on 3 December 2010 to acquire ordinary shares in the Company to
satisfy awards under the Group’s Long Term Incentive Scheme (see note 28(b) to the consolidated financial statements) .
All finance costs and administration expenses connected with the EBT 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 78,883 (FY17: 27,038) options . The cost of the shares released on
exercise of these options amounted to £1,111,000 (FY17: £346,000) . At 30 June 2018, the number of shares held by the EBT
was 164,582 (FY17: 243,465) with a market value of £3,263,000 (FY17: £5,820,000) acquired for a total consideration of
£2,699,000 (FY17: £3,816,000) . These shares are presented as treasury shares in the Company 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 .
98 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Notes to the company financial statements
for the year ended 30 June 2018 | continued
50. 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
After five years
Total future minimum lease payments
51. Related party transactions
2018
£’000
1,993
2,220
2
4,215
The remuneration of key personnel of the Company, defined as the Company’s directors, is set out below:
51. Related party transactions
Short-term employee benefits
Post-employment benefits
Share-based payments
Total compensation
2018
£’000
2,666
55
483
3,204
2017
£’000
1,773
3,148
–
4,921
2017
£’000
2,571
33
320
2,924
Dividends totalling £229,000 (FY17: £281,000) were paid in the year in respect of ordinary shares held by key management
personnel and their close family members .
During the year, the Company entered into the following transactions with its subsidiaries:
Dividends received:
– Brooks Macdonald Asset Management Limited
Total transactions with subsidiaries
2018
£’000
15,000
15,000
2017
£’000
8,046
8,046
The Company’s balances with fellow group companies at 30 June 2018 are set out in note 34 to the consolidated financial
statements . All transactions with fellow group companies are carried out at arm’s length and all outstanding balances are to
be settled in cash . None of the balances are secured and no provisions have been made for doubtful debts in respect of any of
the amounts due from fellow group companies .
52. Financial risk management objectives and policies
The financial risk management objectives and policies applied by the Company are in line with those of the Group as
disclosed in note 31 to the consolidated financial statements .
Brooks Macdonald Group plc | Annual Report and Accounts 2018 | 99
100 | Brooks Macdonald Group plc | Annual Report and Accounts 2018
Directors and advisers
Directors
C J Knight
C M Connellan
C R Harris
N I Holmes
J Linwood
R S Price
D Seymour-Williams
A W Shepherd
D Stewart
B L Thorpe
Offices
Guernsey
Hampshire
Jersey
Leamington Spa
London
Manchester
Scotland
Taunton
Chairman
Chief Executive
Senior Independent Director
Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Deputy Chief Executive
Non-Executive Director
Group Finance Director
Royal Chambers, St . Julians Avenue, St . Peter Port, GY1 2HH
The Long Barn, Dean Estate, Wickham Road, Fareham, Hampshire, PO17 5BN
Liberation House, Castle Street, St . Helier, Jersey, JE2 3AT
36 Hamilton Terrace, Holly Walk, Leamington Spa, Warwickshire, CV32 4LY
72 Welbeck Street, London, W1G 0AY
John Stow House, 18 Bevis Marks, London, EC3A 7JB
1 Marsden Street, Manchester, M2 1HW
10 Melville Crescent, Edinburgh, EH3 7LU
4 Heron Gate, Hankridge Way, Taunton, TA1 2LR
Tunbridge Wells
2 Mount Ephraim Road, Tunbridge Wells, Kent, TN1 1EE
Wales
York
3 Ty Nant Court, Morganstown, Cardiff, CF15 8LW
Howard House, 3 St . Mary’s Court, Blossom Street, York, YO24 1AH
Company information
Company Secretary
S P Broomfield
Company Registration Number
4402058
Registered Office
Website
72 Welbeck Street, London, W1G 0AY
www .brooksmacdonald .com
Officers and advisers
Independent auditors
Principal bankers
Registrars
PricewaterhouseCoopers LLP
7 More London Riverside
London
SE1 2RT
The Royal Bank of Scotland plc
280 Bishopsgate
London
EC2M 4RB
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Nominated adviser and broker
Public relations
Peel Hunt LLP
Moor House
120 London Wall
London
EC2Y 5ET
MHP Communications Limited
6-11 Agar Street
London
WC2N 4HN
Offices
Guernsey
West Suite 2
Royal Chambers
St . Julians Avenue
St . Peter Port
GY1 2HH
London
72 Welbeck Street
London
W1G 0AY
John Stow House
18 Bevis Marks
London
EC3A 7JB
Hampshire
The Long Barn
Dean Estate
Wickham Road
Fareham
Hampshire
PO17 5BN
Manchester
1 Marsden Street
Manchester
M2 1HW
Tunbridge Wells
Wales
2 Mount Ephraim Road
Tunbridge Wells
Kent
TN1 1EE
3 Ty Nant Court
Morganstown
Cardiff
CF15 8LW
Leamington Spa
36 Hamilton Terrace
Holly Walk
Leamington Spa
Warwickshire
CV32 4LY
Taunton
4 Heron Gate
Hankridge Way
Taunton
TA1 2LR
Jersey
Liberation House
Castle Street
St . Helier
Jersey
JE2 3AT
Scotland
10 Melville Crescent
Edinburgh
EH3 7LU
York
Howard House
3 St . Mary’s Court
Blossom Street
York
YO24 1AH
www.brooksmacdonald.com