Annual Report and Accounts
for the year ended 30 June 2019
A year of value-
enhancing growth
Welcome to our
2019 Annual Report
Our Mission
At Brooks Macdonald we protect and enhance our
clients’ wealth through the provision of investment
management and advice alongside exceptional
client service.
How we achieve this
We build trusting relationships
with our clients founded on our
client-centric culture and the
professionalism of all our people,
from investment managers to
administrators and operations staff.
The strength of our Centralised
Investment Process allows us to
partner with professional advisers
in order to complement their
services and benefit our mutual
clients. These include private
investors, trusts, pension funds and
institutions.
Our website has a wealth of additional
information showcasing our expertise.
See more at:
www.brooksmacdonald.com
What’s in this report?
Highlights of the year
and an overview of
Brooks Macdonald’s
history
Read more on pages 2 to 5
Maintaining a strong
corporate governance
framework to support
our mission
Read more on pages 38 to 78
Delivering strategic
progress and good com-
mercial
performance
Read more on pages 6 to 37
Detailed analysis of
our performance in
the last financial year
Read more on pages 79 to 138
Contents
Introduction
Highlights of the year
Why invest in
Brooks Macdonald?
Our history
Strategic report
Chairman’s statement
Chief Executive’s review
Marketplace
Strategy
Our services
Key performance indicators
Finance Director’s report
Risks
How we engage with our
stakeholders
Corporate responsibility
Corporate governance
Introduction to
Corporate governance
Board and Committee structure
Board of Directors
Executive Committee
Board meetings
Audit Committee
Nominations Committee
Remuneration Committee
Risk and Compliance Committee
Report of the Directors
Statement of Directors’
responsibilities
Independent auditors’ report
Financial statements
Consolidated financial statements
Consolidated statement
of comprehensive income
Consolidated statement
of financial position
Consolidated statement
of changes in equity
Consolidated statement
of cash flows
Notes to the consolidated
financial statements
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
2
3
4
8
10
14
16
18
20
22
29
35
36
40
41
42
44
46
47
51
53
65
69
72
73
80
81
82
83
84
128
129
130
131
0101
Brooks Macdonald Group plc Annual Report and Accounts 2019Corporate governanceFinancial statementsIntroductionStrategic report Highlights of the year
Financial
Underlying1 profit
before tax (£m)
Statutory profit
before tax (£m)
Underlying1 earnings
per share (p)
Statutory earnings
per share (p)
Total dividend
per share (p)
21.0
8.0
8.2
123.2
125.9
17.6
18.8
6.7
109.7
43.0
41.7
39.4
51.0
47.0
41.0
2017
2018
2019
2017
2018
2019
2017
2018
2019
2017
2018
2019
2017
2018
2019
Funds under management (“FUM”) (£bn) +6.8%
Underlying profit before tax margin3 (%) +0.8ppt
2019
£13.2bn
(2018: £12.3bn)2
Operational
2019
19.6%
(2018: 18.8%)
• FUM up 6.8% to new record of £13.2 billion
• Took decisive action to streamline the
• Organic net inflows of 3.3% at Group level and
5.4% in UKIM, among the best in the sector
business and eliminate duplication, driving
efficiency and effectiveness
• Revenues up in line with FUM to
£107.3 million
• Statutory profit up 22.4% to £8.2 million
• Successful completion of first phase of
our strategy, including strengthening
the leadership team, building functional
capability and exiting non-core activities
• New CEO of International appointed
to reinvigorate the business and drive
medium-term growth and margin
improvement
• Resolution of Channel Islands issues
progressing
• FY20 focus on increasing value by
enhancing what we do and how we do it
1. The underlying figures represent the results for the Group’s continuing activities excluding certain adjusting items as listed on page 25 and 26. A reconciliation
between the Group’s statutory and underlying profit before tax is also included on page 25. Comparative results have been restated to exclude discontinued
operations and present a more appropriate year-on-year comparison.
2. Funds under management for 2018 have been restated to exclude the funds related to discontinued operations.
3. The Group’s statutory profit margin is 7.6%. The Board considers the underlying profit margin to be a more appropriate reflection of the Group’s performance
compared to the statutory profit margin.
Why invest in
Brooks Macdonald?
1 2 3 4
Strong fundamental
market opportunity,
driven by
demographic,
regulatory and
technological changes
Read more in our
Marketplace on pages 14 to 15
Uniquely strong
brand and
relationships in the
adviser channel
Robust Centralised
Investment
Process, delivering
consistently strong
investment returns
for clients
Three
complementary
businesses –
UK Investment
Management,
International and
Financial Planning
Read more in Our services on
pages 18 to 19
5
6 7
Market-leading
organic growth
in funds under
management
Clear strategy, taking
action to drive
improvement in
profit margins
Read more in Strategy on
pages 16 to 17
Strong management
team with depth
of investment
management
and customer-
facing experience
complemented by
functional expertise
02
02
03
03
Brooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Corporate governanceFinancial statementsIntroductionIntroductionStrategic report Our history
In the 28 years since the Group’s inception in 1991, funds under management have grown to £13.2bn and revenues
now exceed £100m. Following the opening of the first regional office in Hampshire in 2005, the national network
has grown to 13 offices with the latest addition, Bury St. Edmunds, opening in October 2018. The Group’s growing
capabilities, along with the fundamental opportunity, position Brooks Macdonald well to continue its growth.
We are proud of our history and ready to take the
business forward into its next phase of growth.
Richard Spencer
Chief Investment
Officer and Co-founder
1991
2002
2006
2009
2011
£
2013
2016
2018
Brooks Macdonald
Gayer & Co Ltd founded
Name changed to
Brooks Macdonald
Group (“BM”)
Launch of first fund:
Brooks Macdonald
Structured
Growth Fund
BM makes its first
acquisition: Lawrence
House fund house
BM Mortgage
Finance launched
Acquires investment
arm of national law
firm Clarke Willmott
and opens regional
office in Taunton
Funds under
management
reach
£5bn
Revenues exceed
£100m
Launch of Guiding Principles
Opens East Anglia office
in Bury St. Edmunds
Launch of Responsible
Investment Service
Lists on the Alternative
Investment Market
and funds under
management reach
£250m
funds under
management
£500m
Opens an office in
Hampshire – first
regional office
Opens an office in
Manchester becoming
an increasingly
powerful force in the
market
Named in “The Sunday
Times 100 Best (Small)
Companies” to work for
Acquisition of Braemar
Group
1993
2005
2007
2010
£
04
04
New CEO appointed
Funds under
management reach
Funds under
management exceed
£10bn
£13bn
Acquires Levitas
Investment
Management
Services
Opens Wales office
in Cardiff
New Chairman
appointed
Launch of
new strategy
Launch of
Decumulation Service
2014
2017
2019
Funds under
management exceed
£3bn
Acquisition of Jersey
and Guernsey-based
Spearpoint
2012
£
05
05
Brooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Corporate governanceFinancial statementsIntroductionIntroductionStrategic report Strategic
report
Chairman’s
statement
Strong commercial
performance and
continued profit growth.
Alan Carruthers
Chairman
• We do the right thing
• We are connected
• We care
• We make a difference
Our Centralised Investment Process
continues to drive robust performance,
even in difficult market conditions,
underpinning our mission to protect
and enhance our clients’ wealth. Our
investment performance continues
to be ahead of the Asset Risk
Consultants (“ARC”) Private Client Index
benchmarks across all risk mandates
over three and five years.
Performance overview
The Group continues to make
strong progress – our funds under
management increased during the
financial year from £12.3 billion to
£13.2 billion, an increase of 6.8%.
Our rate of organic net flows (3.3% at
Group level, 5.4% for UK Investment
Management) continues to be among
the highest in the sector, although
below levels of recent years, reflecting
weak client sentiment, driven by
elevated macroeconomic and political
uncertainty.
51.0p
Dividend up 8.5% to 51.0p, continuing the
Group’s record of increasing its dividend
every year since going public
Given the Group’s growing
organisational capabilities,
we expect to deliver strong
future growth.
Our revenue grew by 7.3% in line with
funds under management (“FUM”),
bringing the full year total to £107.3m.
The increase we have reported in
underlying profit before tax, at 11.8%, is
well ahead of both FUM and revenue
growth, resulting in a figure of £21.0
million, up from last year’s £18.8 million.
Underlying profit margin has risen
from 18.8% to 19.6%, reflecting our
commitment to increased margins
in the medium term, and underlying
earnings per share have risen 2.2% from
123.2 pence to 125.9 pence.
Statutory profit from continuing
operations rose 22.4% to £8.2 million
(FY18: £6.7 million). Statutory earnings
per share rose 5.8% to 41.7 pence (FY18:
39.3 pence).
Dividend
The Board has recommended a final
dividend of 32.0 pence (FY18: 30.0
pence) which, subject to approval
by shareholders, will result in total
dividends for the year of 51.0 pence
(FY18: 47.0 pence). This represents an
increase of 8.5% 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 8 November 2019 to shareholders on
the register at the close of business on
27 September 2019.
Board changes
There have been several changes to the
Board during the last year. Last August,
Ben Thorpe arrived as Group Finance
Director from Brewin Dolphin and last
September, John Linwood, a former
Chief Technology Officer for the BBC,
joined the business as a Non-Executive
Director. In November, we announced
that Nicholas Holmes had decided to
leave the business after 22 years to
pursue other opportunities. Nicholas
left with the firm’s best wishes for his
future career. Finally, on 1 April, when
Andrew Shepherd took over as CEO
of our International business in the
Channel Islands, he stepped down from
the Group Board to focus on realising
the potential of International.
Governance and regulatory
We have continued to keep abreast
of regulatory change. The two
major activities in the year were
the completion of work related to
the Second Markets in Financial
Instruments Directive (“MiFID II”)
with the implementation of the
Costs and Charges regulations, and
preparation for the Senior Managers
and Certification Regime (“SMCR”)
which goes live on 9 December. We
also continued to embed the earlier
elements of MiFID II and the General
Data Protection Regulation (“GDPR”).
Looking ahead
Looking ahead, the macroeconomic
and political outlook is highly
uncertain, even in the very short term.
The UK’s future relationship with
the EU remains unclear and broader
global risks, including the potential
for trade wars, are also affecting client
sentiment. While we remain cautious
in our external outlook, it is also true
that the fundamental opportunity
remains strong, driven by longer-term
demographic and regulatory trends.
The Group is well positioned with a
strong balance sheet and supportive
shareholders. Given the fundamental
opportunity and the Group’s growing
organisational capabilities, we expect
to deliver both enhanced profit
margins in the medium term and
strong future growth.
Alan Carruthers
Chairman
11 September 2019
Introduction
This is my first Chairman’s statement
since taking over from Christopher
Knight in March and, before discussing
the Group’s continuing progress, I
would like to reiterate my thanks
to Chris for his service to Brooks
Macdonald. He completed 17 years
on the Board and 14 as Chairman,
all conducted with diligence and
distinction, and handed over to me a
company with an increasingly robust
risk management and operating
platform, a continuing track record of
growth and a strong management team.
FY19 was Caroline Connellan’s second
full year as Chief Executive, and
Caroline and her team have continued
to drive the business forward. We
have maintained strong commercial
performance, increasing underlying
profit margin and growing funds under
management, despite a backdrop
of macroeconomic and political
uncertainty, weaker client sentiment
and lower flows. As part of our drive to
deliver improvement in profit margin
in the medium term, we announced in
January measures to streamline our
processes and eliminate duplication,
driving efficiency and effectiveness
through the business. These changes
helped us deliver continued profit
growth despite the more difficult
economic conditions.
Shifting focus in our strategy
We have continued to implement
the strategy defined by Caroline and
her team in 2017. During the year, we
completed the first phase of reinforcing
the foundations of the business and
took decisive action to improve
margins. We also moved into the
second phase where we are increasing
value by enhancing what we do and
how we do it, across three main areas.
First, we have maintained focus on
our clients and advisers, including
most recently starting to roll out our
new adviser and client portal, giving
advisers and clients a significant
upgrade in prompt and rapid access
to data on their investments. Second,
as discussed above, we have driven
greater efficiency and effectiveness,
capturing economies of scale and
making us easier to deal with. Third, we
have continued to invest in our talent
and capability, with new development
programmes at leadership and
management levels.
Our culture is to support our clients
throughout their investment journey,
giving access to information and
making it easy for them to do business
with us, all in support of our mission to
protect and enhance their wealth and
helping them to realise their ambitions.
Our culture is underpinned by our
guiding principles:
08
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Brooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Strategic reportIntroductionStrategic reportCorporate governanceFinancial statements Chief Executive’s
review
We are confident in our
positioning and our
continued ability to
drive sustainable value-
enhancing growth over
the medium term.
Caroline Connellan
Chief Executive
The increase in FUM was delivered
evenly between net new business and
investment performance, with £409
million of net flows, and £430 million
of investment performance or 3.5% of
performance, compared to 2.2% for the
MSCI WMA Private Investor Balanced
Index.
Revenue grew in line with FUM to
£107.3 million (FY18: £99.9 million), up
7.3% on prior year.
Delivering our strategy
Our strategy and our progress in
implementing it are dealt with in the
Strategy section later in the document
but I would highlight two key points
here. First, in the financial year we
completed the first phase of our
strategy, where we reinforced the
foundations of the business and took
immediate actions to improve margins.
We continued to focus on our core
offering by selling our Employee
Benefits business in December and by
exiting our role as investment manager
to the Ground Rent Income Fund in May.
In the second phase, we are making
good progress in increasing value by
enhancing what we do and how we
do it, to deliver sustainable,
value-enhancing growth.
£13.2bn
FUM up to record level of £13.2bn
UKIM delivered net organic
flows of 5.4% over the year,
a growth rate amongst the
best in the market.
The second point I wanted to highlight
is our improving underlying profit
margin, which increased from 18.8% in
FY18 to 19.6% this year. As referenced
above, we have made improving
margins in the medium term a central
goal of our strategy and I am especially
pleased we have been able to deliver
this improvement against a background
of weaker client sentiment driven
by political and macroeconomic
uncertainty.
Investment performance and
market conditions
Our investment performance over
FY19 was robust, maintaining our
position of being ahead of ARC
benchmarks for all risk profiles over
three and five years, despite more
difficult markets, especially in the
first half of the financial year. This has
further demonstrated the value of our
Centralised Investment Process.
Markets were volatile over the first
half of the financial year although the
second half saw a broad recovery in
risk assets.
Despite a supportive employment and
consumer outlook, a weakening of
inflationary pressures combined with
global growth and trade concerns has
encouraged central banks to move to a
more accommodative monetary stance.
This has seen a shift in central bank
policy globally, from expectations of
gradual rate tightening to markets now
expecting: (i) a series of rate cuts from
the Federal Reserve; (ii) the possibility
of renewed quantitative easing
from Europe’s ECB; and (iii) greater
accommodation from other developed
and emerging market countries.
UKIM delivered net new business
flows of 5.4% over the year, a growth
rate among the best in the market.
UKIM profit margins improved over the
year, particularly following the actions
we took in January 2019 to drive
efficiency and effectiveness through
the business in a more difficult external
environment.
We are mindful of the risks to markets,
in particular the expected pace and
scale of central banks’ easing and
geopolitical factors such as the ongoing
US-China trade impasse or UK political
tensions around Brexit. Preparing for
such risks, our modest underweight
to equity markets and our modest
overweight cash positions mean we are
well placed to withstand a downturn
in markets and take advantage of
any corrections to increase equity
allocations in line with our longer-term
preference for equities over bonds.
Review of business
performance
UK Investment Management (“UKIM”),
our largest and most profitable
business, saw the appointment of new
Co-Heads in the year – Robin Eggar
and John Wallace were promoted to
their new roles internally, reflecting the
depth of talent in the business.
Our ability to deliver positive net
flows stems from the strength of
our relationships with advisers and
we continue to expand the number
of adviser relationships. While the
proportion of advisers who outsource
any of their investment management
activities to a discretionary fund
manager has continued to edge up
in the past year, driven by both the
opportunity for access to investment
expertise and the increasing regulatory
burden, it is still only 39% and less than
a third of these outsource more than
half of their client portfolios (source:
GlobalData).
Hence, we see a continuing opportunity
to go broader, building relationships
with more advisers, and deeper,
extending our relationships with our
current advisers.
Introduction
FY19 was my second full year as
CEO of Brooks Macdonald and I am
delighted to report that we have
continued to deliver on our strategic
priorities, as well as achieving good
financial performance. In particular,
I am pleased with the increase in our
underlying profit margin, up 0.8 points
to 19.6% (FY18: 18.8%), reflecting our
commitment to improve profit margins
in the medium term. We have also
continued to deliver net new business
levels among the best in the sector
which, alongside robust investment
performance, drove funds under
management (“FUM”) to a new record of
£13.2 billion (FY18: £12.3 billion).
During the year, we completed the first
phase of our strategy, reinforcing the
foundations of the business and taking
immediate action to improve margins,
and moved into a second phase of
enhancing what we do and how we do it
to deliver further growth and increased
value. This second phase includes
initiatives to maintain and deepen our
focus on clients and advisers, to achieve
further improvements in organisational
efficiency and effectiveness, and to
invest in our talent and capabilities.
We are now well advanced in the
second phase, taking the Company
to a position from which we expect to
deliver consistently improved returns
from a growing, sustainable and
scalable business model.
Going forward, we will continue to
invest in the business, delivering
market-leading products and services
for our clients and advisers, ensuring
that our risk management and
operating framework keeps pace
with the changing technological and
regulatory environment, and investing
in and developing our talent.
I would like to take this opportunity to
thank everyone who has contributed
to another successful year for Brooks
Macdonald. Without the commitment
and hard work of our people, it
would not have been possible for the
Company to make the progress it has,
and I am grateful to them all.
Financial performance
We are pleased to have maintained
positive FUM growth with Group FUM
growing 6.8% over the year, one of the
highest growth rates in the sector.
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Brooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Strategic reportIntroductionStrategic reportCorporate governanceFinancial statements Chief Executive’s
review continued
Our flagship Bespoke Portfolio Service
(“BPS”) had a strong year against a
more difficult market backdrop with
3.9% net flows and overall growth
of 7.2%. In the year, we revamped
our Court of Protection offering and
introduced two new BPS variants, our
Responsible Investment Service and
our Decumulation Service, which are
discussed in detail in the section on Our
services on pages 18 and 19. Alongside
our continuing innovation, the need for
individuals to save for retirement, the
impact of pension freedoms, and the
growing use of Self-Invested Personal
Pensions (“SIPPs”) and Individual
Savings Accounts (“ISAs”) are all helping
support our continuing growth.
Our Managed Portfolio Service (“MPS”)
was the fastest growing element of our
discretionary business, particularly
MPS sold through third party platforms
which grew over 20% in the year, with
16.9% net flows. Our multi-asset funds
and third party investment solution
funds both had positive years. We
continue to expect both our managed
portfolio and fund-based solutions to
deliver material growth in the future.
The more difficult economic conditions
attracted clients to our Defensive Capital
Fund, which continued to go from
strength to strength, up 22.1% (net flows
17.7%) to £663 million at the year end.
I am delighted that Group Deputy
CEO Andrew Shepherd took on the
role of CEO of International in April.
His appointment is central to our
efforts to revitalise International as it
comes towards the conclusion of its
Spearpoint legacy issues and after a
difficult year for flows.
In the past year, robust investment
performance of 4.4% did not fully
offset negative net flows driven by
customer attrition following the loss of
a client-facing team in summer 2018.
Andrew and his team have now
mapped out a clear plan to make
International a material contributor to
the Group, driving margins up to the
levels of UKIM in the medium term, and
the initial steps are well under way.
Financial Planning, our in-house
Independent Financial Adviser, had a
year of transition following the arrival
of its new Managing Director, Adrian
Keane-Munday, in July 2018. He has
restructured the business, emphasising
the provision of comprehensive
independent financial advice and
exceptional client service, as well as
introducing a new pricing framework.
While it is still early days, Adrian and
his team are already seeing a positive
client response to their initiatives and
we continue to seek new opportunities
to support future growth.
People strategy
We continued rolling out our people
strategy initiatives across the business.
During the year, we made material
investment in leadership capability,
increasing the diversity of our
workforce, and engaging with our
people. The initiatives we announced
in January to streamline processes and
eliminate duplication led to overall
headcount reduction, but also created
capacity for us to invest in attracting
and retaining the best people to the
firm, building capability in critical areas.
Also in FY19, we completed the
transition in compensation structures
resulting from our 2018 compensation
and benefits review – all staff now
have an appropriate balance between
their fixed and variable pay and have a
discretionary bonus measured against
a balanced scorecard of objectives.
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 to 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 £6.5 million
provision in FY17, and a further £5.5
million provision in FY18.
We issued goodwill offer letters to the
discretionary clients in March 2018.
The deadline for acceptance of offers
has now passed, with 84% of the clients
who received a goodwill offer having
accepted. A small number of clients
have rejected their goodwill offers and
some of those clients may take other
routes to pursue their claims. No such
claims have been received to date.
In parallel, we have been in extensive
discussions with the Board of the
Dublin-based fund, seeking to deal with
the matter proactively. New Directors,
who were appointed in November 2018,
agreed our goodwill offer of £3.4 million
and received unanimous shareholder
approval at an Extraordinary General
Meeting in April 2019. Shareholders had
until 4 September 2019 to claim their
share, and the company is now going
into voluntary liquidation.
Throughout the discussion, our focus
has been on treating customers fairly
and seeking to protect the fund’s
shareholders’ best interests.
As at 1 July 2018, £5.8 million of the
total £12.0 million provision had
been utilised, leaving £6.2 million
outstanding. Over the financial year
to 30 June 2019, a further £5.5 million
was utilised, leaving a balance of £0.7
million. The total expensed provision
remains unchanged and we intend
to deal with any residual issues in the
ordinary course of business.
We continue to be in discussions with
all stakeholders, including relevant
regulators, as we seek to bring these
matters to a conclusion.
Outlook
I am delighted that we have been able
to report a year of good performance
despite more challenging conditions.
I would like to thank the advisers we
work with and our clients for their
continuing support.
I look forward to continuing to deliver
our strategy and build on the success
to date. We will continue to maintain
our focus on serving our clients and
advisers, and to drive for greater
efficiency and effectiveness, capturing
economies of scale and making Brooks
Macdonald easy to do business with. For
example, we are starting the roll-out of
our new client and adviser portal and
recently opened our new office in Leeds.
We remain cautious about the
short-term outlook given the backdrop
of political and macroeconomic
uncertainty and its continuing effect
on client sentiment. Nonetheless,
the fundamental opportunity for the
Group remains strong, and we are
confident in our positioning and our
continued ability to drive sustainable
value-enhancing growth over the
medium term.
Our strong foundations also allow us to
start looking at potential high-quality
acquisitions.
Finally, all that we have achieved over
the past year has been made possible
by the hard work of our people at all
levels and I would like to thank them
for all they have done for our clients
and the advisers we work with. I look
forward to what we can achieve
together as we look to take advantage of
the opportunities ahead.
Caroline Connellan
Chief Executive
11 September 2019
Awards
We focus on delivering high-quality
investment management products to
our clients and the highest levels of
service to the advisers that we work
with.
Defaqto, who are the leading
independent UK financial
research company specialising in
rating, comparing and analysing
financial services, have once again
awarded Brooks Macdonald their
highest five-star ratings for our
Bespoke Portfolio Service (“BPS”),
Managed Portfolio Service (“MPS”)
and MPS on platform. A Defaqto Star
Rating (graded on a scale of one to
five) reflects the benefits offered and
level of features within a financial
product, independent of the provider.
Our Defensive Capital Fund won
the Absolute Return category of
Investment Week’s Fund Manager
of the Year awards 2019 and our
Multi-Asset Funds range was a finalist
in its category.
Defaqto also conduct an annual
survey of professional advisers
on their levels of satisfaction
with different discretionary fund
managers (“DFMs”). In the latest
survey, published this year, Brooks
Macdonald came equal first in the
overall preferred DFM category
attracting votes from over 20% of
advisers surveyed.
As a consequence of our performance
across all the categories, we have been
awarded a Gold Standard for DFM
service by Defaqto.
DFM Bespoke
Bespoke Portfolio service
DFM MPS Direct
DFM MPS on Platform
Managed Portfolio Service
Platform Managed Portfolio Service
12
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Brooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Strategic reportIntroductionStrategic reportCorporate governanceFinancial statements Marketplace
Confidence in the future
The financial services industry faces a range of short and longer-term macroeconomic, social and political trends.
Brooks Macdonald has taken action to manage the short-term environmental and is well positioned to benefit from
longer-term trends, driving consistent improvement in profit margins.
Societal
Economic
Regulatory
Technological
Key messages
Key messages
Key messages
Key messages
The UK population is getting wealthier,
driving greater need for advice.
In parallel, it is getting older, creating
specific needs to support retirement
planning.
The global economy is in an uncertain
phase, with potential trade conflicts and
increased risk of recession.
The UK economy faces additional
idiosyncratic risks with the impact of a
potential exit from the EU.
However, the longer-term trend
continues to be towards greater
prosperity.
The regulator, acting to protect retail
investors, is increasingly demanding of
wealth managers.
Government policy, in particular
pensions freedoms, is opening up new
opportunities.
Client expectations are changing.
Technology creates opportunities for
greater efficiency and effectiveness.
Technology can drive value enabling
new capabilities and client offerings.
Market challenges
and opportunities
Market challenges
and opportunities
Market challenges
and opportunities
People increasingly need advice and
support in the management of their
wealth, particularly as they need to
save for their retirement and then
manage their finances through a much
longer period than historically.
The uncertain economic environment
has resulted in weaker client sentiment
over the last financial year, driving
lower net flows than we have delivered
historically. However, this does not
change the fundamental need in the
market for high-quality investment
management and financial advice and
we expect client sentiment to turn over
time.
Recent years have seen considerable
new regulation – MiFID II, GDPR, SMCR
and the consequences of the Asset
Management Market Study – placing
new demands on wealth managers,
and we do not expect the pace of
regulatory change to slacken, with
increasing focus on transparency and
operational resilience. Conversely, the
impact of pension freedoms is driving
demand for high-quality advice and
investment management.
Market challenges
and opportunities
The digital revolution is changing
people’s expectations of how they
interact with all sorts of companies,
including financial services
providers. New technology also gives
opportunities to improve the quality
of our administration and our client
service.
Our response
Our response
Our response
Our response
Our mission is to provide high-quality
investment management and financial
advice to protect and enhance our
clients’ wealth, so these trends are
largely beneficial to us. Additionally,
we are adapting the way we deliver
our investment expertise to help
people meet these challenges even
more directly, for example through our
Decumulation service.
In the short term, we have taken
action to manage our costs even more
carefully, streamlining processes
and eliminating duplication. This
has included headcount reduction,
particularly in technology and
operations, while protecting
investment in changes that improve
the client experience and make Brooks
Macdonald easier to do business with.
This balance is critical to ensure the
business is positioned to capitalise on
the longer-term opportunity.
We have invested in our risk
management and operational
framework to ensure we respond
appropriately to regulatory change
within our overall mission for clients. In
parallel, we have worked closely with
our adviser partners to ensure clients
are supported in dealing with the new
pensions freedoms. In particular, our
new Decumulation offering is aimed
specifically at balancing the retiree’s
need for income with the importance
of staying invested for the long term.
As we have worked to manage our
costs, we have protected investment in
technology that makes a difference for
our clients and advisers. After the end
of the financial year, we launched our
new client and adviser portal, enabling
clients and advisers to get access to
information on their investments
quickly and easily. We continue to work
to use technology to drive efficiency
and effectiveness in our operations
and we are increasingly looking at how
technology can drive value.
What this means for
Brooks Macdonald
Technological change will continue
to raise clients’ expectations of how
we interact with them and we will
continue to invest to ensure that
our processes are efficient and
effective, that Brooks Macdonald is
easy to do business with, and that
we use technology to create new
capabilities and client offerings.
The fundamental opportunity for
Brooks Macdonald remains strong.
Our core investment management
and financial planning offering
is well positioned to capture the
opportunity.
We are adapting our offering both
to meet short-term challenges in
the marketplace and to cater to
clients’ changing needs, particularly
in relation to pension freedoms.
Read about Corporate governance
on pages 38 to 78
14
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Brooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Strategic reportIntroductionStrategic reportCorporate governanceFinancial statements
Strategy
Our strategy is based on the three pillars of foundation, focus and growth:
We are building on the foundation of
our historic success, leveraging our
strengths:
• Unparalleled relationships with
advisers
• A client-centric, “can do” culture
• Strong Centralised Investment
Process.
We are working to focus our business
to deliver increased value, through
greater efficiency and effectiveness,
thereby delivering improved profit
margins over the medium term. This
demands that we maintain robust risk
management, deliver a high-quality
digital experience for our clients and
advisers, and make our operating
platform more scalable. Above all, it
requires us to make Brooks Macdonald
easy to do business with for our clients,
our advisers and our employees.
We continue to seek new opportunities
for growth, growing FUM organically
with new segments, propositions and
partnerships. In this, we are building
on our existing strong branding and
reputation and looking to bring the
“best of BM” to all our clients. We
are selectively expanding our UK
geographic footprint and adding new
propositions where they complement
and build on our Centralised
Investment Process.
We are delivering our strategy in three
phases, with the emphasis on the pillars
shifting across the phases. We launched
our strategy in late 2017, once Caroline
Connellan had completed her initial
review of the business. In this financial
year, we have completed the first phase
and made good progress on the second.
Phase one
In the first phase through to late 2018,
we reinforced the foundations of the
business and took immediate actions to
improve profit margins. We focused on
our core investment management and
financial planning businesses by selling
our property management business,
Braemar Estates, and our employee
benefits business, and exiting both our
investment management of the Ground
Rent Income Fund and a small tax
return service. We materially upgraded
our risk and operational management
framework with both a one-off £2m
investment and a similar ongoing
increase in spend in this area. Caroline
strengthened her management
team, in particular bringing in strong
functional leaders to complement
the existing customer-facing and
investment management expertise. We
tightened cost discipline, particularly
after the arrival of Ben Thorpe as
Finance Director, and launched a
comprehensive people strategy aimed
at attracting and retaining the best
people in industry.
Phase two
The second phase, which we kicked off
in late 2018, is increasing the value in
the business by enhancing what we do
and how we do it.
We are building on our
existing strong branding
and reputation.
Phase one: Sept 2017-Sept 2018
Phase two: Sept 2018 for ~2 years
Phase three: 2020 onwards
Phase one
Phase two
Today
Phase three
Improved returns from sustainable
and scalable business model
Increase value by enhancing
what we do and how we do it
Reinforce foundations
and take immediate actions
to improve margins
16
We have maintained and strengthened
the business’s focus on our clients and
advisers, with new propositions like our
new Decumulation and Responsible
Investment Service and our revamped
Court of Protection offering, and further
improved our distribution, increasing
the size of our adviser network and
opening a new office in East Anglia.
We see our consistent robust
investment management performance,
driven by our Centralised Investment
Process, as a critical strength. Our
strategy is focused on finding new ways
to bring that investment management
expertise to clients and advisers, with a
pipeline of new products and services,
increased cross-business collaboration,
and new approaches to distribution.
We will often be doing this in close
collaboration with our leading adviser
partners, bringing new investment
solutions to them and their clients.
We have taken action in the
more difficult external economic
environment to drive greater efficiency
and effectiveness, streamlining
processes and eliminating duplication.
This has included material headcount
reduction, particularly in our
technology and operations areas.
Conversely, we are increasingly
investing in digital with our new client
portal going live just after the end
of the financial year. In parallel, we
are investing in talent and capability
across the business and upgrading the
organisation’s change management
capability.
Phase three
All this work has been aimed at
ensuring we deliver our mission of
client service while also providing
shareholders with strong returns on
their investment in us. In the third
phase, we will reap the benefits of
a scalable platform, capturing both
growth opportunities and increased
economies of scale, driving continued
improvement in profit margins in the
medium term.
Case Study:
Responsible Investment Service
In recent years, we received a growing number of enquiries from advisers
and clients for an offering to meet the needs of clients looking to reflect
their values within their investment portfolios. Wider industry research
also showed increasing demand, so in 2017 we started an 18-month project
to develop such a service. Product development and the evolution of more
sophisticated approaches to values-based investing now mean that a
genuinely multi-asset, multi-geography approach is possible.
We launched our Responsible Investment Service (“RIS”) in October 2018,
integrated into our Centralised Investment Process, ensuring that the same
level of due diligence, monitoring and accountability is applied to RIS as our
other offerings.
The service offers clients two distinct mandates, “Avoid” and “Advance”:
•
•
Avoid – avoid exposure to five business areas: Armaments, Tobacco,
Alcohol, Gambling and Pornography.
Advance – invest in businesses that are either providing solutions to
sustainability issues through the products and services that they offer,
or have strong corporate policies and outputs related to Environmental,
Social and Governance (“ESG”) criteria.
RIS was initially launched through our Bespoke Portfolio Service (“BPS”), with
a Model Portfolio Service (“MPS”) version based on our Advance mandate
being made available on platforms in January 2019.
Since launch we have received positive feedback from advisers and
clients. Many have commented that, while we are not unique in offering a
values-based service, our approach is distinctive in the clarity of its definition
and its robust research and portfolio construction frameworks. RIS has
attracted both existing and new clients and has broadened our capabilities in
meeting clients’ financial and non-financial objectives.
17
Brooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Strategic reportIntroductionStrategic reportCorporate governanceFinancial statements Our services
We are an independent investment management firm, providing a wide range of investment and wealth management
services to private clients, pension funds, professional intermediaries and trustees; financial planning advice to high
net worth individuals and families; and multi-asset and specialist funds to the retail sector. We provide our services
through three core businesses:
• UK Investment Management (including Funds) – providing discretionary fund management services and open-ended
investment company products to clients and their introducers as well as other discretionary managers across the UK;
•
International – providing discretionary fund management and wealth management advice services to clients and their
introducers across Europe, South Africa and the UAE from offices in Jersey and Guernsey; and
• Financial Planning – providing wealth management advice services to UK clients from the London office.
1 UK Investment
Management (FUM at
30 June 2019: £11.6bn)
Within UK Investment Management
(“UKIM”), there are six distinct service
lines:
Bespoke Portfolio Service
The Bespoke Portfolio Service (“BPS”)
is the Group’s principal 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,
allowing the manager to construct
focused portfolios supporting the
delivery of risk-adjusted investment
returns appropriate to the client’s
investment objectives. 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 BPS follow the core
asset allocation and asset selection
recommendations of the Group-wide
Centralised Investment Process (“CIP”).
Within BPS, we offer some specific
services aimed at clients with distinct
sets of needs. Within the financial year,
we revamped our Court of Protection
service, aimed at clients in that
particular sub-segment and vulnerable
clients more broadly, and launched
two new offerings – the Responsible
Investment Service (“RIS”) and
Decumulation.
The RIS is designed for clients with
the dual objective of responsible
investment and return generation in
line with defined risk profiles. The
service is available both through BPS
and our Managed Portfolio Service
(“MPS”).
We offer two distinct Responsible
Investment strategies: Avoid and
Advance. The values based objective
of the Avoid strategy is to prevent
exposure to companies involved in
the production of armaments, tobacco,
alcohol, gambling and pornography,
while for the Advance strategy the
objective is to invest in, and advance,
businesses that either specifically seek
to provide solutions to sustainability
issues, or businesses that have strong
corporate policies and outputs
relating to environmental, social and
governance (“ESG”) criteria.
Our Decumulation service is a bespoke
approach, designed to help meet
clients’ income requirements over
their retirement by aiming to shield
the portfolio from downturns in the
early years of withdrawals. Its structure
is specifically adapted to address
short-term sequencing risk, while
retaining the ability for longer-term
assets to contend with inflation risk.
AIM Portfolio Service
The Group’s AIM Portfolio Service
(“APS”) provides clients with access
to a carefully selected portfolio of
AIM-listed companies, with preference
given to companies that are judged to
have attractive long-term investment
potential. The investment universe
is restricted to companies that are
understood to qualify for Business
Property Relief (“BPR”), allowing
investors to benefit from Inheritance
Tax (“IHT”) exemptions.
investment-grade bonds to provide
a balance of income, security and
liquidity.
The International business also has
a financial planning arm, Brooks
Macdonald Retirement Services, which
provides a comprehensive service
for private clients who require wider
planning around their investments,
also focusing on financial protection,
pensions and investments.
3 Financial Planning
Financial Planning provides wealth
management advice services to high
net worth individuals (“HNWI”) and
families, giving independent “whole
of market” financial advice enabling
clients to build, manage and protect
their wealth. The service is advice
rather than product-driven, providing
clients with a coherent, affordable
strategy aimed at achieving their
long-term goals. In addition to the
financial planning service, the Group
works in collaboration with other
professional advisers such as solicitors,
accountants and wealth managers, to
help them provide a comprehensive
service to their clients predominantly
focused on financial advice, but also
including mortgage services.
2 International (FUM at
30 June 2019: £1.6bn)
International is based in the Channel
Islands and offers a similar range
of investment management and
financial planning services as the UK
businesses. The services are designed
to meet the particular requirements of
offshore and international clients and
the investment management process
follows the CIP. A comprehensive range
of investment services is provided 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
• Single-strategy solutions, which
invest directly in the traditional
asset classes of equities and bonds
for ultra-high net worth clients
with higher entry thresholds. The
Direct Equity Strategy is structured
to provide capital appreciation
and income growth through direct
investment in high-quality stocks,
while the Corporate Bond Strategy
invests in a diversified portfolio of
Revenue by segment
1
2
3
Managed Portfolio Service
The Managed Portfolio Service (“MPS”)
provides a choice of investment into a
range of risk-managed model portfolios,
each investing across a different mix
of asset classes. 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 in accordance with the CIP.
Multi-Asset Funds
The Multi-Asset Funds (“MAF”) range
allows investors to gain access to the
Group’s discretionary management
expertise and CIP through a pooled
fund solution. The Group offers 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
The Group designs investment
propositions for advisers and
intermediaries who are looking for
investment solutions meeting specific
investment objectives for their clients.
These are delivered in a private OEIC
fund format to which the Group
provides investment management,
leveraging the Group’s broad
investment expertise (the Authorised
Fund Operator is selected by the Third
Party).
Specialist Funds
The Group also provides investment
management services to a small
number of specialist retail OEIC funds.
The largest is the Defensive Capital
Fund (“DCF”) which has grown to £663
million at 30 June 2019.
1
UKIM:
£89.1m (83%)
2
International:
£14.6m (14%)
3
Financial Planning:
£3.6m (3%)
18
19
Brooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Strategic reportIntroductionStrategic reportCorporate governanceFinancial statements Key performance indicators
The following financial and strategic measures have been identified as the key performance indicators (“KPIs”) of the Group’s
overall performance for the financial year. Comparative figures have been restated to exclude the results of discontinued
operations to provide a more appropriate year-on-year comparison.
FUM and revenue
Shareholder return
Funds under management (£bn)
FUM per CF30 (£m)
Statutory profit before tax (£m)
Statutory earnings per share (p)
12.3
13.2
10.3
Total funds
under
management
at the end of
the year
166.5
129.6
108.7
2017
2018
2019
2017
2018
2019
Organic net fund flows (£bn)
Revenue (£m)
1.4
1.0
Value of
organic
discretionary
net flows
99.9
107.3
87.1
0.4
FUM divided
by the number
of CF30s
(investment
managers
who provide
advisory
services
regarded as
a controlled
function by
the FCA)
Fee and
non-fee
income
generated
during the year
8.0
8.2
6.7
Total statutory
profit before
tax
43.0
39.4
41.7
2017
2018
2019
2017
2018
2019
Total dividend per share (p)
Total shareholder return (%)
47.0
51.0
Total dividend
per share
41.0
23.5
18.9
13.0
Total statutory
profit
after tax
divided by
the weighted
average
number of
ordinary
shares
The Group’s
total return
(share price
appreciation
and dividends)
over a rolling
three-year
period
2017
2018
2019
2017
2018
2019
2017
2018
2019
2017
2018
2019
Underlying profit and margins
Underlying profit before tax (£m)
Underlying profit before tax margin (%)
17.6
18.8
21.0
Revenue less
underlying
costs before
tax
20.2
18.8
19.6
Underlying
profit before
tax as a
percentage of
revenue
2017
2018
2019
2017
2018
2019
20
21
Brooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Strategic reportIntroductionStrategic reportCorporate governanceFinancial statements
Finance Director’s
report
In 2019 we delivered a
growth in profitability, an
improvement in the underlying
profit margin and a more
disciplined approach to financial
resource management.
Ben Thorpe
Finance Director
£13.2bn
Record FUM
£107.3m
Total revenue
19.6%Underlying PBT margin
7.6%
Statutory PBT margin
Review and results of the year
Over the course of my first year at Brooks Macdonald, we have taken decisive steps to grow revenue, manage costs and
enhance profitability. The efficiency and effectiveness programme announced in January 2019 has delivered slightly ahead of
plan, resulting in a material improvement in the Group’s underlying profit margin to 19.6%, underpinning our confidence in the
Group’s medium-term outlook.
The Group’s total revenue for FY19 was £107.3 million, up 7.3% from £99.9 million in FY18. The recent trend towards higher
quality fee-only income has continued during FY19, with circa 75% of BPS flows going into our fee-only products. At a divisional
level, BPS, MPS and Funds all recorded an improvement in revenues during the year. Revenues from our International business
were relatively flat on the prior year largely due to the previously announced loss of a small client team. Financial Planning has
been impacted by a fall in defined benefit transfers following the exceptional levels of business written in FY18, and the sale of
the sub-scale Employee Benefits business to Brunsdon Employee Benefits Limited.
Underlying costs for the year increased by 6.4% from £81.1 million to £86.3 million. Staff costs including variable pay were flat
year-on-year. Average headcount for continuing operations fell by 2.9% during the year and the headcount at the end of the
year was 401, down 14.5% on the prior year. The restructuring charge associated with this reduction of £3.3 million has been
excluded from underlying earnings and presented as a one-off item.
Non-staff costs, including Change spend, increased by £4.9 million to £33.7 million primarily driven by higher spend on IT, an
increase in amortisation in relation to the Group’s successfully completed MiFID II and GDPR programmes and a higher FSCS levy.
The key priority over the year has been reducing the cost growth trajectory and changing the way the organisation thinks
about its cost base. In addition to the significant savings achieved during the year in connection with regulatory projects, we
have completed a number of initiatives to address other areas, including a review of the Group’s property portfolio (resulting
in the announced consolidation of the Group’s London offices into its new headquarters at 21 Lombard Street in the city),
the rollout of a new adviser and client portal and the successful implementation of a new web-based employee expense
management system.
Combined, the impact to the Group’s underlying profit before tax has been an increase of 11.8% from £18.8 million to £21.0
million, accompanied by a significant improvement in the underlying profit before tax margin from 18.8% to 19.6%. This
highlights the strength of the management team, our functional and business capabilities and our ability to deliver.
Group financial results summary
Revenue
Underlying costs
Underlying profit before tax
Underlying adjustments
Profit before tax from continuing operations
Loss from discontinued operations
Statutory profit before tax
Taxation
Profit after tax
Underlying profit before tax margin
Underlying basic earnings per share
Statutory profit before tax margin
Statutory basic earnings per share
Dividends per share
Read about Financial statements
on pages 79 to 138
FY19
£m
107.3
(86.3)
21.0
(12.4)
8.6
(0.4)
8.2
(2.5)
5.7
19.6%
125.9p
7.6%
41.7p
51.0p
FY18
£m
99.9
(81.1)
18.8
(11.8)
6.9
(0.2)
6.7
(1.3)
5.4
18.8%
123.2p
6.7%
39.4p
47.0p
Change
%
7.3
6.4
11.8
5.1
24.6
100
22.4
92.3
5.6
0.8ppt
2.2%
0.99ppt
5.8%
8.5%
22
23
Brooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Strategic reportIntroductionStrategic reportCorporate governanceFinancial statements Finance Director’s
report continued
FUM
Amid the relatively weak market sentiment driven by the global macroeconomic slowdown, trade tensions and political
uncertainty in the UK, the Group recorded positive net flows (£0.4 billion) and strong investment performance (£0.4 billion)
resulting in a new record discretionary FUM total of £13.2 billion, an increase of 6.8% over the previous year.
Investment performance continues to be robust at 3.5%, beating the benchmark MSCI WMA Private Investor Balanced Index
which increased by 2.2% over the same period.
FUM movement in the year
At a divisional level, within UKIM, our onshore business, we have seen decent net flows across the BPS (3.9%), MPS (10.8%) and
Funds (7.5%) divisions. These were partially offset by negative net outflows (−9.6%) recorded within our International business,
driven principally by the loss of a client-facing team in the prior year.
FUM by segment
BPS
MPS
Funds
UKIM total
International
Non-core funds (Property)
Total FUM
FY19
£m
8,254
1,705
1,584
11,543
1,604
4
13,151
FY18
£m
7,699
1,488
1,428
10,615
1,693
4
12,312
Change
%
7.2
14.6
10.9
8.7
(5.2)
–
6.8
Revenue by segment
The Group reports its income across three key operating segments, UK Investment Management, International and Financial
Planning, all of which complement each other:
BPS
MPS
Funds
Other
UKIM total
International
Financial Planning
Total revenue
FY19
£m
72.1
8.2
8.1
0.7
89.1
14.6
3.6
107.3
FY18
£m
66.9
7.6
6.8
0.5
81.8
14.2
3.9
99.9
Change
%
7.8
7.9
19.1
40.0
8.9
2.8
(7.7)
7.3
UKIM continues to make up the bulk of the Group’s revenues, representing 83.0% of total revenues, driven by BPS, MPS on
platform and the Defensive Capital Fund within our Funds offering. UKIM overall recorded a year-on-year revenue increase of
8.9%, up from £81.8 million to £89.1 million, driven by the continued strength of our client franchise and the increasing quality
of the business as the average client size increases and clients continue to move onto fee-only rate cards.
From April 2019, Andrew Shepherd, Group Deputy CEO, took over as CEO of our International business. While International
revenues grew marginally to £14.6 million (FY18: £14.2 million), this move highlights our commitment to International and
the important role it has to play in the future growth of the Group. Going forward, we will be integrating International more
closely into the Group, including improving access to Group functions and resources, and working to maximise cross-referral
opportunities across our businesses.
Financial Planning has seen the effects of the industry-wide reduction in defined benefits transfers. The new Head of Financial
Planning, Adrian Keane-Munday, has started an operating review of the business and we expect performance to improve
markedly over the medium term.
Group underlying profit before tax (“PBT”) and margin
Underlying PBT is considered by the Board to be a more accurate reflection of the Group’s performance when compared to the
statutory results as this excludes income and expense categories which are deemed of a non-recurring nature or a non-cash
operating item. Reporting at an underlying basis is also considered more appropriate for external analyst coverage and peer
group benchmarking allowing a more accurate like-to-like comparison.
Reconciliation between underlying and statutory profits
A reconciliation between underlying PBT and statutory PBT for FY19 with comparatives is shown below:
Underlying profit before tax
Goodwill impairment
Restructuring charge
Client relationship contracts impairment
Amortisation of client relationships and contracts acquired with fund managers
Changes in fair value of consideration and related disposals
Exceptional costs of resolving legacy matters
Software impairment
Statutory profit before tax from continuing operations
Loss from discontinued operations
Statutory profit before tax
FY19
£m
21.0
(4.8)
(3.3)
(2.3)
(2.2)
0.2
–
–
8.6
(0.4)
8.2
FY18
£m
18.8
–
–
–
(2.4)
(1.5)
(5.5)
(2.5)
6.9
(0.2)
6.7
The statutory figures for FY18 have been restated, where applicable, to adjust for the Group’s disposal of the Employee Benefits
business in December 2018 and the termination of the investment management agreement with the Ground Rents Income
Fund plc in May 2019, so as to ensure a more appropriate like-to-like comparison. Refer to Note 10 to the Consolidated financial
statements for more details.
Goodwill impairment (£4.8 million charge)
Goodwill is reviewed annually for impairment based on the carrying value of the asset compared to its expected recoverable
amount. The impairment charge recognised in the year relates to the Levitas transaction as the Group moves to a new 5-year
partnership that has a lower sponsorship fee on which the associated goodwill carrying value is based. Refer to Note 13 to the
Consolidated financial statements for more details.
Restructuring charge (£3.3 million charge)
This relates to the efficiency and effectiveness programme announced in January 2019. The Group identified a range of
opportunities to streamline and remove duplication from core processes. The headcount reduction resulted in redundancy
costs, payment in lieu of notice, settlement and other restructuring-related costs. These have been excluded from underlying
earnings in view of their one-off nature.
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Client relationship contracts impairment (£2.3 million charge)
This impairment charge relates to the value of Spearpoint client relationships following the previously disclosed loss of a
client-facing team. Refer to Note 13 to the Consolidated financial statements for more details.
Amortisation of client relationship contracts and contracts acquired with fund managers
(£2.2 million charge)
These intangible assets are created in the course of acquiring funds under management and are amortised over their useful
life, which has been assessed to range between 15 and 20 years. This amortisation charge has been excluded from the
underlying profit since it is a significant non-cash item. Refer to Note 13 to the Consolidated financial statements for more
details.
Changes in fair value of consideration and related (£0.2 million credit)
This comprises the fair value remeasurement arising on deferred payments from previous acquisitions and disposals carried
out by the Group together with their associated net finance costs and costs of disposals where applicable.
Taxation
The Group’s corporation tax charge for FY19 was £2.5 million (FY18: £1.3 million), representing an effective tax rate of 30.5%
(FY18: 19.8%). The prior year effective tax rate was lower due to the recognition of a higher Research & Development (“R&D”)
credit covering the prior two financial years, giving rise to an overall year-on-year variance of £0.7 million. Moreover, this year’s
effective tax rate is higher due to the goodwill and intangible assets impairment charge recognised in the Consolidated income
statement which are disallowable for corporation tax purposes.
Earnings per share
The Group’s basic statutory earnings per share for the year ended 30 June 2019 were 41.7 pence (FY18: 39.4 pence). On an
underlying basis, earnings per share increased by 2.2% to 125.9 pence (FY18: 123.2 pence).
Dividend
The Group has a progressive dividend policy growing dividends in line with the Group’s underlying earnings. The Board
recognises the importance of dividends to shareholders and the benefit of providing sustainable shareholder returns. In
determining the level of dividend in any year the Board considers a number of factors such as the level of retained earnings,
future cash commitments, statutory profit cover, capital and liquidity requirements and the level of profit retention required to
sustain the growth of the Group.
The Group is well-positioned to continue funding dividend payments in accordance with its policy. The ability to maintain
future dividends will be influenced by the continued assessment of the principal risks identified on pages 29 to 34.
The Board has proposed a final dividend of 32.0 pence per share (FY18: 30.0 pence). Taking into account the interim dividend
of 19.0 pence per share (FY18: 17.0 pence), this results in a total dividend for the year of 51.0 pence per share (FY18: 47.0 pence),
an increase of 8.5%. The recommended dividend is subject to shareholders’ approval, which will be sought at the Company’s
Annual General Meeting on 31 October 2019.
Regulatory capital and cash resources
The Group’s financial position remains strong with net assets remaining flat at £87.6 million (FY18: £88.0 million) and
tangible net assets (net assets excluding intangibles) up to £37.4 million (FY18: £27.4 million). As at 30 June 2019, the Group
had regulatory capital resources of £39.0 million (FY18: £30.0 million) after taking into account deductions for current and
non-current deferred tax liabilities of £1.6 million (FY18: £2.6 million). The Group continues to be well capitalised with a capital
adequacy ratio of 226% over our Pillar I requirement.
Brooks Macdonald Asset Management Limited, the Group’s main operating subsidiary, is an IFPRU 125k Limited Licence Firm
regulated by the Financial Conduct Authority (“FCA”). In view of this, the Group is classified as a regulated group and subject to
the same regime.
Share capital
Share premium
Other reserves
Retained earnings
Total equity
Intangible assets (net book value)
Deferred tax liabilities associated with intangible assets
Tier 1 Capital
Own funds
FY19
£m
0.1
39.1
4.6
43.8
87.6
(50.2)
1.6
39.0
39.0
FY18
£m
0.1
38.4
3.1
46.3
88.0
(60.6)
2.6
30.0
30.0
The Group monitors a range of capital and liquidity statistics on a daily and monthly basis.
As required under FCA rules, and those of both the Jersey and Guernsey Financial Services Commission, the Group assesses
its regulatory capital and liquidity on an ongoing basis through the Internal Capital Adequacy Assessment Process (“ICAAP”)
and Adjusted Net Liquid Asset (“ANLA”) assessments, which include performing a range of stress tests and scenario analysis
to determine the appropriate level of regulatory capital and liquidity that the Group needs to hold. Surplus levels of capital
and liquidity are forecast, taking into account known outflows and proposed dividends to ensure that the Group maintains
sufficient capital and liquidity at all times.
The latest ICAAP review was conducted for the period ended 30 June 2018 and signed off by the Board in January 2019.
Regulatory capital forecasts are performed monthly and take into account expected dividends and intangible asset
acquisitions and disposals as well as budgeted and forecast trading results.
The Group’s Pillar III disclosures are published annually on the Group’s website (www.brooksmacdonald.com) and provide
further details about the Group’s regulatory capital resources and requirements.
Cash flow and capital expenditure
The Group continues to have strong levels of cash generation from continuing operations. Total cash resources at the end of the
year were £34.6 million (FY18: £30.9 million). The Group had no borrowings at 30 June 2019 (FY18: £nil).
Cash spent on exceptional items was up to £7.7 million (FY18: £5.8 million) due to further payments of goodwill offers, the
settlement of the Dublin OEIC issue and the cost of the restructuring programme. This now means the vast majority of the
Spearpoint legacy matters provision of £12.0 million has been paid out with only £0.7 million remaining.
Capital expenditure was down significantly as we completed our MiFID II and GDPR projects. We also began to manage dilution
more actively via market purchase of shares for the Employee Benefit Trust. Tax payments were lower this year due to the
receipt of prior year R&D credits.
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Financial outlook
In summary, 2019 has seen good progress across the Group with a growth in profitability, an improvement in the underlying
profit margin and a more disciplined approach to financial resource management.
The underlying market trends are positive and the fundamental opportunity remains strong. IFAs continue to outsource
investment management, driven in part by regulatory and commercial trends and the need for high-quality investment
management solutions underpinned by a robust centralised investment proposition. However, in the short term, we see some
headwinds on asset flows given the backdrop of political and macroeconomic uncertainty.
We continue to make good progress in resolving legacy matters in our International business which coupled with the new
senior leadership team will help drive this important segment of our business forward. There is also an increasing onus
on individuals to save for retirement, with pensions freedoms driving a greater need for good quality advice, creating
opportunities for our Financial Planning offering.
While cross-business collaboration across our core offerings will continue to drive organic growth, going forward there will
be additional focus on corporate activity and evaluating accretive, complementary acquisitions that enhance our existing
offerings or provide new capabilities to drive growth.
We will continue to simplify the business, focus on our core offerings across UKIM, International and Financial Planning. Cost
discipline in non-staff costs and focus on efficiency will still be a priority but is now business as usual. Where required, we
will invest to support our growth strategy and resources will be made available to ensure that we continue to win and deliver
industry-leading net flows.
Ben Thorpe
Finance Director
11 September 2019
Risks
Investing in a robust and practical approach to risk management
Over the past year, the Group delivered
the final phase of its risk transformation
project and over the coming years will
continue to invest in embedding the
Group risk management framework.
Our approach to risk management
combines a top-down strategic
assessment of risk and associated risk
appetite, with a bottom-up operational
identification and reporting process
which also looks at the impact of a
combination of emerging risks. We have
invested in a risk management system
which has been implemented across
the Group and empowers all staff to
manage risks as first-line risk managers.
With the implementation of a new
centralised incident management
process, our staff are able to more
easily raise potential issues so that
prompt action can be taken to minimise
any impact on clients or our wider
stakeholders.
How we manage risk
The Group Risk Management Framework (“RMF”)
Oversight
(Governance)
Boards and
Committees
Rules and
delegated
authorities
Policies
r ti n g
o
R e p
Risk Identifi
c
a
ti
o
Risk Management
Methodology
n
R
i
s
k
A
p
p
e
t
i
t
e
s
n
io
t
c
A
l
a
n
o
i
t
i
d
d
A
A
s
s
e
ss Controls
aly sis
n
k A
s
R i
Insight
(Management
information)
Past
Errors, breaches,
near misses
and complaints
Present
Risk profiles and
qualification
Future
Predictor
events
Systems and Controls
Communication, Education, Training and Guidance
Culture
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Risks
continued
Risk management starts with oversight
through an appropriate governance
structure using a board and committee
structure, with individual and collective
roles and delegated authorities and a
set of core policies to provide guidance
to staff.
Risk analysis. Having set the risk
appetite, we can assess the impact and
probability of each material risk against
the agreed risk appetite. This can
include the quantification of capital risk
as part of the Internal Capital Adequacy
Assessment Process (“ICAAP”).
Key risks
We have identified our risks at Group and business line levels to help manage our key risks in a consistent and uniform way
with oversight from relevant Committees and Boards.
Movement key
Increasing risk
Decreasing risk
Unchanged risk
Definition
Key risks identified by risk
management framework
Risk
movement
Assess controls. We also assess the
effectiveness of controls in reducing the
probability of a risk occurring or, should
it materialise, in mitigating its impact.
Additional actions. Where differences
exist between our risk appetite and
the current residual risk profile, we
take action either: to accept, avoid or
transfer part or all of those risks which
are outside our risk appetite; or to
reconsider the risk appetite.
Reporting. Ongoing reporting of risks to
senior management provides insight to
inform decision-making and allocation
of resources to achieve business
objectives.
Effective risk management relies on
insight through robust and timely
management information. We manage
our risks by learning lessons from past
events such as errors, breaches, near
misses and complaints, by conducting
point-in-time risk assessments in the
present and attempting to predict what
the future risk landscape might look
like through our suite of key indicators.
The risk management methodology
within the Group’s risk management
framework consists of the following six
interlinked steps:
Risk identification. This takes place
through regular business monitoring
and periodic reviews, including risk
mapping exercises and the risks arising
from change or new products and
services.
Risk appetite. Once we have identified
risks, we set an appetite for each
material risk. This defines the amount
of risk that the Board is prepared to
accept in order to deliver its business
objectives. Risk appetite reflects
culture, strategic goals and the existing
operating and control environment.
Risk
Group level
1 Credit
2
Liquidity
The risk of loss arising from a client or counterparty
failing to meet their financial obligations to a
Brooks Macdonald entity as and when they fall
due.
The risk that assets are insufficiently liquid and/
or Brooks Macdonald does not have sufficient
financial resources available to meet liabilities as
they fall due, or can secure such resources only
at excessive cost. Liquidity risk also includes the
risk that the Group is unable to meet regulatory
prudential liquidity ratios.
3
Market
The risk that arises from fluctuations in the value
of, or income arising from, movements in equity,
bonds, or other traded markets, interest rates or
foreign exchange rates that has a financial impact.
• Cash deposits with external
banks
•
Client credit risk
• Counterparty credit risk
• Custodian-related credit risk
•
Indirect counterparty risk in
respect of referrals
• Corporate cash deposited
with external banks
•
•
•
•
•
•
Client cash deposited with
external banks (CASS rules)
Failed trades
Indirect liquidity risk
associated with client
portfolios
Indirect liquidity risks
associated with dealing
Indirect risk in respect of
the liquidity of individual
holdings in a fund
Indirect risk in respect of the
overall liquidity of our funds
• Failed trades
•
•
•
Indirect market risk
associated with advising on
client portfolios
Indirect market risks
associated with dealing
Indirect market risk
associated with managing
client portfolios
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Risks
continued
Movement key
Increasing risk
Decreasing risk
Unchanged risk
Risk
Definition
Key risks identified by risk
management framework
Risk
movement
Business level
4
Business and
strategic risk
The risk of having an inadequate business model
or making strategic decisions that may result in
lower than anticipated profit or losses or exposes
the Group to unforeseen risks.
• Brexit
• Business growth
• Extreme market events
•
Investment performance
• Product governance
5
Conduct risk
The risk of causing detriment to clients,
stakeholders or the integrity of the wider market
because of inappropriate execution of Brooks
Macdonald’s business activities.
• Client service
•
Investment performance
• Suitability and conduct risk
6
Operational
risk
The risk of loss arising from inadequate or failed
internal processes, people and systems, or from
external events. It includes legal and fraud risk but
not strategic, reputational and business risks.
7
Prudential risk
The risk of adverse business and/or client impact
resulting from breaching regulatory capital/
liquidity requirements, or market/credit risk
internal limits.
• Data security
• Cyber
• Resilience and BCP
•
IT infrastructure and
capability
• Key suppliers and
outsourcing
• Operational errors
• People
• Prudential requirements
Risk
Definition
Business level continued
8
Legal and
regulatory risk
Legal and regulatory risk is defined as the risk of
exposure to legal or regulatory penalties, financial
forfeiture and material loss due to failure to act in
accordance with industry laws and regulations.
Emerging level
9
Cyber and data
security
The potential financial, reputational, operational
and client-related risks arising from a data
protection, information security or cyber-related
breach. The additional risks associated with
non-compliance with relevant rules and
regulations.
10
Consolidation
of the
investment
management
market
The potential financial, reputational, operational
and client-related risks arising from a consolidation
in the market either among peer wealth managers
or the professional advisers that Brooks Macdonald
partners with.
Key risks identified by risk
management framework
Risk
movement
• Financial crime
• Governance
• Regulatory, tax and legal
compliance
•
Idiosyncratic reputational
risk
With cyber security being a
heightened and evolving risk
for the industry and wider
economy, there has been an
increased focus this year on
understanding our cyber
security landscape while also
taking measures to strengthen
our core IT management team.
There has been an increase
in the M&A activity in the
financial planning and wealth
management sectors. If this
continues, it may impact the
Brooks Macdonald operating
model.
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continued
Viability statement
In accordance with the UK Corporate
Governance Code, the Board has
assessed the Group’s viability over a
five-year period from FY19 through
to FY23. The decision to do so over
this period is aligned with the Group’s
strategy, its budgeting process and
the scenarios set out in the Internal
Capital Adequacy Assessment Process
(“ICAAP”).
The Board has carried out a robust
assessment of the principal risks facing
the Group along with the stress tests
and scenarios that would threaten the
sustainability of its business model,
future performance, solvency or
liquidity. This assessment is based
on the Group’s Medium Term Plan
(“MTP”), the ICAAP and an evaluation
of the Group’s principal risks, as
outlined previously and in the Risk and
Compliance Committee Report.
In assessing the future viability of
the overall business, the Board has
considered the current and future
strategy as well as any significant
business restructuring and legacy
issues.
The Board has also considered
the business environment of the
Group and the potential threats
to its business model arising from
regulatory, demographic, political and
technological changes.
The five-year MTP is maintained as
part of the Group’s annual corporate
planning process. The model translates
the Group’s current and future strategy
into a detailed year-one budget,
followed by higher level forecasts
for years two through to five. The
combination of this detailed budgeting,
longer-term forecasting and various
stress tests provides an holistic and
transparent view of the forward-looking
financial prospects of the Group. The
Board reviews and challenges the
Group’s MTP annually.
The Group undertakes an ICAAP as
required by our UK regulator, the
Financial Conduct Authority (“FCA”),
which documents a range of stress tests,
including a reverse stress test.
These are all designed to assess
the Group’s ability to withstand a
market-wide stress, a Group-specific
stress and a combination of both. The
tests documented within the ICAAP
are scenarios designed by senior
management to assess the Group’s
exposure to a range of extreme, but
plausible, situations, as well as an
assessment of the cost to the Group
of a wind-down in the event of a
non-recoverable shock to the operating
model. These scenarios are refreshed
at least annually to ensure they remain
relevant and continue to be a suitable
tool for developing our controls and
mitigating actions.
Following consideration and
assessment of the above factors,
including the results of the latest ICAAP
and the risk management controls and
procedures in place, the Board has
reasonable expectations the Group
will be able to continue in operation
and meet its liabilities as they fall due
over the period of their assessment.
Accordingly, the Board continues
to adopt the going concern basis in
the preparation of these Financial
statements.
How we engage with our
stakeholders
When considering their decisions and in setting the policies and strategy for Brooks Macdonald, in addition to the
shareholders, the Directors are aware there are a number of other stakeholders that will affect the success of the Group. These
include, for example, our clients and advisers along with our employees. The below table outlines how we consider these
stakeholders and how we engage with them to continue driving our growth.
Stakeholder
How we engage
Clients
Advisers
Shareholders
Employees
As our mission statement says, Brooks Macdonald exists to protect and enhance our clients’ wealth.
We engage with them in a variety of ways, driven by their requirements and preferences. With all
our clients, across investment management and financial planning, we hold face-to-face meetings,
provide investment updates and quarterly statements, and provide market commentary. We also
provide a client portal, where investment management clients can view details of their investments
and – since the end of the financial year – we have launched “myBM”, a new improved version of the
portal.
We serve our investment management clients principally through professional advisers who
represent a critical link in our overall service proposition to clients. We work closely with our
advisers, offering them a range of services to make Brooks Macdonald easy to do business with and
to help them serve their, and our, clients. Again, our engagement is driven by the individual adviser’s
requirements and preferences, from high-touch ongoing strategic relationships with a small number
of larger firms, through to more arm’s length provision of our consistent high-quality investment
management to others.
We have a number of large, long-term, committed shareholders in the business. We engage with
them frequently to discuss delivery of our strategy, current performance and our plans for the
business, in accordance with our obligations as an AIM-listed company. We do this through
face-to-face meetings and provision of detailed financial reports and presentations on the
business at the half-year and full-year points.
Our employees are central to the delivery of our mission for clients and we strive to attract and
retain the best people. We have a comprehensive internal communication programme to keep
employees fully aware of developments in the business’s strategy and performance, while
respecting our obligations as a publicly traded company. The Chief Executive and other members of
senior management frequently engage with staff in forums ranging from formal communications,
including our new all staff “town hall” video conferences, to more informal small group discussions.
This year, we have launched a regular employee engagement survey and we will be closely tracking
progress.
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Brooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Strategic reportIntroductionStrategic reportCorporate governanceFinancial statements Corporate responsibility
Statement on corporate responsibility
Our guiding principles
The Group has four guiding principles.
These were developed with input from
all our staff and form the basis of all
our actions. We use these as part of
our performance management ethos
to measure our behaviours and test
our decisions, and as a basis for staff
recognition.
Brooks Macdonald’s corporate
responsibility strategy aims to ensure
that social, environmental and
ethical considerations are taken into
account throughout the business.
Playing a positive role in protecting
the environment, supporting the
communities in which we live and
work, and ensuring the wellbeing of our
employees is at the top of our agenda
as a firm. The Group is actively seeking
opportunities to play its part as a good
employer and as a contributor to the
communities in which our clients and
employees live and work.
Our people
Flexible working
We encourage our people to have
a positive work-home balance and
promote flexible working across
the Group. All advertised roles now
welcome applications from people
wishing to work flexibly, helping to
attract candidates from a diverse
range of backgrounds and with broad
experiences. The Group is investing in
infrastructure that enable employees
to work from locations outside the
office, at times that suit their personal
commitments and working styles.
Encouraging remote working also
Our guiding principles
We do the
right thing
• We are worthy of our
clients’, advisers’, partners’
and one another’s trust
• We act with integrity,
honesty and fairness
and we value diversity
• We take responsibility
for our actions and
decisions
• We deal with issues and
tackle hard decisions
head on
We care
• Our clients, advisers and
partners are at the heart
of everything we do
• We support our people
to be the best they can be
• We treat our clients,
advisers, partners and
each other with respect
• We ask for help and we
off er support to one
another
We are
connected
• We collaborate and work
as one team to bring the
best of Brooks Macdonald
to all we do
• We actively seek
opportunities to learn
from others and share
our expertise
• We actively listen and
communicate with clarity
• We look externally,
challenge ourselves and
are open to new ways of
doing things
We make a
diff erence
• We focus on delivering
value for clients, advisers,
partners and shareholders
• We are ambitious and
constantly strive to be
the best at what we do
• We innovate, learn from
our actions and actively
gather feedback to
improve
• We develop our skills and
nurture our relationships
to ensure we remain
relevant
36
reduces the Group’s carbon footprint
by taking away the need to commute to
office locations every day.
Talent and development
Our people are our greatest asset,
and only through investing in their
development, rewarding them
competitively and therefore motivating
and engaging them to be at their best,
can we deliver a highly professional
and superior service to our clients.
We have designed our employment
policies and procedures, and our
approach to talent development,
to maximise the potential of our
people. All employees have access
to development opportunities and
CPD, and the Group has a focus on
developing leadership capability.
These initiatives, in conjunction with
line management support, ensures
everyone has the opportunity to reach
their full potential with the Group.
Diversity
We are an inclusive firm that values and
supports our people regardless of their
background. We serve a diverse group
of clients, and being diverse ourselves
helps us to anticipate their needs and
provide a great service. Through our
people strategy, building diversity and
inclusion is a key priority sponsored
at the highest level within the firm. All
employees bring different cultures,
backgrounds and personalities to their
roles. By encouraging inclusion in the
workplace, we can stimulate creativity,
spur insight, and learn from each other.
Wellbeing
The Group has increased its focus on
improving staff wellbeing, and now
runs regular initiatives to increase
levels of physical and mental health.
This includes an annual wellbeing
month, access to nutritional and
health advice, an employee assistance
programme, a partnership with F45
gym allowing staff a free circuits class
each month, and various opportunities
for staff to get involved in sporting
activities.
Our community
Brooks Macdonald
Foundation
The BM Foundation was set up in 2010
with the aim of supporting charities
that staff are enthusiastic about. It is
funded via an annual donation from
the Group and regular contributions
from staff made via payroll. The
Foundation acts as a conduit for
donations to be made to charity, and
staff members are able to request
donations to a registered charity of
their choice. We are relaunching the
BM Foundation during FY20 with the
aim of increasing the number of staff
that regularly donate, and focusing on
two main staff-nominated charities
each year.
Community support
We regularly ask our people to
nominate community organisations
that they have a personal connection
with to receive awards of up to
£2,000 to assist them with specific
projects or purchases. During FY19
we supported causes as diverse as
buying new playground equipment for
a primary school, a new instrument for
a community brass band, and kit for
a youth football team. This gives us a
connection to the community causes
our people support and value, which,
as well as helping these organisations
continue their valuable work, increases
pride within the workplace.
Our environment
The Group continues to focus on its
impact on the environment, and in the
last 12 months has put environmental
concerns at the centre of its
decision-making process in choosing
new premises in London, Edinburgh,
East Anglia and Leamington Spa. We
have also focused on improving our
supplier chain, choosing products
and services with vendors that can
demonstrate their commitment to
sustainable ways of working and
how they give back to communities
and their employees. Better waste
management has been implemented
across a number of our offices, placing
a focus on the right hierarchies (avoid,
reuse, recycle, repair and dispose).
We also continue to look at ways of
reducing paper, with all governance
documentation moved to digital and
recently introduced printing protocols.
37
Brooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Strategic reportIntroductionStrategic reportCorporate governanceFinancial statements Corporate
governance
Corporate governance
Introduction to
Corporate governance
Board and Committee structure
BM Group Board
Current
Non-current
Alan Carruthers (Chairman)1
Christopher Knight (Ex-Chairman)4
Caroline Connellan
Ben Thorpe2
Colin Harris
John Linwood3
Richard Price
Diane Seymour-Williams
David Stewart
Nicholas Holmes5
Andrew Shepherd6
The Brooks Macdonald Board is
committed to maintaining a strong
governance framework to support our
mission to protect and enhance our
clients’ wealth.
As such, the Board has responsibility
for promoting the long-term strategy
and success of the Group by providing
leadership, shaping the Group’s culture,
and agreeing the risk appetite and
the appropriate systems of control
for risk management. The Board is
also focused on ensuring that the
risk and compliance framework is
appropriately embedded within the
Group’s day-to-day activities. The Board
delegates the day-to-day management
of the Group to the Group Chief
Executive, who is supported by an
Executive Committee.
The Executive Committee comprises
the Group Chief Executive, Group
Finance Director, Chief Risk Officer,
Chief Operating Officer, Group HR
Director and members of senior
management from a cross-section of
the business.
As well as having operational oversight
of the Group’s day-to-day activities, the
Executive Committee focuses on the
formation and implementation of the
Group’s strategy and makes decisions
that are not otherwise reserved for the
Board. The Executive Committee meets
formally on a monthly basis.
The Group’s Board and Committee
structure is detailed on the opposite
page together with the biographies of
Board and Committee members. The
roles and responsibilities of each of the
Committees, and the activities carried out
during the year, are set out in the reports
of the respective Committee Chairs.
UK Corporate Governance
Code Compliance Statement
The Group follows the UK Corporate
Governance Code and we are in
transition to the 2018 Code, which
applies to financial years beginning on
or after 1 January 2019.
We are seeking to apply the main
principles and follow the provisions
of the 2016 Code for FY19 and are
now aligning our approach to the
requirements of the new Code.
Further detail of how we apply the
Code is given in the Investor Relations
section of the Group’s website.
Audit
Committee
Disclosure
Committee
Nominations
Committee
Remuneration
Committee
Richard Price
(Chair)
Alan Carruthers
(Chair)
Colin Harris7, 8
Caroline Connellan
John Linwood3
Ben Thorpe2
Diane Seymour-
Williams8
David Stewart9
Richard Price
Alan Carruthers
(Chair)
Colin Harris
John Linwood8
Richard Price
Diane Seymour-
Williams
David Stewart8
Risk and
Compliance
Committee
David Stewart
(Chair)9, 10
Diane Seymour-
Williams (Chair)
Colin Harris
Colin Harris11
John Linwood3
John Linwood8
Richard Price
Richard Price
David Stewart 8
Diane Seymour-
Williams
Executive Committee
Caroline Connellan (Chair)
Ben Thorpe
Robin Eggar
Tom Emery
Adrian Keane-Munday
Andrew Shepherd
Richard Spencer
Priti Verma
John Wallace
Jason Wood
1. Appointed 14 March 2019
5. Resigned 30 November 2018
9. Appointed 23 July 2018
2. Appointed 6 August 2018
6. Resigned 1 April 2019
10. Appointed as Chair 19 September 2018
3. Appointed 19 September 2018
7. Resigned on 11 September 2018
11. Resigned as Chair 19 September 2018
4. Resigned 14 March 2019
8. Appointed 1 August 2019
40
Brooks Macdonald Group plc Annual Report and Accounts 2019
41
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Chairman
Non-Executive Directors
Alan Carruthers
Independent Non-Executive Director
Alan joined Brooks Macdonald as the Chairman in March 2019. He is Chair of both
the Nominations Committee and the Disclosure Committee. Alan has over 27 years
equity markets experience working for leading financial services firms and held
senior positions as Head of Global Sales Trading at Morgan Stanley (1996 – 2003),
Global Head of Equities at Cazenove (2003 – 2010) and Head of Europe, Middle
East and Africa (EMEA) Cash Equities at JP Morgan Cazenove (2010 – 2011). Alan is
currently the Chairman of Numis Corporation plc.
Caroline Connellan
Chief Executive
Caroline joined Brooks Macdonald as Chief Executive in April 2017. She is an
Executive Director on the Group Board and a member of the Disclosure Committee.
Before joining she was Head of UK Premier and Wealth at HSBC where she led the
transformation of the UK Wealth business. Prior to this she held a number of senior
corporate roles, including Group Strategy Director at Standard Life, and had extensive
experience in the wealth and asset management sector as a consultant at McKinsey.
Caroline started her career as a Fund Manager with Newton Investment Management
in London. Caroline is a member of the Investment Association board and has joined
the Government’s Asset Management Task Force.
Ben Thorpe
Finance Director
Ben joined Brooks Macdonald in August 2018 as Finance Director. He is an Executive
Director on the Group Board and a member of the Disclosure Committee. He has 18
years of financial services experience, most recently as Head of Finance at Brewin
Dolphin where he was responsible for Group Financial Planning and Analysis,
Financial Control, Tax and Treasury. Prior to Brewin, Ben spent 14 years working in
investment banking within the financial planning and analysis teams at Morgan
Stanley, RBS and Barclays Capital with his last role being Managing Director, Strategy
and Change at Standard Bank South Africa in Johannesburg.
Executive Directors
42
Colin Harris
Non-Executive Director and Senior Independent Director
Colin joined Brooks Macdonald in 2010 as a Non-Executive Director and was
appointed Senior Independent Director in 2015. Colin is a member of the
Remuneration, Risk and Compliance and Nominations Committees. He was appointed
to the Audit Committee in August 2019. Prior to joining Brooks Macdonald, Colin
spent over 18 years at Newton Investment Management, where he was a founding
shareholder. He held a number of senior management roles at Newton, including Chief
Executive and Deputy Chairman. Colin is also a qualified solicitor and prior to joining
Newton, he was the Senior Legal Counsel at Alexander & Alexander Inc.
John Linwood
Independent Non-Executive Director
John joined Brooks Macdonald in 2018 as a Non-Executive Director. He is a member
of the Audit and Remuneration Committees and was appointed to the Nominations
and Risk and Compliance Committees in August 2019. Prior to joining Brooks
Macdonald, John was the Executive Vice President and Chief Technology Officer of
Wood Mackenzie, Chief Technology Officer for the BBC, and a Senior Vice President
of International Engineering at Yahoo Inc. He has also held a number of senior
positions at Microsoft Corp. (1993 – 2004). John is Chief Technology Officer at Earth-I
and a member of the Industry Advisory Board for the College of Engineering, Design
and Physical Sciences at Brunel University.
Richard Price
Independent Non-Executive Director
Richard joined Brooks Macdonald in 2014 as a Non-Executive Director. He is
Chairman of the Audit Committee and a member of the Risk and Compliance,
Remuneration, Disclosure and Nominations Committees. Prior to joining Brooks
Macdonald, Richard was a partner at KPMG for 17 years where he had considerable
exposure to financial services clients, and held a number of roles, including the UK
Head of KPMG’s Financial Sector Transaction Services practice. Richard is a Non-
Executive Director of Hampshire Trust Bank Plc, Amigo Holdings Plc, and Alpha Bank
London Limited.
David Stewart
Independent Non-Executive Director
David joined Brooks Macdonald in 2018 as a Non-Executive Director. He is Chairman of
the Risk and Compliance Committee, and is a member of the Audit Committee. He was
appointed to the Nominations and Remuneration Committees in August 2019. David
has significant experience in finance, strategy, operations, risk and compliance with a
particular expertise in financial services. He is currently the Chairman of Enra Group
and a Non-Executive Director of LSL Property Services and M&S Bank. Previously,
David was the Chief Executive of the Coventry Building Society for eight years, having
earlier served as Finance Director and Operations Director. Prior to this, David spent
ten years at DBS Management, holding a number of positions, including Group Chief
Executive, Group Managing Director and Group Finance Director.
Diane Seymour-Williams
Independent Non-Executive Director
Diane joined Brooks Macdonald in 2011 as a Non-Executive Director. She is a member of
the Nominations, Remuneration and Risk and Compliance Committees. She was Chair
of the Remuneration Committee until stepping down on 31 July 2019 and being replaced
by John Linwood. She was appointed to the Audit Committee in August 2019. Prior to
joining Brooks Macdonald, Diane spent 23 years at Morgan Grenfell and, following its
takeover, with Deutsche Bank in a variety of roles, including Head of Asian Equities, CEO
and CIO Asia and Head of Global Equities. She has over 30 years’ industry experience
and is currently a Non-Executive Director of Praxis IFM Group, Witan Pacific Investment
Trust and Standard Life Private Equity Trust. She is also a member of the Investment
Committee at Newnham College, Cambridge.
43
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In addition to Caroline Connellan and Ben Thorpe, the following individuals
make up the Group’s Executive Committee:
Robin Eggar
Managing Director. Co-Head of UK Investment Management
Robin joined Brooks Macdonald in 2000 and is responsible for the day-to-day
management of the investment management arm of the business in London.
Robin holds the Certificate in Private Client Investment Advice and Management
(“PCIAM”), the Investment Management Certificate (“IMC”) and the Advanced
Financial Planning Certificate (“AFPC”). He is also a Chartered Member of the
Chartered Institute of Securities and Investment (“Chartered MCSI”).
Tom Emery
HR Director
Tom joined Brooks Macdonald in 2017 and is responsible for delivery of the
Group’s people strategy and remuneration policy. He is a member of the
Executive Committee and also chairs the People Committee. Prior to joining
Brooks Macdonald, Tom worked for a number of years at HSBC, where he spent
time leading HR for first direct and running the HR Operations team. He has
worked in HR since graduating from the University of Manchester in 2002.
Adrian Keane-Munday
Managing Director, Head of Financial Planning, Marketing and
Propositions Director
Adrian joined Brooks Macdonald in July 2018. Prior to joining Brooks Macdonald,
Adrian was Head of UK Premier and Wealth Distribution at HSBC, where he had a
number of senior management roles throughout a 17-year career. Adrian led the
national IFA business through its RDR transition, established the national “Wealth
Centre of Excellence”, and also gained extensive retail banking experience as
one of four National Regional Directors. Adrian started his career at Lloyds Bank
as part of their trainee scheme and has over 30 years’ experience in financial
services.
Andrew Shepherd
CEO International and Group Deputy CEO
Andrew joined Brooks Macdonald in 2002. He is the chairman of the boards of
the two legal entities within International with responsibility for their direction
and strategy. Prior to joining Brooks Macdonald, Andrew worked at Shepherd
Associates Financial Management, holding the position of investment director.
He has worked in investment management and financial services since 1994.
Richard Spencer
Chief Investment Officer
Richard is a co-founder of Brooks Macdonald and chairs the Investment
Committee, Asset Selection Committee and Asset Allocation Committee. Richard
oversees all investment services, and also retains private client relationships to
ensure he is involved throughout the firm’s process. Richard has over 30 years’
experience in financial services.
Priti Verma
Chief Risk Officer
Priti joined Brooks Macdonald in June 2018 and has 18 years of experience in
financial services, predominately overseeing risk, compliance and internal audit
activities in asset and wealth management firms, including Schroders, Aviva
Investors, Pictet and Smith & Williamson.
John Wallace
Managing Director. Co-Head of UK Investment Management
John joined Brooks Macdonald in 2005. He is responsible for the day-to-day
management of the investment management arm of the business across
the regions. Prior to joining Brooks Macdonald, John worked at Dexia Asset
Management as an Investment Manager. He has over 20 years’ experience
in financial services. John holds the Investment Management Certificate
(“IMC”) and is a Chartered Member of the Chartered Institute for Securities and
Investment (“Chartered MCSI”).
Jason Wood
Chief Operating Officer
Jason joined Brooks Macdonald in October 2017. Before joining, he was Head of
Data at Schroders where he led the development of the Group’s Data Governance
and Data Management strategy. Prior to this, he held a number of senior roles
within Schroders, including Head of Technology Asia Pacific and Head of
Operations Asia Pacific, where he was responsible for re-platforming of the
region’s operating model. Jason has worked in financial services since 1996.
44
45
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Audit
Committee
List of Board meetings and attendance:
Board
Audit
Nomination Remuneration
Risk and
Compliance
Disclosure
Number of meetings held during the year
Caroline Connellan
Nicholas Holmes1
Andrew Shepherd2
Ben Thorpe3
Alan Carruthers4
Christopher Knight5
Colin Harris6
John Linwood7
Richard Price
Diane Seymour-Williams
David Stewart
7
7
7
3 3
6 6
6 6
1
1
6 6
7
7
4 4
7
7
7
7
7
7
6
2
6
6
–
–
–
–
–
–
3 3
3 3
6 6
–
6 6
–
–
–
–
–
–
1
1
1
1
2
2
2
2
2
2
–
–
–
–
–
–
–
3 3
6 6
3
3
6 6
–
–
–
–
–
–
–
5 6
6 6
6 6
6 6
2
2
2
2
2
2 2
2 2
–
–
–
–
–
–
–
1. Resigned on 30 November 2018
2. Resigned on 1 April 2019
3. Appointed on 6 August 2018
4. Appointed on 14 March 2019
5. Resigned on 14 March 2019
6. Resigned from the Audit Committee
on 11 September 2018.
Reappointed to the Audit
Committee on 1 August 2019
7. Appointed on 19 September 2018
Attended
Meetings
Board tenure
Over 6 years
3 to 6 years
0 to 2 years
0
1
2
3
4
Board composition
Chairman
1
Board diversity
Female
25%
Male
75%
Non-Executive
Directors
5
46
Executive
Directors
2
Role and responsibilities
The Committee assists the Board
in meeting its responsibilities for
the integrity of the Group’s internal
financial controls and its financial
reporting. The Committee’s
responsibilities can be grouped into the
following aspects:
Composition and meetings
The Audit Committee comprises
Richard Price (Chair), David Stewart
and John Linwood, who joined the
Committee on his appointment on
11 September 2018. In addition, Colin
Harris and Diane Seymour-Williams
joined the Committee on 1 August 2019.
Membership of the Committee is
restricted to independent Non-
Executive Directors. The Group
Finance Director, Chief Risk Officer
and representatives of the internal
and external auditor routinely attend
meetings. The Committee meets with
representatives of the external auditor
without management present at least
once a year.
The Committee’s attendance during the
year ended 30 June 2019 is set out in
the summary table on page 46.
• To review and challenge the Group’s
accounting policies and significant
judgement areas and the integrity of
its financial reporting
• To provide oversight and monitoring
of the internal and external audit
functions, including appraising
their performance and approving
their fees
• To work in conjunction with the
Risk and Compliance Committee
to review the effectiveness on
the Group’s newly established
risk management framework and
internal controls
The full responsibilities of the
Committee are set out in the
Committee’s Terms of Reference, which
are reviewed annually and are available
on the Group’s website.
The Committee
evaluates controls and
financial and audit
matters to ensure
reporting integrity.
Richard Price
Audit Committee Chair
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Audit
Committee continued
The Committee’s areas of focus
Financial
reporting
• Reviewed the Annual Report and Accounts and the Half Yearly Financial Report, ensuring these
were fair, balanced and understandable for shareholders and other end users;
• Reviewed the polices, key assumptions, and judgements applied in the preparation of the Financial
statements, including the external auditor feedback on financial reporting changes and the Group’s
financial controls;
• Reviewed reports from management on the preparation of the Annual Report and Accounts and
the Half Yearly Financial Report, including the impact of the adoption of new accounting standards,
in particular IFRS 9, IFRS 15 and IFRS 16; and
• Reviewed the Group’s going concern assumptions and the Viability Statement.
External
audit
• Approved the annual external audit plan, the terms of reappointment, remuneration, and Terms of
Engagement;
• Provided oversight of the external auditors, including assessing their independence, objectivity
and effectiveness as well as developing a policy on the supply of non-audit services;
• Reviewed audit findings, including key issues, accounting and audit judgements and
recommendations, guidance and observations around the Group’s internal controls environment;
and
• Reviewed management representation letters and associated responses.
Internal
audit
• Developed an internal audit plan alongside KPMG. Monitored and reviewed the effectiveness of the
plan and its alignment to key risks;
• Provided oversight of the internal auditors and considered and approved the scope of each
engagement;
• Reviewed the results of individual internal audit reports and considered the effectiveness of
actions agreed with management; and
•
•
Control
oversight
Received regular summary reports from the internal auditor, including their conclusions on the
changes to controls and processes made by management.
In conjunction with the Risk and Compliance Committee, reviewed the adequacy and effectiveness
of the Group’s internal financial controls;
• Reviewed and approved the Group’s policy on non-audit services (for both external and internal
audit); and
• Reviewed the adequacy and security of the Group’s whistleblowing policy and procedures,
including ensuring employees are able to raise concerns confidentially and without repercussion
to them.
Routine
matters
•
Reviewed the Committee’s composition, minutes, its Terms of Reference and held meetings in
private session.
Internal audit
Following the decision in 2018 to
outsource the Group’s internal audit
function to KPMG, work began in
September 2018, formally reporting
to Richard Price, Chair of the Audit
Committee, with Priti Verma, Chief Risk
Officer, being the principal point of day-
to-day contact.
A risk-based audit plan was developed
by the Committee and KPMG, seeking
to provide assurance in areas of
high-risk. It was created following
discussions and review with the Chairs
of the Audit Committee and Risk and
Compliance Committee, the Chief
Executive Officer and the Chief Risk
Officer, alongside KPMG’s input on
the Group’s activities and the overall
industry. The plan is reviewed by the
Committee at regular intervals, taking
into account any changes in areas
deemed high-risk.
External audit
The Group’s external auditors are
PricewaterhouseCoopers (PwC). During
the year, the Committee developed,
implemented and monitored the
Group’s policy on external audit
and evaluated and reviewed the
effectiveness of PwC in their role.
No fundamental matters were
raised in the course of the year. The
Committee agreed the external audit
and assurance fees and reviewed the
audit engagement letter. Details of the
auditor’s remuneration is provided in
Note 6 to the Financial statements.
The Committee is satisfied that PwC
has conducted an effective audit for the
year ending 30 June 2019.
Independence and non-audit
services
The Committee recognises the fact that,
given its knowledge of the business,
there are advantages in using PwC and
KPMG to provide certain non-audit
services on particular occasions.
If there is a business case to use
the auditors to provide non-audit
services, sign-off is required from the
Committee to ensure the there is no
impact on the auditor’s objectivity and
independence. Monetary sign-off limits
are provided within the framework of
the Non-Audit Services Policy which
was implemented during the year.
During the year, the Group engaged
both PwC and KPMG to carry out
certain non-assurance services.
£80k was spent with PwC, primarily
to provide ICAAP support. £385k
was spent with KMPG, split 40% on
compliance and regulatory issues, 30%
on internal restructuring advice and
the balance on investor relations and
tax advice.
48
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Committee continued
Financial reporting
The Committee reviewed the significant issues set out below in relation to the
Group’s Financial statements for the year ended 30 June 2019. Discussions were
held with management throughout the year and the Committee is comfortable the
Financial statements address the judgements and estimates applied, as well as the
disclosures made. These significant issues were also reviewed with the external
auditors with the Committee’s conclusions being in line with the auditor’s.
Issue
Key considerations and conclusions
Goodwill
(see Note 13)
Amortisation
of client
relationships
(see Note 13)
Legacy provision
(see Note 23)
The Committee reviewed the value-in-use calculations
presented by management supporting the value of goodwill
held on the Group’s balance sheet in respect of previously
acquired businesses. The Committee concluded that the
goodwill in respect of Levitas is no longer adequately
supported and accordingly approved an impairment charge
of £4.8m. The Committee is satisfied that the remaining
goodwill value is adequately supported by the respective
value-in-use calculations.
In determining the useful economic life of the Group’s client
relationships, the Committee reviewed relevant analysis
presented by management. The Committee concluded that
the assumptions and judgements used were reasonable and
appropriate and was also in agreement with the reduction in
the useful economic life of Spearpoint’s client relationships
resulting in an impairment charge in the year.
The Committee reviewed the management updates relating
to the historical legacy matters and concluded that, based
on available information, the provision held on the balance
sheet at the year end is appropriate. The Committee also
considered the contingent liability disclosure included in
Note 32 to the Financial statements.
Discontinued
operations
(see Note 10)
During the financial year, the Group disposed of its employee
benefit business and ceased to act as the investment
manager for the Ground Rents Income Fund (“GRIF”). In
light of these events, the Committee concluded that it
is appropriate to restate the prior period so as to ensure
like-for-like performance comparisons.
Whistleblowing
The Group’s whistleblowing policy was
reviewed and agreed by the Committee
during the year. Responsibility for
whistleblowing rests with Richard Price,
Chair of the Audit Committee, who has
the role of the Group’s “Whistleblowing
champion”. There are also dedicated
“Whistleblowing champions” for the
UK and Channel Island businesses. The
Group also provides an independent
external reporting portal provider,
Safecall, which staff can contact
anonymously.
Approval
This report in its entirety has been
approved by the Committee and the
Board of Directors on its behalf by:
Richard Price
Audit Committee Chair
11 September 2019
50
Nominations
Committee
The Nominations
Committee has overseen a
number of Board changes
during the financial year.
Alan Carruthers
Nominations Committee Chair
Role and responsibilities
The Nominations Committee
is responsible for reviewing the
composition of the Board and the Board
Committees to ensure they are suitably
constituted, with an appropriate
balance of skills, experience,
knowledge and diversity. The
Committee also recommends Board
and Board Committee appointments,
and monitors succession planning
at the Group’s leadership levels to
ensure the Group’s continued ability
to implement its strategy and operate
effectively.
The full responsibilities of the
Committee are set out in the
Committee’s Terms of Reference,
which are reviewed annually and are
available on the Group’s website.
Full membership and attendance
details of the Committee can be
found on page 46
Composition and meetings
The Committee comprises Alan
Carruthers (Chair), Colin Harris, Diane
Seymour-Williams and Richard Price.
Alan Carruthers became Chair of the
Nominations Committee following
his appointment as Chair of Brooks
Macdonald Group plc on 14 March
2019. David Stewart and John Linwood
joined the Committee with effect from
1 August 2019. Only members of the
Committee may vote on Committee
business but other members of the
Board and the HR Director may attend
all or part of a meeting by invitation.
Main activities during
the year
The Nominations Committee has
overseen a number of Board changes
during the financial year. In addition to
the appointments of Ben Thorpe as an
Executive Director and John Linwood
as an Independent Non-Executive
Director, announced in last year’s report,
Alan Carruthers was appointed as the
Company’s new Chair on 14 March 2019,
succeeding Christopher Knight who
retired from the Board.
The search for the new Chair was led by
the Senior Independent Director, Colin
Harris. A role description was drawn up
and recruitment consultants, Russell
Reynolds, were appointed to provide
a short-list of candidates who were
then assessed by the Committee. A
recommendation of the final candidate
was made to the Board for approval,
together with disclosure of the
candidate’s curriculum vitae detailing
existing non-executive roles and other
existing commitments.
Talent development and
succession planning
The Committee is committed to
maintaining an effective policy
for the orderly succession of
Executive Directors, Executive
Committee members and other
senior management roles across
the business. It is also committed to
maintaining an appropriate balance of
skills, experience, independence and
diversity within those roles and across
the Group.
The Committee has identified that Colin
Harris is approaching his nine-year
anniversary as an Independent
Non-Executive Director since his
appointment in 2010. The Committee
will work to identify suitable candidates
to replace Colin and appoint a
replacement Senior Independent
Director as part of the succession
planning.
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Nominations
Committee continued
Remuneration
Committee
Corporate governance reform
The Committee has monitored
the various reforms to corporate
governance in the UK that have been
announced during the year. These
include the publication of the new
Corporate Governance Code which
will first apply to the Group for the
financial year ending 30 June 2020.
The Committee has received updates
from the Company Secretary on the
respective changes and the expected
implications on the Group and will
oversee the arising actions to ensure
the Group is fully compliant with the
new legislation.
Approval
This report in its entirety has been
approved by the Committee and the
Board of Directors on its behalf by:
Alan Carruthers
Nominations Committee Chair
11 September 2019
Significant subsidiaries
The Committee is also responsible
for reviewing and recommending to
the Board any material changes to the
structure, size and composition of the
Group’s regulated subsidiary company
boards.
Board effectiveness
The Board and its Committees
undertake an annual evaluation of
their performance. The criteria for an
objective and rigorous performance
review of the Board as a whole
and the Committees is set by the
Nominations Committee. The annual
performance evaluation includes a
review of the composition, diversity
and effectiveness of the Board and the
Committees and the contribution of
each Director. Any conclusions and
recommendations arising from these
reviews are reported to the Board
and an action plan addressing these
recommendations put into place with
regular progress reviews against the
plan. The Committee conducted a
Board effectiveness review in June
2019 with the results of the review
presented to the Board at the July
Board meeting.
Board diversity
The Committee takes an active role
in setting and monitoring diversity
objectives and strategies undertaken
by the Group and embraces the benefits
of having a diverse Board drawing on
the knowledge, skills, experience and
expertise of directors from a range
of backgrounds and will take the
opportunity to improve the Board’s
diversity where required. Further
details on the Group’s approach to
diversity are included in the Corporate
Social Responsibility report on page 46.
52
The Committee exercises
independent judgement
in the determination,
implementation and
operation of the overall
Remuneration Policy.
Diane Seymour-Williams
Remuneration Committee Chair
Introduction
The Directors’ Remuneration Report
includes the Annual Report on
Remuneration for the financial year
ending 30 June 2019 and the Directors’
Remuneration Policy. The Annual
Report on Remuneration illustrates
how variable pay relates to the Group’s
performance outcomes for the year and
over the longer term. It also provides
a detailed view of each Director’s
individual total remuneration.
As reported in last year’s Annual
Report, Christopher Knight resigned
from the Remuneration Committee on
11 September 2018. From 19 September
2018, the Remuneration Committee
comprised Diane Seymour-Williams
(Chair), John Linwood and Colin Harris.
Since the end of the financial year,
Diane Seymour-Williams retired as
Chair on 31 July 2019 and John Linwood
was appointed Chair from 1 August
2019. Richard Price and David Stewart
joined the Committee on 1 August 2019.
The Committee’s attendance during the
year ended 30 June 2019 is set out in
the summary table on page 46.
The Committee exercises independent
judgement 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; and
• reviews and approves the
remuneration policies and
remuneration for Executive
Directors, members of the executive
committee, Material Risk Takers
(“MRT”s) and any other employees
for whom enhanced oversight is
either appropriate or a regulatory
requirement.
The full responsibilities of the
Committee are set out in the
Committee’s Terms of Reference, which
are reviewed annually and are available
on the Group’s website.
Board changes
As announced on 21 February 2018,
Ben Thorpe joined the Board as
Finance Director on 6 August 2018. As
announced on 28 March 2019, Andrew
Shepherd stepped down from the
Board on 1 April 2019 to take up the
position of CEO, International. Nicholas
Holmes, Managing Director UKIM, left
the Board on 30 November 2018. The
single figure total remuneration table
(see page 55) shows Ben, Andrew and
Nicholas’s remuneration for the period
served as Directors during the year, as
required by the reporting regulations.
Alan Carruthers was appointed
Chairman on 14 March 2019, succeeding
Christopher Knight who retired on
14 March 2019. David Stewart and John
Linwood also joined the Board on
25 May 2018 and 19 September 2018
respectively.
Activities of the Committee
The Committee continued to ensure
its overall approach to remuneration
was competitive, market aligned,
and drove the right commercial
outcomes aligned to shareholder
interests. A comprehensive review was
undertaken of the incentive structures
for all employees. Any remaining linear
revenue-based commission structures
ceased at the end of the financial
year, supported by a number of share
awards to some impacted employees
to ensure their longer-term motivation
and commitment to the business. These
changes complete the move to align all
our employees below Executive Director
to appropriate levels of base pay and
a fully discretionary annual bonus
scheme, based on a balanced scorecard
of financial and non-financial objectives.
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Executive Director
remuneration policy
development
For FY19, the Committee has built
on the significant progress made
over the last two years in achieving
greater alignment of our remuneration
practices for our Executive Directors
to shareholders’ interests and taking
best practice into account. Changes
introduced during the year included:
• enhancements to the scorecard of
performance metrics for annual
bonus, which, for the year ended
30 June 2019, included underlying
profit before tax (30% weighting),
net organic growth in funds under
management (25% weighting), a new
metric of underlying profit margin
(15% weighting) and a subsequent
reduction in the non-financial
objectives (30% weighting);
• deferral of one third of the annual
bonus in Company shares for an
increased period from two to three
years, with vesting in three equal
tranches after 12, 24 and 36 months;
•
introduction and development
of our Executive Director share
ownership policy (details of which
are outlined further in our Directors’
Remuneration Policy below); and
• extension of malus and clawback
provisions.
Remuneration
Committee continued
Base salary and pension
During FY19, the Committee
restructured the fixed pay of the
Chief Executive. In the prior year, the
bonusable salary included the pension
allowance, while from FY19 onwards,
bonus is only payable on base salary,
excluding any pension allowance. The
Committee also took this opportunity
to reduce the pension allowance for
the Chief Executive to 10%, from the
previous level of 15%.
Taking account of the restructuring of
the fixed pay as described above, the
Committee adjusted the base salary for
the Chief Executive to ensure that total
target remuneration was not affected.
This resulted in the Chief Executive’s
base salary being increased by 9.5%.
Separately from this, the Committee
also considered the competitiveness
of the base salary for the Chief
Executive in the context of her
strong performance and exceptional
contribution to the Group, particularly
in resolving legacy issues and driving
the Group’s significant strategic and
commercial agenda. The Committee
awarded a base salary increase of 6.5%
to the Chief Executive to £350,000,
effective 1 August 2018.
After successfully completing his
probationary period, having increased
his role by including responsibility for
Company Secretariat, and to reflect
the significant work he is driving to
streamline and create efficiencies
within the business, a base salary
increase of 14.1% was awarded to the
Finance Director taking it to £275,000,
effective 6 November 2018. Market
benchmarking was also considered in
making both salary increases.
54
Annual bonus
The Executive Directors’ FY19 annual
bonus was awarded against three
financial measures: net organic
growth in funds under management,
underlying profit before tax, and
underlying profit margin, and one
non-financial measure for strategic and
personal objectives.
The Group has continued to make good
progress, with funds under management
increasing during the financial year
from £12.3bn to £13.2bn, an increase
of 6.8%. Group net flows were 3.3% –
lower than historic levels – driven by
weak market sentiment resulting from
elevated macroeconomic and political
uncertainty. Nonetheless, our rate of
organic net flows continued to be among
the highest in the sector, particularly
in UKIM where net flows were 5.4%.
Underlying profit before tax went up
11.8%, a growth rate well ahead of both
FUM and revenue growth, resulting in
a full-year total of £21.0m, up from last
year’s £18.8m. Underlying profit margin
rose from 18.8% to 19.6%, starting to
deliver on our commitment to increase
margins in the medium term.
Other activities
During the year the Committee also
reviewed individual remuneration for
all employees in Material Risk Taker
and senior Risk and Compliance
roles as required under the FCA
Remuneration Code.
The Committee reviewed the gender
pay gap data for the Group and
published gender diversity targets
for senior management. Throughout
the year the Committee also received
regular updates around developments
in the governance and regulation of
remuneration structures from both
internal and external sources, and
took action to ensure the Group’s
remuneration approach reflects
best practice in this regard as well as
rewarding performance.
Long Term Incentive Plan
A new Long Term Incentive Plan (“LTIP”)
was approved by shareholders at the
2018 AGM, and first awards to Executive
Directors and other members of the
Executive Committee were made under
this plan in November 2018 in relation to
the financial year ending 30 June 2018.
Dilution
At the 2018 AGM, a number of
shareholders cast votes against the
LTIP, following an ISS recommendation
against the Plan on the basis of the
overall 15% maximum dilution limit
for all management and all-employee
share plans. The Board has reviewed
the dilution limit and has amended its
dilution policy so that in any rolling
period of ten years, not more than 10%
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 addition, the Board
has committed to set itself a further
limit within this of a 5% ten-year
dilution level with respect to Executive
Long-Term Incentive Plan awards.
The Company satisfies the various
equity-based schemes it operates using
a combination of market purchased
and newly issued shares.
Annual report on remuneration
Total remuneration for the financial year to 30 June 2019 (audited)
£’000
Executives
Caroline Connellan
Ben Thorpe
Nicholas Holmesa
Andrew Shepherdb
Simon Jacksonc
Richard Spencerd
Simon Wombwelld
Non-Executives
Alan Carruthers e
(Chairman)
Colin Harris
Richard Price
Diane Seymour–Williams
David Stewartf
John Linwoodg
Christopher Knighth
(Ex-Chairman)
Christopher Macdonaldi
Total remuneration
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Salary and
fees
Taxable
benefits
Pension-
related
benefits
Annual
bonus1
Long-term
incentives2
Sharesave3
Other
payment4,5,6
369
298
263
–
106
198
165
183
–
278
–
62
–
64
903
1,083
53
–
65
67
63
57
63
57
61
4
42
–
106
41
–
46
453
372
1,356
1,455
3
2
2
–
1
2
2
2
–
3
–
3
–
3
8
15
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8
15
10
45
–
–
5
10
–
–
–
–
–
–
–
–
15
55
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15
55
363
407
285
–
30
148
151
223
–
100
–
65
–
60
829
1,003
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
829
1,003
37
83
–
–
211
98
–
98
–
77
–
46
–
81
248
483
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
248
483
–
–
4
–
–
5
–
5
–
–
–
5
–
–
4
15
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4
15
–
100
186
–
259
–
–
–
–
93
–
–
–
–
445
193
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
445
193
Total
782
935
740
–
612
461
318
511
–
551
–
181
–
208
2,452
2,847
53
–
65
67
63
57
63
57
61
4
42
–
106
41
–
46
453
372
2,905
3,219
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Committee continued
Notes to the total remuneration table
1. The amounts represent the total annual bonus value awarded in respect of the relevant financial year, comprising both cash and share awards. For FY19 the
cash payment comprised 66.7% (FY18: 66.7%) of total annual bonus value and the share option award 33.3% (FY18: 33.3%).
2. Payment to N I Holmes represent the value at vesting of the three-year Long Term Incentive Scheme awards granted on 29 October 2015. 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 FY15 is excluded from this view. Payments to C M
Connellan represent the value at vesting of off-cycle Long Term Incentive awards granted on 21 August 2017 which carried no performance conditions.
3. Value of benefit associated with discount of the 2019 scheme.
4. The amounts for C M Connellan and B L Thorpe in the years ended 30 June 2018 and 2019 represent delivery of non-recurring cash payments agreed at hire
which were broadly in line with awards foregone from prior employers.
5. Payment to N I Holmes reflects an ex gratia payment made at the time of leaving the Group.
6. Payment to S J Jackson reflects an ex gratia payment made at the time of leaving the Group.
a. Resigned as Director 30 November 2018.
b. Resigned as Director 1 April 2019.
c. Resigned as Director 30 April 2018.
d. Resigned as Director 24 October 2018.
e. Appointed 14 March 2019.
f. Appointed 25 May 2018.
g. Appointed 19 September 2018.
h. Resigned as Director 14 March 2019.
i. Resigned as Non-Executive Director on 31 March 2018.
Payments to former Executive Directors, Nicholas Holmes and Andrew Shepherd
As we announced on 13 November 2018, Nicholas Holmes, MD UKIM, stepped down from the Board on 30 November 2018
and left the Group on 31 December 2018 following a restructure. In accordance with his service agreement, Nicholas received
payment in lieu of notice for his contractual notice period. He also received a prorated annual bonus of £30,000 relating to
the portion of the year that he worked and performance achieved in this period. Nicholas also retained all share awards he
held in accordance with ‘Good Leaver’ treatment under the Share Plan rules. At the Committee’s discretion, it was agreed that
all retained share awards will vest in full on the normal vesting dates, subject to any applicable performance conditions. As
part of his severance agreement, Nicholas received a one-off payment of £94,000 which encompassed redundancy pay, a
contribution of £4,000 towards the cost of legal advice and £6,000 towards outplacement support.
Andrew Shepherd, Deputy CEO and MD Distribution, stepped down from the Board to take up the role of CEO, International
from 1 April 2019. Andrew received a bonus of £150,693 relating to the period he served as an Executive Director.
Annual variable pay outcomes for financial year ending 30 June 2019
Awards to individual Executive Directors are determined taking into account a balanced scorecard of metrics and targets
designed to achieve a direct link between performance against the Group’s strategic and commercial goals and the overall
bonuses awarded. Under the bonus structure, all participants have a defined maximum opportunity set as a percentage of base
salary, which will not exceed 150% of base salary for any Executive Director. The Committee has the discretion to adjust the
final outcome to take account of overall performance and exceptional events.
Annual bonus performance targets
For the financial year ended 30 June 2019, bonus was based on the following four metrics (percentage weighting within total
bonus opportunity indicated):
• Underlying profit before tax compared to the budget (30%);
• Net organic growth in funds under management (“Net flows”) compared to the target (25%);
• Underlying profit margin (15%); and
• Strategic and personal objectives (30%).
For all three financial metrics, a sliding scale of targets was set around the budget for the year and account was taken of market
consensus and sector performance. A number of strategic objectives were set for each Executive Director with a focus on
strategy, client, risk and people.
Overall outcome of annual bonus
When determining the annual bonus for the Executive Directors, the Committee will exercise discretion to ensure the overall
outcome is appropriate relative to internal and external factors. For example, the Committee exercised its discretion to adjust
FY18 bonuses so that performance against the underlying PBT measure was determined to be at target, despite final underlying
PBT achieving above target.
In respect of the FY19 annual bonus, after careful consideration, the Committee exercised its discretion and determined that
it was appropriate to adjust the target for net flows from 10% to 5% (with threshold from 5% to 2.5% and maximum from 15% to
7.5%), taking account of the ongoing challenging macro and political uncertainty and comparative growth data or the industry.
The overall bonus outcome, including strong performance across all key strategic and personal non-financial measures,
resulted in an annual bonus award of 103.6% of base salary paid to the Chief Executive and an annual bonus award of 103.6% of
base salary paid to the Finance Director. A third of the bonus payable is deferred into shares which vest in equal tranches over
three years to encourage further alignment with our shareholders’ priorities. Both cash and share portions are subject to malus
and clawback provisions.
Performance against financial and non-financial criteria
% of
salary at
maximum Threshold
£17.7m
2.5%
17.4%
45.0%
37.5%
22.5%
Target Maximum
£26.6m
7.0%
21.3%
£22.2m
5.0%
19.3%
% of
maximum
bonus
awarded
17.3%
11.0%
10.7%
% of base
salary
awarded for
these criteria
26.0%
16.5%
16.1%
Actual for
FY19
£21.0m
3.3%
19.6%
Weighting
30.0%
25.0%
15.0%
30.0%
45.0%
Discretionary range 0% to 45%
30.0%
45.0%
100.0%
150.0%
69.1%
103.6%
Underlying PBT
Net flows1
Underlying profit margin (%)
Strategic and
personal objectives
Total
1. The target Net flows was initially set at 10% (with threshold of 5% and a maximum of 15%). After careful consideration, the Committee decided it was appropriate
to adjust the target for Net flows, taking account of the ongoing challenging macro and political uncertainty and comparative growth data for the industry. The
figures in the table above are the amended figures.
56
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Committee continued
Following the calculation of bonus awards against the stated performance measures, additional risk adjustments were
considered by the Committee. No risk adjustments were made for Executive Directors. Final awards made are detailed in the
table below:
Directors’ share interests
At 30 June 2019, active Directors’ shareholdings were as set out below:
Name
Caroline Connellan
Ben Thorpe
Andrew Shepherd1
Nicholas Holmes2
Role
Chief Executive
Finance Director
Deputy CEO
MD UKIM
Cash
241,733
189,933
100,462
30,000
Deferred
shares
120,867
94,967
50,231
–
Total
362,600
284,900
150,693
30,000
% of base
salary
103.6%
103.6%
95.68%
29.67%
1. Andrew Shepherd ceased to be an Executive Director (“ED”) for the Group on 1 April 2019. The bonus outcome was prorated based on the period served as an ED.
2. Nicholas Holmes left the Group on 31 December 2018. The bonus outcome was prorated based on the period served as an ED.
Long Term Incentive Scheme (“LTIS”) vesting outcome of the three-year
performance period ended 30 June 2019
The amounts in the total remuneration table above represent the value vested in the year from three-year LTIS awards arising
from the deferred element of the 2015 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 pertaining under this scheme,
requiring an increase in the underlying diluted earnings per share of the Company of at least 2% per annum more than the
increase in RPI, over the period of three financial years starting with the financial year in which the date of the grant falls.
Awards granted under the LTIP during the year
The new LTIP was approved by shareholders at the 2018 AGM. Under the Plan, the maximum annual award is 50% of base
salary which will vest in one tranche after three years, subject to continued service and achievement of the underpinning
performance conditions, with a two-year post-vesting holding period.
In November 2018, the Remuneration Committee made the first annual awards under the new LTIP to Executive Directors and
members of the Executive Committee. These represented amounts in respect of the deferred element of the annual bonus for
the financial year ended 30 June 2018 and annual LTIP awards. The LTIP awards are subject to continued service and:
•
the dividend to be at least maintained throughout the period above that paid for the last financial year prior to award;
• 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.
The LTIP awards are subject to malus and clawback provisions in the event of circumstances including, but not limited to, material
misstatement of financial results, material adverse event (e.g. regulatory censure, regulator sanction, reputational damage) or
error in the calculation of the awards.
To the extent that they vest, these awards will be shown in the total remuneration table for the financial year ending 30 June 2022.
58
Number of shares or options
Executives
Caroline Connellan
Ben Thorpe
Non-Executives
Alan Carruthers (Chairman)
Colin Harris (Senior Independent Director)
Richard Price
Diane Seymour-Williams
David Stewart
John Linwood
Total
Beneficially
owned shares
LTIS and
LTIP1
Sharesave
CSOP
Total options
and shares
4,756
7,458
1,450
6,086
1,450
4,000
–
300
25,500
25,239
23,198
–
1,285
1,491
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
48,437
1,285
1,491
31,486
31,941
1,450
6,086
1,450
4,000
–
300
76,713
1.
In the year ended 30 June 2019 awards were made to the Executive Directors under the LTIP and LTIS, including a deferral of FY18 bonus. The cash value of
the awards are shown in the second table below and the actual number of shares awarded will be determined based on the share price at the grant dates in
December 2018 and April 2019.
Monetary value of awards made under LTIS and LTIP and deferred element of annual bonus
£’000
Executives
Caroline Connellan
Ben Thorpe
Total
Vesting profile of all share awards
Share awards
Caroline Connellan
Ben Thorpe
LTIS and LTIP1
CSOP2
LTIS and LTIP1
Sharesave3
1. Exercise price of all LTIS and LTIP options is nil.
2. Exercise price is £20.11.
3. Exercise price is £14.00.
Deferred
bonus
Additional
awards
136
60
196
173
363
536
Maximum
receivable
at 30 June
2019
25,239
1,491
23,198
1,285
FY20
Options
vesting
10,745
–
12,140
–
FY21
Options
vesting
4,812
1,491
8,532
–
Total
309
423
732
FY22
Options
vesting
9,682
–
2,526
1,285
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Committee continued
Sharesave
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.
The benefit shown in the total remuneration table is the value of the discount on the Sharesave options granted in the year.
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 whereby there must be
an increase in the underlying diluted earnings per share of the Company of 2% more than the increase in RPI over the three years
starting with the financial year in which the option is granted. No awards were made under the scheme during FY19.
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 notice periods of more than 12 months.
Advice to the Committee
During the year, the Committee received advice from Aon. The total fees paid to Aon in respect of its services to the Committee
were £28,837.
Non-Executive Directors
Non-Executive Directors have a letter of appointment rather than contracts of employment. The Chairman 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.
Non-Executive Directors’ fees
The Non-Executive Directors’ fees were reviewed in November 2018 with the approval of the Executive Board members to
reflect their responsibilities, competitiveness against the market, and to reflect the time commitment required during a period
of significant change for the Group.
How the policy will be applied to Executive Director remuneration for the financial
year ending 30 June 2020 onwards
Base salary review
The base salaries of Executive Directors were reviewed as part of the Annual Pay Review to take effect from 1 September 2019.
The Committee has recommended salary increases of £9,000 (2.5%) to the Chief Executive and £7,000 (2.5%) to the Finance
Director. These increases are below the average increase awarded to employees across the Group.
Performance targets for the FY20 annual bonus
For FY20, the annual bonus will be based on performance against a balanced scorecard comprising the following key
performance areas:
Underlying PBT
Net flows
Underlying profit margin
Strategic and personal objectives
Total
% of salary at
Weighting
20%
20%
20%
40%
100%
Threshold
10%
10%
10%
20%
50%
Target
20%
20%
20%
40%
100%
Maximum
30%
30%
30%
60%
150%
Small adjustments to the weighting of each metric have been made compared to FY19. Each financial measure has been given
equal weighting at 20%, with a resulting small increase to strategic and personal objectives to 40%. This aligns to the Group’s
business strategy and plan which is currently in phase II of driving growth and ongoing transformation. The Committee will set
challenging non-financial performance targets for the Executive Directors aligned to the priorities of the Group, including areas
of strategy delivery, client, risk management, people and leadership.
Executive Committee members who are not Executive Directors will move to a fully discretionary bonus structure from
FY20 onwards, with a blend of financial and non-financial targets aligned to the Group’s strategic and commercial objectives,
reflecting shareholder priorities.
Compliance with the FCA Remuneration Code
The Committee regularly reviews its Remuneration Policy’s compliance with the principles of the Remuneration Code of the
UK financial services regulator, as applicable to the Group and appropriate to its size and complexity.
Chairman
Base fee
Senior Independent Director
Committee chair
30 June
2019
£180,000
£55,000
£10,000
£10,000
30 June
2018
£150,000
£50,000
£10,000
£10,000
Change
in fees
20%
10%
0%
0%
Directors’ Remuneration Policy
The Directors’ Remuneration Policy (“the Policy”) is determined by the Committee.
Remuneration policy principles
The Policy is designed to:
The Chairman fee was increased following the appointment of the new Chairman to ensure this was commensurate with the
level of expertise and experience required for this role.
• provide a framework to attract, motivate, retain and reward employees;
• align remuneration with our business strategy, objectives, guiding principles and long-term interests of the Group and
shareholders;
• ensure that remuneration is set at an appropriate level, taking into account market rates and best practice;
• ensure the ratio between fixed and variable remuneration is appropriate and does not encourage excessive risk-taking;
• be consistent with and promote sound and effective risk management; and
• comply with all regulatory requirements.
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Remuneration
Committee continued
Summary of remuneration elements for Executive Directors for FY20
Element
Purpose
Detail
Maximum
opportunity
Fixed pay
Provides fixed
remuneration at an
appropriate level to
attract and retain talent.
Annual
bonus
Rewards annual
Group and personal
performance and aligns
reward with longer-term
performance through
deferral into shares.
Executive Directors receive a base salary and benefits
including private medical insurance, private health
insurance, and critical illness cover.
Benchmarked against
relevant market levels.
Executive Directors receive a pension contribution
from the Company equal to 10% of salary, which
can either be sacrificed into the Group’s defined
contribution pension scheme, paid into an alternative
pension scheme, or taken in cash (in part or in full).
Individual levels of fixed pay are reviewed annually
with any increases effective from 1 September, unless
there are any exceptional reasons for increases at
another time of the year.
One-third of annual bonus is deferred into shares
over three years with tranche vesting in three equal
portions after 12, 24 and 36 months.
Malus and clawback principles apply to annual bonus
awards under the Group’s malus and clawback policy.
150% of base salary.
LTIP
Rewards performance
over the long term.
Executive Directors may be considered for a
conditional award of shares of up to 50% of base
salary.
Up to 50% of base salary
(in face value of shares at
grant).
The award vests after three years subject to
continued service and the acheivement of three
key performance criteria relating to: i. funds under
management; ii. maintenance of a dividend; and iii.
a satisfactory risk, compliance, internal control and
governance environment over the period.
Post-vesting, recipients are 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.
Malus and clawback principles apply under the
Group’s malus and clawback policy.
Shareholding requirements
Executive Directors are required to build and maintain a holding in Brooks Macdonald shares or rights to shares within five
years of commencing in role, or the date of adoption of the Policy. Currently, the Chief Executive is required to build up share
ownership equal to 200% of base salary and the Finance Director share ownership equal to 150% of base salary. The Committee
has decided to increase the Finance Director’s shareholding requirement to 200% of base salary in shares or rights to shares,
aligning the two Executive Directors.
Statement of consideration of shareholder views
The Remuneration Committee regularly compares the Policy with shareholder guidelines and takes account of the results of
shareholder votes on remuneration. The Remuneration Committee Chair consults with major investors ahead of any material
changes to the Policy and is available to meet with institutional shareholders to discuss any of the policy-related disclosures or
outcomes contained in this Directors’ Remuneration Report.
Statement of consideration of employment conditions elsewhere in the Company
A consistent remuneration philosophy is applied to all employees across the Group. For the financial year ending 30 June 2020,
all employees are eligible for discretionary performance-related annual bonus based on a balanced scorecard of financial and
non-financial metrics. No linear, purely formulaic commission structures remain. The principle of bonus deferral applies to
annual bonuses for all employees whose bonuses exceed certain monetary thresholds.
Employees are able to provide direct feedback on the Group’s remuneration policies to their manager or the Human Resources
department and as part of our regular “Speak Up” employee engagement survey. In addition, the HR Director chairs a regular
People Committee meeting which covers, inter alia, feedback on the effectiveness of the Group’s Remuneration Policy and how
it is viewed by employees. The HR Director also provides similar updates to the Board.
Benchmarking
The Remuneration Committee takes account of market benchmark data when setting total remuneration packages for
Executive Directors and comparisons are made with other listed companies of a similar size and business profile to the Group.
However, in line with guidance from Institutional Shareholder Services (“ISS”) and the Financial Reporting Council (“FRC”),
market data is only used as one input to the decision-making process, rather than to directly determine pay levels. Other
factors such as the individual’s role, experience and performance play a more important part.
External appointments
Executive Directors are normally permitted to take on one 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.
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Committee continued
Risk and Compliance
Committee
Approach to remuneration for new Executive Director appointments
The remuneration package for a new Executive Director is set in line with the terms and maximum levels of the Group’s
approved remuneration policy in force at the time of appointment. The Committee may also offer additional cash and/or
share-based elements to replace awards or potential earnings forgone on becoming an Executive Director (if in the interests
of the Group and shareholders and in accordance with regulatory requirements). In considering any such payments the
Remuneration Committee could take account of the amount forgone and its nature, vesting dates and any performance
requirements attached.
Service contracts and loss of office payments
Service contracts normally continue until the Executive Director’s retirement date unless otherwise agreed, and the service
contracts provide a mechanism for early termination. The Group is able to enter into settlement agreements with Executive
Directors and to pay compensation in resolution of potential legal claims. The default treatment of any outstanding share-
based entitlements granted to an Executive Director under the Group’s LTIP or other share plans is that any outstanding
awards lapse on cessation of employment. However, in certain prescribed circumstances such as death, disability, redundancy,
retirement or other circumstances at the discretion of the Committee (taking into account the individual’s performance and
the reasons for their departure), “good leaver” status can be applied. In such cases, the normal practice is for LTIP awards held
to be retained and prorated (where necessary) on the original vesting schedule, with the performance conditions continuing to
apply, with the exception of Deferred Bonus shares which vest in full on the original vesting schedule.
Approval
This report in its entirety has been approved by the Committee and the Board of Directors on its behalf by:
Diane Seymour-Williams
Remuneration Committee Chair
(retired 31 July 2019)
John Linwood
Remuneration Committee Chair
(appointed 1 August 2019)
11 September 2019
11 September 2019
The Committee
exercises independent
oversight over the risks
faced by the Group.
David Stewart
Risk and Compliance Committee Chair
Composition and meetings
Colin Harris was the Chairman of the
Committee until September 2018,
following which David Stewart was
appointed as his replacement. Colin
Harris remained a member, helping
to ensure an effective handover of
responsibilities. Its other members are
Richard Price, Diane Seymour-Williams
and John Linwood, who was appointed
to join the Committee on 1 August 2019.
Collectively, the Committee considers
that its membership has the
appropriate expertise to discharge its
responsibilities effectively, including
relevant wealth management, financial,
risk management, compliance,
regulatory, and legal experience.
The Committee’s attendance during the
year ended 30 June 2019 is set out in
the summary table on page 46.
Role and responsibilities
The Risk and Compliance Committee
(“RCC”) assists the Board in meeting
its risk management, regulatory,
compliance and internal control
responsibilities. In discharging these
governance responsibilities, the
Committee Chair liaised closely with
the Chair of the Audit Committee
to ensure a clear allocation of
responsibilities between the two
Committees, ensuring governance
completeness across the risk landscape.
The commonality in the membership
of each Committee ensures effective
management of this process.
The Committee considers best practice,
taking account of the requirements
of the Code, where appropriate, and
those of the FCA and other relevant
regulatory bodies, including guidance
on risk management and internal
controls, as well as other requirements
set by the Board. The Committee has
established procedures to ensure that
each of its roles and responsibilities are
adequately covered over the year.
The full responsibilities of the
Committee are set out in the
Committee’s Terms of Reference, which
are reviewed annually and are available
on the Group’s website.
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Risk and Compliance
Committee continued
The Committee’s areas of focus
Risk appetite,
strategy and
exposure
management
• Overseeing the development of, and recommending to the Board, the Group’s Risk Appetite
Statement, and of limits and policies for controlling risk within the Board’s stated appetite;
• Reviewing any breaches to the limits and policies, and assessing the adequacy of mitigating or
remedial actions;
• Monitoring steps taken by management to bring breaches in line with the Board’s Risk Appetite; and
• Assessing regularly and updating, where appropriate, the Risk Appetite Statement, involving a
regular reassessment of the Group’s Principal Risks and Uncertainties, underpinned by key metrics
which articulate the status and tolerance levels of key business risks. The process is underpinned
by the capture of outputs from the review of risks undertaken by the Executive Committee and
independent challenge provided by the CRO and the Group Risk team.
Capital
requirements
• Overseeing the development of the Group’s Internal Capital Adequacy Assessment Process
(“ICAAP”) and its compliance with regulatory liquidity requirements;
• Recommending the principal risks to be considered and stress tested in the ICAAP, as well as
liquidity stress tests to be undertaken;
• Reviewing and challenging the methodology and output of stress tests, considering recommended
management responses, and ensuring that results are incorporated appropriately in the Group’s
capital and liquidity planning; and
• Ensuring that ongoing consideration is given to capital and liquidity matters as decisions are taken
by the Group Board and Executive Committee.
Top-down and
emerging risks
• Monitoring external developments, for example competition, market conditions, macroeconomic
environment, regulatory, taxation and other legal developments, and assessing the potential impact
on the Group;
• Periodically reviewing the Group’s potential risk exposures, and considering and challenging
management’s methodology to identify and address such exposures; and
• Recommending to the Board the Principal Risks and Uncertainties to be reported in the Annual
Report and Accounts.
Risk management
framework
• Reviewing, on at least an annual basis, the adequacy and effectiveness of the Group’s risk and
control processes to support its strategy and objectives, and monitoring the implementation of
enhancements identified;
• Reviewing the Group’s approach to management of outsourcing arrangements;
• Maintaining oversight of material issues, breaches and complaints, including consideration of the
adequacy of management actions proposed and any consequent implications for the Group’s Risk
Appetite status and framework; and
• Overseeing the scope and effectiveness of second line assurance work, and considering the results
of work undertaken by the third line insofar as it affects the Committee’s areas of responsibilities.
Ensuring that the assurance programme undertaken is adequate in view of the complexity and risk
profile of the Group, monitoring its completion and agreeing remedial actions arising as appropriate.
Overseeing
regulatory
compliance
Oversight of the
effectiveness
of the Risk and
Compliance
functions
• Considering regulatory developments and the potential impact on the Group;
• Reviewing key regulatory topics through reports prepared by second and third line assurance
teams; and
• Overseeing various enhancement projects, including suitability-related actions as well as the
appointment of a dedicated Money Laundering Reporting Officer.
• Safeguarding the independence of the Risk and Compliance teams, and reviewing the adequacy of
resources, reporting any concerns to the Board;
• Receiving reports from assurance teams, and in particular the CRO, and promoting an open and
transparent risk culture;
• Maintaining effectiveness oversight of the Risk and Compliance functions, monitoring performance
against plan and overseeing the process for the appointment and removal of the CRO; and
• Reviewing key communication with regulators, and fostering a culture of co-operation and
compliance.
Main activities during the year
Risk
Transformation
Project
Progression of
legacy matters
Development
of enhanced
Risk Appetite
Statement with
accompanying
framework
Further evolution
of top and
emerging risk
reporting
People risk
Internal Capital
Adequacy
Assessment
Process
The ongoing delivery of the Group Risk Transformation Project, assessing timeliness and adequacy of
the delivery of project milestones, with detailed review of constituent elements as appropriate.
Ensured progress of resolution of previously reported Channel Islands legacy matters related to a
number of discretionary portfolios formerly managed by Spearpoint (acquired by the Group in 2012)
and a Dublin-based fund for which Spearpoint acted as investment manager. Oversaw completion
of the programme of goodwill offers for the discretionary portfolio holders and agreement and
completion of a goodwill offer for the Dublin-based fund. Continuing to oversee ongoing discussions
with all stakeholders, including relevant regulators, as the Group seeks to bring these matters to
conclusion.
Work was initiated to enhance Risk Appetite Statements, develop further metrics for reporting the
Group’s position across each of the principal risks it faces and identifying effective means to regularly
validate the overall risk position, incorporate this into business planning and make recommendations
for mitigating action as appropriate.
Structured review of Top and Emerging Risks and developing management reporting, including new
dashboards, for review by the Board.
Supporting the Remuneration Committee by monitoring People Risk following the Group-wide
restructuring that took place in January 2019. This included reviewing staff retention measures
put in place, developing new ongoing staff engagement programmes and considering any key man
dependencies.
Supervised the ICAAP undertaken in the year, including development of risk scenarios, the design of
stress tests and reporting to the Board on the level of capital required.
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Committee continued
Report of the
Directors
Money
Laundering
Reporting Officer’s
Report
Cyber Crime and
Resilience
Considered in detail the Annual Money Laundering Reporting Officer’s Report, including the need for
any enhancements or other recommendations made.
Given the heightening of cyber-related crimes and regulatory focus on both business and operational
resilience, steps were taken to strengthen the Group’s core IT management team with the appointment
of a new Chief Technology Officer, Head of Cyber Security and an IT Governance team. The Committee
will continue to review this area as a priority.
Appointment of
Chief Risk Officer
(“CRO”)
The Group appointed a permanent CRO in August 2018, responsible for delivery of the risk and
compliance agenda across the Group, including the changes delivered under the Risk Transformation
Project, and the implementation of plans to strengthen the teams, processes and systems across the
Group.
Regulatory
developments
UK withdrawal
from the
European Union
(“Brexit”)
Undertook regular horizon scanning of the regulatory landscape, considering the impact of planned
and possible regulatory developments. During the year, the Committee considered steps taken to
ensure initial and continuing compliance with General Data Protection Regulations (“GDPR”) as well as
projects in place for upcoming regulatory developments, such as the Senior Managers and Certification
Regime (“SMCR”).
The Committee has considered the potential impact on the Group’s operations and strategy arising
from the expected withdrawal of the UK from the European Union, as well as implications of increased
political and economic uncertainty arising from recent events.
Looking forward
The Board recognises that the current political and macroeconomic environment will remain uncertain for the foreseeable
future, and RCC will monitor the implications of this carefully. The further enhancement of the Group’s risk management
framework will continue to be an area of focus, as will the review in detail of significant risks such as cyber crime and data
security protection, to ensure that the Group’s defences and controls are maintained at an appropriate level. The Committee
believes that the pace of regulatory change will continue, and it will consider management plans to meet new requirements.
Among other matters, the Committee will review the implementation of SMCR.
Approval
This report in its entirety has been approved by the Committee and the Board of Directors on its behalf by:
David Stewart
Risk and Compliance Committee Chair
11 September 2019
The Directors present herewith their
annual report, together with the
audited Financial statements of the
Group for the year ended 30 June 2019.
with its strategic outlook and future
developments is set out in the Strategic
report on pages 6 to 37, which is
incorporated by reference in this report.
Principal activities and
business review
Brooks Macdonald specialises in
providing investment management
services in the UK and internationally.
The Company is a public limited
company whose shares are traded on
the Alternative Investment Market
of the London Stock Exchange. A
review of the business together
Results and dividends
The statutory profit before taxation
for the year ended 30 June 2019 was
£8,245,000 (FY18: £6,722,000) and the
profit after taxation was £5,728,000
(FY18: £5,394,000).
The Directors recommend a final
dividend of 32.0p (FY18: 30.0p) per
share subject to approval by the
shareholders at the AGM on 31 October
2019. Once approved, this will be paid
on 8 November 2019 to shareholders
on the Company’s register at close
of business on 27 October 2019. An
interim dividend of 19.0p (FY18: 17.0p)
per share was paid on 23 April 2019.
This results in total dividends for the
year ended 30 June 2019 of 51.0p
(FY18: 47.0p) per share, representing
a total distribution to shareholders of
£6,969,000 (FY17: £6,442,000).
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.
Chair
Alan Carruthers (appointed on 14 March 2019)
Christopher Knight (resigned on 14 March 2019)
Executives
Caroline Connellan
Nicholas Holmes (resigned on 30 November 2018)
Andrew Shepherd (resigned on 1 April 2019)
Ben Thorpe (appointed on 6 August 2018)
Non-Executives
Colin Harris
John Linwood (appointed on 19 September 2018)
Richard Price
Diane Seymour-Williams
David Stewart
At 30 June 2019
Number of shares
At 30 June 2018
Number of shares
1,450
–
4,756
–
–
7,458
6,086
300
1,450
4,000
–
–
71,585
2,081
59,655
47,880
–
6,086
–
–
4,000
–
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 53 to 64.
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Report of the
Directors continued
Share capital
Details of the Company’s authorised
and issued share capital, and
movements thereof, are set out in
Note 25 of the Consolidated financial
statements. The Company has no
preference shares in issue and has one
class of ordinary shares which carry
no right to fixed income. There are no
specific restrictions on the size of a
holding nor on the transfer of shares,
which are both governed by the general
provisions of the Articles of Association
and prevailing legislation. The Directors
are not aware of any agreements
between holders of the Company’s
shares that may result in restrictions on
the transfer of securities or on voting
rights.
Employee share plans
Details of employee share plans are
outlined in Note 27 to the Consolidated
financial statements. The shares are
held in trust for participants. The
scheme is operated by Barclays and
voting rights are exercised by the
employer-nominated trustee on receipt
of participants’ instructions.
Employee Benefit Trust
The Group has appointed Brooks
Macdonald Nominees Limited to act as
a trustee of the Employee Benefit Trust.
The trust is independent and holds
shares for the benefit of employees
and former employees of the Group. As
part of these arrangements, the Group
issued shares to the trust to enable the
trustee to satisfy these awards. During
the year, the Trustee purchased 2.65
million shares.
Retirement and
reappointment of Directors
All of the Directors of the Group Board
will retire at the AGM and are eligible to
nominate themselves for re-election.
Insurance and Directors’
indemnities
The Company maintains appropriate
insurance cover in respect of litigation
against Directors and Officers. The
Company has granted indemnities to all
of its Directors on terms consistent with
the applicable statutory provisions.
Accordingly, qualifying third party
indemnity provisions, as defined by
Section 234 of the Companies Act 2006,
were in place during the financial year
and remain in force at the date of this
report.
Employees
Details of the Group’s employment
practices, and its policies on diversity
and inclusion, are set out in the
Corporate responsibility report on
page 36.
Internal controls and risk
management
The Directors confirm that they have
carried out a robust assessment of
the principal risks facing Brooks
Macdonald, including those that
could threaten the Group’s business
model, future performance, solvency
or liquidity. The Board considers that
the information it receives enables it to
review the effectiveness of the Group’s
internal controls in accordance with the
FRC’s Guidance on Risk Management,
Internal Control and Related Financial
and Business Reporting. Details on how
the Board monitors the Group’s risk
management and internal controls are
contained in the Risk management and
principal risks section of the Strategic
report on page 29.
Substantial shareholdings
As at 30 June 2019, the Company had
received notifications of substantial
interests in shares of 3% or more as
follows:
Liontrust Asset Management
Octopus Investments
Fidelity Investments
Brooks Macdonald Asset Management
Invesco Perpetual Asset Management
J M Gumpel
Canaccord Genuity Wealth Management
Artemis Investment Management
Rathbones Investment Management
GVQ Investment Management
Number of
shares
2,780,408
1,597,932
1,393,123
982,337
750,272
626,035
621,630
575,929
450,673
446,651
% of total
voting rights
19.93
11.45
9.98
7.04
5.38
4.49
4.46
4.13
3.23
3.20
Political donations
The Group did not make any political
donations during the year (FY18: £nil).
Events since the end of
the year
Details of events after the reporting
date are set out in Note 35 to the
Consolidated financial statements.
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 AGM.
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.
Going concern
The Group’s business activities,
performance and position, together
with the risks it faces and the factors
likely to affect its future development
are set out in the Strategic report.
As explained in the Viability statement
on page 34, the Directors have
considered the Group’s prospects for
a period exceeding 12 months from
the date the Financial statements are
approved and have concluded that the
Group has adequate financial resources
over that period and accordingly, are
satisfied that the going concern basis
for the preparation of the Financial
statements is appropriate.
Annual General Meeting
The 2019 AGM will be held on
31 October 2019 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
Caroline Connellan
Chief Executive
11 September 2019
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responsibilities
Independent auditors’ report
to the members of Brooks Macdonald Group plc
The Directors are responsible for
keeping adequate accounting records
that are sufficient to show and explain
the Parent Company’s transactions and
disclose with reasonable accuracy at
any time the financial position of the
Parent Company and enable them to
ensure that the Financial statements
comply with the Companies Act 2006.
The Directors are also responsible
for such internal controls as they
determine are necessary to enable the
preparation of financial statements that
are free from material misstatement,
whether due to fraud or error, and have
general responsibility for taking such
steps as are reasonably open to them to
safeguard the assets of the Group and
to prevent and detect fraud and other
irregularities.
Under applicable law and regulations,
the Directors are also responsible for
preparing a Strategic report, Directors’
report, Directors’ remuneration report
and Corporate governance report
that comply with that law and those
regulations.
The Directors are responsible for the
maintenance and integrity of the
corporate and financial information
included on the Company’s website.
Legislation in the United Kingdom
governing the preparation and
dissemination of financial statements
may differ from legislation in other
jurisdictions.
Directors’ responsibility
statement
We confirm that to our knowledge:
•
•
the Group and Parent Company
financial statements, which have
been prepared in accordance with
the applicable set of accounting
standards, give a true and fair view
of the assets, liabilities, financial
position and profit and loss of the
Company and the undertakings
included in the consolidation taken
as a whole; and
the Strategic report and Financial
statements include a fair review of
the development and performance
of the business and the position of
the Group and the undertakings
included in the consolidation
taken as a whole, together with a
description of the principal risks and
uncertainties that they face.
We consider the report and accounts
taken as a whole, are fair, balanced
and understandable and provide the
information necessary for shareholders
to assess the Group’s position and
performance, business model and
strategy.
By order of the Board of Directors
Caroline Connellan
Chief Executive
11 September 2019
The Directors are responsible for
preparing the Annual Report and the
Group and Parent Company financial
statements in accordance with
applicable law and regulations.
Company law requires the Directors to
prepare Group and Parent Company
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 have elected to
prepare the Parent Company financial
statements on the same basis.
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 Parent Company and
of their profit or loss for that period. In
preparing the Financial statements, the
Directors are required to:
• select suitable accounting policies
and then apply them consistently;
• make judgements and estimates that
are reasonable, relevant and reliable;
• state whether they have been
prepared in accordance with
applicable IFRSs as adopted by the
European Union;
• assess the Group and Parent
Company’s ability to continue as
a going concern, disclosing, as
applicable, matters related to going
concern; and
• use the going concern basis of
accounting unless they either intend
to liquidate the Group and Parent
Company or to cease operations, or
have no realistic alternative but to
do so.
Report on the audit of the Financial statements
Opinion
In our opinion, Brooks Macdonald Group plc’s Group Financial statements and Company financial statements (the “Financial
statements”):
• give a true and fair view of the state of the Group’s and of the Company’s affairs as at 30 June 2019 and of the Group’s profit
and the Group’s and the Company’s cash flows for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the
European Union and, as regards the Company’s financial statements, as applied in accordance with the provisions of the
Companies Act 2006; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the Financial statements, included within the Annual Report and Accounts (the “Annual Report”), which
comprise: the Consolidated and Company statements of financial position as at 30 June 2019; the Consolidated statement of
comprehensive income for the year ended 30 June 2019, the Consolidated and Company statements of cash flows for the year
ended 30 June 2019, and the Consolidated and Company statements of changes in equity for the year ended 30 June 2019; and
the notes to the Financial statements, which include a description of the significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the Financial statements
section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the
Financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled
our other ethical responsibilities in accordance with these requirements.
Our audit approach
Overview
Materiality
Audit Scope
• Overall Group materiality: £766,400 (FY18: £711,900), based on 5% of statutory profit before
tax adjusted for the goodwill impairment and the client relationship contracts impairment.
Please note prior year materiality was adjusted for the provision for exceptional costs of
resolving legacy matters and the software impairment.
• Overall Company materiality: £402,800 (FY18: £478,500), based on 1% of net assets.
• The Group has three business segments, Investment Management, Financial Planning and
International, consisting of nine legal entities that operate in the UK and Channel Islands
during the reporting period. We audited the complete financial information of three legal
entities, due to their size and specific procedures on a further two legal entities. Taken
together, our audit work accounted for more than 99% of Group revenues and 94% of Group
profit before tax and 96% of Group total assets.
Key Audit
Matters
• Recognition of investment management fee revenue (Group).
• Completeness of the provision for exceptional costs of resolving legacy matters (Group).
• Valuation of Levitas goodwill (Group).
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to the members of Brooks Macdonald Group plc
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.
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 60% of the Group’s £107.3m 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 funds under management (“FUM”). The calculation
is largely automated, however there are a number of
inherent risks including the manual input of key contractual
terms and the existence 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.
• As we did not rely on controls over the investment
management system, we undertook substantive
procedures. We manually tested management’s controls
over the performance of external client cash and stock
reconciliations.
• On a sample basis, we reperformed the reconciliations
of cash and stockholding positions to external custody
confirmations.
• We agreed, for a sample, fee rates to client contracts.
• We tested the valuation of a sample of client assets held
against independent market prices.
• We tested the accuracy of fees, by reperforming the
calculation of the investment management fees; and
obtained evidence for any differences on a sample basis.
• We reconciled the fees calculated by the investment
management system to the general ledger postings.
Our testing did not identify any evidence of material
misstatement.
Completeness of the provision for exceptional costs of
resolving legacy matters
Refer to Note 2 Principal accounting policies and Note 23
Provisions.
The Group accounts have an outstanding provision of
£701,000 as at 30 June 2019 in relation to the legacy matters
in the International business. A total of £5.5m has been
utilised during 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”. The
significant degree of judgement involved in the provision
makes this a key audit matter.
Valuation of Levitas goodwill
Refer to Note 2 Principal accounting policies and Note 13
Intangible assets.
The valuation of the Levitas Investment Management
Limited (“Levitas”) cash generating unit requires
management to make a number of significant judgements
which may materially affect the valuation, such as forecasted
funds under management, and related cash flows, discount
and growth rates, in order to calculate the “value-in-use”. The
Levitas goodwill represents £4.5m of the Group’s intangible
assets after recognising a £4.8m impairment loss during
the year. The key driver of the impairment was the result of
an agreement to lower the sponsorship rate of a significant
customer. The size of the balances and the significant degree
of judgement involved in the Group’s valuations makes this a
key audit matter.
We performed the following procedures in relation to the
completeness of the provision for legacy matters:
• We understood the nature of the legacy matters and
assessed management’s accounting treatment in line with
the IAS 37 conditions to recognise a provision.
• We understood from management and Board members
the rationale for estimating the amount of provision
released during the year.
• We have challenged the completeness of the provision
by understanding the status of unsettled cases through
discussions with management.
• We agreed a sample of goodwill payments made to clients
to supporting documentation and bank statements.
• 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.
We obtained management’s impairment review of the
Levitas goodwill and performed the following:
• We evaluated management’s valuation methodology
against the requirements in IAS 36 “Impairment of assets”.
• We obtained the 5-year forecasted FUM and related
revenues and expenses that were Board approved
and challenged the drivers of the forecasted FUM and
considered the accuracy of management’s forecasting
process, with reference to historic results.
• We challenged the reasonableness of key assumptions in
the model, the discount rate and long-term growth rates
using available market information.
• We tested management’s sensitivity analysis to determine
the impact of changes in the key assumptions.
• We evaluated the appropriateness of the impairment
disclosures included in the Financial statements.
Our testing did not identify any evidence of material
misstatement.
We determined that there were no key audit matters applicable to the Company to communicate in our report.
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to the members of Brooks Macdonald Group plc
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.
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. For example, the terms on which the United Kingdom may withdraw from
the European Union are not clear, and it is difficult to evaluate all of the potential implications on the Group’s trade, customers,
suppliers and the wider economy.
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
£766,400 (FY18: £711,900).
£402,800 (FY18: £478,500).
Group financial statements
Company financial statements
How we determined it
Rationale for benchmark
applied
5% of statutory profit before tax adjusted
for the goodwill impairment and the client
relationship contracts impairment.
As with prior years, the most appropriate
metric to apply to Group materiality is
profit before tax on the basis that the Group
is primarily measured on its financial
performance via its Consolidated statement
of comprehensive income. We have
adjusted profit before tax for the goodwill
impairment and the client relationship
contracts impairment. Please note prior year
materiality was adjusted for the provision for
exceptional costs of resolving legacy matters
and the software impairment.
1% of net assets.
1% of net assets is a commonly used industry
benchmark for holding entities such as the
Company.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality.
The range of materiality allocated across components was between £21,700 and £724,200. 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 £38,000
(Group audit) (FY18: £34,100) and £20,100 (Company audit) (FY18: £23,900) as well as misstatements below those amounts that,
in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
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 12 months from the date when the Financial statements are authorised for issue.
We have nothing to report in respect of the above matters.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the Financial statements and our
auditors’ report thereon. The Directors are responsible for the other information. Our opinion on the Financial statements
does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the Financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the Financial statements or our knowledge obtained
in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the Financial
statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based
on these responsibilities.
With respect to the Strategic report and Report of the Directors, we also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to
report certain opinions and matters as described below.
Strategic report and Report of the Directors
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and
Report of the Directors for the year ended 30 June 2019 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 72, 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.
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Independent auditors’ report continued
to the members of Brooks Macdonald Group plc
Auditors’ responsibilities for the audit of the Financial statements
Our objectives are to obtain reasonable assurance about whether the Financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
Financial statements.
A further description of our responsibilities for the audit of the Financial statements is located on the FRC’s website at: www.frc.
org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Other required reporting
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
11 September 2019
78
Financial statements
Consolidated financial statements
Contents
80
81
82
83
84
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Brooks Macdonald Group plc Annual Report and Accounts 2019Corporate governanceStrategic reportIntroductionFinancial statementsCorporate governance
Consolidated statement of
comprehensive income
For the year ended 30 June 2019
Consolidated statement of
financial position
As at 30 June 2019
Revenue
Administrative costs
Other losses
Operating profit
Finance income
Finance costs
Profit before tax from continuing operations
Taxation on continuing operations
Profit for the period from continuing operations
Note
4
5
6
8
8
9
2019
£’000
107,270
(91,835)
(6,928)
8,507
227
(94)
8,640
(2,517)
6,123
2018
Restated*
£’000
99,941
(89,335)
(3,643)
6,963
128
(152)
6,939
(1,328)
5,611
Loss from discontinued operations
10
(395)
(217)
Profit for the period attributable to equity holders of the Company
5,728
5,394
Other comprehensive expense:
Items that may be reclassified subsequently to profit or loss
Revaluation of available for sale financial assets
Total other comprehensive expense
Total comprehensive income for the year
Earnings per share
Basic
Diluted
–
–
(2)
(2)
5,728
5,392
11
11
41.7p
41.7p
39.4p
39.3p
* Prior periods have been restated to separate the results of discontinued operations, consistent with the presentation in the current period. Refer to Note 10 for
details of the results of discontinued operations.
The accompanying notes on pages 84 to 126 form an integral part of the Consolidated financial statements.
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Available for sale financial assets
Financial assets at fair value through other comprehensive income
Other receivable
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
Provisions
Deferred tax liabilities
Other non-current liabilities
Total non-current liabilities
Current liabilities
Trade and other payables
Current tax liabilities
Provisions
Total current liabilities
Net assets
Equity
Share capital
Share premium account
Other reserves
Retained earnings
Total equity
Note
2019
£’000
2018
£’000
13
14
15
17
18
16
19
20
23
17
21
22
23
25
25
26
26
50,167
3,177
–
500
94
1,223
55,161
26,732
613
34,590
61,935
60,556
3,996
1,578
–
–
1,176
67,306
26,019
1,267
30,939
58,225
117,096
125,531
(380)
(278)
(2,278)
(714)
(3,650)
(20,788)
(2,350)
(2,736)
(25,874)
(1,479)
–
(2,990)
(157)
(4,626)
(23,291)
(1,325)
(8,332)
(32,948)
87,572
87,957
139
39,068
4,575
43,790
87,572
138
38,404
3,114
46,301
87,957
The Consolidated financial statements on pages 80 to 126 were approved by the Board of Directors and authorised for issue on
11 September 2019, and signed on their behalf by:
Caroline Connellan
Chief Executive
Company registration number: 4402058
Ben Thorpe
Finance Director
The accompanying notes on pages 84 to 126 form an integral part of the Consolidated financial statements.
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Consolidated financial statementsBrooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements
Consolidated statement of
changes in equity
For the year ended 30 June 2019
Consolidated statement of
cash flows
For the year ended 30 June 2019
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
Deferred consideration paid
Proceeds from sale of discontinued operations
Finance income received
Proceeds of sale of financial assets at fair value through profit or loss
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 increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Note
24
14
13
20
10
8
16
10
12
19
2019
£’000
15,553
(2,301)
13,252
(572)
(1,106)
(1,251)
593
198
1,234
–
(904)
665
(2,648)
(6,714)
(8,697)
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)
3,651
(1,244)
30,939
34,590
32,183
30,939
The accompanying notes on pages 84 to 126 form an integral part of the Consolidated financial statements.
Balance at 1 July 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 expense:
Revaluation of available for sale financial assets
Total comprehensive income
Transactions with owners
Issue of ordinary shares
Share-based payments
Share-based payments exercised
Tax on share options
Dividends paid
Total transactions with owners
Balance at 30 June 2018
Adjustment on initial application of IFRS 9
Adjusted balance at 1 July 2018
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
Total comprehensive income
Transactions with owners
Issue of ordinary shares
Share-based payments
Share-based payments exercised
Purchase of own shares by Employee Benefit
Trust
Tax on share options
Dividends paid
Total transactions with owners
Note
10
10
12
15
10
10
12
Share
capital
£’000
138
Share
premium
account
£’000
37,101
Other
reserves
£’000
6,480
Retained
earnings
£’000
41,987
Total
equity
£’000
85,706
–
–
–
–
–
–
–
–
–
–
–
138
–
138
–
–
–
–
–
1
–
–
–
–
–
1
–
–
–
–
–
1,303
–
–
–
–
1,303
–
–
–
(2)
(2)
–
1,669
(4,763)
(270)
–
(3,364)
5,611
(1,079)
862
–
5,394
–
–
4,763
–
(5,843)
(1,080)
5,611
(1,079)
862
(2)
5,392
1,303
1,669
–
(270)
(5,843)
(3,141)
38,404
3,114
46,301
87,957
–
38,404
(1)
3,113
–
46,301
(1)
87,956
–
–
–
–
–
664
–
–
–
–
–
664
–
–
–
–
–
–
2,634
(1,123)
–
(49)
–
1,462
6,123
(724)
329
–
5,728
–
–
1,123
(2,648)
–
(6,714)
(8,239)
6,123
(724)
329
–
5,728
665
2,634
–
(2,648)
(49)
(6,714)
(6,112)
Balance at 30 June 2019
139
39,068
4,575
43,790
87,572
The accompanying notes on pages 84 to 126 form an integral part of the Consolidated financial statements.
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financial statements
For the year ended 30 June 2019
1. General information
Brooks Macdonald Group plc (“the Company”) is the parent company of a group of companies (”the Group”), which offers a
range of investment management services to private high net worth individuals, pension funds, institutions and trusts. The
Group also provides financial planning as well as offshore investment management and acts as fund manager to a regulated
OEIC providing a range of risk-managed multi-asset funds and a specialised absolute return fund.
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 financial assets at fair value through other comprehensive income, 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 its Employee Benefits business within the Financial Planning segment and Brooks
Macdonald Funds Limited, a subsidiary within the Group, resigned as investment manager of the Ground Rents Income Fund
plc (“GRIF”). As a result, the prior year has been restated to separate the results of discontinued operations, consistent with the
presentation in the current year. Refer to Note 10 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 41 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 2018, except as explained below.
New accounting standards, amendments and interpretations adopted in the year
In the year ended 30 June 2019, the Group adopted two new standards being IFRS 9 ‘Financial instruments’ and IFRS 15
‘Revenue from contracts with customers’. The Group did not adopt any other new standards and amendments issued by the
International Accounting Standards Board (“IASB”) or interpretations issued by the IFRS IC in the year ending 30 June 2019.
2. Principal accounting policies (continued)
c. Changes in accounting policies (continued)
IFRS 9 ‘Financial instruments’
IFRS 9 governs the accounting treatment for the classification and measurement of financial instruments and the timing and
extent of credit provisioning, replacing the previously adopted IAS 39 ‘Financial instruments: recognition and measurement’.
The standard concerns guidance for the classification and measurement of financial assets by introducing a fair value through
other comprehensive income category for certain financial assets. It also contains a new impairment model which intends to
result in earlier recognition of losses.
Transition
The Group has taken advantage of the exemption per paragraph 5.6.1 of IFRS 9, regarding restated comparative information
for prior years with respect to classification, measurement and impairment requirements. Where differences arise in the
carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9, they are to be recognised in
retained earnings as at 1 July 2018. Accordingly, the information presented for the year ended 30 June 2018 will not reflect the
requirements of IFRS 9 but will be presented in line with IAS 39.
Classification and measurement of financial assets and financial liabilities
IFRS 9 requires the Group to hold its financial assets and liabilities at amortised cost, fair value through profit or loss (“FVPL”)
or fair value through other comprehensive income (“FVOCI”). The categorisation of assets as ‘held to maturity’ (“HTM”) and
‘available for sale’ (“AFS”) are no longer recognised under IFRS. The classification criteria for designating financial assets
between the categories under IFRS 9 require the Group to assess and document the business models under which the
assets are actually managed. Consideration needs to be given to management of the asset in terms of if the asset is held for
contractual cash flow, if the contractual cash flow represents solely payment of principal and interest and if the asset is held for
selling purposes.
The effect of adopting IFRS 9 on the carrying amounts of financial assets at 1 July 2018 has resulted in a change of classification
on the Consolidated statement of financial position, however has not impacted the Consolidated statement of comprehensive
income or Consolidated statement of cash flows.
The following table summarises the original measurement categories under the previously adopted IAS 39 and the new
measurement categories and carrying amount under IFRS 9 for each of the Group’s financial assets at 1 July 2018.
Financial asset
Unlisted redeemable preference shares
Contingent consideration receivable
Offshore bond
Trade and other receivables
Financial assets at FVPL
Total financial assets
Previous IAS 39
classification
AFS
AFS
AFS
Loans and
receivables
FVPL
Previous IAS 39
carrying amount
£’000
650
923
5
New IFRS 9
classification
FVOCI
FVPL
FVPL
New IFRS 9
carrying amount
£’000
650
923
5
26,019
1,267
28,864
Amortised cost
FVPL
26,019
1,267
28,864
The basis of classification for financial liabilities under IFRS 9 remains unchanged from IAS 39. There remains two categories
being amortised cost or FVPL. The Group has assessed its financial liabilities at 1 July 2018 and concluded that no change in
classification is required. Therefore there has been no impact on the Consolidated statement of financial position, Consolidated
statement of comprehensive income or Consolidated statement of cash flows as a result of IFRS 9 in relation to financial
liabilities.
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financial statements continued
For the year ended 30 June 2019
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. The objective of the impairment requirements is to recognise lifetime expected credit losses for all financial instruments,
considering all reasonable information, including that which is forward-looking. The Group applies the simplified lifetime
expected credit loss model. This requires an assessment of the total amount of credit losses expected over the lifetime of
the asset and is performed on an asset by asset basis. As a result, the Group has determined that the application of IFRS 9’s
impairment requirements has not had a material impact on the Financial statements.
IFRS 15 ‘Revenue from contracts with customers’
IFRS 15 governs the accounting treatment of revenue recognition from contracts with customers which replaces the existing
IFRS revenue guidance adopted previously, in particular IAS 18 ‘Revenue’. IFRS 15 creates a single model for revenue
recognition from contracts with customers and aims to provide greater consistency and comparability across industries by
linking revenue to the fulfilment of identified performance obligations that are detailed in the customer contract. The core
principle underlying the new recognition is that an entity should recognise revenue in a manner that depicts the pattern of
transfer of goods and services to customers. It also requires that the incremental cost of obtaining a customer contract should
be capitalised if that cost is expected to be recovered.
Transition
The Group has taken advantage of the exemption per Appendix C of IFRS 15 regarding restated comparative information for
prior years with respect to revenue recognition. Where differences arise resulting from the adoption of IFRS 15, they are to be
recognised in retained earnings as at 1 July 2018. Accordingly, the comparative information presented for the year ended
30 June 2018 will not reflect the requirements of IFRS 15 but will be presented in line with previous revenue recognition
from contracts with customers.
Impact of IFRS 15 on the Financial statements for the year ended 30 June 2019
The Group has reviewed IFRS 15 and its impact on its existing revenue streams, as well as on its policy of capitalising the cost
of obtaining customer contracts. As described below, the adoption of IFRS 15 has not had a significant impact on the Group’s
revenue recognition accounting policy.
Portfolio management fee income and fund management fees
The core portfolio management fee income is contracted with customers and is in relation to the continued management
of their portfolio during a defined period. As a result, the performance obligation is ongoing over the contract resulting in no
impact on revenue recognition as a result of IFRS 15.
Portfolio management fee income includes income earned on supporting activities and revenues that are part of the overall
service provided, and as a result do not present a separate and stated performance obligation. These supporting activities are
for one-off services and revenue is recognised once the service has occurred, therefore IFRS 15 has no impact on the supporting
activities for portfolio management fee income.
Financial services commission
The revenue is earned as a result of the core services provided in the Financial Planning segment through advisory fees (see
below). The revenue is earned as a result of a past service being satisfied resulting in no impact to revenue recognition due to
IFRS 15.
Advisory fees
Advisory fees are subject to client agreements to provide financial advice and assistance. Clients are charged based on an
agreed rate of funds under advice, invoiced 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’ relating to unbilled revenue earned by an
advisor. The client contracts do not include any distinct performance conditions meaning this work in progress revenue
cannot be recognised under IFRS 15. The work in progress balance and movement from year to year is consistently immaterial,
and therefore the adoption of IFRS 15 has not had a material impact on advisory fee revenue.
2. Principal accounting policies (continued)
c. Changes in accounting policies (continued)
Costs of obtaining or fulfilling a contract
Under IFRS 15 the scope requirements for recognising an asset in relation to costs of obtaining or fulfilling a contract are broader
such that costs to obtain any contract with a customer should be capitalised if those costs are incremental and the Group
expects to recover them. Amortisation should then be charged on a basis that is consistent with the transfer to the customer of
the services to which the capitalised costs relate.
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 IFRS 15 on these and concluded that the current policies in place are sufficient and therefore will remain
unchanged.
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 2018
1 January 2018
1 January 2018
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 years beginning after 1 July 2018:
Standard, Amendment or Interpretation
Leases (IFRS 16)
Uncertainty over Income Tax Treatments (IFRIC 23)
Annual improvements to IFRS standards 2015–2018 cycle (IFRS 3, IFRS 11, IAS 12, IAS 23)
Amendments to IAS 28: Long-term Interest in Associates and Joint Ventures
Amendments to References to the Conceptual Framework in IFRS Standards
Amendment to IFRS 3 Business Combinations
Amendments to IAS 1 and IAS 8: Definition of Material
Insurance Contracts (IFRS 17)
† Not yet endorsed by the EU.
Effective date
1 January 2019
1 January 2019
1 January 2019†
1 January 2019†
1 January 2020†
1 January 2020†
1 January 2020†
1 January 2021
The impact of these changes is currently being reviewed and there is no intention to early adopt.
IFRS 16 ‘Leases’
IFRS 16 is effective for years commencing on or after 1 January 2019. The standard was endorsed by the EU during 2017. Under
the previous treatment, operating leases had lease payments charged to the Consolidated statement of comprehensive income
over the life of the lease and no recognition on the Consolidated statement of financial position. Finance leases created a lease
liability on the statement of financial position using the present value of lease payments and amortised over the life of the lease
to the statement of comprehensive income. The change to IFRS 16 removes the classification of leases as either operating or
finance leases for lessees and introduces a single, on-balance sheet accounting model, which requires:
•
the recognition of a right-of-use asset and corresponding lease liability with respect to all lease arrangements in which the
Group is the lessee, except for leases that have a period less than 12 months and low value leases;
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financial statements continued
For the year ended 30 June 2019
2. Principal accounting policies (continued)
c. Changes in accounting policies (continued)
•
depreciation charge on the right-of-use asset on a straight-line basis over the lease term, with the lease term duration
dictated by management’s intentions of the lease and underlying asset; and
•
a finance cost arising from the implied interest expense unwinding of the discounted lease liability over the lease term
using the effective interest rate method.
Transition
The Group has decided not to early adopt this standard and as a lessee, the Group will apply IFRS 16 initially with effect from
1 July 2019, using the modified retrospective approach with optional practical expedients. Therefore the cumulative effect
of adopting IFRS 16 will be recognised as an adjustment to the opening Statement of Financial Position at 1 July 2019, with no
restatement of comparative information. As a result of using the modified retrospective approach, the Group will apply IFRS 16
to all lease arrangements entered into before 1 July 2019 and identified as leases in accordance with IAS 17.
Lessee accounting
The Group has assessed the impact of adopting the new standard based on its existing lease arrangements at 30 June 2019.
The Group’s total assets and total liabilities will be increased by the recognition of right-of-use assets and lease liabilities. The
right-of-use assets will be depreciated over the lease term and the lease liability will be reduced by lease payments, offset
by the implied interest expense, unwinding the liability over the lease term which will be recognised in finance costs in the
Consolidated statement of comprehensive income.
Based on the available information at 30 June 2019, IFRS 16 impacts the recognition of the Group’s office lease arrangements.
The Group estimates that it will recognise lease liabilities of approximately £2,070,000 at 1 July 2019 and right-of-use assets
with also an approximate value of £2,070,000. There is an estimated increase of equity by £300,000 due to the impact of
accrued lease incentives at 30 June 2019. The impact on the Consolidated statement of comprehensive income will see lease
costs accelerated as the implied interest charge is higher in the early years of a lease term as the discount rate unwinds over the
life of the discount period.
The total cost and cash outflow of the lease over the lease term is not expected to change. In addition to the above impacts,
recognition of lease assets will increase the Group’s regulatory capital requirement.
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.
There have been no critical judgements required in applying the Group’s accounting policies in this period, apart from those
involving estimations which are detailed separately below.
The underlying assumptions made are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
year in which the estimate is revised only if the revision affects both current and future periods.
Further information about key assumptions and sources of estimation uncertainty are set out below.
Intangible assets
The Group has acquired client relationships and the associated investment management contracts as part of business
combinations, through separate purchase or with newly employed teams of fund managers (as described in Note 13). In
assessing the fair value of these assets the Group has estimated their finite life based on information about the typical length of
existing client relationships. Contracts acquired with fund managers and acquired client relationship contracts are amortised
on a straight-line basis over their estimated useful lives, ranging from 5 to 20 years.
Goodwill recognised as part of a business combination is reviewed annually for impairment, or when a change in
circumstances indicates that it might be impaired. The recoverable amounts of cash generating units are determined by value
in use calculations, which require the use of estimates to derive the projected future cash flows attributable to each unit. Details
of the more significant assumptions are given in Note 13.
2. Principal accounting policies (continued)
d. Critical accounting estimates and judgements (continued)
Deferred consideration
As described in Note 20, 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. The outstanding deferred consideration liability at 30 June 2019
relates entirely to the present value of fixed amounts owed to the vendors of Levitas.
Contingent consideration
As described in Note 10, the Group has a contingent consideration balance in respect of the disposal of Braemar Estates
(Residential) Limited in December 2017 and the disposal of the Employee Benefits business in December 2018. 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 27). 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 2o.
As described in Note 23, 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.
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 remeasured 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, in
accordance with IAS 39. Subsequent changes to the fair value of contingent consideration are recognised in accordance with
IFRS 9 in the Consolidated statement of comprehensive income.
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financial statements continued
For the year ended 30 June 2019
2. Principal accounting policies (continued)
f. Business combinations (continued)
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 (“CGU”) 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 CGU is compared to its recoverable amount, which is determined using a discounted
future cash flow model.
Where goodwill forms part of a CGU 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 CGU retained.
g. Revenue
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 received. 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 fundraising 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.
Share-based payments
i.
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.
2. Principal accounting policies (continued)
j.
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.
Segmental reporting
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 (“FCA”). 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:
Leasehold improvements
Motor vehicles
Fixtures, fittings and office equipment
IT equipment
–
–
–
–
over the lease term
4 years
5 years
4 or 5 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.
During the year, property, plant and equipment non-current assets were reviewed in terms of useful economic life and
classification of assets; see Note 14 for details of the review and change in accounting estimate.
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.
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Notes to the consolidated
financial statements continued
For the year ended 30 June 2019
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 CGUs for the purposes of impairment testing. If the cost of the acquisition is
less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the Consolidated
statement of comprehensive income.
n. Financial investments
The Group classifies financial assets in the following categories: fair value through profit or loss; fair value through other
comprehensive income; and amortised cost. 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.
Fair value through other comprehensive income
Financial instruments are classified as fair value through other comprehensive income if the objective of the business
model is achieved by both collecting contractual cash flows and selling financial assets and that the asset’s contractual cash
flows represents solely payment of principal and interest. Assets in this category are initially recognised at fair value and
subsequently remeasured, with gains or losses arising from changes in fair value being recognised in the other comprehensive
income.
Amortised cost
Financial instruments are classified as amortised cost if the asset is held to collect contractual cash flows and the asset’s
contractual cash flows represents solely payment of principal and interest.
o. 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.
2. Principal accounting policies (continued)
o. Provisions and contingent liabilities (continued)
Client compensation
Complaints are assessed on a case-by-case basis and provisions for compensation are made where it is judged necessary.
p. Foreign currency translation
The Group’s functional and presentational currency is the Pound Sterling. Foreign currency transactions are translated using
the exchange rate prevailing at the transaction date. At the reporting date, monetary assets and liabilities that are denominated
in foreign currencies are retranslated at the prevailing rates on that date. Foreign exchange gains and losses resulting from
settlement of such transactions and from the translation of period-end monetary assets and liabilities are recognised in the
Consolidated statement of comprehensive income.
q. Retirement benefit costs
Contributions in respect of the Group’s defined contribution pension scheme are charged to the Consolidated statement of
comprehensive income as they fall due.
r. Taxation
Tax on the profit for the year comprises current and deferred tax. Current tax is the expected tax payable on the taxable
income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable
in respect of previous years.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the Group’s Financial statements. Deferred tax assets and liabilities are measured at the
tax rates that are expected to apply to the period when the asset is realised or the liability settled based on tax rates (and laws)
that have been enacted or substantively enacted at the reporting date.
Deferred tax assets are only recognised to the extent that it is probable that future taxable profit will be available against which
the temporary differences can be utilised.
s. Trade receivables
Trade receivables represent amounts due for services performed in the ordinary course of business. They are recognised in
trade and other receivables and if collection is expected within one year they are recognised as a current asset and if collection
is expected in greater than one year, they are recognised as a non-current asset. Trade receivables are measured at amortised
cost less any provision for impairment.
t. Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. These are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle
of the business if longer). Otherwise, they are presented as non-current liabilities in the Consolidated statement of financial
position.
Trade payables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest
method.
u. Operating lease payments
Rent payments due under operating leases are charged to the Consolidated statement of comprehensive income on a
straight-line basis over the term of the lease. Where leases include lease incentives such as rent-free periods, the benefit of
these incentives is recognised over the lease term as a reduction in the rental expense.
v. Financial instruments
The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial
liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial instruments are
recognised in the Consolidated statement of financial position at fair value when the Group becomes a party to the contractual
provisions of the instrument.
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financial statements continued
For the year ended 30 June 2019
2. Principal accounting policies (continued)
w. 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 34. 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.
x. 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.
y. 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.
94
3. Segmental information
For management purposes the Group’s activities are organised into three operating divisions: UK Investment Management,
Financial Planning and International. The Group’s other activity, offering nominee and custody services to clients, is included
within UK Investment Management. These divisions are the basis on which the Group reports its primary segmental
information to the Group Board of Directors, which is the Group’s chief operating decision-maker. In accordance with IFRS
8 ‘Operating Segments’, disclosures are required to reflect the information which the Board of Directors uses internally for
evaluating the performance of its operating segments and allocating resources to those segments. The information presented
in this note is consistent with the presentation for internal reporting.
Revenues and expenses are allocated to the business segment that originated the transaction. Revenues and expenses that
are not directly originated by a particular operating business segment are reported as ‘all other segments and consolidation
adjustments.’ Sales between segments are carried out at arm’s length. Centrally incurred expenses are allocated to business
segments on an appropriate prorata basis. Segmental assets and liabilities comprise operating assets and liabilities, those being
the majority of the Consolidated statement of financial position.
Year ended 30 June 2019
Total segment revenue
Inter segment revenue
External revenues
Underlying administrative costs
Operating contribution
Allocated costs
Underlying other gains and losses, finance
income and finance costs
Underlying profit/(loss) before tax
Goodwill impairment
Restructuring charge
Client relationship contracts impairment
Amortisation of client relationships and contracts
acquired with fund managers
Changes in fair value of deferred consideration
Finance cost of deferred consideration
Changes in fair value of contingent consideration
Disposal costs
Finance income from contingent consideration
Profit/(loss) before tax
Taxation
Loss from discontinued operations
Profit for the year attributable to equity
holders of the Company
UK
Investment
Management
£’000
89,369
(292)
89,077
(45,121)
43,956
Financial
Planning
£’000
3,556
–
3,556
(2,926)
630
International
£’000
14,609
–
14,609
(9,247)
5,362
All other
segments and
consolidation
adjustments
£’000
28
–
28
(28,996)
(28,968)
Total
£’000
107,562
(292)
107,270
(86,290)
20,980
(19,171)
(2,469)
(3,180)
24,820
–
18
24,803
–
(1,839)
–
(1,764)
–
(787)
–
–
–
–
–
22,252
–
–
–
–
–
–
–
(21)
5
(1,855)
(37)
2,145
–
(739)
–
(420)
–
–
–
–
–
986
28
(4,120)
(4,756)
(762)
(2,328)
(1,039)
419
(94)
(75)
(12)
24
(12,743)
9
20,989
(4,756)
(3,265)
(2,328)
(2,246)
419
(94)
(75)
(33)
29
8,640
(2,517)
(395)
5,728
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Consolidated financial statementsBrooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements Notes to the consolidated
financial statements continued
For the year ended 30 June 2019
3. Segmental information (continued)
The below segmental analysis has been restated to reflect the previously reported Funds segment which was integrated into
UK Investment Management on 1 July 2018. Property Funds have been included in ‘all other segments and consolidation
adjustments’ along with the non-reportable Group segment. The analysis has also been restated to reflect the additional
discontinued operations recognised during the year (Note 10) and a change in presentation to disclose administrative
expenses, allocated costs and underlying other gains and losses, finance income and finance costs by segment.
UK
Investment
Management
£’000
82,593
(832)
81,761
(44,583)
37,178
Financial
Planning
£’000
4,226
(314)
3,912
(2,156)
1,756
International
£’000
14,170
–
14,170
(10,373)
3,797
All other
segments and
consolidation
adjustments
£’000
98
–
98
(24,242)
(24,144)
Total
£’000
101,087
(1,146)
99,941
(81,354)
18,587
(15,347)
(1,974)
(2,400)
19,721
–
6
21,837
–
(2,518)
(890)
–
–
–
–
–
18,429
–
(218)
–
–
–
–
–
–
–
–
(218)
54
1,451
(5,531)
–
(420)
–
–
–
–
–
(4,500)
124
(4,299)
–
–
(1,052)
(1,191)
(152)
(88)
26
(16)
(6,772)
2019
£’000
94,567
109
4,509
8,085
107,270
184
18,771
(5,531)
(2,518)
(2,362)
(1,191)
(152)
(88)
26
(16)
6,939
(1,328)
(217)
5,394
2018*
£’000
87,909
151
4,937
6,944
99,941
Year ended 30 June 2018
Total segment revenue
Inter segment revenue
External revenues
Underlying administrative costs
Operating contribution
Allocated costs
Underlying other gains and losses, finance income and
finance costs
Underlying profit/(loss) before tax
Exceptional costs of resolving legacy matters
Software impairment
Amortisation of client relationships and contracts
acquired with fund managers
Changes in fair value of deferred consideration
Finance cost of deferred consideration
Disposal costs
Finance income from contingent consideration
Changes in fair value of contingent consideration
Profit/(loss) before tax
Taxation
Loss from discontinued operations
Profit for the year attributable to equity
holders of the Company
4. Revenue
Portfolio management fee income
Financial services commission
Advisory fees
Fund management fees
Total revenue
* Restated to exclude revenue from discontinued operations (Note 10).
96
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.
United Kingdom
Channel Islands
Total revenue
* Restated to exclude revenue from discontinued operations (Note 10).
2019
£’000
92,661
14,609
107,270
2018*
£’000
85,771
14,170
99,941
b. Major clients
The Group is not reliant on any one client or group of connected clients for the generation of revenues.
5. Other losses
Other losses represent the net changes in the fair value of the Group’s financial instruments and intangible assets recognised in
the Consolidated statement of comprehensive income.
Goodwill impairment (Note 13)
Client relationship contracts impairment (Note 13)
Software impairment (Note 13)
(Loss)/gain from changes in fair value of financial assets at fair value through profit or loss (Note 16)
Loss from changes in fair value of contingent consideration receivable (Note 16)
Gain/(loss) from changes in fair value of deferred consideration payable (Note 20)
Impairment of financial assets at fair value through other comprehensive income (Note 15)
Other losses
6. Operating profit
Operating profit is stated after charging:
Staff costs (Note 7)
Auditor’s remuneration (see below)
Financial Services Compensation Scheme Levy (see below)
Depreciation of property, plant and equipment (Note 14)
Amortisation of computer software (Note 13)
Amortisation of client relationships and contracts acquired with fund managers (Note 13)
Impairment of client relationship contracts (Note 13)
Impairment of goodwill (Note 13)
Exceptional cost of resolving legacy matters (Note 23)
Rent on operating leases
2019
£’000
(4,756)
(2,328)
–
(38)
(75)
419
(150)
(6,928)
2019
£’000
50,019
550
1,167
1,391
2,165
2,246
2,328
4,756
–
2,133
2018
£’000
–
–
(2,518)
82
(16)
(1,191)
–
(3,643)
2018
£’000
46,830
842
664
1,186
1,518
2,362
–
–
5,531
1,996
97
Consolidated financial statementsBrooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements Notes to the consolidated
financial statements continued
For the year ended 30 June 2019
6. Operating profit (continued)
A more detailed analysis of auditor’s remuneration is provided below:
Fees payable to the Company’s auditor for the audit of the consolidated
Group and Parent Company financial statements
Fees payable to the Company’s auditor and its associates for other services:
− Audit of the Company’s subsidiaries pursuant to legislation
− Audit-related assurance services
− Other non-audit services
Total auditor’s remuneration
2019
£’000
2018
£’000
136
160
174
80
550
257
143
181
261
842
Financial Services Compensation Scheme levies
Administrative costs for the year ended 30 June 2019 include a charge of £1,167,000 (FY18: £664,000) in respect of the estimated
Financial Services Compensation Scheme (“FSCS”) levy for the 2019/20 scheme year.
7. Employee information
a. Staff costs
Wages and salaries
Social security costs
Other pension costs
Share-based payments
Redundancy costs
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:
Business staff
Functional staff
Total staff from continuing operations
Total staff from discontinued operations
Total staff
98
2019
£’000
38,843
4,551
1,331
2,029
3,265
50,019
2018
£’000
39,363
4,478
1,298
1,601
90
46,830
2019
Number of
employees
252
190
442
2018
Number of
employees
288
167
455
10
452
35
490
7. 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.
Short-term employee benefits
Post-employment benefits
Share-based payments
Total compensation
2019
£’000
2,638
15
248
2,901
d. Directors’ emoluments
Further details of Directors’ emoluments are included within the Remuneration Committee report on pages 53 to 64.
Salaries and bonuses
Non-Executive Directors’ fees
Benefits in kind
Pension contributions
Amounts receivable under long-term incentive schemes
Total Directors’ remuneration
2019
£’000
2,147
453
8
2,608
15
248
2,871
The aggregate amount of gains made by Directors on the exercise of share options during the year was £251,000 (FY18:
£643,000). Retirement benefits are accruing to two Directors (FY18: 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 received under long-term incentive schemes
Total remuneration
2019
£’000
735
37
772
2018
£’000
2,666
55
483
3,204
2018
£’000
2,279
372
15
2,666
55
483
3,204
2018
£’000
807
83
890
The amount of gains made by the highest paid Director on the exercise of share options during the year was £37,000 (FY18:
£83,000).
8. Finance income and finance costs
Finance income
Dividends on preference shares
Bank interest on deposits
Finance income from contingent consideration (Note 16)
Total finance income
Finance costs
Finance cost of deferred consideration (Note 20)
Total finance costs
2019
£’000
2018
£’000
82
116
29
227
94
94
50
52
26
128
152
152
99
Consolidated financial statementsBrooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements Notes to the consolidated
financial statements continued
For the year ended 30 June 2019
9. Taxation
The tax charge on profit for the year was as follows:
UK Corporation Tax at 19% (FY18: 19%)
Over provision in prior years
Total current tax
Deferred tax credits
Research and development tax credit
Income tax expense
2019
£’000
4,069
(419)
3,650
(808)
(325)
2,517
2018
£’000
3,396
(613)
2,783
(600)
(855)
1,328
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the time apportioned tax rate
applicable to profits of the consolidated entities in the UK as follows:
Profit before taxation from continued operations
Loss before taxation from discontinued operations
Profit before taxation
2019
£’000
8,640
(395)
8,245
2018
£’000
6,939
(217)
6,722
Profit multiplied by the standard rate of tax in the UK of 19% (FY18: 19%)
1,567
1,277
Tax effect of:
− Overseas tax losses not available for UK tax purposes
− Disallowable expenses
− Share-based payments
− Depreciation and amortisation
− Impairment charges
− Non-taxable income
− Research and development tax credit
− Over provision in prior years
Tax charge for the year
(56)
178
327
(25)
1,346
(76)
(325)
(419)
2,517
453
468
23
48
535
(8)
(855)
(613)
1,328
9. Taxation (continued)
On 1 April 2017, the standard rate of Corporation Tax in the UK was reduced to 19%. As a result the effective rate of Corporation
Tax applied to the taxable profit for the year ended 30 June 2019 is 19% (FY18: 19%).
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%
(FY18: 17%) and will be reviewed in future years subject to new legislation.
10. Discontinued operations
On 10 May 2019, Brooks Macdonald Funds Limited, a subsidiary within the Group, resigned as investment manager of the
Ground Rents Income Fund plc (“GRIF”). The fund management of GRIF was classed as Property Funds within internal
management information and was managed separately to the other funds managed within the Group. As a result the
operations were classified as discontinued operations upon resignation. Disposal costs of £12,000 were incurred by the Group
in relation to the resignation.
On 31 December 2018, the Group disposed of its Employee Benefits business within the Financial Planning segment. Profit from
discontinued operations is disclosed separately in the Consolidated statement of comprehensive income, being the results of
the disposal to 31 December 2018 and the gain on disposal. Initial cash consideration of £50,000 was received on completion.
Additional cash consideration will also be receivable in the first calendar quarter of 2020, being a multiple of revenue earned
by the disposed business for the year ended 31 December 2019. On disposal the contingent consideration receivable was
estimated at £282,000, which was recognised at its fair value of £219,000 based on the discounted forecast cash flows. This gain
is presented within profit from discontinued operations in the Consolidated statement of comprehensive income for the year
ended 30 June 2019. Disposal costs of £21,000 were incurred by the Group in relation to the sale.
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. 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. Full details of this disposal are disclosed in Note 11 of the 2018 Brooks Macdonald
Group plc Annual Report and Accounts. During the year ended 30 June 2019 the Group received £483,000 of contingent
consideration (Note 16) and a further £60,000 as additional post-completion consideration.
The presentation of the prior year below has been restated to separate the results of the additional discontinued operations,
consistent with the presentation in the current period. The previously reported discontinued operations recognised the
operations of Braemar Estates (Residential) Limited and Braemar Facilities Management Limited; however, the Employee
Benefits and GRIF operations have now been included.
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 year ended 30 June 2018. This resulted in a reduction in the Corporation Tax liabilities
in the respective years, and a repayment of £325,000 (FY18: £855,000) is due from HM Revenue and Customs. The Group will
consider whether claims can also be made for qualifying expenditure incurred in the year ended 30 June 2019 and thereafter
in due course.
Loss for the year from discontinued operations
Gain on disposal of discontinued operations
Loss before tax from discontinued operations
Taxation
Loss from discontinued operations
2019
£’000
(724)
329
(395)
–
(395)
2018*
£’000
(1,079)
862
(217)
–
(217)
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
100
2019
£’000
6
96
712
(6)
808
2018
£’000
1
8
425
166
600
* The prior year figures have been restated to separate the results of discontinued operations, consistent with the presentation in the current year.
101
Consolidated financial statementsBrooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements Notes to the consolidated
financial statements continued
For the year ended 30 June 2019
10. Discontinued operations (continued)
a. Loss of discontinued operations
Revenue
Administrative costs
Operating loss
Finance income
Loss before tax
2019
£’000
920
(1,644)
(724)
–
(724)
* The prior year figures have been restated to separate the results of discontinued operations, consistent with the presentation in the current year.
b. Gain on disposal of discontinued operations
Initial consideration received
Additional consideration received
Fair value of contingent consideration (Note 16)
Total disposal consideration
Net assets on disposal
Gain on disposal of discontinued operations
2018*
£’000
2,810
(3,891)
(1,081)
2
(1,079)
2018
£’000
966
39
913
1,918
2019
£’000
50
60
219
329
–
(1,056)
329
862
11. Earnings per share (continued)
Earnings for the year used to calculate earnings per share as reported in these Consolidated financial statements were as
follows:
Earnings from continued operations
Loss from discontinued operations
Earnings attributable to ordinary shareholders
Goodwill impairment (Note 13)
Restructuring charge
Client relationship contracts impairment (Note 13)
Amortisation of acquired client relationship contracts (Note 13)
Changes in fair value of deferred consideration (Note 20)
Amortisation of contracts acquired with fund managers (Note 13)
Finance cost of deferred consideration (Note 20)
Disposal costs (Note 10)
Finance income of contingent consideration (Note 16)
Changes in fair value of contingent consideration (Note 16)
Exceptional costs of resolving legacy matters (Note 23)
Software impairment (Note 13)
Loss from discontinued operations (Note 10)
Tax impact of adjustments
Underlying earnings attributable to ordinary shareholders
2019
£’000
6,123
(395)
5,728
4,756
3,265
2,328
2,144
(419)
102
94
33
(29)
75
–
–
395
(1,185)
17,287
2018*
£’000
5,611
(217)
5,394
–
–
–
2,156
1,191
206
152
88
(26)
16
5,531
2,518
217
(587)
16,856
11. Earnings per share
The Directors believe that underlying earnings per share provide a truer reflection of the Group’s performance in the year.
Underlying earnings per share are calculated based on ‘underlying earnings’, which is an alternative performance measure
and is defined as earnings before finance costs of deferred consideration, finance income of contingent consideration, changes
in the fair value of deferred consideration, changes in fair value of contingent consideration, goodwill impairment, client
relationship contracts impairment, amortisation of client relationships and contracts acquired with fund managers, finance
income from contingent consideration, restructuring charge, business disposal costs and profit or loss from discontinued
operations. The tax effect of these adjustments has also been considered.
* The prior year figures have been restated to separate the results of discontinued operations, consistent with the presentation in the current year.
Basic earnings per share is calculated by dividing earnings attributable to ordinary shareholders by the weighted average
number of shares in issue throughout the year. Diluted earnings per share represents the basic earnings per share adjusted for
the effect of dilutive potential shares issuable on exercise of employee share options under the Group’s share-based payment
schemes, weighted for the relevant period.
The weighted average number of shares in issue during the year was as follows:
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
2019
Number
of shares
13,730,530
6,211
13,736,741
2018
Number
of shares
13,677,910
28,318
13,706,228
102
103
Consolidated financial statementsBrooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements Notes to the consolidated
financial statements continued
For the year ended 30 June 2019
11. Earnings per share (continued)
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 earnings:
Basic earnings per share
Diluted earnings per share
2019
p
44.6
(2.9)
41.7
44.6
(2.9)
41.7
2018*
p
41.0
(1.6)
39.4
40.9
(1.6)
39.3
125.9
125.8
123.2
123.0
*The prior year have been restated to separate the results of discontinued operations, consistent with the presentation in the current year.
12. 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 2018 of 30.0p (FY17: 26.0p) per share
Interim dividend paid for the year ended 30 June 2019 of 19.0p (FY18: 17.0p) per share
Total dividends
2019
£’000
4,123
2,591
6,714
2018
£’000
3,524
2,319
5,843
Final dividend proposed for the year ended 30 June 2019 of 32.0p (FY18: 30.0p) per share
4,378
4,116
The interim dividend of 19.0p (FY18: 17.0p) per share was paid on 23 April 2018.
A final dividend for the year ended 30 June 2019 of 32.0p (FY18: 30.0p) per share was declared by the Board of Directors on 11
September 2019 and is subject to approval by the shareholders at the Company’s Annual General Meeting. It will be paid on
8 November 2019 to shareholders who are on the register at the close of business on 27 September 2019. 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.
104
13. Intangible assets
Cost
At 1 July 2017
Additions
Disposals
Reclassification to property, plant and equipment
Impairment
At 30 June 2018
Additions
At 30 June 2019
Accumulated amortisation and impairment
At 1 July 2017
Amortisation charge
Disposals
Reclassification to property, plant and equipment
Impairment
At 30 June 2018
Amortisation charge
Impairment
At 30 June 2019
Goodwill
£’000
Computer
software
£’000
Acquired
client
relationship
contracts
£’000
Contracts
acquired with
fund
managers
£’000
36,006
–
(230)
–
–
35,776
–
35,776
1,986
–
–
–
–
1,986
–
4,756
6,742
7,732
5,069
(77)
(943)
(4,013)
7,768
1,106
8,874
1,858
1,518
(63)
(791)
(1,495)
1,027
2,165
–
3,192
32,745
–
(584)
–
–
32,161
–
32,161
10,315
2,156
(217)
–
–
12,254
2,144
2,328
16,726
3,521
–
–
–
–
3,521
–
3,521
3,197
206
–
–
–
3,403
102
–
3,505
Total
£’000
80,004
5,069
(891)
(943)
(4,013)
79,226
1,106
80,332
17,356
3,880
(280)
(791)
(1,495)
18,670
4,411
7,084
30,165
Net book value
At 1 July 2017
At 30 June 2018
At 30 June 2019
a. Goodwill
Goodwill acquired in a business combination is allocated at acquisition to the cash generating units (“CGUs”) that are expected
to benefit from that business combination. The carrying amount of goodwill in respect of these CGUs within the operating
segments of the Group comprises:
34,020
33,790
29,034
62,648
60,556
50,167
22,430
19,907
15,435
5,874
6,741
5,682
324
118
16
Funds
Braemar Group Limited (“Braemar”)
Levitas Investment Management Services Limited (“Levitas”)
International
Brooks Macdonald Asset Management (International) Limited and Brooks Macdonald Retirement
Services (International) Limited (collectively “Brooks Macdonald International”)
Total goodwill
2019
£’000
3,320
4,471
7,791
2018
£’000
3,320
9,227
12,547
21,243
29,034
21,243
33,790
105
Consolidated financial statementsBrooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements Notes to the consolidated
financial statements continued
For the year ended 30 June 2019
13. Intangible assets (continued)
a. Goodwill (continued)
Goodwill is reviewed annually for impairment and its recoverability has been assessed at 30 June 2019 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.
At 31 December 2018, there were some impairment indicators present for the Levitas CGU and based on a value-in-use
calculation, the recoverable amount as at 31 December 2018 was £5,152,000. This was lower than the carrying amount of the
CGU, reflecting both a reduction in forecast revenue growth and an increase in the discount rate applied, indicating that it
should be impaired. An impairment loss of £4,756,000 has been recognised against the goodwill attributable to the CGU and is
shown in the Consolidated statement of comprehensive income within other losses.
The key underlying assumptions of the calculation were 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 as at 31 December 2018 of 12% (FY18: 11%)
was used, based on the Group’s assessment of the risk-free rate of interest and specific risks pertaining to Levitas. Annual funds
under management growth rates of between 8% and 36% were forecast in the following four financial years, the period covered
by the most recent forecasts, which reflected historic actual growth and planned management activities, and were considered
to be achievable at 31 December 2018. A 2% long-term growth rate was applied to cash flows beyond the forecast period and is
considered prudent in the context of the long-term average growth rate for the funds industry in which the CGU operates.
The value-in-use calculation was performed at 30 June 2019 in relation to the Levitas CGU, and the recoverable amount was
£5,374,000, indicating that there is no further impairment required. 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 12% (FY18: 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 24% and 37% 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 2019, the Levitas CGU had limited headroom due to the impairment recognised at 31 December 2018. The
impairment was driven by the reduced sponsorship fee earned by the Levitas CGU, but management remain focussed on the
recently agreed 5-year partnership in driving higher FUM flows. Given the limited headroom, the Group has performed the
following sensitivity analysis on the Levitas CGU at 30 June 2019:
•
•
A 1% increase in the pre-tax discount rate would result in a decrease of £561,000 in the recoverable amount and an
impairment of the goodwill balance by £453,000.
A 10% decrease in the revenue growth would result in a £715,000 reduction of the recoverable amount and an impairment
of the goodwill balance by £607,000.
Based on a value-in-use calculation, the recoverable amount of the Brooks Macdonald International CGU at 30 June 2019 was
£28,780,000, 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 12% (FY18: 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 cash inflow growth rates of up to 65% are forecast over the next five financial years, the period covered
by the most recent forecasts, which reflect historic actual growth and planned management actions and are considered to
be achievable given current market and industry trends. The 2% long-term growth rate applied is considered prudent in the
context of the long-term average growth rate for the funds, investment management and financial planning industries in which
the CGU operates.
13. Intangible assets (continued)
a. Goodwill (continued)
Based on a value-in-use calculation, the recoverable amount of the Braemar CGU at 30 June 2019 was £55,688,000, indicating
that there is no impairment. A pre-tax discount rate of 13% (FY18: 12%) has been used, based on the Group’s assessment of
the risk-free rate of interest and specific risks relating to Braemar. The key underlying assumptions of the calculation are the
discount rate, the growth in funds under management of the funds business and the long-term growth rate. Annual funds
under management growth rates of between 8% and 37% 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.
At 30 June 2019 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 further impairment
required in addition to the impairment recognised at 31 December 2018 in relation to the Levitas CGU.
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.
c. Acquired client relationship contracts
This asset represents the fair value of future benefits accruing to the Group from acquired client relationship contracts. The
amortisation of client relationships is charged to the Consolidated statement of comprehensive income on a straight-line basis
over their estimated useful lives (15 to 20 years).
During the year ended 30 June 2019, an impairment charge of £2,328,000 was recognised in relation to one of the Group’s
acquired relationship contracts due to a reduction in the expected useful economic life from 15 to 12 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.
106
107
Consolidated financial statementsBrooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements Notes to the consolidated
financial statements continued
For the year ended 30 June 2019
14. Property, plant and equipment
15. Financial assets at fair value through other comprehensive income
Cost
At 1 July 2017
Additions
Disposals
Reclassification from intangible assets
At 30 June 2018
Additions
At 30 June 2019
Accumulated depreciation
At 1 July 2017
Depreciation charge
Depreciation on disposals
Reclassification from intangible assets
At 30 June 2018
Depreciation charge
At 30 June 2019
Net book value
At 1 July 2017
At 30 June 2018
At 30 June 2019
Leasehold
improvements
£’000
Motor
vehicles
£’000
Fixtures,
fittings
and office
equipment
£’000
IT equipment
£’000
2,053
828
–
–
2,881
269
3,150
737
261
–
–
998
422
1,420
1,316
1,883
1,730
8
–
(8)
–
–
–
–
8
–
(8)
–
–
–
–
–
–
–
8,125
144
(53)
–
8,216
89
8,305
7,175
521
(53)
–
7,643
299
7,942
950
573
363
1,323
857
(3)
943
3,120
214
3,334
386
404
(1)
791
1,580
670
2,250
937
1,540
1,084
Total*
£’000
11,509
1,829
(64)
943
14,217
572
14,789
8,306
1,186
(62)
791
10,221
1,391
11,612
3,203
3,996
3,177
* During the year, property, plant and equipment non-current assets were reviewed in terms of useful economic life and
classification of assets. The outcome was that the useful economic lives have been updated in line with Group’s revised
expectations from 1 July 2018. The Group has also amended the property, plant and equipment non-current asset
classifications to present the property, plant and equipment non-current assets in clearly defined classifications.
The following table summarises and shows the changes to the Group’s new property, plant and equipment non-current asset
classifications and useful economic lives.
As at 30 June 2018
As at 1 July 2018
Classification
Useful economic life
Fixtures and fittings
Equipment
Leasehold improvements
Motor vehicles
3 to 6.67 years
5 years
Over the term of the lease
4 years
Classification
Fixtures, fittings and
office equipment
IT equipment
Leasehold improvements
Motor vehicles
Useful economic life
5 years
4 or 5 years*
Over the term of the lease
4 years
* IT equipment includes hardware, which has a useful economic life of 4 years, and servers and networks which have a useful
economic life of 5 years.
108
IFRS 9 reclassification from available for sale financial assets (“AFS”)
Impairment
At end of year
2019
£’000
650
(150)
500
The Group adopted IFRS 9 ‘Financial instruments’ on 1 July 2018 resulting in the AFS financial assets category being no longer
available. As a result, the AFS assets were reclassified to fair value through other comprehensive income and fair value through
profit or loss (Note 16). The AFS reserves balance was £1,000 at 30 June 2018 and on reclassification was revalued to £nil (Note
26). For further details on the adoption and impact to the Financial statements, please see Note 2c.
At 30 June 2019, the Group held an investment of 500,000 redeemable £1 preference shares in an unlisted company
incorporated in the UK. The preference shares carry an entitlement to a fixed preferential dividend at a rate of 8% per annum.
During the year the Group impaired its £150,000 investment in preference share capital in an unlisted company incorporated
in the Channel Islands to a net book value of £nil as the Group does not expect to recover its investment.
The table below provides an analysis of the financial assets and liabilities 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.
Financial assets
At 1 July 2018
Additions
Finance income of contingent consideration
Net loss from changes in fair value
Impairment
Disposals
Payments received
At 30 June 2019
Comprising:
Financial assets at fair value through other comprehensive income
(Note 15)
Financial assets at fair value through profit and loss (Note 16)
Total financial assets
Level 1
£’000
Level 2
£’000
Level 3
£’000
1,262
–
–
(33)
–
(1,229)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,583
219
29
(80)
(150)
(5)
(483)
1,113
500
613
1,113
Total
£’000
2,845
219
29
(113)
(150)
(1,234)
(483)
1,113
500
613
1,113
109
Consolidated financial statementsBrooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements
Notes to the consolidated
financial statements continued
For the year ended 30 June 2019
15. Financial assets at fair value through other comprehensive income (continued)
Financial liabilities
At 1 July 2018
Finance cost of deferred consideration
Net gain from changes in fair value
Payments made
At 30 June 2019
Comprising:
Deferred consideration (Note 20)
Total financial liabilities
Level 1
£’000
Level 2
£’000
Level 3
£’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,875
94
(419)
(1,251)
1,299
1,299
1,299
Total
£’000
2,875
94
(419)
(1,251)
1,299
1,299
1,299
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 and the Employee Benefits business (see Note 10). Deferred consideration is valued using the
net present value of the expected amounts payable based on management’s forecasts and expectations.
16. Financial assets at fair value through profit or loss
At beginning of year
IFRS 9 reclassification from AFS
Adjusted balance at beginning of year
Additions
Finance income of contingent consideration
Loss from changes in fair value of contingent consideration receivable
Net (loss)/gain from changes in fair value
Payments received
Disposals
At end of year
2019
£’000
1,267
928
2,195
219
29
(75)
(38)
(483)
(1,234)
613
2018
£’000
–
–
1,185
–
–
–
82
–
–
1,267
The Group adopted IFRS 9 ‘Financial instruments’ on 1 July 2018 resulting in the available for sale financial assets category
being no longer available. As a result, the available for sale assets were reclassified to fair value through other comprehensive
income (Note 15) and fair value through profit or loss. For further details on the adoption and impact to the Consolidated
financial statements, see Note 2c.
The Group disposed of their 563,689 class A units in the IFSL Brooks Macdonald Balanced Fund in November 2018 at their fair
value of £1,229,000. In the period from 1 July 2018 to disposal, the Group recognised a reduction in fair value of £33,000.
During the year the Group disposed of its investment in an offshore bond at its fair value of £5,000 and reduced its other
investment in an offshore bond from £5,000 to £nil as the Group does not expect to recover its investment.
110
16. Financial assets at fair value through profit or loss (continued)
During the year ended 30 June 2019, the Group disposed of its Employee Benefits business (Note 10). On disposal, the Group
recognised contingent consideration receivable from the purchaser at its fair value of £219,000. At 30 June 2019, the contingent
consideration receivable was £224,000, which included finance income of £5,000.
During the year ended 30 June 2019, the Group received £483,000 of the contingent consideration receivable recognised on
disposal of Braemar Estates (Residential) Limited in December 2017. At 30 June 2019, the contingent consideration receivable
was £389,000 which included finance income of £24,000 and a reduction in fair value of £75,000 during the year.
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 one year
Deferred tax assets to be settled within one year
Total deferred tax assets
Deferred tax liabilities
Deferred tax liabilities to be settled after more than one year
Deferred tax liabilities to be settled within one year
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 Consolidated statement of comprehensive income
Charge recognised in equity
At 30 June
The change in deferred income tax assets and liabilities during the year was as follows:
2019
£’000
524
699
1,223
(1,566)
(712)
(2,278)
2019
£’000
(1,814)
808
(49)
(1,055)
Deferred tax assets
At 1 July 2017
Credit to the Consolidated statement of comprehensive income
Charge to equity
At 30 June 2018
Credit to the Consolidated statement of comprehensive income
Charge to equity
At 30 June 2019
Share-based
payments
£’000
Trading
losses carried
forward
£’000
Accelerated
capital
allowances
£’000
932
1
(270)
663
6
(49)
620
339
166
–
505
(6)
–
499
–
8
–
8
96
–
104
2018
£’000
444
732
1,176
(2,565)
(425)
(2,990)
2018
£’000
(2,144)
600
(270)
(1,814)
Total
£’000
1,271
175
(270)
1,176
96
(49)
1,223
111
Consolidated financial statementsBrooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements Notes to the consolidated
financial statements continued
For the year ended 30 June 2019
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 2017
Credit to the Consolidated statement of comprehensive income
At 30 June 2018
Credit to the Consolidated statement of comprehensive income
At 30 June 2019
18. Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
Total current trade and other receivables
19. Cash and cash equivalents
Cash at bank
Cash held in Employee Benefit Trust
Total cash and cash equivalents
Intangible
asset
amortisation
£’000
3,415
(425)
2,990
(712)
2,278
2018
£’000
1,542
1,481
22,996
26,019
2018
£’000
30,884
55
30,939
2019
£’000
1,070
1,198
24,464
26,732
2019
£’000
34,523
67
34,590
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.
20. Deferred consideration
Deferred consideration payable is split between non-current liabilities (see below) and provisions within current liabilities
(Note 23) 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
112
2019
£’000
2,875
94
(419)
(1,251)
1,299
919
380
1,299
2018
£’000
3,384
152
1,191
(1,852)
2,875
1,396
1,479
2,875
20. Deferred consideration (continued)
No additions to deferred consideration payable were recognised in the year. Payments totalling £1,251,000 (FY18: £1,852,000)
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 decrease in the fair value of deferred consideration of £419,000 (FY18: increase of £1,191,000) was recognised during
the year in respect of Levitas, with a corresponding gain recognised within other losses in the Consolidated statement of
comprehensive income. The amount payable is based on the incremental growth in FUM of the TM Levitas funds, measured at
annual intervals. As forecast growth was not achieved during the period, the FUM forecast was subsequently revised and the
estimated future deferred consideration payments decreased accordingly. The outstanding deferred consideration liability at
30 June 2019 relates entirely to the present value of fixed amounts owed to the vendors of Levitas.
Deferred consideration is classified as Level 3 within the fair value hierarchy, as defined in Note 15.
Amounts falling due after more than one year from the reporting date are presented in non-current liabilities as shown below:
At 1 July
Finance cost of deferred consideration
Fair value adjustments
Transfer to current liabilities
At 30 June
2019
£’000
1,479
94
(419)
(774)
380
2018
£’000
1,720
152
1,191
(1,584)
1,479
An amount of £774,000 (FY18: £1,584,000), representing deferred consideration payable in respect of the acquisition of Levitas,
was transferred to provisions within current liabilities.
21. Other non-current liabilities
At 1 July
Additional liability in respect of share option awards
Liability for transitional allowance
Transfer to current liabilities
At 30 June
2019
£’000
157
275
441
(159)
714
2018
£’000
157
63
–
(63)
157
Other non-current liabilities include employer’s National Insurance contributions arising from share option awards under the
LTIS and LTIP schemes. During the year an additional liability was recognised during the year of £275,000 (FY18: £63,000)
in respect of existing awards, granted in previous years, that are expected to vest in the future. During the year, an amount of
£159,000 (FY18: £63,000) was transferred to current liabilities, reflecting awards that are expected to vest within the next 12
months. At 30 June 2019 the non-current liability for employer’s National Insurance contributions arising from share option
awards under the LTIS and LTIP schemes was £273,000 (FY18: £157,000).
At 30 June 2019, the Group recognised a non-current liability of £441,000 for long-term employee benefits (FY18: £nil).
113
Consolidated financial statementsBrooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements Notes to the consolidated
financial statements continued
For the year ended 30 June 2019
22. Trade and other payables
Trade payables
Other taxes and social security
Other payables
Accruals and deferred income
Total trade and other payables
2019
£’000
4,079
2,741
475
13,493
20,788
2018
£’000
4,762
2,501
531
15,497
23,291
Included within accruals and deferred income is an accrual of £273,000 (FY18: £255,000) in respect of employer’s National
Insurance contributions arising from share option awards under the LTIS (Note 27b). 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 27).
23. Provisions
At 1 July 2017
(Credit)/charge to the Consolidated
statement of comprehensive income
Transfer from non-current liabilities
Utilised during the year
At 30 June 2018
Charge to the Consolidated
statement of comprehensive income
Transfer from non-current liabilities
Utilised during the year
At 30 June 2019
Analysed as:
Amounts falling due within one year
Amounts falling due after more than
one year
Total provisions
Client
compensation
£’000
807
Exceptional costs
of resolving legacy
matters
£’000
6,500
Deferred
consideration
£’000
1,664
FSCS levy
£’000
621
Leasehold
dilapidations
£’000
–
(407)
–
(378)
22
100
–
(22)
100
100
–
100
5,531
–
(5,806)
6,225
–
–
(5,524)
701
701
–
701
–
1,584
(1,852)
1,396
–
774
(1,251)
919
919
–
919
627
–
(559)
689
1,036
–
(797)
928
928
–
928
–
–
–
–
416
–
(50)
366
88
278
366
Total
£’000
9,592
5,751
1,584
(8,595)
8,332
1,552
774
(7,644)
3,014
2,736
278
3,014
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 was recognised for costs of resolving these including associated expenses in the years ended 30 June 2017 and
30 June 2018. 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. During the year ending 30 June 2019 no further provisions were made (FY18: £5,531,000). The amount
utilised during the period of £5,524,000 represented goodwill payments made to clients of £4,418,000, legal fees of £936,000
and related expenses of £170,000. During the period, a contingent liability was recognised in relation to potential claims related
to the legacy matters (Note 32).
114
23. Provisions (continued)
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 2019 was £919,000 (FY18: £1,396,000) and relates entirely
to the Levitas acquisition. The amount of deferred consideration included within provisions is due to be settled in November
2019. A final annual payment has now been calculated and is due in November 2020.
An amount of £774,000 (FY18: £1,584,000) 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 £1,251,000 (FY18: £1,852,000)
were utilised during the year on payment to the vendors of Levitas.
d. FSCS levy
Following confirmation by the FSCS in April 2019 of its final industry levy for the 2019/20 scheme year, the Group has made a
provision of £928,000 (FY18: £689,000) for its estimated share.
e. Leasehold dilapidations
Leasehold dilapidations relate to dilapidation provisions expected to arise on leasehold premises held by the Group, and
monies due under the contract with the assignee of leases on the Group’s leased properties.
24. Reconciliation of operating profit to net cash inflow from operating activities
Operating profit/(loss)
− Continuing operations
− Discontinued operations (Note 10)
Operating profit
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Other losses
Increase in receivables
Increase/(decrease) in payables
Decrease in provisions
Increase in other non-current liabilities
Discontinued operations
Share-based payments charge
Net cash inflow from operating activities
2019
£’000
8,507
(724)
7,783
1,391
4,411
6,928
(807)
(2,503)
(4,841)
557
–
2,634
15,553
2018
£’000
6,963
(1,081)
5,882
1,186
3,880
3,643
(3,323)
2,122
(992)
–
(457)
1,669
13,610
115
Consolidated financial statementsBrooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements Notes to the consolidated
financial statements continued
For the year ended 30 June 2019
25. Share capital and share premium account
The movements in share capital and share premium during the year were as follows:
26. Other reserves and retained earnings (continued)
The movements in other reserves during the year were as follows:
At 1 July 2017
Shares issued:
− on exercise of options
− to Sharesave Scheme
At 30 June 2018
Shares issued:
− on exercise of options
− to Sharesave Scheme
At 30 June 2019
Exercise
price
p
290.5 – 1,452.0
1,237.0 – 1,738.0
Number of
shares
13,793,400
27,838
81,795
13,903,033
6,469
1,381.0 – 1,719.0
40,569 1,237.0 – 1,738.0
13,950,071
Share
capital
£’000
138
–
–
138
–
1
139
Share
premium
account
£’000
37,101
210
1,093
38,404
95
569
39,068
Total
£’000
37,239
210
1,093
38,542
95
570
39,207
The total number of ordinary shares issued and fully paid at 30 June 2019 was 13,950,071 (FY18: 13,903,033) with a par value of
1p per share.
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
Recycling of reserve due to adoption of IFRS 9
Adjusted balance at the beginning of the year
Revaluation of available for sale financial assets
At end of the year
There was £1,000 of share capital issued on exercise of options and to Sharesave Scheme members in the year ended 30 June
2019 (FY18: £nil).
The movements in retained earnings during the year were as follows:
Employee Benefit Trust
The Group established an Employee Benefit Trust (“EBT”) on 3 December 2010 to acquire ordinary shares in the Company
to satisfy awards under the Group’s Long Term Incentive Scheme, see Note 27b. At 30 June 2019, the EBT held 268,045 (FY18:
164,582) 1p ordinary shares in the Company, acquired for a total consideration of £4,597,000 (FY18: £2,699,000) with a market
value of £5,358,000 (FY18: £3,263,000). They are classified as treasury shares in the Consolidated statement of financial
position, their cost being deducted from retained earnings within shareholders’ equity.
26. Other reserves and retained earnings
Other reserves are comprised of the following balances:
At beginning of the year
Profit for the financial year
Loss profit from discontinued operations
Transfer from share option reserve
Purchase of own shares by Employee Benefit Trust
Dividends paid
At end of the year
2019
£’000
2,921
2,634
(1,123)
(49)
4,383
1
(1)
–
–
–
2019
£’000
46,301
6,123
(395)
1,123
(2,648)
(6,714)
43,790
2018
£’000
6,285
1,669
(4,763)
(270)
2,921
3
–
3
(2)
1
2018
£’000
41,987
5,611
(217)
4,763
–
(5,843)
46,301
Share option reserve
Merger reserve
Available for sale reserve
Total other reserves
2019
£’000
4,383
192
–
4,575
2018
£’000
2,921
192
1
3,114
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 27.
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.
c. Available for sale reserve
The AFS reserve reflects the changes in fair value of available for sale assets. Upon transition to IFRS 9 on 1 July 2018, the AFS
reserve was revalued to £nil. For further details on the adoption and impact to the Financial statements, see Note 2c.
116
117
Consolidated financial statementsBrooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements Notes to the consolidated
financial statements continued
For the year ended 30 June 2019
27. Equity-settled share-based payments
All share options granted to employees under the Group’s equity-settled share-based payment schemes are valued using a
Black–Scholes model, based on the market price of the Company’s shares at the grant date and annualised volatility of up to
50%, covering the period to the end of the contractual life. Volatility has been estimated on the basis of the Company’s historical
share price subsequent to flotation. The risk-free annual rate of interest is deemed to be the yield on a gilt edged security with
a maturity term between seven months and five years, ranging from 0.14% to 2.00%. No options outstanding at 30 June 2019
(FY18: none) carry any dividend or voting rights.
The share options in issue under the various equity-settled share-based payment schemes have been valued at prices ranging
from £2.31 to £20.96 per share. The charge to the Consolidated statement of comprehensive income for the year in respect of
these was £2,078,000 (FY18: £1,653,000). The weighted average remaining contractual life of all equity-settled share-based
payment schemes at 30 June 2019 was 2.25 years (FY18: 1.51 years). The weighted average share price of all options exercised
during the year was £18.63 (FY18: £19.75).
A summary of the inputs into the fair value calculations for options granted during the period is set out below.
Grant date
Share price at grant £
Vesting period
Volatility %
Annual dividend %
Risk-free rate %
Option value £
Long Term
Incentive
Plan
Various
14.00–20.05
Long Term
Incentive
Scheme
21/12/2018
14.00
7–60 months 11–24 months
28–32%
3.39–3.86%
0.75–0.76%
12.91–13.42
27–35%
2.7–3.39%
0.69–0.93%
11.49–17.79
Save As You
Earn (SAYE)
10/05/2019
19.43
36 months
29%
2.78%
0.73%
5.62
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 £2,440,000 (FY18: £1,773,000).
The exercise price and fair value of share options granted during the year was as follows:
Long Term Incentive Plan
Long Term Incentive Scheme
Employee Sharesave Scheme
Exercise price
£
–
–
14.00
Fair value
£
11.49 – 17.79
12.91 – 13.42
5.62
Number of
options
514,915
21,127
95,249
a. Long Term Incentive Plan
The Long Term Incentive Plan was approved by shareholders at the 2018 Annual General Meeting and encompasses annual
deferral of bonuses into a Deferred Bonus Plan (“DBP”), Long Term Incentive Plan (“LTIP”) awards made to senior management
and Exceptional Share Option Awards (“ESOA”). Certain ESOA grants carry performance conditions. All awards are subject to
continued employment and are made at the discretion of the Remuneration Committee. No awards expired during the year
(FY18: none).
At 1 July
Awarded in the year
Forfeited in the year
At 30 June
118
2019
2018
Number of
options
–
514,915
(22,355)
492,560
Weighted
average
exercise
price £
–
–
–
–
Number of
options
–
–
–
–
Weighted
average
exercise
price £
–
–
–
–
27. Equity-settled share-based payments (continued)
a. Long Term Incentive Plan (continued)
i.
The number of share options outstanding at the reporting date was as follows:
Deferred Bonus Plan (“DBP”) Awards
Scheme year (grant date)
2018
All years
Exercise
price
£
–
Vesting
period
2019 – 2021
2019
Number of
options
92,476
92,476
2018
Number of
options
–
–
ii. Long Term Incentive Plan (“LTIP”) Awards
The number of share options outstanding at the reporting date was as follows:
Scheme year (grant date)
2018
All years
Exercise
price
£
–
Vesting
period
2021
2019
Number of
options
33,903
33,903
2018
Number of
options
–
–
iii. Exceptional Share Option Awards (“ESOA”)
The number of share options outstanding at the reporting date was as follows:
Financial year of grant
2019
All years
Exercise
price
£
–
Vesting
period
2019 – 2024
2019
Number of
options
366,181
366,181
2018
Number of
options
–
–
b. Long Term Incentive Scheme (“LTIS”)
The Company has made off-cycle awards during the year under the LTIS to two senior executives. The existing conditional
awards, which vest three years after the grant date, are subject to the satisfaction of specified performance criteria, measured
over a three-year performance period. No awards expired during the year (FY18: none).
At 1 July
Granted in the year
Exercised in the year
Forfeited in the year
At 30 June
2019
Number of
options
253,656
21,127
(52,839)
(12,728)
209,216
2018
Number of
options
244,787
95,857
(78,883)
(8,105)
253,656
119
Consolidated financial statementsBrooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements Notes to the consolidated
financial statements continued
For the year ended 30 June 2019
27. Equity-settled share-based payments (continued)
b. Long Term Incentive Scheme (“LTIS”) (continued)
The number of share options outstanding at the reporting date was as follows:
Scheme year (grant date)
2010
2011
2012
2013
2014
2015
2016
2017 (off-cycle)
2017 (off-cycle)
2017
2018 (off-cycle)
All years
Exercise
price
£
–
–
–
–
–
–
–
–
–
–
–
Vesting
period
2013
2014
2015
2016
2017
2018
2019
2019
2020
2020
2019 – 2020
2019
Number of
options
1,862
4,883
4,410
7,207
14,964
17,139
57,259
–
7,458
72,907
21,127
209,216
2018
Number of
options
3,413
4,883
7,087
11,921
24,385
49,365
62,051
2,312
7,458
80,781
–
253,656
27. Equity-settled share-based payments (continued)
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.
2019
2018
At 1 July
Granted in the year
Exercised in the year
Forfeited in the year
At 30 June
Number of
options
90,676
–
(6,469)
(10,710)
73,497
The number of share options outstanding at the reporting date was as follows:
Weighted
average
exercise
price £
16.70
–
15.46
17.36
16.76
Vesting
period
2016
2017
2018
2019
2020
2020
Weighted
average
exercise
price £
15.97
19.75
13.91
17.23
16.70
2018
Number of
options
11,886
9,423
36,679
25,761
1,491
5,436
90,676
Number of
options
102,648
7,435
(13,485)
(5,922)
90,676
2019
Number of
options
9,991
7,611
28,508
20,968
1,491
4,928
73,497
At 30 June 2019, options for schemes up to and including the 2015 scheme have vested and are able to be exercised.
The 2017 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 second tranche vested during the year ended 30 June 2019 and was exercised
before the end of the year. The 2018 off-cycle awards were issued in December 2018 to two members of senior management
and vest in two instalments with vesting dates in FY20 and FY21.
c. Employee Benefit Trust (“EBT”)
Brooks Macdonald Group plc established an Employee Benefit Trust on 3 December 2010 to acquire ordinary shares in the
Company to satisfy awards under the LTIS and LTIP. All finance costs and administration expenses connected with the EBT are
charged to the Consolidated statement of comprehensive income as they accrue. The EBT has waived its rights to dividends.
The following table shows the number of shares held by the EBT that have not yet vested unconditionally.
Scheme year (grant date)
2013
2014
2015
2016
2017 (off-cycle)
2017
All years
Exercise
price
£
14.52
13.81
17.19
17.25
20.11
19.66
At 1 July
Acquired in the year
Exercised in the year
At 30 June
2019
Number of
shares
164,582
156,883
(53,420)
268,045
2018
Number of
shares
243,465
–
(78,883)
164,582
At 30 June 2019, options for the 2015 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. No awards expired during the year (FY18: none).
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
2019
2018
Number of
options
211,244
95,249
(40,569)
(61,807)
204,117
Weighted
average
exercise
price £
15.21
14.00
14.02
15.49
14.79
Number of
options
199,753
118,741
(79,797)
(27,453)
211,244
Weighted
average
exercise
price £
14.50
14.94
12.57
16.64
15.21
120
121
Consolidated financial statementsBrooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements Notes to the consolidated
financial statements continued
For the year ended 30 June 2019
27. Equity-settled share-based payments (continued)
The number of share options outstanding at the reporting date was as follows:
Scheme year (grant date)
2015
2016
2017
2018
2019
All years
Exercise price
£
12.37
14.00
17.38
14.94
14.00
Vesting
period
2018
2019
2020
2021
2022
2019
Number of
options
–
4,764
26,004
78,100
95,249
204,117
2018
Number of
options
4,145
44,076
44,282
118,741
–
211,244
At 30 June 2019, options for the 2016 scheme have vested and are able to be exercised. No awards expired during the year
(FY18: none).
28. 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
2019
£’000
1,789
1,141
–
2,930
2018
£’000
2,234
3,280
2
5,516
29. 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 year is shown below:
Client money bank accounts
Client assets under management
Total client funds under management
2019
£’000
985,342
12,165,242
13,150,584
2018*
£’000
763,591
11,548,225
12,311,816
* Funds under management have been restated to exclude the funds related to discontinued operations.
30. Financial risk management
The Group has identified the financial risks arising from its activities and has established policies and procedures as part of a
formal structure for managing risk, including establishing risk lines, reporting lines, mandates and other control procedures.
The structure is reviewed regularly. The Group does not use derivative financial instruments for risk management purposes.
a. Liquidity risk
Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its financial liabilities when
they fall due.
The primary objective of the Group’s treasury policy is to manage short-term liquidity requirements and to ensure that
the Group maintains a surplus of immediately realisable assets over its liabilities, such that all known and potential cash
obligations can be met.
30. Financial risk management (continued)
a. Liquidity risk (continued)
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 2019
Cash flows from financial assets
Financial assets at fair value through other
comprehensive income
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
–
–
–
34,590
–
–
34,590
–
–
–
388
–
1,070
25,319
26,777
4,079
17,510
21,589
–
225
–
–
343
568
–
2,795
2,795
–
–
–
–
–
–
–
1,414
1,414
500
–
–
–
–
500
–
–
–
Total
£’000
500
613
34,590
1,070
25,662
62,435
4,079
21,719
25,798
Net liquidity gap
34,590
5,188
(2,227)
(1,414)
500
36,637
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
–
–
–
30,939
–
–
30,939
–
–
–
–
–
1,542
24,185
25,727
4,762
23,533
28,295
–
–
–
–
292
292
–
2,085
2,085
923
–
–
–
–
923
–
1,479
1,479
655
1,578
1,267
–
–
–
1,922
–
–
–
1,267
30,939
1,542
24,477
59,803
4,762
27,097
31,859
Net liquidity gap
30,939
(2,568)
(1,793)
(556)
1,922
27,944
122
123
Consolidated financial statementsBrooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements Notes to the consolidated
financial statements continued
For the year ended 30 June 2019
30. Financial risk management (continued)
b. Market risk
Interest rate risk
The Group may elect to invest surplus cash balances in short-term cash deposits with maturity dates not exceeding three
months. Consequently, the Group has a limited exposure to interest rate risk due to fluctuations in the prevailing level of market
interest rates.
A 1% fall in the average monthly interest rate receivable on the Group’s cash and cash equivalents would have the impact of
reducing interest receivable and therefore profit before taxation by £346,000 (FY18: £310,000). An increase of 1% would have an
equal and opposite effect.
Foreign exchange risk
The Group does not have any material exposure to transactional foreign currency risk and therefore no analysis of foreign
exchange risk is provided.
Price risk
Price risk is the risk that the fair value of the future cash flows from financial instruments will fluctuate due to changes in
market prices (other than those arising from interest rate risk or currency risk). The Group is exposed to price risk through
its holdings of equity securities and other financial assets, which are measured at fair value in the Consolidated statement of
financial position (Notes 15, 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 (FY18: £28,000) and profit before tax by £13,000 (FY18: £13,000). 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
2019 there was no significant concentration of credit risk in any particular counterparty (FY18: none).
Assets exposed to credit risk recognised on the Consolidated statement of financial position total £34,590,000 (FY18:
£30,939,000), being the Group’s total cash and cash equivalents.
Trade receivables with a carrying amount of £1,070,000 (FY18: £1,542,000) 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 (FY18:
three months).
31. Capital management
Capital is defined as the total of share capital, share premium, retained earnings and other reserves of the Company. Total
capital at 30 June 2019 was £87,572,000 (FY18: £87,957,000). 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 2019 ICAAP
will be approved in December 2019. There have been no capital requirement breaches during the year. Brooks Macdonald
Group plc’s Pillar III disclosure is presented on our website at www.brooksmacdonald.com.
32. Guarantees and contingent liabilities
In the normal course of business the Group is exposed to certain legal and tax issues which, in the event of a dispute, could
develop into litigious proceedings and in some cases may result in 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.
During the year, the Group discovered a possible liability to HM Revenue and Customs in relation to a PAYE settlement
agreement. The Group has been working with HM Revenue and Customs to resolve the matter but have yet to conclude on the
final liability. The Group has estimated an expected liability of £700,000, which is recognised in trade and other payables at 30
June 2019.
During the year, a small number of clients rejected goodwill offers made by Brooks Macdonald Asset Management
(International) Limited in connection with the exceptional costs of resolving legacy matters, see Note 23b, which have been
released from the provision. It is possible that one or more of these clients might issue claims against Brooks Macdonald Asset
Management (International) Limited but no such claims have been issued as at 30 June 2019. As a result, it is not possible to
estimate the potential outcome of claims or to assess the quantum of any liability with any certainty at this stage.
33. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, are eliminated on consolidation. The
Company’s individual financial statements include the amounts attributable to subsidiaries. These amounts are disclosed in
aggregate in the relevant company financial statements and in detail in the following table:
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
Amounts owed by
related parties
Amounts owed to
related parties
2019
£’000
661
–
–
–
–
–
9
2018
£’000
–
–
–
–
–
–
9
2019
£’000
–
6,993
24
11,918
4,786
2,583
–
2018
£’000
2,339
6,615
4
4,322
3,986
2,583
–
All of the above amounts are interest-free and are repayable on demand.
The Group manages a number of collective investment funds that are considered related parties. During the year the Group
disposed of their 563,689 class A units in the IFSL Brooks Macdonald Balanced Fund (Note 16). These transactions were
conducted on an arm’s length basis.
124
125
Consolidated financial statementsBrooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements Notes to the consolidated
financial statements continued
For the year ended 30 June 2019
34. 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 25.
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 UK Investment Management segment include those managed
within structured entities. These structured entities consist of unitised vehicles such as Open Ended Investment Companies
(“OEICs”) which entitle investors to a percentage of the vehicle’s net asset value. The structured entities are financed by the
purchase of units or shares by investors. As fund manager, the Group does not guarantee returns on its funds or commit to
financially support its funds. Where external finance is raised, the Group does not provide a guarantee for the repayment of
any borrowings. The business activity of all structured entities, in which the Group has an interest, is the management of assets
in order to maximise investment returns for investors from capital appreciation and/or investment income. The Group earns a
management fee from its structured entities, based on a percentage of the entity’s net asset value.
The funds under management of unconsolidated structured entities total £1,550bn (FY18: £1,428bn). Included in revenue
on the consolidated statement of comprehensive income is management fee income of £7,329,000 (FY18: £6,134,000) from
unconsolidated structured entities managed by the Group.
35. Events since the end of the year
On 17 July 2019, the Group announced that it had signed an agreement to lease a new London office at 21 Lombard Street. The
lease is for six years with relocation to the new premises in the second half of the Group’s financial year ending 30 June 2020.
The Group’s two current London offices at Welbeck Street in the West End and Bevis Marks in the City will consolidate into
the new central location. For the period of the fit out, the Group will incur additional costs of circa £1,200,000 from running
multiple sites, and the intention is to exclude this from underlying profit in the year ending 30 June 2020. No amounts in
relation to these costs have been included in these Consolidated financial statements.
126
Financial statements
Company financial statements
Contents
128
129
130
131
Company statement of financial position
Company statement of changes in equity
Company statement of cash flows
Notes to the Company financial statements
Consolidated financial statementsBrooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements Company financial statements
Company statement of
financial position
As at 30 June 2019
Assets
Non-current assets
Intangible assets
Investment in subsidiaries
Available for sale financial assets
Financial assets at fair value through other comprehensive income
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
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
2019
£’000
2018
£’000
40
41
42
43
44
45
46
47
49
49
1,461
74,251
–
500
140
76,352
690
–
11,101
11,791
1,811
71,540
500
–
–
73,851
85
1,262
266
1,613
88,143
75,464
(380)
(380)
(1,479)
(1,479)
(29,394)
(29,394)
(23,466)
(23,466)
58,369
50,519
139
39,068
4,682
14,480
58,369
138
38,404
3,192
8,785
50,519
The Company financial statements were approved by the Board of Directors and authorised for issue on 11 September 2019,
and signed on their behalf by:
Caroline Connellan
Chief Executive
Company registration number: 4402058
Ben Thorpe
Finance Director
The accompanying notes on pages 131 to 138 form an integral part of the Company financial statements.
Company statement of
changes in equity
For the year ended 30 June 2019
Balance at 1 July 2017
Comprehensive income
Profit for the year (Note 38)
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 39)
Total transactions with owners
Share capital
£’000
138
Share
premium
account
£’000
37,101
Share option
reserve
£’000
5,901
Retained
earnings
£’000
7,078
–
–
–
–
–
–
–
–
–
–
–
1,303
–
–
–
–
–
1,303
–
–
–
490
(3,199)
–
–
–
(2,709)
9,417
9,417
–
–
3,199
(5,066)
–
(5,843)
(7,710)
Total
£’000
50,218
9,417
9,417
1,303
490
–
(5,066)
–
(5,843)
(9,116)
Balance at 30 June 2018
138
38,404
3,192
8,785
50,519
Comprehensive income
Profit for the year (Note 38)
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 39)
Total transactions with owners
–
–
1
–
–
–
–
1
–
–
664
–
–
–
–
664
–
–
14,785
14,785
14,785
14,785
–
1,762
(272)
–
–
1,490
–
–
272
(2,648)
(6,714)
(9,090)
665
1,762
–
(2,648)
(6,714)
(6,935)
Balance at 30 June 2019
139
39,068
4,682
14,480
58,369
The accompanying notes on pages 131 to 138 form an integral part of the Company financial statements.
128
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Brooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements
Company financial statements
Company statement of
cash flows
For the year ended 30 June 2019
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
Finance income
Proceeds of sale of financial asset through profit or loss
Deferred consideration paid
Net cash used in investing activities
Cash flows from financing activities
Proceeds of issue of shares
Purchase of own shares by Employee Benefit Trust
Dividends paid to shareholders
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Note
48
40
41
45
46
39
2019
£’000
25,683
25,683
(149)
(6,000)
21
1,229
(1,251)
(6,150)
664
(2,648)
(6,714)
(8,698)
2018
£’000
17,810
17,810
(1,836)
(12,000)
–
–
(1,852)
(15,688)
1,303
–
(5,843)
(4,540)
10,835
(2,418)
266
11,101
2,684
266
The accompanying notes on pages 131 to 138 form an integral part of the Company financial statements.
Notes to the Company
financial statements
For the year ended 30 June 2019
36. 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.
Intangible assets
b.
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.
Investments in subsidiary companies
c.
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.
Subsidiary company guarantees and contingent liabilities
d.
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.
Employee Benefit Trust
f.
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.
130
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Brooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements Company financial statements
Notes to the Company
financial statements continued
For the year ended 30 June 2019
37. 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. The outstanding deferred consideration liability at 30 June 2019 relates entirely to the present value of fixed
amounts owed to the vendors of Levitas.
38. Profit for the year
Brooks Macdonald Group plc reported profit after tax for the year ended 30 June 2019 of £14,785,000 (FY18: £9,417,000).
Auditors’ remuneration is disclosed in Note 6 of the Consolidated financial statements. The average monthly number of
employees during the year was eight (FY18: eight). Directors’ emoluments are set out in Note 7d of the Consolidated financial
statements.
39. Dividends
Details of the Company’s dividends paid and proposed, subject to approval at the Annual General Meeting, are set out in Note 12
of the Consolidated financial statements.
41. Investment in subsidiaries
Net book value
At 1 July 2017
Additions:
− Investment in subsidiaries
− Capital contribution relating to share-based payments
At 30 June 2018
Additions:
− Investment in subsidiaries
− Capital contribution relating to share-based payments
− Impairment of subsidiary
At 30 June 2019
Group
undertakings
£’000
64,646
12,000
(5,106)
71,540
6,000
1,467
(4,756)
74,251
40. Intangible assets
Cost
At 1 July 2018
Additions
At 30 June 2019
Accumulated amortisation
At 1 July 2018
Amortisation charge
At 30 June 2019
Net book value
At 1 July 2018
At 30 June 2019
Software
£’000
1,836
149
1,985
25
499
524
1,811
1,461
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.
During the year, the Company recognised an impairment in relation to a subsidiary company, Levitas Investment Management
Services Limited. Based on a value-in-use calculation, the recoverable amount of the Levitas CGU as at 31 December 2018 was
£5,152,000. This fell short of the carrying amount of the Company’s investment in Levitas Investment Management Services
Limited and reflects both the reduction in forecast funds under management growth and an increase in the discount rate,
indicating that it should be impaired. An impairment loss of £4,756,000 (FY18: £nil) has been recognised against the investment
in subsidiary.
Details of the Company’s subsidiary undertakings at 30 June 2019, 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
Brooks Macdonald Asset Management
(International) Limited
Brooks Macdonald Financial Consulting Limited
Brooks Macdonald Funds Limited
Brooks Macdonald Nominees Limited
Brooks Macdonald Retirement Services
(International) Limited
Levitas Investment Management Services Limited Ordinary £1
Ordinary £1
Secure Nominees Limited
Type of shares
and par value
Ordinary 1p
Ordinary £1
Ordinary 1p and
Preference £1
Ordinary 5p
Ordinary £1
Ordinary £1
Ordinary £1
Country of
Nature of business
incorporation
Investment management
UK
UK
Investment management
Channel Islands Investment management
UK
UK
UK
Channel Islands Retirement planning
Financial consulting
Fund management
Non-trading
UK
Channel Islands Non-trading
Fund Sponsor
The registered office for all subsidiaries is 72 Welbeck Street, London, W1G 0AY except for the following:
Company
Brooks Macdonald Asset Management
(International) Limited
Brooks Macdonald Retirement Services
(International) Limited
Secure Nominees Limited
Registered office
1st Floor Royal Chambers, St. Julian’s Avenue, St. Peter Port,
Guernsey, GY1 2HH
Liberation House, Castle Street, St. Helier, Jersey,
JE2 3AT
1st Floor Royal Chambers, St. Julian’s Avenue, St. Peter Port,
Guernsey, GY1 2HH
132
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Brooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements Company financial statements
Notes to the Company
financial statements continued
For the year ended 30 June 2019
41. Investment in subsidiaries (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 2019:
45. Financial assets at fair value through profit or loss
•
•
•
Braemar Group Limited
Brooks Macdonald Nominees Limited
Levitas Investment Management Services Limited
At beginning of period
Net (loss) / gain from changes in fair value
Disposals
At end of year
2019
£’000
1,262
(33)
(1,229)
–
2018
£’000
1,180
82
–
1,262
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 2019 were £13,000.
The Company disposed of 563,689 class A units in the IFSL Brooks Macdonald Balanced Fund in November 2018 at their fair
value of £1,229,000. In the period from 1 July 2018 to disposal, the Company recognised a reduction in fair value of £33,000.
42. Financial assets at fair value through other comprehensive income
IFRS 9 reclassification from AFS
At beginning of year
Net changes in fair value
At end of year
2019
£’000
500
500
–
500
The Company adopted IFRS 9 ‘Financial instruments’ on 1 July 2018, resulting in the AFS financial assets category being no
longer available. As a result, the AFS assets were reclassified to fair value through other comprehensive income. For further
details on the adoption and impact to the Financial statements, see Note 2c.
At 30 June 2019, the Company held an investment of 500,000 redeemable £1 preference shares in an unlisted company
incorporated in the UK. The preference shares carry an entitlement to a fixed preferential dividend at a rate of 8% per annum.
43. Deferred tax asset
At 1 July
Credit to the statement of comprehensive income
At 30 June
2019
£’000
–
140
140
The deferred taxation credit of £140,000 (FY18: nil) arises out of the cost of share-based payments at the statement of financial
position date.
44. Trade and other receivables
Amounts owed by subsidiary undertakings
Prepayments and accrued income
Total trade and other receivables
2019
£’000
670
20
690
2018
£’000
9
76
85
Amounts owed by subsidiary companies are unsecured, interest-free and repayable on demand.
46. Deferred consideration
Deferred consideration is split between non-current liabilities (see below) and trade and other payables in current liabilities
to the extent that it is due to be paid 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 movements in the
total deferred consideration balance during the period were as follows:
At beginning of period
Finance cost of deferred consideration
Fair value adjustments
Payments made during the period
At end of period
Analysed as:
Amounts falling due within one year
Amounts falling due after more than one year
At end of period
2019
£’000
2,875
94
(419)
(1,251)
1,299
919
380
1,299
2018
£’000
3,384
152
1,191
(1,852)
2,875
1,396
1,479
2,875
No additions to deferred consideration payable were recognised in the current and prior period. Payments totalling £1,251,000
(FY18: £1,852,000) were made during the period to the vendors of Levitas. Full details of the Levitas acquisition are disclosed in
Note 13 of the 2015 Annual Report and Accounts.
A decrease in the fair value of deferred consideration of £419,000 (FY18: increase of £1,191,000) was recognised during the
period, all in respect of Levitas, with a corresponding gain recognised within other gains and losses in the Statement of
Comprehensive Income. The amount payable is based on the incremental growth in funds under management (“FUM”) of the
TM Levitas funds, measured at annual intervals. As forecast growth was not achieved during the period, the FUM forecast was
subsequently revised and the estimated future deferred consideration payments decreased accordingly. The outstanding
deferred consideration liability at 30 June 2019 relates entirely to the present value of fixed amounts owed to the vendors of
Levitas.
134
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Brooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements Company financial statements
Notes to the Company
financial statements continued
For the year ended 30 June 2019
47. Trade and other payables
Trade payables
Amounts owed to subsidiary undertakings
Deferred consideration (Note 46)
Accruals and deferred income
Total trade and other payables
2019
£’000
58
26,304
919
2,113
29,394
Amounts owed to subsidiary companies are unsecured, interest-free and are repayable on demand.
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
Changes in fair value of deferred consideration
(Increase)/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:
2019
£’000
14,717
4,756
33
(419)
(106)
6,407
295
25,683
At 1 July 2017
Shares issued
At 30 June 2018
Shares issued
At 30 June 2019
Number of
shares
13,793,400
109,633
13,903,033
47,038
13,950,071
Share
capital
£’000
138
–
138
1
139
Share
premium
account
£’000
37,101
1,303
38,404
664
39,068
2018
£’000
98
19,848
1,396
2,124
23,466
2018
£’000
9,417
–
(82)
1,191
1,710
5,084
490
17,810
Total
£’000
37,239
1,303
38,542
665
39,207
The total number of ordinary shares, issued and fully paid at 30 June 2019, was 13,950,071 (FY18: 13,903,033) with a par value of
1p per share. Excluding 268,045 (FY18: 164,582) treasury shares held by the Employee Benefit Trust (see below), the Company
had 13,682,026 (FY18: 13,738,451) ordinary 1p shares in issue as at 30 June 2019. Details of the shares issued are given in Note 25
of the Consolidated financial statements.
49. Share capital and share premium account (continued)
Employee Benefit Trust
The Company established an Employee Benefit Trust (“EBT”) on 3 December 2010 to acquire ordinary shares in the Company
to satisfy awards under the Group’s Long Term Incentive Scheme, see Note 27b 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 53,420 (FY18: 78,883) options. The cost of the shares released on
exercise of these options amounted to £760,000 (FY18: £1,111,000). At 30 June 2019, the number of shares held by the EBT was
268,045 (FY18: 164,582) with a market value of £5,358,000 (FY18: £3,263,000) acquired for a total consideration of £4,597,000
(FY18: £2,699,000). 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 and LTIP to Executive Directors and other senior executives. The
conditional awards, which vest three years after the grant date, are subject to the satisfaction of specified performance criteria,
measured over a three-year performance period. All such conditional awards are made at the discretion of the Remuneration
Committee.
50. Lease commitments
The Company leases 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
2019
£’000
1,463
337
–
1,800
2018
£’000
1,993
2,220
2
4,215
136
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Brooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements Company financial statements
Notes to the Company
financial statements continued
For the year ended 30 June 2019
51. Related party transactions
The remuneration of key personnel of the Company, defined as the Company’s Directors, is set out below:
Short-term employee benefits
Post-employment benefits
Share-based payments
Total compensation
2019
£’000
2,638
15
248
2,901
2018
£’000
2,666
55
483
3,204
Dividends totalling £52,000 (FY18: £229,000) 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
− Braemar Group Limited
Total transactions with subsidiaries
2019
£’000
20,000
3,000
23,000
2018
£’000
15,000
–
15,000
The Company’s balances with fellow Group companies at 30 June 2019 are set out in Note 33 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 30 to the Consolidated financial statements.
Further information
Company information
Company information
Company Secretary
Company registration number
Registered office
Website
Financial calendar
Results announcement
Ex-dividend date for final dividend
Record date for final dividend
Annual General Meeting
Final dividend payment date
Officers and advisers
Independent auditors
PricewaterhouseCoopers LLP
7 More London Riverside
London
SE1 2RT
Simon Broomfield
4402058
72 Welbeck Street, London, W1G 0AY
www.brooksmacdonald.com
12 September 2019
26 September 2019
27 September 2019
31 October 2019
8 November 2019
Principal bankers
The Royal Bank of Scotland plc
280 Bishopsgate
London
EC2M 4RB
Nominated adviser and broker
Peel Hunt LLP
Moor House
120 London Wall
London
EC2Y 5ET
Public relations
MHP Communications Limited
6-11 Agar Street
London
WC2N 4HN
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
138
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Brooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Financial statementsCorporate governanceStrategic reportIntroductionFinancial statements Further Information
Glossary
Abbreviation
Definition
Abbreviation
Definition
Available for sale financial assets
Annual General Meeting
Alternative Investment Market
Adjusted Net Liquid Asset
AIM Portfolio Service
Asset Risk Consultants
Business Continuity Planning
Brooks Macdonald Group plc
Business Property Relief
Bespoke Portfolio Service
Client Assets Sourcebook
Chief Executive Officer
A controlled function regulated by The
Financial Conduct Authority applicable to
all employees providing advisory services
to clients
Cash Generating Unit
Centralised Investment Process
Continuing Professional Development
The settlement system used by the
London Stock Exchange for settling all its
transactions
Chief Risk Officer
Company Share Option Plan
Deferred Bonus Plan
Defensive Capital Fund
Discretionary Fund Managers
Employee Benefit Trust
Expected Credit Loss
Europe, Middle East and Africa
Earnings per share
Environmental, Social and Governance
Exceptional Share Options Award
European Union
UK Financial Conduct Authority
UK Financial Reporting Council
Financial Services Compensation Scheme
Funds under management
FVOCI
FVPL
GDPR
GRIF
Group
HNWI
HTM
IAS
ICAAP
IFA
IFPRU
IFRIC
IFRS
LTIS
LTIP
M&A
MAF
MiFID II
MRT
MTP
MPS
OEIC
PBT
RIS
R&D
RMF
RPI
UAE
SAYE
SMCR
UKIM
Fair Value through other comprehensive
income
Fair Value through Profit or Loss
General Data Protection Regulation
Ground Rents Income Fund
Brooks Macdonald Group plc and its
controlled entities
High net worth Individuals
Held to maturity
International Accounting Standard
Internal Capital Adequacy Assessment
process
Independent Financial Advisor
The FCA’s Prudential Sourcebook for
Investment Firms
International Financial Reporting
Interpretations Committee
International Financial Reporting Standard
Long term incentive scheme
Long term incentive plan
mergers and acquisitions
Multi-Asset Fund
Markets in Financial Instruments Directive
II which is legislation for the regulation of
investment services within the European
Economic Area
Material Risk Takers
Medium Term Plan
Managed Portfolio Service
Open-Ended Investment Company
Profit before tax
Responsible Investment Service
Research & Development
Risk Management Framework
Retail Price Index
United Arab Emirates
Employee Sharesave Scheme
Senior Managers and Certification Regime
UK Investment Management
AFS
AGM
AIM
ANLA
APS
ARC
BCP
BMG, Company,
Parent Company
BPR
BPS
CASS
CEO
CF30
CGU
CIP
CPD
CREST
CRO
CSOP
DBP
DCF
DFM
EBT
ECL
EMEA
EPS
ESG
ESOA
EU
FCA
FRC
FSCS
FUM
140
Our offices
1
2
3
4
Head Office -
London
72 Welbeck Street
London
W1G 0AY
East Anglia
Suite 2, Beacon House
4 Kempson Way
Bury St. Edmunds
Suffolk
IP32 7AR
Hampshire
The Long Barn
Dean Estate
Wickham Road
Fareham
Hampshire
PO17 5BN
Leamington Spa
36 Hamilton Terrace
Holly Walk
Leamington Spa
Warwickshire
CV32 4LY
8
9
Taunton
4 Heron Gate
Hankridge Way
Taunton
TA1 2LR
Tunbridge Wells
2 Mount Ephraim Road
Tunbridge Wells
Kent
TN1 1EE
5
6
7
Leeds
St Pauls House
23 Park Square South
Leeds
LS1 2ND
London
John Stow House
18 Bevis Marks
London
EC3A 7JB
Manchester
1 Marsden Street
Manchester
M2 1HW
10
11
12
13
Scotland
2nd Floor Suite
Hobart House
80 Hanover Street
Edinburgh
EH2 1EL
Wales
3 Ty Nant Court
Morganstown
Cardiff
CF15 8LW
Jersey
Liberation House
Castle Street
St. Helier
Jersey
JE2 3AT
Guernsey
1st Floor Royal Chambers
St Julian’s Avenue
St. Peter Port
Guernsey
GY1 2HH
10
5
7
11
8
12
13
4
3
2
9
1 6
141
Brooks Macdonald Group plc Annual Report and Accounts 2019Brooks Macdonald Group plc Annual Report and Accounts 2019Corporate governanceStrategic reportIntroductionFinancial statements
72 Welbeck Street
London
W1G 0AY
www.brooksmacdonald.com