Final Year Results for the year ended 30 June 2023
14 September 2023
BROOKS MACDONALD GROUP PLC
Final results for the year ended 30 June 2023
Solid financial performance, strategy continuing to deliver
Brooks Macdonald Group plc ("Brooks Macdonald" or "the Group") today announces its audited results for the year ended 30 June 2023.
Andrew Shepherd, CEO of Brooks Macdonald, commented:
"I'm pleased to report a year of strategic progress and solid financial performance for Brooks Macdonald, highlighting once more the resilience of our strategy and our business model. Despite market headwinds we delivered 5.2% net flows and robust underlying profit margin. Although the economic climate continued to affect investor sentiment, we delivered consistent positive net flows, demonstrating the strength of both our proposition and our relationships with clients and advisers.
"As we look ahead, our focus remains on ensuring we are well positioned to support clients, advisers and our people. This underpins our ambition and the plans we have in place to take advantage of the long-term opportunity. Supported by a strong capital position, our proven strategy, and motivated people, we look to the future with confidence."
Solid financial performance
· Group Funds Under Management ("FUM") reaching £16.8 billion (FY22: £15.7 billion), up 7.5% on prior year
· Positive net flows every quarter, 5.2% at Group level for the full year (FY22: 4.8%), with the third quarter highest at an annualised level of 9.2%
· Robust investment performance given market conditions of 2.3% for the year, ahead of the 1.6% increase in the MSCI PIMFA Private Investor Balanced Index
· Revenue of £123.8 million (FY22: £122.2 million), up 1.3% driven by positive net flows and investment performance, a contribution from acquisitions1, and increased interest income, partly offset by product mix effects
· Underlying profit of £30.3 million2 (FY22: £34.5 million), maintaining a robust underlying profit margin of 24.5% (FY22: 28.2%), in line with the Group's commitment to deliver top quartile margins, despite difficult market conditions and the impact of cost pressures
· Strong capital position with a robust balance sheet, including an appropriate buffer over regulatory capital requirements
· Full year dividend up 5.6% to 75.0p (FY22: 71.0p) reflecting the Board's confidence in the Group's medium-term growth ambitions. Eighteenth successive annual dividend increase since the shares started trading on AIM.
Strategic progress
· Continued strong growth in the Group's Platform Managed Portfolio Service ("PMPS"), including BM Investment Solutions ("BMIS"), its B2B offering for advisers, with overall PMPS FUM up 70% over the year, now over 20% of Group FUM
· Continued progress in Bespoke Portfolio Service ("BPS") specialist products with FUM up almost 50% over the period in the Decumulation Service, partly offsetting net outflows in core BPS in line with the market
· Core investment management processes successfully transferred to the platform provided by SS&C, the Group's technology partner
· Acquisitions completed of Integrity Wealth Solutions and Adroit Financial Planning, extending and enhancing the Group's existing financial planning capabilities.
Outlook
· Net flows expected to remain positive for full year FY24, despite short-term macroeconomic headwinds which are likely to result in negative net flows for Q1 and may affect the timing of delivery of our medium-term 8-10% p.a. net flow ambition
· Changing product mix will continue to affect average revenue yield
· Benefits expected from the operational leverage from our SS&C relationship as FUM increases over the medium term
· Continuing to review potential acquisition targets to complement organic growth, in line with the Group's strategy
· Group's processes and client-centric culture proving well aligned to the requirements of the FCA's new Consumer Duty Principle, requiring firms to deliver good outcomes for retail customers
· Structural growth opportunity remains highly attractive, underpinned by demographics, government policy, increasing use of advice, fragmented nature of the market.
1 The underlying figures represent the results for the Group's continuing activities excluding certain adjusting items as listed in the Financial Review. These represent an alternative performance measure ("APM") for the Group. Refer to the Non-IFRS financial information section for a glossary of the Group's APMs, their definition, and the criteria for how underlying adjustments are considered. A reconciliation between the Group's statutory and underlying profit before tax is also included in the Financial Review.
2 The underlying figures represent the results for the Group's continuing activities excluding certain adjusting items as listed in the Financial Review. These represent an alternative performance measure ("APM") for the Group. Refer to the Non-IFRS financial information section for a glossary of the Group's APMs, their definition, and the criteria for how underlying adjustments are considered. A reconciliation between the Group's statutory and underlying profit before tax is also included in the Financial Review.
Key financial results
|
|
Year ended 30.06.2023 |
Year ended 30.06.2022 |
Change |
|
|
|
|
|
|
Funds under management ("FUM") |
£16.8bn |
£15.7bn |
7.5% |
|
Net flows |
5.2% |
4.8% |
0.4ppt |
|
Revenue |
£123.8m |
£122.2m |
1.3% |
Underlying results3
|
Underlying profit before tax |
£30.3m |
£34.5m |
(12.2)% |
|
Underlying profit margin before tax |
24.5% |
28.2% |
(3.7)ppt |
|
Underlying basic earnings per share |
153.8p |
174.1p |
(20.3)p |
|
Underlying diluted earnings per share |
151.0p |
168.7p |
(17.7)p |
Statutory results
|
Statutory profit before tax |
£22.2m |
£29.5m |
(24.7)% |
|
Statutory profit margin before tax |
17.9% |
24.1% |
(6.2)ppt |
|
Statutory basic earnings per share |
114.7p |
149.0p |
(34.3)p |
|
Statutory diluted earnings per share |
112.6p |
144.4p |
(31.8)p |
|
|
|
|
|
|
Net cash |
£53.4m |
£61.3m |
(12.9)% |
Dividends
|
Proposed final dividend per share |
47.0p |
45.0p |
4.4% |
|
Total dividend per share |
75.0p |
71.0p |
5.6% |
3 The underlying figures represent the results for the Group's continuing activities excluding certain adjusting items as listed in the Financial Review. These represent an alternative performance measure ("APM") for the Group. Refer to the Non-IFRS financial information section for a glossary of the Group's APMs, their definition, and the criteria for how underlying adjustments are considered. A reconciliation between the Group's statutory and underlying profit before tax is also included in the Financial Review.
Conference call and investor presentation details
There will be a Q&A session for analysts and investors at 9:30 a.m. today via webcast and conference call. For details please contact FTI Consulting on +44 (0) 07976 870961 or brooksmacdonald@fticonsulting.com
A video presentation and presentation slides will be available from 7:30 a.m. today by going to the Investor Relations section of Brooks Macdonald's website using the following link:
https://www.brooksmacdonald.com/investor-relations
Enquiries to:
|
Brooks Macdonald Group plc Andrew Shepherd, CEO Andrea Montague, CFO
|
020 7927 4816 |
|
Peel Hunt LLP (Nominated Adviser and Broker) Paul Shackleton / Andrew Buchanan / John Welch
|
020 7418 8900 |
|
FTI Consulting Edward Berry
|
brooksmacdonald@fticonsulting.com 07703 330199 |
Notes to editors
Brooks Macdonald Group plc, through its various subsidiaries, provides leading investment management services in the UK and internationally. The Group, which was founded in 1991 and began trading on AIM in 2005, had discretionary Funds under Management of £16.85 billion as at 30 June 2023.
Brooks Macdonald offers a range of investment management services to private high net worth individuals, pension funds, institutions, charities and trusts. The Group also provides financial planning as well as international investment management, and acts as fund manager to a range of onshore and international funds.
The Group has fifteen offices across the UK and Crown Dependencies including London, Birmingham, Cheltenham, East Anglia, Exeter, Leeds, Manchester, Nuneaton, Southampton, Tunbridge Wells, Scotland, Wales, Jersey, Guernsey and Isle of Man.
LEI: 213800WRDF8LB8MIEX37
www.brooksmacdonald.com / @BrooksMacdonald
Chairman's statement
Introduction
Brooks Macdonald has had another good year, delivering solid financial performance and continued strategic progress. Funds under management ("FUM") finished the year at £16.8 billion (FY22: £15.7 billion), up 7.5% due to the combination of strong net flows and solid investment performance in turbulent markets. Despite volatile market conditions driving weaker investor sentiment, the Group achieved positive net flows every quarter. Net flows for the year were 5.2%, slightly ahead of last year's 4.8%, with the annualised rate of 9.2% in the third quarter (three months to 31 March) being particularly pleasing.
Our team works every day to protect and enhance our clients' wealth, and our Centralised Investment Process, embedded across the business, continues to deliver strong performance over the medium and longer term. Overall Group investment performance for this financial year was 2.3%, slightly ahead of the MSCI PIMFA Private Investor Balanced Index, which was up 1.6%.
Performance overview
The Group once again delivered growth at the FUM and revenue level, with revenue of £123.8 million (FY22: £122.2 million). Cost pressures meant that underlying profit before tax was £30.3 million, down 12.2% on last year (FY22: £34.5 million), and underlying diluted earnings per share ("EPS") was down 10.5% to 151.0p (FY22: 168.7p).
Statutory profit before tax fell 24.7% to £22.2 million (FY22: £29.5 million). Statutory basic EPS fell 23.0% to 114.7p (FY22: 149.0p).
Delivering our strategy
We have a clear strategy based on the three value drivers of market-leading organic growth, service and operational excellence, and selective high-quality M&A. We have continued to deliver against all three drivers:
• Our organic growth has been underpinned by our Platform Managed Portfolio Service ("PMPS"), including our business-to-business offering, BM Investment Solutions, with organic net new business of 65.6% for the financial year. PMPS now accounts for 20.7% of Group total FUM (FY22: 13.1%).
• We have continued to embed our processes on the platform provided by our technology partner, SS&C, and continued our digital transformation, migrating our financial planning activities to Intelliflo and (just after financial year end) implementing Salesforce for client relationship management.
• We completed two acquisitions, Integrity Wealth Solutions and Adroit Financial Planning.
The acquisitions have built on our existing financial planning capabilities and we will shortly be moving to an organisation more explicitly structured around our intermediary business on one hand, and our developing Private Clients business on the other.
Dividend
The Board has recommended a final dividend of 47.0p (FY22: 45.0p), which, subject to approval by shareholders, will result in total dividends for the year of 75.0p (FY22: 71.0p). This represents an increase of 5.6% in total dividend on the previous year and underlines the Board's confidence in the prospects for the Group. The final dividend will be paid on 3 November 2023 to shareholders on the register at the close of business on 22 September 2023.
Board changes
There were several changes to the Board during the financial year. In January, we announced that Chief Financial Officer, Ben Thorpe, and Chief Operating Officer, Lynsey Cross, would be leaving the business in due course and would be standing down from the Board with immediate effect.
In February, we announced that the Chairman, Alan Carruthers, was leaving the Board due to ill health. I would like to take this opportunity to reiterate the gratitude of the Group to Alan for the immense contribution he made to Brooks Macdonald during his tenure. The Group also announced that I would take over as Acting Chairman, pending a permanent replacement being appointed.
Later in February, we announced that James Rawlingson was being appointed Non-Executive Director with effect from 2 March 2023. He took over as Chair of the Audit Committee in May, following receipt of regulatory approval.
Finally in June, we announced that Andrea Montague would join the Board as an Executive Director with effect from 1 August 2023, and take over as Chief Financial Officer, subject to regulatory approval.
Looking ahead
The industry continues to be subject to regulatory change, with the FCA's new Consumer Duty rules going live on 31 July, shortly after the financial year end. We welcome the new Consumer Principle that requires firms to act to deliver good outcomes for retail customers and our processes and client-centric culture are proving well aligned to the new requirements.
Demographic and pension policy trends continue to underpin the strategic opportunity for the UK wealth sector in general, and Brooks Macdonald in particular, despite the continuing macroeconomic uncertainty, the improving interest rate environment for savers, and their impact on investor sentiment. The Group continues to deliver solid performance and robust cash generation, with a strong balance sheet. We have supportive shareholders and our employees continue to deliver outstanding service to our clients and intermediaries. We look to the future with confidence.
Richard Price
Acting Chairman
13 September 2023
CEO's review
Introduction
I am happy to report that this has been another successful year for Brooks Macdonald, with our strategy and business model continuing to deliver solid performance despite challenging macroeconomic conditions.
Our focus on our purpose of realising ambitions and securing futures ensures we keep our clients at the forefront of our minds, while also providing for our other stakeholders - our employees, intermediaries and shareholders.
Delivering our strategy
Three value drivers underpin our strategy: strong organic growth, service and operational excellence, and selective high-quality acquisitions. We are committed to delivering top quartile underlying profit margins, and we have also set medium-term ambitions of delivering 8-10% net flows and becoming a Top 5 wealth manager in the UK and Crown Dependencies. The sustainable and scalable business model we have put in place positions us well to achieve those ambitions and we continue to make progress, ready to capitalise on the growth opportunities we see ahead.
We completed two acquisitions in the first half of the financial year - first, Integrity Wealth Solutions ("Integrity") based in Nuneaton and then Adroit Financial Planning ("Adroit") in Manchester. We have worked with both firms over a number of years, delivering outsourced investment management. These acquisitions add critical financial planning capability and leadership as we build our Private Clients business. We continue to see a steady pipeline of potential acquisitions and M&A will remain an important contributor to achieving our goals.
We have spent considerable time putting in place sound foundations for our Private Clients business and, looking forward, we are now moving to make it increasingly visible. The business proposition for our Private Clients business - integrated wealth management - is quite distinct from the outsourced investment management we offer to our intermediaries and we will increasingly manage the two businesses separately. Of course, both will continue to be underpinned by the rigour and quality of our Centralised Investment Process, which is embedded across the Group.
Financial performance
We had a year of solid financial performance in FY23, continuing to deliver on our medium-term commitment to top quartile margins, although the underlying margin fell 3.7 points to 24.5%, reflecting market conditions and cost pressures. We delivered solid revenue and underlying profit levels of £123.8 million and £30.3 million respectively.
Statutory profit before tax also fell, to £22.2 million (FY22: £29.5 million).
Our year-end closing FUM was £16.8 billion. Net flows were positive in all quarters (and indeed months), 5.2% at Group level for the full year, peaking at an annualised level of 9.2% in the third quarter. Total FUM was up 7.5% over the year, with strong flows supported by solid investment performance. We have a healthy pipeline going into FY24, although market conditions are keeping client sentiment subdued.
Investment performance and market conditions
Investment performance for the year came in at 2.3%, slightly ahead of the MSCI PIMFA Private Investor Balanced Index, which rose 1.6%. Our investment performance was ahead of the ARC peer benchmark for the year, and remains ahead of ARC for the 10-year measure, and in line with peers over the medium term.
Financial markets remained volatile over the year with sticky inflation pressures keeping central bank monetary policy tight.
While inflation has been steadily falling in the United States, UK inflation has remained stubborn and it is less clear at what level it will settle in the post COVID-19 world. Against this backdrop central banks have been eager to show their commitment to battle inflation, causing bond markets to price in higher interest rates for longer. Our short-duration bond allocation was well positioned for this repricing of bond markets and allowed portfolios to weather the recent rises in gilt yields as well as those around the UK mini-budget of last year. We have maintained our overweight to equity markets, which has supported performance over the year, although some of these gains in international equities have been offset by a stronger sterling in the second half of the financial year. Brooks Macdonald outperformed the peer benchmark for all risk profiles over the year.
Looking ahead, we expect inflation to continue to fall in Europe and the UK, but for uncertainty around the new 'normal' level of inflation to lead to further volatility within bond and equity markets. We are retaining our overweight position to equity markets but maintaining our balance between value and growth investment styles to allow portfolios to perform in multiple economic scenarios.
Review of business performance
UK Investment Management
Across UK Investment Management ("UKIM"), our people have once again worked incredibly hard to provide exceptional levels of support to their clients and intermediaries. We have seen positive net flows throughout the year, reaching an annualised rate of 12.0% at UKIM level in the third quarter. BM Investment Solutions ("BMIS"), our business-to-business offering, where we work with an adviser firm to provide a tailored service aligned to the objectives of the clients and the firm, was once again the strongest performer for net flows, followed by our Platform Managed Portfolio Service ("PMPS").
In our flagship Bespoke Portfolio Service ("BPS") product, UKIM has continued to see good growth in our specialist offerings, the AIM Portfolio Service, the Responsible Investment Service, our Decumulation Service, and our Court of Protection service. We have also successfully delivered portfolios based on short-dated UK Government bonds for investors looking to take advantage of higher interest rates while retaining access to funds. Beyond the specialist offerings and the gilt portfolios, however, BPS saw net outflows driven by a broad market trend, exacerbated by the impact of higher interest rates and macroeconomic uncertainty.
Although our Funds business had another challenging year, with persistent net outflows in line with much of the sector, we continue to see multi-asset funds as a major potential source of growth for Brooks Macdonald. We have confidence in the actions we have already taken to drive medium-term growth and we are reviewing what further steps we should be taking.
During the year, we added Integrity's office in Nuneaton to our portfolio of offices, bringing the total to 15 across the UK and the Crown Dependencies.
Private Clients
We have continued to develop our Private Clients business, adding Integrity and Adroit to our existing activities. We were delighted to welcome Martin Lindsey and Neil Jefferies, and their respective teams, to the Group and look forward to working with them to enhance and grow our capabilities in this area. We are increasingly offering clients an integrated wealth management proposition with robust financial planning linked to a Brooks Macdonald investment management solution, retaining our independent financial advice for more complex cases or where the client specifically requests it.
International
In International, Richard Hughes and team have had a difficult year commercially, with continued elevated outflows, but we see improving prospects in the coming months, with new products and focus bringing renewed confidence. The International business is now fully integrated with the Group and is leading the way on our private client focus.
People
I am personally committed to a strong people agenda and I see our client-centric culture as one of our greatest assets. We continue both to invest in our people and to bring in strong new hires to add to our talent pool. I was pleased to announce in December that our General Counsel, Simon Broomfield, was in addition taking on the role of Chief People Officer ("CPO"), and Simon is now driving forward our people strategy.
Simon taking on the CPO role was one of a number of changes in the Executive Committee this year, as several colleagues left the business - our Chief Financial Officer, Ben Thorpe, our Chief Operating Officer, Lynsey Cross, and our Chief Risk Officer, Priti Verma, as well as our previous CPO, Tom Emery, all moved on and they leave with our gratitude and best wishes. This allowed us to promote internal talent, Simon to CPO and Caroline Abbondanza from Chief Technology Officer to Chief Operating Officer, and to bring in two new hires from outside the organisation.
Andrea Montague became our new Chief Financial Officer on 1 August and Louis Petherick as Chief Risk Officer on 4 September, both subject to regulatory approval. Andrea was most recently Group Chief Risk Officer at Aviva, having been previously Group Chief Financial Controller, and Louis joins from FNZ UK, where he was Chief Risk Officer. I am delighted to welcome Andrea and Louis to the Group, and I am pleased with the strength of our new management team.
Outlook
The fundamental market opportunity for the Group is excellent, with an ageing population and a supportive policy environment alongside growing wealth. As we continue to deliver robust investment performance and supportive financial planning, plus exceptional client service, helping our stakeholders realise their ambitions and secure their futures, we can expect to see further strong business growth.
Our strategy remains based on the three value drivers of strong organic growth, service and operational excellence, and selective high-quality acquisitions. We are committed to delivering top quartile underlying profit margins, we are aiming to deliver 8-10% annual net flows in the medium term, now potentially delayed by short-term headwinds, and we aspire to be a Top 5 wealth manager in the UK and Crown Dependencies.
I have confidence in our team, who bring a wide range of expertise and experience as well as real passion and ambition to see Brooks Macdonald succeed. I would like to finish, as ever, by thanking our clients, the intermediaries we work with, and our people for their continuing support. I look forward to an exciting future together.
Andrew Shepherd
CEO
13 September 2023
Our strategy
Brooks Macdonald is delivering strong performance and has put in place foundations for our continued future success. Our strategy is clear and we are making substantial progress, ready to capitalise on the growth opportunities we see ahead.
Our Purpose - Realising ambitions and securing futures
Brooks Macdonald was founded to give clients wealth management driven by purpose and principles, and that remains as true as ever.
We have multiple stakeholders - clients always come first, and if we look after our clients, our employees, and our intermediaries, then our shareholders will get the returns they seek. For all of them, the reason Brooks Macdonald is here is to help them realise their ambitions and secure their futures.
We work every day to protect and enhance our clients' wealth through high-quality investment management and financial planning, underpinned by exceptional client service.
We are dedicated to the highest professional standards, inspired by our guiding principles: we do the right thing, we are connected, we care, and we make a difference. We are proud of the powerful blend of talented people we have in Brooks Macdonald, and together we are confident and ambitious in what we can achieve and the difference we can make for our clients.
Looking forward
We are moving to align our business around our two key distribution channels - intermediaries and private clients. Our proposition is different in the two channels - outsourced discretionary investment management for intermediaries and advice-led integrated wealth management for private clients. Aligning the organisation to the needs of the different propositions will make us more effective and efficient in delivering for clients and advisers.
Our medium-term targets
We have set three medium-term targets
1 Our ambition is to be a Top 5 wealth manager in the UK and Crown Dependencies
2 We aim at market-leading organic growth with 8-10% net flows, and
3 We are committed to top quartile underlying profit margin.
What
Intermediary
• Outsourced discretionary investment management for advisers
• FUM
Private Clients
• Advice-led integrated wealth management
• AUM/A
Why
• Propositions, target audience and therefore business models are different and need dedicated management.
• Clarity of business models will facilitate better alignment with functions.
• Exposing different business characteristics will increase investor insight.
Our strategy
Our strategy is based on the three value drivers of strong organic growth, service and operational excellence, and selective high-quality acquisitions, and we have been delivering against all three.
|
Strategy |
Delivery |
|
Market-leading organic growth |
|
|
• We aim to deliver best-in-class client service and adviser experience. • Our rigorous Centralised Investment Process gives consistently good client outcomes. • We have a compelling investment proposition. |
• We delivered over 5% net flows in FY23, with positive net flows every month, despite volatile markets and weak investor sentiment. • Our Platform MPS product had net flows of over 65%. • We have continued to see positive net flows and FUM growth in our specialist BPS products and in Private Clients. |
|
Service and operational excellence |
|
|
• We work continuously to make Brooks Macdonald easy to do business with. • We are building on our SS&C partnership to deliver a digital transformation in our products and services. • We will continue to drive for margin improvement through our scalable business model. |
• We migrated all our investment management processes to the SS&C platform. • We implemented Intelliflo for our financial planning activities. • We again delivered robust underlying profit margin despite revenue coming under pressure from weaker markets. |
|
Selective high-quality acquisitions |
|
|
• We have ambitious inorganic growth plans - we will not make Top 5 without M&A. • Nonetheless, we rigorously apply our acquisition criteria - we only acquire good businesses, with a compelling strategic rationale, good cultural fit, and strong economics. • We focus on the delivery of benefits. |
• We completed the acquisition of Integrity Wealth Solutions and Adroit Financial Planning, building our capabilities in advice and financial planning leadership. • We reviewed and assessed many others, but continued to strictly apply our criteria. |
Financial review
Review of results for the year
The Group delivered a solid set of results for FY23, despite a backdrop of challenging macroeconomic environment and volatile markets impacting client sentiment. The Group achieved positive net flows of £0.8bn or 5.2% in FY23 ahead of the rate achieved in FY22 of 4.8%. The Group also continued to deliver on its ambitious growth strategy, completing the acquisitions of Integrity Wealth Solutions and Adroit Financial Planning in the year.
As experienced across the industry, the weaker markets seen during the financial year have impacted the Group's revenue growth, whilst the inflationary pressures prevailing during the year, along with increased costs in connection to the Group's digital transformation and costs incurred for terminated M&A processes, amongst other non-staff cost movements, have resulted in an uplift in total costs. This resulted in an underlying profit for the year of £30.3 million, representing a decrease of 12.2% on the prior year. The underlying profit margin was of 24.5% (FY22: 28.2%).
Group financial results summary
The table below shows the Group's financial performance for the year ended 30 June 2023 with the comparative period and provides a reconciliation between the underlying results, which the Board considers to be an appropriate reflection of the Group's underlying performance, and the statutory results. Underlying profit represents an alternative performance measure ("APM") for the Group. Refer to the Non-IFRS financial information section for a glossary of the Group's APMs, their definition, and the criteria for how underlying adjustments are considered.
Table 1 - Group financial results summary
|
|
FY23 £m |
FY22 £m |
Change |
|
Revenue |
123.8 |
122.2 |
1.3% |
|
|
|
|
|
|
Fixed staff costs |
(45.2) |
(40.5) |
11.6% |
|
Variable staff costs |
(10.9) |
(14.8) |
(26.4)% |
|
Total staff costs |
(56.1) |
(55.3) |
1.4% |
|
|
|
|
|
|
Non-staff costs |
(36.9) |
(31.3) |
17.9% |
|
FSCS levy |
(0.5) |
(1.1) |
(54.5)% |
|
Total non-staff costs |
(37.4) |
(32.4) |
15.4% |
|
|
|
|
|
|
Total underlying costs |
(93.5) |
(87.7) |
6.6% |
|
|
|
|
|
|
Underlying profit before tax |
30.3 |
34.5 |
(12.2)% |
|
|
|
|
|
|
Underlying adjustments |
(8.1) |
(5.0) |
62.0% |
|
|
|
|
|
|
Statutory profit before tax |
22.2 |
29.5 |
(24.7)% |
|
|
|
|
|
|
Taxation |
(4.1) |
(6.1) |
(32.8)% |
|
|
|
|
|
|
Statutory profit after tax |
18.1 |
23.4 |
(22.6)% |
|
|
|
|
|
|
Underlying profit margin before tax |
24.5% |
28.2% |
(3.7)ppt |
|
Underlying basic earnings per share |
153.8p |
174.1p |
(11.7)% |
|
Underlying diluted earnings per share |
151.0p |
168.7p |
(10.5)% |
|
Statutory profit margin before tax |
17.9% |
24.1% |
(6.2)ppt |
|
Statutory basic earnings per share |
114.7p |
149.0p |
(23.0)% |
|
Statutory diluted earnings per share |
112.6p |
144.4p |
(22.0)% |
|
Own Funds adequacy ratio |
328.1% |
356.9% |
(28.8)ppt |
|
Dividends per share |
75.0p |
71.0p |
5.6% |
FUM movement in the year
The table below shows the opening and closing FUM position and the flows for the year broken down by segment and by the key services within UK Investment Management ("UKIM").
Table 2 - Movements in funds under management
|
Year ended 30 June 2023 (£m) |
||||||||||
|
|
Opening |
Organic net new business |
Total inv. perf. |
Closing |
Total organic net new business |
Total mvmt |
||||
|
|
FUM 1 Jul 22 |
Q1 |
Q2 |
Q3 |
Q4 |
Total |
FUM 30 Jun 23 |
|||
|
BPS |
8,581 |
(6) |
(82) |
(43) |
(76) |
(207) |
153 |
8,527 |
(2.4)% |
(0.6)% |
|
MPS Custody |
960 |
(3) |
2 |
(7) |
(17) |
(25) |
31 |
966 |
(2.6)% |
0.6% |
|
MPS Platform |
2,053 |
243 |
297 |
505 |
302 |
1,347 |
89 |
3,489 |
65.6% |
69.9% |
|
MPS total |
3,013 |
240 |
299 |
498 |
285 |
1,322 |
120 |
4,455 |
43.9% |
47.9% |
|
UKIM discretionary |
11,594 |
234 |
217 |
455 |
209 |
1,115 |
273 |
12,982 |
9.6% |
12.0% |
|
Funds - DCF |
439 |
(14) |
(17) |
(20) |
(35) |
(86) |
(15) |
338 |
(19.6)% |
(23.0)% |
|
Funds - Other |
1,418 |
(20) |
(24) |
(14) |
(37) |
(95) |
47 |
1,370 |
(6.7)% |
(3.4)% |
|
Funds total |
1,857 |
(34) |
(41) |
(34) |
(72) |
(181) |
32 |
1,708 |
(9.7)% |
(8.0)% |
|
UKIM total |
13,451 |
200 |
176 |
421 |
137 |
934 |
305 |
14,690 |
6.9% |
9.2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
2,216 |
(9) |
(20) |
(48) |
(40) |
(117) |
58 |
2,157 |
(5.3)% |
(2.7)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
15,667 |
191 |
156 |
373 |
97 |
817 |
363 |
16,847 |
5.2% |
7.5% |
|
|
|
|
||||||||
|
Total investment performance |
|
2.3% |
||||||||
|
MSCI PIMFA Private Investor Balanced Index1 |
|
1.6% |
||||||||
1 Capital-only index.
The Group achieved positive net flows of £0.8 billion or 5.2% during the year, up on the rate achieved in FY22 of 4.8%. Investment performance contributed £0.4 billion, leading to an overall growth in the Group's closing FUM of 7.5% from the start of the financial year to £16.8 billion (FY22: £15.7 billion).
Investment performance for the year was 2.3%, surpassing the MSCI PIMFA Private Investor Balanced Index benchmark, which increased by 1.6% over the same period. Investment performance was ahead of the ARC peer benchmark for the year, and remains ahead of ARC for the 10-year measure, and in line with peers over the medium term.
Within UKIM, the BPS offering recorded net outflows of £0.2 billion during the year (FY22: £0.1 billion net inflows) with the prevailing market volatility impacting investor sentiment and higher interest rates driving increased trends towards higher cash holdings, debt repayment and investment in money market funds in the short term. Within BPS, we continue to see good traction in our specialist products - the AIM Portfolio Service, the Responsible Investment Service, the Decumulation Service, and the Court of Protection Service - all focused on meeting different client needs.
Platform MPS and, within that, the Group's B2B offering BM Investment Solutions ("BMIS") continued to grow and had a strong year, recording net inflows of £1.3 billion (FY22: £0.8 billion), which has continued to be an area of strategic focus for the Group in FY23.
The Funds business recorded total net outflows of £0.2 billion during the year (FY22: £0.1 billion), driven by market conditions and in line with observed sector-wide behaviour.
The International business reported net outflows for the year of £0.1 billion (FY22: break-even), also driven by market and economic headwinds.
Revenue
Table 3 - Breakdown of the Group's total revenue
|
|
FY23 £m |
FY22 £m |
Change % |
|
Fee income |
91.5 |
101.8 |
(10.1) |
|
Transactional and FX income |
13.3 |
14.7 |
(9.5) |
|
Financial planning income (excluding acquisitions) |
4.1 |
4.1 |
- |
|
Financial planning income (acquired) |
2.5 |
- |
N/A |
|
Interest income |
12.4 |
1.6 |
675.0 |
|
Total revenue |
123.8 |
122.2 |
1.3 |
Total revenue for the Group increased by 1.3% to £123.8 million in FY23 (FY22: £122.2 million).
Fee income of £91.5 million declined by 10.1% compared to the prior year (FY22: £101.8 million) driven by lower average FUM levels as a result of prevailing market conditions during the financial year, and the relative change in product mix, with the growth in net flows primarily driven by the MPS service. The implementation of a new competitive rate card for the Cornelian Risk Managed Funds range introduced in FY23 to drive asset growth has also contributed to the reduction of fee income in FY23.
Transactional and FX income reduced by 9.5% on last year due to lower trading volume in the year and the continuing trend of clients moving to the fee-only rate card.
Financial planning fee totalled £6.6 million in FY23, representing an increase of £2.5 million on FY22, primarily attributable to the income generated by the Integrity Wealth Solutions and Adroit Financial Planning businesses acquired during the year.
Interest income increased significantly from £1.6 million to £12.4 million, driven by the rise in the Bank of England base rates during FY23, net of amounts paid out to clients on cash holdings.
Table 4 - Revenue, average FUM and yields
|
|
Revenue |
Average FUM |
Yield2 |
||||||
|
|
FY23 £m |
FY22 £m |
Change £m |
FY23 £m |
FY22 £m |
Change % |
FY23 bps |
FY22 bps |
Change bps |
|
BPS fees |
54.2 |
59.9 |
(5.7) |
|
|
|
65.1 |
65.8 |
(0.7) |
|
BPS non-fees (transactional & FX) |
10.4 |
12.7 |
(2.3) |
|
|
|
12.5 |
13.9 |
(1.4) |
|
BPS non-fees (interest income) |
9.7 |
1.0 |
8.7 |
|
|
|
11.7 |
1.1 |
10.6 |
|
Total BPS |
74.3 |
73.6 |
0.7 |
8,318 |
9,108 |
(8.7) |
89.3 |
80.8 |
8.5 |
|
MPS Custody |
5.7 |
6.1 |
(0.4) |
967 |
1,029 |
(6.0) |
59.1 |
59.3 |
(0.2) |
|
MPS Platform |
5.2 |
3.5 |
1.7 |
2,750 |
1,808 |
52.1 |
18.8 |
19.2 |
(0.4) |
|
MPS non-fees (interest income) |
1.1 |
0.3 |
0.8 |
|
|
|
11.7 |
3.3 |
8.4 |
|
Total MPS |
12.0 |
9.9 |
2.1 |
3,717 |
2,837 |
31.0 |
32.3 |
34.9 |
(2.6) |
|
UKIM discretionary |
86.3 |
83.5 |
2.8 |
12,035 |
11,945 |
0.7 |
71.7 |
69.9 |
1.8 |
|
Funds |
9.6 |
12.8 |
(3.2) |
1,997 |
2,220 |
(10.0) |
48.3 |
57.8 |
(9.5) |
|
Total UKIM |
95.9 |
96.3 |
(0.4) |
14,032 |
14,165 |
(0.9) |
68.4 |
68.0 |
0.4 |
|
International fees1 |
16.1 |
18.5 |
(2.4) |
2,198 |
2,443 |
(10.0) |
73.3 |
75.5 |
(2.2) |
|
International non-fees |
4.2 |
2.1 |
2.1 |
|
|
|
18.9 |
8.6 |
10.3 |
|
Total International |
20.3 |
20.6 |
(0.3) |
2,198 |
2,443 |
(10.0) |
92.2 |
84.1 |
8.1 |
|
Total FUM-related revenue |
116.2 |
116.9 |
(0.7) |
16,230 |
16,608 |
(2.3) |
71.6 |
70.4 |
1.2 |
|
Financial planning income2 |
6.6 |
4.1 |
2.5 |
|
|
|
|
|
|
|
Other income |
1.0 |
1.2 |
(0.2) |
|
|
|
|
|
|
|
Total non-FUM-related revenue |
7.6 |
5.3 |
2.3 |
|
|
|
|
|
|
|
Total Group revenue |
123.8 |
122.2 |
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSCI PIMFA Private Investor Balanced Index3 |
1,665 |
1,774 |
(6.1) |
|
|
|
|||
1 The revenue and yields in respect of the Lloyds Channel Islands previously acquired businesses are included within the International fees line in the above table as these businesses are now fully embedded.
2 Following a corporate restructure of the business in FY22, fees earned on financial planning advice in the International business is included in the Annual Management Charge and are no longer billed separately. Comparatives have been updated to reflect a like-for-like comparison with advice fees shown in the International fees line for both years. As a result, the financial planning revenue in the table above relates to solely UK financial planning income.
3 Capital-only index (average based on quarterly closing balances).
The Group's average FUM fell by 2.3% from FY22 to FY23, ahead of the average monthly movement in the MSCI PIMFA Private Investor Balanced Index, which fell by 6.1% over the same period.
The yield on BPS fees for UKIM decreased by 0.7bps to 65.1bps during the year (FY22: 65.8bps), driven by fee pressure and rates achieved on new business. The BPS non-fee transactional and FX income yield reduced by 1.4bps in the year, as a result of lower trading volumes and a relatively lower proportion of dealing accounts. On the other hand, the yield on interest income saw significant growth from 1.1bps to 11.7bps driven by the increases in the Bank of England base rates during the year, partly offset by interest paid out by the Group on clients' cash balances.
The yield on MPS Custody of 59.1bps remained relatively stable on FY22, whereas the yield on MPS Platform fell slightly by 0.4bps to 18.8bps due to the impact of product mix as Platform MPS includes our BM Investment Solutions offering that attracts relatively larger mandates and benefit from discounted tiered rates. The MPS non-fee yield on interest income increased substantially, from 3.3bps last year to 11.7bps in FY23.
The Funds fee yields reduced by 9.5bps to 48.3bps during FY23, in line with expectations, driven by the Cornelian Risk Managed Fund range moving onto a more competitive rate card in July 2022. As part of our growth strategy, we are targeting a significant increase in market share with advisers and networks that predominately use multi-asset funds to deliver their investment offering.
International fee income yield reduced by 2.2bps to 73.3bps during FY23, driven by a change in mix and the impact of the timing of inflows and outflows recorded during the year. Similarly to UKIM, non-fees income yield increased significantly by 10.3bps as a result of the rise in rates earned on both GBP and foreign currency account balances, along with increased foreign exchange trading activity.
Underlying costs
Total underlying costs increased by 6.6% from £87.7 million in FY22 to £93.5 million in FY23, including £2.0 million incurred in respect of the two acquired businesses during the year. The key movements are set out in the bridge chart and explained below.
Table 6 - Breakdown of net movement in total underlying costs into staff and non-staff costs
|
|
Total £m |
Integrity & Adroit £m |
BM Core £m |
|
Staff costs increase/(decrease) |
0.8 |
1.6 |
(0.8) |
|
Non-staff costs increase |
5.0 |
0.4 |
4.6 |
|
Total FY23 underlying cost increase |
5.8 |
2.0 |
3.8 |
Staff costs
Total staff costs increased by £0.8 million to £56.1 million. Of this, £1.6 million was driven by the incremental costs arising from the two acquisitions. Excluding acquired costs, staff costs decreased by £0.8 million, from £55.3 million to £54.5 million.
Excluding the impact of acquisitions, fixed staff costs increased by £3.2 million as a result of inflationary pay rises and the impact of net joiners. The increase in fixed staff costs was offset by a decrease in the variable staff costs from £14.8 million to £10.9 million driven by the reduction in pre-variable pay profit. Within this, the share-based payments charge was down £0.8 million on the prior year due to lapses recognised in FY23 as a result of leavers, and a reduction in the Group's share price impacting the associated employer national insurance contributions.
Non-staff costs
Non-staff costs amounted to £37.4 million, representing an increase of 15.4% on the prior year. Excluding the cost impact of the two recently acquired businesses of £0.4 million, non-staff costs increased by £4.6 million or 14.2%. In addition to generic inflationary increases seen across the industry during the year, the following items contributed to the net increase.
During the year, the Group migrated investment management processes onto the SS&C technology suite, delivering brand-new capabilities and supporting the Group's digital transformation, whilst providing a scalable platform for future growth. The platform migration resulted in a net increase of £2.1 million in FY23, comprising £3.2 million additional spend on the enhanced capabilities, offset by a transitional service credit of £1.1 million recognised during the embedding period.
Furthermore, during the year, the Group incurred £1.0 million in connection with terminated M&A processes and £0.7 million in legal fees in respect of legacy matters cases, now fully settled. In the prior year, the Group recognised a release of historic tax provisions amounting to £1.4 million, which was not repeated in FY23.
The above noted uplift in non-staff costs were offset by a reduction in Financial Services Compensation Scheme ("FSCS") levy of £0.6 million from £1.1 million in FY22 to £0.5 million in FY23 as a result of lower compensation forecasts expected by the FSCS for FY23.
Profit before tax
Combined, the above gave rise to an underlying profit before tax for the year of £30.3 million, a decrease of 12.2% on the prior year (FY22: £34.5 million) and resulting in a profit margin of 24.5%, down by 3.7 points on last year (FY22: 28.2%).
The Group's statutory profit before tax was of £22.2 million (FY22: £29.5 million).
Segmental analysis
For FY23, the Group reported its results across two key operating segments, UK Investment Management and International. The tables below provide a breakdown of the full-year performance broken down by these segments, with comparatives. The operations in relation to Integrity Wealth Solutions and Adroit Financial Planning have been included in the UK Investment Management segment from the respective acquisition dates.
UKIM, which includes the Group's Private Clients business, reported a 2.5% increase in revenue, driven by higher financial planning and interest income, offset by a decline in fee income and transactional income. Total underlying costs increased by 6.2% as a result of the factors outlined previously. This gave rise to an underlying profit for FY23 of £34.5 million (FY22: £36.0 million) and an underlying profit margin of 33.3%.
The volatile markets and economic uncertainties experienced in FY23 also impacted the International segment, which reported a decrease in underlying profit to £0.1 million (FY22: £0.2 million). The decline in profitability was driven by a reduction in fee income within revenues as discussed previously and an uplift in total costs, partly driven by legal and professional fees.
Table 7 - Segmental analysis
|
FY23 (£m) |
UK Investment Management |
International |
Group and consolidation adjustments |
Total |
|
Revenue |
103.5 |
20.3 |
- |
123.8 |
|
Direct costs |
(47.4) |
(13.6) |
(33.4) |
(94.4) |
|
Operating contribution |
56.1 |
6.7 |
(33.4) |
29.4 |
|
Indirect cost recharges and net finance income |
(21.6) |
(6.6) |
29.1 |
0.9 |
|
Underlying profit/(loss) before tax |
34.5 |
0.1 |
(4.3) |
30.3 |
|
Underlying adjustments |
(4.8) |
(3.0) |
(0.3) |
(8.1) |
|
Statutory profit/(loss) before tax |
29.7 |
(2.9) |
(4.6) |
22.2 |
|
|
|
|
|
|
|
Underlying profit margin before tax |
33.3% |
0.5% |
N/A |
24.5% |
|
Statutory profit/(loss) margin before tax |
28.7% |
(14.3)% |
N/A |
17.9% |
|
FY22 (£m) |
UK Investment Management |
International |
Group and consolidation adjustments |
Total |
|
Revenue |
101.0 |
21.2 |
- |
122.2 |
|
Direct costs |
(43.4) |
(12.8) |
(31.2) |
(87.4) |
|
Operating contribution |
57.6 |
8.4 |
(31.2) |
34.8 |
|
Indirect cost recharges and net finance costs |
(21.6) |
(8.2) |
29.5 |
(0.3) |
|
Underlying profit/(loss) before tax |
36.0 |
0.2 |
(1.7) |
34.5 |
|
Underlying adjustments |
(1.9) |
(3.0) |
(0.1) |
(5.0) |
|
Statutory profit/(loss) before tax |
34.1 |
(2.8) |
(1.8) |
29.5 |
|
|
|
|
|
|
|
Underlying profit margin before tax |
35.6% |
0.9% |
N/A |
28.2% |
|
Statutory profit/(loss) margin before tax |
33.8% |
(13.2)% |
N/A |
24.1% |
Restatement of segmental view
We have undertaken a review of cost allocations across the Group to support branch and team level performance reporting, ensuring the costs are allocated consistently across the Group. As a result, the prior year segmental reporting has been restated to ensure consistent reporting with the current year reporting.
Reconciliation between underlying and statutory profits
Underlying profit before tax is considered by the Board to be an appropriate reflection of the Group's performance compared to the statutory results as it excludes income and expense categories, which are deemed to be of a non-recurring nature or a non-cash operating item. Reporting at an underlying basis is also considered appropriate for external analyst coverage. Underlying profit is deemed to be an alternative performance measure ("APM"); refer to the Non-IFRS financial information section for a glossary of the Group's APMs, their definitions, and the criteria for how underlying adjustments are considered. A reconciliation between underlying and statutory profit before tax for the year ended 30 June 2023 with comparatives is shown in the table below:
Table 8 - Reconciliation between underlying profit and statutory profit before tax
|
|
FY23 £m |
FY22 £m |
|
Underlying profit before tax |
30.3 |
34.5 |
|
Amortisation of client relationships |
(5.7) |
(5.5) |
|
Dual running operating platform costs |
(1.6) |
(2.4) |
|
Acquisition and integration-related costs |
(0.6) |
- |
|
Changes in fair value and finance cost of deferred contingent consideration |
(0.2) |
(0.1) |
|
Other non-operating income |
- |
3.0 |
|
Total underlying adjustments |
(8.1) |
(5.0) |
|
|
|
|
|
Statutory profit before tax |
22.2 |
29.5 |
Amortisation of client relationship contracts (£5.7 million charge)
These intangible assets are created in the course of acquiring funds under management and are amortised over their useful life, which have been assessed to range between 6 and 20 years. The increase in the charge from last year is due to the additional assets recognised as part of the acquisitions of Integrity Wealth Solutions and Adroit Financial Planning. This amortisation charge has been excluded from the underlying profit since it is a significant non-cash item. (Refer to Note 10 to the Consolidated financial statements for more details).
Dual running operating platform costs (£1.6 million charge)
The Group is in a partnership agreement with SS&C to transform our adviser and client service including the onboarding process and digital experience, as well as enhancing our operating platform. As part of the transition process, the Group has incurred net incremental costs in running two operating platforms concurrently, with the dual running costs finishing at the end of H1 FY23. The dual running costs have been excluded from underlying profit in view of their non-recurring nature.
Acquisition and integration-related costs (£0.6 million charge)
These represent costs incurred in relation to the acquisitions of Integrity Wealth Solutions on 31 October 2022 and Adroit Financial Planning on 15 December 2022. The acquisition-related costs incurred include stamp duty and legal fees and the integration-related costs include the cost of retention-based share option awards.
Changes in fair value and finance cost of deferred contingent consideration (£0.2 million charge)
This comprises the associated net finance costs arising on deferred contingent consideration payments from acquisitions carried out by the Group, together with their fair value measurements, where applicable. The deferred contingent consideration for Integrity Wealth Solutions was revalued at 30 June 2023. (Refer to Note 12 of the Consolidated financial statements for more details).
FY22 - Other non-operating income (£3.0 million credit)
During the prior year ended 30 June 2022, the Group received confirmation from HMRC that the supply of certain Group services was exempt from VAT. As a result, the Group received a refund from HMRC in respect of VAT arising on those services during the period from 1 July 2017 to 30 June 2020 of £3.0 million. This was treated as an adjusting item to the underlying profit in view of its non-recurring nature.
Reconciliation between profits and earnings before interest, tax, depreciation and amortisation ("EBITDA")
The tables below provide reconciliations between the Group's underlying and statutory profit before tax and the underlying and statutory earnings before interest, tax, depreciation and amortisation ("EBITDA"), which constitutes an APM, and which the Board considers to be an appropriate alternative measure to the Group's BAU performance.
Table 9 - Underlying EBITDA reconciliation
|
|
FY23 £m |
FY22 £m |
Change % |
|
Underlying profit before tax |
30.3 |
34.5 |
(12.2) |
|
Add back: |
|
|
|
|
Net finance (income)/costs |
(0.9) |
0.2 |
(550.0) |
|
Depreciation and amortisation |
3.8 |
4.0 |
(5.0) |
|
Underlying EBITDA |
33.2 |
38.7 |
(14.2) |
Table 10 - EBITDA reconciliation
|
|
FY23 £m |
FY22 £m |
Change % |
|
Statutory profit before tax |
22.2 |
29.5 |
(24.7) |
|
Add back: |
|
|
|
|
Net finance (income)/costs |
(0.8) |
0.3 |
(366.7) |
|
Depreciation and amortisation |
9.5 |
9.5 |
- |
|
EBITDA |
30.9 |
39.3 |
(21.4) |
Taxation
The Group's total tax charge for the year was £4.1 million, representing a decrease of 32.8% from last year (FY22: £6.1 million). The Group's underlying effective tax rate has decreased from 20.8% to 19.7% and the statutory effective tax rate has decreased from 20.8% to 18.4%. The reduction is primarily due to an R&D credit on FY22 qualifying expenditure recognised as a prior period tax adjustment in FY23, and additional deferred tax credits recognised in the current year. (Details on taxation are provided in Note 6 of the Consolidated financial statements).
Earnings per share
Basic statutory earnings per share for the Group in FY23 was 114.7p (FY22: 149.0p). On an underlying basis, basic earnings per share was 153.8p, a decrease of 11.7% on the prior year (FY22: 174.1p) driven by the decrease in underlying earnings. (Details on the basic and diluted earnings per share are provided in Note 8 of the Consolidated financial statements).
Dividend
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 Board has proposed a final dividend of 47.0p per share (FY22: 45.0p). Including the interim dividend of 28.0p per share (FY22: 26.0p), this results in a total dividend for the year of 75.0p per share (FY22: 71.0p), which is an overall increase of 4.0p or 5.6%. (Refer to Note 9 to the Consolidated financial statements for more details). The recommended dividend is subject to shareholders' approval, which will be sought at the Company's Annual General Meeting on 26 October 2023.
Financial position and regulatory capital
Net assets increased by 6.0% to £157.3 million at 30 June 2023 (FY22: £148.4 million), demonstrating the Group's continued strong financial position. The Group's tangible net assets (net assets excluding intangibles) was £56.7 million at 30 June 2023 (FY22: £62.5 million). As at 30 June 2023, the Group had regulatory capital resources of £64.6 million (FY22: £70.0 million). As at 30 June 2023, the Group had an own funds adequacy ratio of 328.1% (FY22: 356.9%). The own funds adequacy ratio is defined as the Group's own funds as a proportion of the fixed overhead requirement. The total net assets and the own funds adequacy ratio calculation take into account the respective period's profits (net of the declared interim dividends) as these are deemed to be verified at the date of publication of the annual results.
Table 11 - Own funds reconciliation
|
|
FY23 £m |
FY22 £m |
|
Share capital |
0.2 |
0.1 |
|
Share premium |
81.8 |
79.1 |
|
Other reserves |
9.1 |
10.0 |
|
Retained earnings |
66.2 |
59.2 |
|
Total equity |
157.3 |
148.4 |
|
Intangible assets (net book value) |
(100.6) |
(85.9) |
|
Deferred tax adjustment |
7.9 |
7.5 |
|
Own funds |
64.6 |
70.0 |
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. 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 and Risk Assessment ("ICARA") 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 FY22 ICARA review was conducted for the year ended 30 June 2022 and signed off by the Board in December 2022. Regulatory capital forecasts are performed monthly and take into account expected dividends and intangible asset acquisitions and disposals where applicable, as well as budgeted and forecast trading results. The Group's IFPR Public 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. The Group monitors a range of capital and liquidity statistics on a daily and monthly basis.
Cash flow and capital expenditure
The Group continues to have strong levels of cash generation from operations. Total cash resources at the end of the year were £53.4 million (FY22: £61.3 million) and the Group had no borrowings at 30 June 2023. This reduction was contributed by the Group financing the recent acquisitions of Integrity Wealth Solutions and Adroit Financial Planning from its own resources, resulting in a net cash outflow of £15.1 million.
The Group incurred capital expenditure of £3.7 million (FY22: £3.2 million). This comprised technology-related development of £3.0 million (FY22: £2.9 million), property-related costs of £0.5 million (FY22: £0.2 million) and IT and office equipment of £0.2 million (FY22: £0.1 million). The technology-related spend was primarily incurred in connection with our partnership with SS&C and amortisation started at the end of July 2022 following the migration, with the capital expenditure amortised over the remaining eight years of the ten-year agreement entered into with SS&C.
FY24 guidance and outlook
Looking ahead, financial markets remain volatile presenting short-term headwinds, expected to impact flows, particularly in H1 FY24. Moreover, the continued change in product mix is expected to impact fee yields. Whilst the Group continues to focus on cost discipline, inflationary cost pressures are expected to lead to mid-single digit cost growth.
Despite the short-term headwinds on financial performance, the Group continues to be well placed to deliver on its ambitious strategic objectives in the medium term and continue to grow the business.
Andrea Montague
Chief Financial Officer
13 September 2023
Risks
A dynamic approach to risk management in order to support positive client outcomes
We continue to develop and enhance our risk management processes across the Group as the risk landscape under which the firm operates changes, and the impact of the current geopolitical and macroeconomic uncertainties are monitored.
The Group continues to respond to regulatory developments and has implemented changes to our risk management framework to reflect the requirements of these new regulations, such as the Task Force on Climate-related Financial Disclosures ("TCFD") and the Consumer Duty. The Group remains focused on embedding and enhancing the risk management framework, through its work on resilience, third parties, and client outcomes.
The Group has also maintained its drive towards efficient, data-driven and evidenced-based risk management, which facilitates the transition to a more agile and dynamic approach to identifying, assessing, managing and monitoring risks.
Overall, the Group remains well capitalised and liquid, with significant buffers above all regulatory requirements.
How we manage risk
The Group risk management framework
Risk management starts with oversight through appropriate governance; an efficient board and committee structure, with individual and collective roles and delegated authorities and a set of core policies to provide guidance to staff.
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 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 ("RMF") 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 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 and Risk Assessment ("ICARA").
Controls assessment. 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 to either accept, avoid or transfer part or all of those risks that are outside our risk appetite, or to reconsider the risk appetite.
Reporting. Ongoing reporting of risks to senior management provides insight to inform risk-based decision-making and allocation of resources to achieve business objectives.
Overarching risk appetite statement
• The Group's overarching risk appetite statement ("ORAS"), as defined by the Board, sets out the acceptable level of current and emerging risk we are willing to take to achieve our strategic business objectives. It provides a framework to allow the Group to effectively balance the risk and reward relationship in decision-making.
• Clients, both existing and prospective, are at the heart of everything we do. As such, we aim to operate a sustainable business that conducts itself in a reputable and prudent manner, taking into account the interests of our clients through providing products and services suited to their needs and risk profile, which demonstrate value for money.
• As the business continues to grow through sustainable organic growth and strategic value-adding acquisitions, the ORAS helps ensure our key stakeholder obligations are met, supported by internal policies and regulatory requirements. We commit to using this framework to ensure we make strategic and business decisions that do not exceed our overarching risk appetite.
• In all of the Group's decisions and operations, we balance risk versus reward and we consider the below three dimensions.
Client outcome
• We put client interests at the heart of everything we do to ensure appropriate client outcomes.
Financial performance and resources
• We optimise profitability and use resources efficiently to drive financial performance.
• We, at all times, maintain adequate capital and liquid assets to meet financial and funding obligations as they fall due.
• We invest in the development and wellbeing of our employees.
Control environment
• We, at all times, operate within our risk appetite, operational risk parameters and regulatory framework, ensuring a robust control and oversight environment.
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.
Group level risks
|
Definition |
Key risks identified by risk management framework |
Change since last year |
Rationale for change |
|
1. Credit risk 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. |
• Cash deposits with external banks • Client credit risk • Counterparty credit risk • Custodian-related credit risk • Indirect counterparty risk in respect of referrals |
Unchanged
|
The risk continues to remain unchanged given the strong credit risk control environment, including ongoing monitoring and due diligence on all counterparties. |
|
2. Liquidity risk 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. |
• 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 |
Unchanged
|
The Group has adequate liquidity resources significantly above its Minimum Liquidity Requirement and maintains appropriate banking facilities. The Group regularly monitors forecast against actual cash flows and matches the maturity profiles of financial assets and liabilities. The Group has robust contingency funding arrangements, which are tested on a periodic basis. |
|
3. Market risk 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 have a financial impact. |
• 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 |
Increasing
|
The continued conflict in Ukraine and the associated geopolitical tensions, coupled with significant global inflationary pressure, gives rise to increased volatility and heightened downside risk. |
|
Business level risks |
|
|
|
|
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. |
• Adviser concentration • Acquisitions • Business growth • Extreme market events • Investment performance • Product governance |
Unchanged
|
Despite current macro-economic and geological challenges, the Group continues to post positive net flows, therefore highlighting the resiliency of its business model. |
|
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. |
• Suitability and conduct risk |
Unchanged
|
The Group continues to work on numerous initiatives to promote good risk and compliance culture and awareness to ensure positive client outcomes. |
|
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. |
• Data quality • Cyber/data security • Change management • IT infrastructure and capability • Operational maturity • Third-party suppliers • People • Resilience |
Unchanged
|
The Group continues to monitor and enhance its oversight framework to mitigate any external threats brought about by the current geopolitical environment, coupled with idiosyncratic risks linked to the Group's transition to a new operating model. |
|
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. |
• Prudential requirements |
Unchanged
|
The Group continues to maintain capital resources and liquid assets above its minimum regulatory requirement and internal thresholds. |
|
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. |
• Reputational risk • Financial crime • Governance • Legacy issues • Regulatory, tax and legal compliance |
Unchanged
|
This risk continues to remain unchanged given that the regulatory landscape and focus on the wealth management industry has not changed. |
|
9. Climate risk The potential financial impacts associated with the transition to a low-carbon economy and the longer-term physical climate risks. |
• Resilience • Investment risk • People • Third-party suppliers • Operation maturity |
Unchanged
|
This risk remains unchanged as the business embeds the various TCFD disclosure requirements. |
Emerging risks
|
10. Margins pressure The potential risk to profits as a result of market instability. |
A declining bond market (owing to rising interest rates) and an unstable equity market, may have an impact on profit margins. |
|
11. Geopolitical landscape In light of an ongoing energy crisis and cost-of-living issues. |
Geopolitical events have a direct impact on market risk listed previously. Prolonged economic downturn also has an impact on client sentiment and thus business and strategic risk as listed previously. |
|
12. Generational wealth change The potential decrease in AUM as financial assets are passed down from one generation to the next. |
With generational wealth poised to change hands, primarily from the baby boomers to Gen X and millennials through the next decade, younger investors may have different priorities and views on how their inheritance is managed. |
|
13. Cyber threats The threat of a malicious attack by individuals or organisations attempting to gain access to the Company's network to corrupt data, disrupt, and steal confidential information. |
With the continuing geopolitical events, the cyberthreat landscape is worsening. There has been an increase in the sophistication of cyber threat activity. |
|
14. Disruptive technologies The risk that innovative technologies significantly alter the way businesses operate. |
With the introduction of new technologies such as AI, the industry is being impacted particularly in automated trading, investment advice, fraud detection, customer service, and portfolio management. |
Viability statement
In accordance with the UK Corporate Governance Code, the Board has assessed the Group's viability over a five-year period. The decision to do so is to be aligned with the Group's strategy, its budgeting and forecasting process and the scenarios set out in the 2022 Internal Capital Adequacy and Risk Assessment ("ICARA").
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 ICARA and an evaluation of the Group's emerging and principal risks, as set out in the Risks section.
In assessing the future viability of the overall business, the Board has considered the current and future strategy. 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. Moreover, the Board's assessment considered the current macroeconomic environment, the impact of volatile markets and the prevailing high inflation and interest rates, on the Group's profitability, regulatory capital and liquidity forecasts. The Board's assessment of the Group's capital and liquidity position also considers the implications of meeting the Group's proposed interim and final dividend pay-outs.
The five-year MTP forms part of the Group's annual business 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 a transparent and holistic view of the forward-looking financial prospects of the Group. The Board reviews and challenges the Group's MTP annually. The MTP covering the five-year period from FY23 to FY27, which underpins the 2022 ICARA was challenged and approved by the Board in June 2022. The MTP for the five-year period covering FY24 to FY28 was reviewed and challenged by the Board in June 2023.
In addition to the annual MTP preparation process, a re-forecast is carried out by management and reviewed by the Board on a quarterly basis. These reflect updates for prevailing trading conditions and other changes required to the budget assumptions set at the start of the year.
As part of the ICARA, the Group models a range of downside scenarios and a severe but plausible stress scenario designed to assess the Group's ability to withstand a market-wide shock, such as a sharp market decline triggered by a global recession; Group-specific stresses, such as the loss of an investment management team or key introducer, and a combination of both.
The Group modelled a multi-layered scenario involving a significant decline in financial markets over a five-year period (a drop of 23% and 5% in years one and two respectively, followed by a gradual recovery), combined with the loss of a key investment management team. This scenario would have a material impact on the Group's profitability compared to the MTP base case, giving rise to a small regulatory capital deficit by the end of FY27, before putting in place any mitigating management actions.
Management identified a number of mitigating actions that could be implemented in the event of such severe stresses. In this scenario, the mitigation actions implemented were to reduce discretionary compensation and reduce the dividend payments to ensure a capital surplus was maintained against the minimum capital requirement. No additional actions were taken with regards to profitability as although the Group experiences a sharp decline in profitability, the reduction was temporary, and profits were forecast to increase from FY25 onwards. In the Group's modelling on the above-mentioned multi-layered scenario, post the implementation of the management mitigating actions the Group would revert to a healthy capital surplus position. If deemed appropriate, mitigating actions could include a broader and more significant reduction in the Group's cost base (IT, property, change initiatives and others). The implementation of the above actions depends on the nature of the specific stress events and the time frames over which they occur.
These scenarios are refreshed on a regular basis to ensure they remain relevant and continue to be a suitable tool for developing our controls and mitigating actions. The latest ICARA refresh exercise took place in spring 2023, where it was confirmed that the stress tests modelled previously in the 2022 ICARA were still deemed appropriate and materially relevant. Management also considers a reverse stress case and carries out an assessment of the cost to the Group of a wind-down in the event of a non-recoverable shock to the operating model. Moreover, management has identified a number of actions that could be implemented in the event of severe stresses.
Taking into consideration the assessment of the above factors, including the results of the latest ICARA, the Group's risk management framework and the mitigating actions that can be put 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 under assessment. This assessment also supports the Group's Consolidated financial statements to be prepared on a going concern basis, as discussed in Note 2 of the Consolidated financial statements.
Consolidated statement of comprehensive income
For the year ended 30 June 2023
|
|
Note |
2023 £'000 |
2022 £'000 |
|
Revenue |
4 |
123,777 |
122,210 |
|
Administrative costs |
|
(102,207) |
(95,288) |
|
Gross profit |
|
21,570 |
26,922 |
|
|
|
|
|
|
Other gains/(losses) - net |
|
(162) |
(55) |
|
|
|
|
|
|
Operating profit |
|
21,408 |
26,867 |
|
|
|
|
|
|
Finance income |
5 |
1,127 |
68 |
|
Finance costs |
5 |
(296) |
(372) |
|
Other non-operating income |
|
- |
2,983 |
|
|
|
|
|
|
Profit before tax |
|
22,239 |
29,546 |
|
|
|
|
|
|
Taxation |
6 |
(4,090) |
(6,135) |
|
|
|
|
|
|
Profit for the year attributable to equity holders of the Company |
|
18,149 |
23,411 |
|
|
|
|
|
|
Other comprehensive income |
|
- |
- |
|
|
|
|
|
|
Total comprehensive income for the year |
|
18,149 |
23,411 |
|
|
|
|
|
|
Earnings per share |
|
|
|
|
Basic |
8 |
114.7p |
149.0p |
|
Diluted |
8 |
112.6p |
144.4p |
Consolidated statement of financial position
As at 30 June 2023
|
|
Note |
30 June 2023 £'000 |
30 June 20221 £'000 |
|
Assets |
|
|
|
|
Non-current assets |
|
|
|
|
Intangible assets |
10 |
100,582 |
85,887 |
|
Property, plant and equipment |
|
2,123 |
2,202 |
|
Right-of-use assets |
|
4,329 |
4,971 |
|
Financial assets at fair value through other comprehensive income |
|
500 |
500 |
|
Total non-current assets |
|
107,534 |
93,560 |
|
|
|
|
|
|
Current assets |
|
|
|
|
Financial assets at fair value through profit or loss |
|
825 |
784 |
|
Trade and other receivables |
|
33,542 |
30,473 |
|
Cash and cash equivalents |
|
53,355 |
61,328 |
|
Total current assets |
|
87,722 |
92,585 |
|
Total assets |
|
195,256 |
186,145 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Non-current liabilities |
|
|
|
|
Lease liabilities |
|
(3,181) |
(4,075) |
|
Provisions |
11 |
(322) |
(326) |
|
Net deferred tax liabilities |
|
(6,033) |
(4,957) |
|
Other non-current liabilities |
|
(783) |
(570) |
|
Total non-current liabilities |
|
(10,319) |
(9,928) |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
Lease liabilities |
|
(1,960) |
(1,952) |
|
Provisions |
11 |
(1,000) |
(819) |
|
Deferred contingent consideration |
12 |
(1,467) |
(327) |
|
Trade and other payables |
|
(22,521) |
(23,861) |
|
Current tax liabilities |
|
(645) |
(833) |
|
Total current liabilities |
|
(27,593) |
(27,792) |
|
Net assets |
|
157,344 |
148,425 |
|
|
|
|
|
|
Equity |
|
|
|
|
Share capital |
14 |
164 |
162 |
|
Share premium account |
14 |
81,830 |
79,141 |
|
Other reserves |
|
9,112 |
9,962 |
|
Retained earnings |
|
66,238 |
59,160 |
|
Total equity |
|
157,344 |
148,425 |
1 The Group has reclassified the deferred tax balances to offset deferred tax assets and liabilities and present net deferred tax balances by jurisdiction to ensure consistent reporting with the current period. In the prior year, the reported deferred tax asset was £3,002,000, which has been netted off in the deferred tax liabilities balance.
The Consolidated financial statements were approved by the Board of Directors and authorised for issue on 13 September 2023, and signed on their behalf by:
Andrew Shepherd
CEO
Andrea Montague
Chief Financial Officer
Company registration number: 4402058
Consolidated statement of changes in equity
For the year ended 30 June 2023
|
|
Note |
Share capital £'000 |
Share premium account £'000 |
Other reserves £'000 |
Retained earnings £'000 |
Total equity £'000 |
|
Balance at 1 July 2021 |
|
161 |
78,703 |
8,467 |
46,672 |
134,003 |
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
Profit for the year |
|
- |
- |
- |
23,411 |
23,411 |
|
Other comprehensive income |
|
- |
- |
- |
- |
- |
|
Total comprehensive income |
|
- |
- |
- |
23,411 |
23,411 |
|
|
|
|
|
|
|
|
|
Transactions with owners |
|
|
|
|
|
|
|
Issue of ordinary shares |
14 |
1 |
438 |
- |
- |
439 |
|
Share-based payments |
|
- |
- |
2,779 |
- |
2,779 |
|
Share options exercised |
|
- |
- |
(2,494) |
2,494 |
- |
|
Purchase of own shares by Employee Benefit Trust |
|
- |
- |
- |
(3,100) |
(3,100) |
|
Tax on share options |
|
- |
- |
1,210 |
- |
1,210 |
|
Dividends paid |
9 |
- |
- |
- |
(10,317) |
(10,317) |
|
Total transactions with owners |
|
1 |
438 |
1,495 |
(10,923) |
(8,989) |
|
|
|
|
|
|
|
|
|
Balance at 30 June 2022 |
|
162 |
79,141 |
9,962 |
59,160 |
148,425 |
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
Profit for the year |
|
- |
- |
- |
18,149 |
18,149 |
|
Other comprehensive income |
|
- |
- |
- |
- |
- |
|
Total comprehensive income |
|
- |
- |
- |
18,149 |
18,149 |
|
|
|
|
|
|
|
|
|
Transactions with owners |
|
|
|
|
|
|
|
Issue of ordinary shares |
14 |
2 |
2,689 |
- |
- |
2,691 |
|
Share-based payments |
|
- |
- |
2,686 |
- |
2,686 |
|
Share options exercised |
|
- |
- |
(3,201) |
3,201 |
- |
|
Purchase of own shares by Employee Benefit Trust |
|
- |
- |
- |
(2,850) |
(2,850) |
|
Tax on share options |
|
- |
- |
(335) |
- |
(335) |
|
Dividends paid |
9 |
- |
- |
- |
(11,422) |
(11,422) |
|
Total transactions with owners |
|
2 |
2,689 |
(850) |
(11,071) |
(9,230) |
|
|
|
|
|
|
|
|
|
Balance at 30 June 2023 |
|
164 |
81,830 |
9,112 |
66,238 |
157,344 |
Consolidated statement of cash flows
For the year ended 30 June 2023
|
|
Note |
2023 £'000 |
2022 £'000 |
|
Cash flows from operating activities |
|
|
|
|
Cash generated from operations |
13 |
30,093 |
32,826 |
|
Corporation Tax paid |
|
(5,134) |
(5,269) |
|
Tax refund |
|
- |
2,983 |
|
Net cash generated from operating activities |
|
24,959 |
30,540 |
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Purchase of computer software |
10 |
(2,954) |
(2,912) |
|
Purchase of property, plant and equipment |
|
(745) |
(289) |
|
Purchase of financial assets at fair value through profit or loss |
|
(30) |
(215) |
|
Consideration paid |
7 |
(15,111) |
- |
|
Deferred contingent consideration paid |
12 |
(334) |
(6,000) |
|
Interest received |
5 |
1,127 |
68 |
|
Net cash used in investing activities |
|
(18,047) |
(9,348) |
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
Proceeds of issue of shares |
14 |
1,691 |
439 |
|
Payment of lease liabilities |
|
(2,304) |
(1,785) |
|
Purchase of own shares by Employee Benefit Trust |
14 |
(2,850) |
(3,100) |
|
Dividends paid to shareholders |
9 |
(11,422) |
(10,317) |
|
Net cash used in financing activities |
|
(14,885) |
(14,763) |
|
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents |
|
(7,973) |
6,429 |
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
61,328 |
54,899 |
|
Cash and cash equivalents at end of year |
|
53,355 |
61,328 |
Notes to the consolidated financial statements
For the year ended 30 June 2023
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, charities and trusts. The Group also provides financial planning as well as international investment management, and acts as fund manager to a range of onshore and international funds.
The Company is a public limited company by shares, incorporated and domiciled in the United Kingdom under the Companies Act 2006 and listed on AIM. The address of its registered office is 21 Lombard Street, London, EC3V 9AH, England.
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 for the year ended 30 June 2023 have been prepared in accordance with UK-adopted International Accounting Standards ("IAS") and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. These Consolidated financial statements have been prepared on a 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 contingent consideration such that they are measured at their fair value.
At the time of approving the Financial statements, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Financial statements. For further details on the Group's going concern assessment, see the Viability statement. There have been no post balance sheet events that have materially impacted the Group's liquidity headroom and going concern assessment.
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 2022, except as explained below.
New accounting standards, amendments and interpretations adopted in the year
In the year ended 30 June 2023, the Group did not adopt any new standards or amendments issued by the International Accounting Standards Board ("IASB") or interpretations by the International Financial Reporting Standards Interpretations Committee ("IFRS IC") that have had a material impact on the Consolidated financial statements.
Certain new accounting standards, amendments to accounting standards, and interpretations have been published that are not mandatory for 30 June 2023 reporting periods and have not been early adopted by the Group. These standards, amendments or interpretations are not expected to have a material impact on the Group in the current or future reporting periods or on foreseeable future transactions.
|
Standard, Amendment or Interpretation |
Effective date |
|
Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance Contracts' (amendments to IFRS 4) |
1 January 2018 |
|
COVID-19-Related rent concessions beyond 30 June 2021 (amendment to IFRS 16) |
1 April 2021 |
|
Reference to the conceptual framework (amendments to IFRS 3) |
1 January 2022 |
|
Property, Plant and Equipment - proceeds before intended use (amendments to IAS 16) |
1 January 2022 |
|
Onerous Contracts - cost of fulfilling a contract (amendments to IAS 37) |
1 January 2022 |
|
Annual improvements to IFRS Standards 2018-2020 |
1 January 2022 |
d. Critical accounting estimates and significant 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 important estimations are used, relate to the measurement of intangible assets and the estimation of the fair value of share-based payments.
The preparation of the Group's Consolidated financial statements includes the use of estimates and assumptions. The significant accounting estimates, being those with a significant risk of a material change to the carrying value of assets and liabilities within the next year in terms of IAS 1, 'Presentation of Financial Statements', are the useful economic life estimates for property, plant and equipment, computer software and acquired client-relationship contracts, additionally the pre-tax discount rate and perpetuity growth rate used to calculate the International cash-generating unit ("CGU") goodwill impairment review (Note 10).
The Consolidated financial statements include other areas of judgement and accounting estimates. While these areas do not meet the definition under IAS 1 of significant accounting estimates or critical accounting judgements, the recognition and measurement of certain material assets and liabilities are based on assumptions and/or are subject to longer-term uncertainties. The other areas of judgement and accounting estimates are the pre-tax discount rate and perpetuity growth rate used within the Braemar and Cornelian CGU goodwill impairment reviews (Note 10), additionally the inputs into the Black-Scholes model used to value the Group's equity-settled share-based payments (Note 15).
The underlying assumptions and estimates 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 and financial advice contracts as part of business combinations, through separate purchase or with newly employed teams of fund managers, as described in Note 10. 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. Acquired client relationship contracts are amortised on a straight-line basis over their estimated useful lives, ranging from 6 to 20 years.
Of the client relationship intangible assets held by the Group at 30 June 2023, the expected amortisation charge for the year ending 30 June 2024 is £5,808,000. If the useful economic lives were to reduce by one year, the estimated charge would increase by £2,033,000.
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 CGUs 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 and sensitivity analysis are given in Note 10.
In assessing the value of client relationships and the associated investment management and financial advice contracts and goodwill ,or gain on bargain purchase arising as part of a business combination, the Group prepares forecasts for the cash flows acquired and discounts to a net present value. The Group uses a pre-tax discount rate, adjusting from a post-tax discount rate calculated by the Group's weighted average cost of capital ("WACC"), adjusted for any specific risks for the relevant CGU. The Group uses the capital asset pricing model ("CAPM") to estimate the WACC, which is calculated at the point of acquisition for a business combination, or the relevant reporting period date. The key inputs are the risk-free rate, market risk premium, the Group's adjusted beta with reference to beta data from peer-listed companies, small company premium and any risk-adjusted premium for the relevant CGU. See Note 10 for further details on the discount rate for the various CGUs.
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 15). 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. A decrease of 10% in the total options would decrease the estimated share-based payment charge and the associated national insurance charge in the Consolidated statement of comprehensive income for the year by £591,000 and £121,000, respectively. The key inputs into the fair value calculations for the options granted during the year are disclosed in Note 15.
3. Segmental information
For management purposes, the Group's activities are organised into two operating divisions: UK Investment Management 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.
The UK Investment Management segment offers a range of investment management services to private high net worth individuals, pension funds, institutions, charities and trusts, as well as wealth management services to high net worth individuals and families, giving independent 'whole of market' financial advice, enabling clients to build, manage and protect their wealth. The International segment is based in the Channel Islands and the Isle of Man, offering a similar range of investment management and wealth management services as the UK Investment Management segment. The Group segment principally comprises the Group Board's management and associated costs, along with the consolidation adjustments.
Following the acquisitions of Integrity and Adroit (Note 7), the activities since the two acquisitions were completed have been included in the UK Investment Management segment.
Revenues and expenses are allocated to the business segment that originated the transaction. Sales between segments are carried out at arm's length. Centrally incurred expenses are allocated to business segments on an appropriate pro rata basis.
|
Year ended 30 June 2023 |
UK Investment Management £'000 |
International £'000 |
Group and consolidation adjustments £'000 |
Total £'000 |
|
Total revenue |
109,737 |
20,319 |
- |
130,056 |
|
Inter segment revenue |
(6,279) |
- |
- |
(6,279) |
|
External revenue |
103,458 |
20,319 |
- |
123,777 |
|
Underlying administrative costs |
(47,405) |
(13,576) |
(33,373) |
(94,354) |
|
Operating contribution |
56,053 |
6,743 |
(33,373) |
29,423 |
|
|
|
|
|
|
|
Allocated costs |
(22,127) |
(6,844) |
28,971 |
- |
|
Net finance income |
590 |
226 |
88 |
904 |
|
Underlying profit/(loss) before tax |
34,516 |
125 |
(4,314) |
30,327 |
|
|
|
|
|
|
|
Amortisation of client relationships |
(3,205) |
(2,465) |
- |
(5,670) |
|
Dual running costs of operating platform |
(1,424) |
(192) |
- |
(1,616) |
|
Acquisition and integration related costs |
(499) |
- |
(69) |
(568) |
|
Changes in fair value of deferred contingent consideration |
- |
- |
(173) |
(173) |
|
Finance cost of deferred contingent consideration |
- |
(7) |
(54) |
(61) |
|
Profit/(loss) mark-up on Group allocated costs |
299 |
(299) |
- |
- |
|
Total underlying adjustments |
(4,829) |
(2,963) |
(296) |
(8,088) |
|
|
|
|
|
|
|
Profit/(loss) before tax |
29,687 |
(2,838) |
(4,610) |
22,239 |
|
|
|
|
|
|
|
Taxation |
|
|
|
(4,090) |
|
Profit for the year attributable to equity holders of the Company |
|
|
|
18,149 |
|
Year ended 30 June 2023 |
UK Investment Management £'000 |
International £'000 |
Group and consolidation adjustments £'000 |
Total £'000 |
|
Statutory operating costs included the following: |
|
|
|
|
|
- Amortisation |
3,429 |
912 |
2,491 |
6,832 |
|
- Depreciation |
1,943 |
689 |
17 |
2,649 |
|
- Interest income |
762 |
279 |
51 |
1,092 |
|
Year ended 30 June 20221 |
UK Investment Management £'000 |
International £'000 |
Group and consolidation adjustments £'000 |
Total £'000 |
|
Total revenue |
105,550 |
21,156 |
- |
126,706 |
|
Inter segment revenue |
(4,496) |
- |
- |
(4,496) |
|
External revenue |
101,054 |
21,156 |
- |
122,210 |
|
Underlying administrative costs |
(43,469) |
(12,783) |
(31,165) |
(87,417) |
|
Operating contribution |
57,585 |
8,373 |
(31,165) |
34,793 |
|
|
|
|
|
|
|
Allocated costs |
(21,327) |
(8,187) |
29,514 |
- |
|
Net finance costs |
(254) |
(15) |
- |
(269) |
|
Underlying profit/(loss) before tax |
36,004 |
171 |
(1,651) |
34,524 |
|
|
|
|
|
|
|
Amortisation of client relationships |
(2,978) |
(2,465) |
- |
(5,443) |
|
Other non-operating income |
2,983 |
- |
- |
2,983 |
|
Dual running costs of operating platform |
(2,119) |
(309) |
- |
(2,428) |
|
Finance cost of deferred contingent consideration |
- |
(12) |
(78) |
(90) |
|
Profit/(loss) mark-up on Group allocated costs |
214 |
(214) |
- |
- |
|
Total underlying adjustments |
(1,900) |
(3,000) |
(78) |
(4,978) |
|
|
|
|
|
|
|
Profit/(loss) before tax |
34,104 |
(2,829) |
(1,729) |
29,546 |
|
|
|
|
|
|
|
Taxation |
|
|
|
(6,135) |
|
Profit for the year attributable to equity holders of the Company |
|
|
|
23,411 |
1 As discussed in the Financial review, the segmental results for the year ended 30 June 2022 have been restated to be consistent with the current year. For the year ended 30 June 2022, the reported UKIM segment allocated costs have changed from £25,129,000 to £21,327,000, a movement of £3,802,000, and underlying profit before tax changed from £32,202,000 to £36,004,000, a movement of £3,802,000. The reported International segment underlying administrative costs changed from £14,016,000 to £12,783,000, a movement of £1,233,000, allocated costs changed from £3,152,000 to £8,187,000, a movement of £5,035,000, and underlying profit before tax changed from £3,973,000 to £171,000, a movement of £3,802,000. The reported Group segment underlying administrative costs changed from £29,932,000 to £31,165,000, a movement of £1,233,000, and allocated costs changed from £28,281,000 to £29,514,000, a movement of £1,233,000.
|
Year ended 30 June 2022 |
UK Investment Management £'000 |
International £'000 |
Group and consolidation adjustments £'000 |
Total £'000 |
|
Statutory operating costs included the following: |
|
|
|
|
|
- Amortisation |
2,888 |
917 |
3,117 |
6,922 |
|
- Depreciation |
2,014 |
498 |
- |
2,512 |
|
- Interest income |
20 |
23 |
- |
43 |
4. Revenue
|
Year ended 30 June 2023 |
UK Investment Management £'000 |
International £'000 |
Total £'000 |
|
Investment management fees |
65,626 |
12,292 |
77,918 |
|
Transactional income and foreign exchange trading fees |
10,578 |
2,704 |
13,282 |
|
Fund management fees |
9,983 |
3,739 |
13,722 |
|
Financial planning income |
6,446 |
- |
6,446 |
|
Interest income |
10,825 |
1,584 |
12,409 |
|
Total revenue |
103,458 |
20,319 |
123,777 |
|
Year ended 30 June 2022 |
UK Investment Management £'000 |
International £'000 |
Total1 £'000 |
|
Investment management fees |
70,161 |
14,014 |
84,175 |
|
Transactional income and foreign exchange trading fees |
12,209 |
2,491 |
14,700 |
|
Fund management fees |
13,187 |
4,441 |
17,628 |
|
Financial planning income |
4,082 |
- |
4,082 |
|
Interest income |
1,377 |
210 |
1,587 |
|
Other income |
38 |
- |
38 |
|
Total revenue |
101,054 |
21,156 |
122,210 |
1 The Group has restated the prior year Financial planning income within International to Investment management fees to align to the current reporting period.
a. Geographic analysis
The Group's operations are located in the United Kingdom, the Channel Islands and the Isle of Man. The following table presents external revenue analysed by the geographical location of the Group subsidiary entity providing the service.
|
|
2023 £'000 |
2022 £'000 |
|
United Kingdom |
103,458 |
101,054 |
|
Channel Islands |
20,173 |
21,079 |
|
Isle of Man |
146 |
77 |
|
Total revenue |
123,777 |
122,210 |
b. Major clients
The Group is not reliant on any one client or group of connected clients for the generation of revenues.
5. Finance income and finance costs
|
|
2023 £'000 |
2022 £'000 |
|
Finance income |
|
|
|
Dividends on preference shares |
35 |
25 |
|
Bank interest on deposits |
1,092 |
43 |
|
Total finance income |
1,127 |
68 |
|
|
|
|
|
Finance costs |
|
|
|
Finance cost of lease liabilities |
235 |
282 |
|
Finance cost of deferred contingent consideration (Note 12) |
61 |
90 |
|
Total finance costs |
296 |
372 |
6. Taxation
The tax charge on profit for the year was as follows:
|
|
2023 £'000 |
2022 £'000 |
|
UK Corporation Tax at 20.5% (FY22: 19.0%) |
5,703 |
6,441 |
|
Over provision in prior years |
(834) |
(307) |
|
Total current tax |
4,869 |
6,134 |
|
Deferred tax credits |
(1,189) |
(211) |
|
Under provision of deferred tax in prior years |
410 |
212 |
|
Income tax expense |
4,090 |
6,135 |
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, split out between underlying and statutory profits:
|
Year ended 30 June 2023 |
Underlying profit £'000 |
Underlying profit adjustments £'000 |
Statutory profit £'000 |
|
Profit before taxation |
30,327 |
(8,088) |
22,239 |
|
|
|
|
|
|
Profit multiplied by the standard rate of tax in the UK of 20.5% |
6,217 |
(1,658) |
4,559 |
|
Tax effect of amounts that are not deductible/(taxable) in calculating taxable income: |
|
|
|
|
- Depreciation and amortisation |
604 |
(285) |
319 |
|
- Non-taxable income |
(124) |
- |
(124) |
|
- Overseas tax losses not available for UK tax purposes |
67 |
- |
67 |
|
- Lower tax rates in other jurisdictions in which the Group operates |
(107) |
- |
(107) |
|
- Disallowable expenses |
263 |
48 |
311 |
|
- Share-based payments |
(512) |
- |
(512) |
|
- Over provision in prior years |
(423) |
- |
(423) |
|
Income tax expense |
5,985 |
(1,895) |
4,090 |
|
|
|
|
|
|
Effective tax rate |
19.7% |
n/a |
18.4% |
|
Year ended 30 June 2022 |
Underlying profit £'000 |
Underlying profit adjustments £'000 |
Statutory profit £'000 |
|
Profit before taxation |
34,524 |
(4,978) |
29,546 |
|
|
|
|
|
|
Profit multiplied by the standard rate of tax in the UK of 19.0% |
6,560 |
(946) |
5,614 |
|
Tax effect of amounts that are not deductible/(taxable) in calculating taxable income: |
|
|
|
|
- Depreciation and amortisation |
609 |
(207) |
402 |
|
- Non-taxable income |
(8) |
- |
(8) |
|
- Overseas tax losses not available for UK tax purposes |
(293) |
- |
(293) |
|
- Lower tax rates in other jurisdictions in which the Group operates |
(201) |
92 |
(109) |
|
- Disallowable expenses |
309 |
15 |
324 |
|
- Share-based payments |
315 |
- |
315 |
|
- Over provision in prior years |
(110) |
- |
(110) |
|
Income tax expense |
7,181 |
(1,046) |
6,135 |
|
|
|
|
|
|
Effective tax rate |
20.8% |
n/a |
20.8% |
It was outlined in the Finance Bill 2021 (11 March 2021) and substantively enacted having received royal assent on the 10 June 2021, that the UK Corporation Tax rate would increase from 19.0% to 25.0% from 1 April 2023. As a result, the effective rate of Corporation Tax applied to the taxable profit for the year ended 30 June 2023 is 20.5% (FY22: 19.0%). The relevant deferred tax balances have been remeasured at this increased rate. Deferred tax assets and liabilities are calculated at the rate that is expected to be in force when the temporary differences unwind, however limited to the extent that such rates have been substantively enacted.
The deferred tax (credits)/charges for the year arise from:
|
|
2023 £'000 |
2022 £'000 |
|
Share-based payments |
(1) |
399 |
|
Accelerated capital allowances |
(27) |
73 |
|
Accelerated capital allowances on research and development |
(117) |
(63) |
|
Dilapidations |
(54) |
12 |
|
Amortisation of acquired client relationship contracts |
(934) |
(880) |
|
Trading losses carried forward |
(56) |
248 |
|
Under provision in prior years |
410 |
212 |
|
Deferred tax (credit)/charge |
(779) |
1 |
7. Business combinations
Integrity
On 31 October 2022, the Group acquired Integrity Wealth Bidco Limited and Integrity Wealth (Holdings) Limited, together with its subsidiary Integrity Wealth Solutions Limited ("IWS"), (collectively "Integrity"). The acquisition brings a successful and rapidly growing Independent Financial Adviser ("IFA") business into the Group and brings scale to the Group's Private Clients business, adding distinctive expertise in their specialist area. The acquisition consisted of acquiring 100% of the issued share capital of Integrity Wealth (Holdings) Limited and Integrity Wealth Bidco Limited (intermediate holding company), which was funded through existing financial resources. On 14 April 2023, the Group acquired an additional client book, which has been incorporated into the Integrity business and acquisition accounting.
The acquisition was accounted for using the acquisition method and details of the purchase consideration are as follows:
|
|
Note |
£'000 |
|
Initial cash consideration |
|
4,246 |
|
Shares consideration |
i |
1,000 |
|
Excess for net assets |
ii |
601 |
|
Deferred contingent consideration at fair value |
iii |
1,240 |
|
Total purchase consideration |
|
7,087 |
i. The Group issued 52,084 ordinary shares to the previous shareholders of Integrity Wealth (Holdings) Limited and Integrity Wealth Bidco Limited at a price of £19.20 per share. The amount of shares issued was based on the share price at the completion date to provide the equivalent consideration value of £1,000,000.
ii. In accordance with the Sale and Purchase Agreement ("SPA"), the Group was required to pay the difference between the available capital and the required regulatory capital for Integrity.
iii. The total estimated cash deferred contingent consideration for the original Integrity acquisition was £1,505,000, payable in a period between one and three years following completion, based on revenue criteria and client attrition of the acquired business. As outlined in the SPA, the maximum cash deferred contingent consideration payable was up to £2,746,000 if certain revenue criteria are met.
On 30 June 2023, the Group agreed to renegotiate the deferred contingent consideration, which resulted in the Group recognising a change in fair value of deferred contingent consideration of £173,000 on 30 June 2023. See Note 12 for further details.
Client relationship intangible assets of £3,156,000 were recognised on acquisition in respect of the expected cash inflows and economic benefit from the acquired business. An associated deferred tax liability of £787,000 was recognised in relation to the expected cash inflows on the acquired client relationship intangible asset. Goodwill of £3,945,000 was recognised on acquisition in respect of the expected growth in the acquired business and associated cash inflows. The fair value of the assets acquired were the gross contractual amounts and were all considered to be fully recoverable. The fair value of the identifiable assets and liabilities acquired, at the date of acquisition, are detailed below.
Net assets acquired through business combination
|
|
£'000 |
|
Trade and other receivables |
268 |
|
Cash at bank |
804 |
|
Trade and other payables |
(167) |
|
Corporation tax payable |
(132) |
|
Total net assets recognised by acquired companies |
773 |
|
Fair value adjustments: |
|
|
- Client relationship contracts |
3,156 |
|
- Deferred tax liabilities |
(787) |
|
Net identifiable assets |
2,369 |
|
Goodwill |
3,945 |
|
Total purchase consideration |
7,087 |
The trade and other receivables were recognised at their fair value, being the gross contractual amounts, which were deemed fully recoverable.
Adroit
On 15 December 2022, the Group acquired Adroit Financial Planning Limited ("Adroit"), a successful and rapidly growing IFA business. The acquisition brings further scale to the Group's Private Clients business, adding distinctive expertise in their specialist area. The acquisition consisted of acquiring 100% of the issued share capital of Adroit Financial Planning Limited, which was funded through existing financial resources.
The acquisition was accounted for using the acquisition method and details of the purchase consideration are as follows:
|
|
Note |
£'000 |
|
Initial cash consideration |
|
10,991 |
|
Additional consideration |
i |
270 |
|
Total purchase consideration |
|
11,261 |
i. In accordance with the Sale and Purchase Agreement ("SPA"), the Group was required to pay an additional amount based on the number of days between the date of exchange and the date of completion.
Client relationship intangible assets of £2,931,000 were recognised on acquisition in respect of the expected cash inflows and economic benefit from the acquired business. An associated deferred tax liability of £733,000 was recognised in relation to the expected cash inflows on the acquired client relationship intangible asset. Goodwill of £8,541,000 was recognised on acquisition in respect of the expected growth in the acquired business and associated cash inflows. The fair value of the assets acquired were the gross contractual amounts and were all considered to be fully recoverable. The fair value of the identifiable assets and liabilities acquired, at the date of acquisition, are detailed below.
Net assets acquired through business combination
|
|
£'000 |
|
Trade and other receivables |
533 |
|
Cash at bank |
193 |
|
Trade and other payables |
(204) |
|
Total net assets recognised by acquired company |
522 |
|
Fair value adjustments: |
|
|
- Client relationship contracts |
2,931 |
|
- Deferred tax liabilities |
(733) |
|
Net identifiable assets |
2,198 |
|
Goodwill |
8,541 |
|
Total purchase consideration |
11,261 |
The trade and other receivables were recognised at their fair value, being the gross contractual amounts, which were deemed fully recoverable.
Acquisition impact on reported results
Directly attributable acquisition and integration-related costs of £568,000 were incurred in relation to the acquisitions, which were charged to administrative costs in the Consolidated statement of comprehensive income, but excluded from underlying profit.
In the period from acquisition to 30 June 2023, the two acquisitions earned revenue of £2,484,000 and statutory profit before tax of £285,000. Had the acquisitions been consolidated from 1 July 2022, the Consolidated statement of comprehensive income would have included revenue of £4,068,000 and statutory profit before tax of £585,000.
Net cash outflow resulting from business combinations
|
|
£'000 |
|
Total purchase consideration |
18,348 |
|
Less shares issued as consideration |
(1,000) |
|
Less deferred cash contingent consideration at fair value |
(1,240) |
|
Cash paid to acquire business combinations |
16,108 |
|
Less cash held by acquired entities |
(997) |
|
Net cash outflow - investing activities |
15,111 |
8. Earnings per share
The Directors believe that underlying earnings per share provides an appropriate reflection of the Group's performance in the year. Underlying earnings per share, which is an alternative performance measure ("APM"), is calculated based on 'underlying earnings', which is also an APM. Refer to the Non-IFRS Information for a glossary of the Group's APMs, their definition and criteria for how underlying adjustments are considered. The tax effect of the underlying adjustments to statutory earnings has also been considered, refer to Note 6 for the taxation on underlying and statutory profit.
Earnings for the year used to calculate earnings per share as reported in these Consolidated financial statements were as follows:
|
|
2023 £'000 |
2022 £'000 |
|
Earnings attributable to ordinary shareholders |
18,149 |
23,411 |
|
Amortisation of acquired client relationship contracts (Note 10) |
5,670 |
5,443 |
|
Dual running costs of operating platform |
1,616 |
2,428 |
|
Acquisition and integration-related costs (Note 7) |
568 |
- |
|
Changes in fair value of deferred contingent consideration (Note 12) |
173 |
- |
|
Finance cost of deferred contingent consideration (Note 12) |
61 |
90 |
|
Other non-operating income |
- |
(2,983) |
|
Tax impact of adjustments (Note 6) |
(1,895) |
(1,046) |
|
Underlying earnings attributable to ordinary shareholders |
24,342 |
27,343 |
Basic earnings per share is calculated by dividing earnings attributable to ordinary shareholders by the weighted average number of shares in issue throughout the period. Included in the weighted average number of shares for basic earnings per share purposes are employee share options at the point all necessary conditions have been satisfied and the options have vested, even if they have not yet been exercised.
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 diluted weighted average number of shares in issue and diluted earnings per share considers the effect of all dilutive potential shares issuable on exercise of employee share options. The potential shares issuable includes the contingently issuable shares that have not yet vested and the vested unissued share options that are either nil cost options or have little or no consideration.
The weighted average number of shares in issue during the year was as follows:
|
|
2023 Number of shares |
2022 Number of shares |
|
Weighted average number of shares in issue |
15,825,397 |
15,707,706 |
|
Effect of dilutive potential shares issuable on exercise of employee share options |
293,992 |
502,259 |
|
Diluted weighted average number of shares in issue |
16,119,389 |
16,209,965 |
Earnings per share for the year attributable to equity holders of the Company were:
|
|
2023 p |
2022 p |
|
Based on reported earnings: |
|
|
|
Basic earnings per share |
114.7 |
149.0 |
|
Diluted earnings per share |
112.6 |
144.4 |
|
|
|
|
|
Based on underlying earnings: |
|
|
|
Basic earnings per share |
153.8 |
174.1 |
|
Diluted earnings per share |
151.0 |
168.7 |
9. Dividends
Amounts recognised as distributions to equity holders of the Company in the year were as follows:
|
|
2023 £'000 |
2022 £'000 |
|
Final dividend paid for the year ended 30 June 2022 of 45.0p (FY21: 40.0p) per share |
7,021 |
6,251 |
|
Interim dividend paid for the year ended 30 June 2023 of 28.0p (FY22: 26.0p) per share |
4,401 |
4,066 |
|
Total dividends |
11,422 |
10,317 |
|
|
|
|
|
Final dividend proposed for the year ended 30 June 2023 of 47.0p (FY22: 45.0p) per share |
7,448 |
7,031 |
The interim dividend of 28.0p (FY22: 26.0p) per share was paid on 6 April 2023.
A final dividend for the year ended 30 June 2023 of 47.0p (FY22: 45.0p) per share was declared by the Board of Directors on 13 September 2023 and is subject to approval by the shareholders at the Company's Annual General Meeting. It will be paid on 3 November 2023 to shareholders who are on the register at the close of business on 22 September 2023. 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 Consolidated financial statements.
10. Intangible assets
|
|
Goodwill £'000 |
Computer software £'000 |
Acquired client relationship contracts £'000 |
Contracts acquired with fund managers £'000 |
Total £'000 |
|
Cost |
|
|
|
|
|
|
At 1 July 2021 |
51,887 |
11,398 |
70,011 |
3,521 |
136,817 |
|
Additions |
- |
2,912 |
- |
- |
2,912 |
|
Disposals |
- |
(7,380) |
- |
- |
(7,380) |
|
At 30 June 2022 |
51,887 |
6,930 |
70,011 |
3,521 |
132,349 |
|
Additions |
12,486 |
2,954 |
6,087 |
- |
21,527 |
|
Disposals |
- |
(1,054) |
- |
(3,521) |
(4,575) |
|
At 30 June 2023 |
64,373 |
8,830 |
76,098 |
- |
149,301 |
|
|
|
|
|
|
|
|
Accumulated amortisation and impairment |
|
|
|
|
|
|
At 1 July 2021 |
11,213 |
6,152 |
26,034 |
3,521 |
46,920 |
|
Amortisation charge |
- |
1,479 |
5,443 |
- |
6,922 |
|
Accumulated amortisation on disposals |
- |
(7,380) |
- |
- |
(7,380) |
|
At 30 June 2022 |
11,213 |
251 |
31,477 |
3,521 |
46,462 |
|
Amortisation charge |
- |
1,162 |
5,670 |
- |
6,832 |
|
Accumulated amortisation on disposals |
- |
(1,054) |
- |
(3,521) |
(4,575) |
|
At 30 June 2023 |
11,213 |
359 |
37,147 |
- |
48,719 |
|
|
|
|
|
|
|
|
Net book value |
|
|
|
|
|
|
At 1 July 2021 |
40,674 |
5,246 |
43,977 |
- |
89,897 |
|
At 30 June 2022 |
40,674 |
6,679 |
38,534 |
- |
85,887 |
|
At 30 June 2023 |
53,160 |
8,471 |
38,951 |
- |
100,582 |
The amortisation charge of intangible assets is recognised within administrative costs in the Consolidated statement of comprehensive income.
At 30 June 2023, intangible assets totalling £87,825,000 are recognised in the United Kingdom and £12,757,000 are recognised in the Channel Islands.
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:
|
|
2023 £'000 |
2022 £'000 |
|
Funds |
|
|
|
Braemar Group Limited ("Braemar") |
3,320 |
3,320 |
|
|
|
|
|
International |
|
|
|
Brooks Macdonald Asset Management (International) Limited ("Brooks Macdonald International") |
21,243 |
21,243 |
|
|
|
|
|
Cornelian |
|
|
|
Cornelian Asset Managers Group Limited ("Cornelian") |
16,111 |
16,111 |
|
|
|
|
|
Integrity |
|
|
|
Integrity Wealth (Holdings) Limited ("Integrity") |
3,945 |
- |
|
|
|
|
|
Adroit |
|
|
|
Adroit Financial Planning Limited ("Adroit") |
8,541 |
- |
|
|
|
|
|
Total goodwill |
53,160 |
40,674 |
Goodwill is reviewed annually for impairment and its recoverability has been assessed at 30 June 2023 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 and forecasts approved by the relevant subsidiary company boards of directors. The most recent budgets prepared are part of the detailed budget process for the year ending 30 June 2023, and then extrapolated over a longer period for the following four years, resulting in the budgets and forecasts covering a period of five years. Cash flows are then extrapolated beyond the five-year budget and forecast period using an expected long-term growth rate, with the long-term growth rate considered reasonable against the budgeted and forecast growth.
Cornelian
The Cornelian CGU recoverable amount was calculated as £46,836,000 at 30 June 2023 (FY22: £61,502,000), giving a surplus over the Cornelian CGU carrying amount of £16,468,000, indicating that there is no impairment. The key underlying assumptions of the calculation are the discount rate, the medium-term growth in earnings and the long-term growth rate of the business. The revenue growth forecasts range between 11% and 13% annually over the five-year period. Revenue growth is forecast using new business targets, expected outflows and estimated impact of market performance on FUM, multiplied by estimated fee yields for both the discretionary and fund management business. Expenditure growth is forecast to increase by up to 7% annually over the five-year period. Both the revenue growth and expenditure growth reflect historic actual growth and planned management actions and are considered to be reasonable in the current market and industry conditions. A pre-tax discount rate of 15% has been used (FY22: 16%), based on the Group's assessment of the risk-free rate of interest and specific risks relating to Cornelian. The recoverable amount was based on the estimated cash inflows over the next five financial years, the period covered by the most recent forecasts, which reflect planned management actions and are considered to be reasonable in the current market and industry conditions. The 2% long-term growth rate applied is considered prudent in the context of the long-term average growth rate for the funds and investment management industries in which the CGU operates.
The Directors do not believe that any reasonably possible change would result in an impairment; however, to provide additional analysis, sensitivity analysis has been performed to show what may be required for an impairment to be recognised.
• An increase of the pre-tax discount rate by 6% (FY22: 12%), from 15% to 21%, would result in an impairment.
• The 2% perpetuity growth rate would need to reduce by 10% (FY22: 24%) to -8% to trigger an impairment.
• The forecast pre-tax cash inflows would need to reduce by 28% (FY22: 40%) each year to result in an impairment.
International
Based on a value-in-use calculation, the recoverable amount of the Brooks Macdonald International CGU at 30 June 2023 was £33,642,000 (FY22: £64,453,000), giving a surplus over the Brooks Macdonald International CGU carrying amount of £4,023,000, indicating that there is no impairment. The key underlying assumptions of the calculation are the discount rate, the medium-term growth in earnings and the long-term growth rate of the business. A pre-tax discount rate of 13% (FY22: 14%) has been used, based on the Group's assessment of the risk-free rate of interest and specific risks relating to Brooks Macdonald International. The key input in forecasting revenue is FUM, which is forecast to grow based on new business targets, attrition, and estimated impact of market performance. FUM is multiplied by estimated fee yields for the business resulting in annual revenue growth between 3% and 7% annually over the five-year period. Expenditure growth is forecast to increase by between 4% and 7% annually over the five-year period, which includes consideration for reasonable allocated costs. The underlying methodology for allocating costs is reviewed by management each year when preparing the value-in-use calculations to ensure the methodology remains appropriate. In the current year this resulted in a change to the allocation metrics used within the five-year forecast. The period covered is five years and the forecasts are based on management's growth projections for the business based on its strategic objectives, taking into account historic performance and prevailing market and economic conditions. The 2% long-term growth rate applied is considered prudent in the context of the long-term average growth rate for the funds, investment management and financial planning industries in which the CGU operates.
The Directors do not believe that any reasonably possible change would result in an impairment; however, to provide additional analysis, sensitivity analysis has been performed to show what may be required for an impairment to be recognised.
• An increase of the pre-tax discount rate by 2% (FY22: 10%), from 13% to 15%, would result in an impairment.
• The 2% perpetuity growth rate would need to reduce by 2% (FY22: 23%)to nil to trigger an impairment.
• The forecast pre-tax cash inflows would need to reduce by 11% (FY22: 47%) each year to result in an impairment.
Funds
Based on a value-in-use calculation, the recoverable amount of the Braemar CGU at 30 June 2023 was £14,463,000 (FY22: £17,847,000), giving a surplus over the Braemar CGU carrying amount of £10,243,000 indicating that there is no impairment. A pre-tax discount rate of 16% (FY22: 17%) 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 FUM of the funds business and the long-term growth rate. The revenue generated in the cash flow forecasts is based on FUM forecasts multiplied by the relevant yields, with FUM growth ranging between 11% and 20% annually over the five-year period. FUM growth is forecast using estimated new business targets, expected outflows and estimated impact of market performance. Expenditure growth is forecast at 3% annually over the five-year period. The inputs to the forecast cash inflows over the next five financial years, reflect historic actual growth and planned management activities and are considered to be reasonable in the current market and industry conditions. The 2% long-term growth rate applied is considered prudent in the context of the long-term average growth rate for the funds industry in which the CGU operates.
The Directors do not believe that any reasonably possible change would result in an impairment; however, to provide additional analysis, sensitivity analysis has been performed to show what may be required for an impairment to be recognised.
• An increase of the pre-tax discount rate by 28% (FY22: 48%), from 16% to 44%, would result in an impairment.
• The 2% perpetuity growth rate could reduce by 100% (FY22: 100%) to -98% and an impairment would still not be triggered.
• The forecast pre-tax cash inflows would need to reduce by 52% (FY22: 83%) each year to result in an impairment.
Integrity
During the year ended 30 June 2023, the Group completed the acquisition of Integrity Wealth Bidco Limited, Integrity Wealth (Holdings) Limited and Integrity Wealth Solutions Limited, and subsequently recognised goodwill on acquisition of £3,945,000. See Note 7 for further details.
Adroit
During the year ended 30 June 2023, the Group completed the acquisition of Adroit Financial Planning Limited, and subsequently recognised goodwill on acquisition of £8,541,000. See Note 7 for further details.
At 30 June 2023, headroom exists in the calculations of the respective recoverable amounts of these CGUs over the carrying amounts of the goodwill allocated to them. On this basis, the Directors have concluded that there is no impairment required to the goodwill balances at 30 June 2023.
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, with some specific projects being given longer UELs based on their size and usability.
During the year ended 30 June 2023, the Group conducted a review of the computer software assets and retired assets from the fixed asset register with a £nil net book value, and no longer used in the business. This resulted in disposals of computer software, with cost and accumulated amortisation both totalling £1,054,000.
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 (6 to 20 years).
During the year ended 30 June 2023, the Group acquired client relationship contracts totalling £3,156,000 and £2,931,000, as part of the Integrity and Adroit acquisitions, respectively (Note 7), which were recognised as separately identifiable intangible assets in the Condensed consolidated statement of financial position, with useful economic lives of 15 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.
During the year ended 30 June 2023, the Group conducted a review of the contracts acquired with fund managers assets with a £nil net book value, and no longer used in the business. This resulted in disposals of contracts acquired with fund managers, with cost and accumulated amortisation both totalling £3,521,000.
11. Provisions
|
|
Client compensation £'000 |
FSCS levy £'000 |
Leasehold dilapidations £'000 |
Tax-related £'000 |
Total £'000 |
|
At 1 July 2021 |
600 |
1,245 |
413 |
- |
2,258 |
|
Charge to the Consolidated statement of comprehensive income |
398 |
1,304 |
126 |
162 |
1,990 |
|
Transfer from trade and other payables |
- |
- |
- |
1,217 |
1,217 |
|
Utilised during the year |
(886) |
(2,163) |
(172) |
(1,099) |
(4,320) |
|
At 30 June 2022 |
112 |
386 |
367 |
280 |
1,145 |
|
Charge to the Consolidated statement of comprehensive income |
579 |
239 |
260 |
- |
1,078 |
|
Utilised during the year |
(441) |
(458) |
(2) |
- |
(901) |
|
At 30 June 2023 |
250 |
167 |
625 |
280 |
1,322 |
|
|
|
|
|
|
|
|
Analysed as: |
|
|
|
|
|
|
Amounts falling due within one year |
250 |
167 |
303 |
280 |
1,000 |
|
Amounts falling due after more than one year |
- |
- |
322 |
- |
322 |
|
Total provisions |
250 |
167 |
625 |
280 |
1,322 |
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. FSCS levy
Following confirmation by the FSCS in July 2023 of its final industry levy for the 2023/24 scheme year, the Group has made a provision of £167,000 (FY22: £386,000) for its estimated share.
c. 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.
d. Tax-related
Tax-related provisions relate to voluntary disclosures made by the Group to HM Revenue and Customs ("HMRC") following an input VAT review carried out by the Group during FY22.
12. Deferred contingent consideration
Deferred contingent consideration payable is split between non-current liabilities and current liabilities 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 contingent consideration is measured at its fair value based on discounted expected future cash flows. The movements in the total deferred contingent consideration balance during the year were as follows:
|
|
2023 £'000 |
2022 £'000 |
|
At 1 July |
327 |
6,237 |
|
Additions |
1,240 |
- |
|
Finance cost of deferred contingent consideration |
61 |
90 |
|
Fair value adjustments |
173 |
- |
|
Payments made during the year |
(334) |
(6,000) |
|
At 30 June |
1,467 |
327 |
|
|
|
|
|
Analysed as: |
|
|
|
Amounts falling due within one year |
1,467 |
327 |
|
Amounts falling due after more than one year |
- |
- |
|
Total deferred consideration |
1,467 |
327 |
During the year ended 30 June 2023, the Group completed the Integrity Wealth Solutions Limited acquisition, and an additional client book later in the year, and part of the consideration is to be deferred over a period of one to three years. The total cash deferred contingent consideration of £1,505,000 was recognised at its fair value of £1,240,000 on acquisition. The deferred contingent consideration was payable in May 2024 and October 2025 based on the future revenue generated by the discretionary business acquired. During the year ended 30 June 2023, the Group recognised a finance cost of £54,000 on the Integrity Wealth Solutions acquisition deferred contingent consideration. The Integrity Wealth Solutions deferred contingent consideration was renegotiated at 30 June 2023, and it was agreed that £1,250,000 was to be paid to the vendors of Integrity Wealth Solutions, settled in cash of £625,000 and Brooks Macdonald Group plc shares valued at £625,000. As a result, a change in fair value of the contingent consideration of £173,000 was recognised for the year ended 30 June 2023. This revised deferred contingent consideration was settled after the reporting period in July 2023.
During the year ended 30 June 2023, the final payment was made in relation to the acquisition of the Lloyds Channel Islands business totalling £334,000. Prior to the final payment, £7,000 was recognised as a finance cost of deferred contingent consideration within FY23. Full details of the Lloyds acquisition are disclosed in Note 10 of the 2021 Annual Report and Accounts.
Deferred contingent consideration is classified as Level 3 within the fair value hierarchy.
13. Reconciliation of operating profit to net cash inflow from operating activities
|
|
2023 £'000 |
2022 £'000 |
|
Operating profit |
21,408 |
26,867 |
|
|
|
|
|
Adjustments for: |
|
|
|
Amortisation of intangible assets |
6,832 |
6,922 |
|
Depreciation of property, plant and equipment |
824 |
843 |
|
Depreciation of right-of-use assets |
1,825 |
1,669 |
|
Other (losses)/gain - net |
162 |
55 |
|
Increase in receivables |
(2,215) |
(2,024) |
|
Decrease in payables |
(1,526) |
(3,194) |
|
Decrease in provisions |
(147) |
(1,113) |
|
Increase in other non-current liabilities |
244 |
22 |
|
Share-based payments charge |
2,686 |
2,779 |
|
Net cash inflow from operating activities |
30,093 |
32,826 |
14. Share capital and share premium account
The movements in share capital and share premium during the year were as follows:
|
|
Number of shares |
Exercise price p |
Share capital £'000 |
Share premium account £'000 |
Total £'000 |
|
At 1 July 2021 |
16,181,138 |
|
161 |
78,703 |
78,864 |
|
Shares issued: |
|
|
|
|
|
|
on exercise of options |
6,886 |
2,127.0 - 2,730.0 |
- |
120 |
120 |
|
to Sharesave Scheme |
17,518 |
1,172.0 - 1,988.0 |
1 |
318 |
319 |
|
At 30 June 2022 |
16,205,542 |
|
162 |
79,141 |
79,303 |
|
Shares issued: |
|
|
|
|
|
|
on exercise of options |
1,866 |
1,710.0 - 2,400.0 |
- |
30 |
30 |
|
to Sharesave Scheme |
140,171 |
1,172.0 - 1,704.0 |
1 |
1,660 |
1,661 |
|
of consideration for the acquisition of Integrity |
52,084 |
1,900.0 - 1,920.0 |
1 |
999 |
1,000 |
|
At 30 June 2023 |
16,399,663 |
|
164 |
81,830 |
81,994 |
The total number of ordinary shares issued and fully paid at 30 June 2023 was 16,399,663 (FY22: 16,205,542) with a par value of 1p per share.
There was £2,691,000 share capital issued on exercise of options and to Sharesave Scheme members in the year ended 30 June 2023 (FY22: £439,000).
Employee Benefit Trust
The Group established an Employee Benefit Trust ("EBT") on 3 December 2010 to acquire ordinary shares in the Company to satisfy awards under the Group's Long-Term Incentive Scheme, see Note 15(c). At 30 June 2023, the EBT held 552,633 (FY22: 580,806) 1p ordinary shares in the Company, acquired for a total consideration of £16,950,000 (FY22: £14,100,000) with a market value of £11,633,000, (FY22: £12,923,000). They are classified as treasury shares in the Consolidated statement of financial position, their cost being deducted from retained earnings within shareholders' equity.
15. Equity-settled share-based payments
All share options granted to employees under the Group's equity-settled share-based payment schemes are valued using the 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 0.01% to 2.00%. No options outstanding at 30 June 2023 (FY22: 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 £5.29 to £24.67 per share. The charge to the Consolidated statement of comprehensive income for the year in respect of these was £2,686,000 (FY22: £2,779,000). The weighted average remaining contractual life of all equity-settled share-based payment schemes at 30 June 2023 was 1.17 years (FY22: 1.04 years). The weighted average share price of all options exercised during the year was £19.34 (FY22: £14.97).
A summary of the inputs into the fair value calculations for options granted during the year is set out below.
|
|
Long-Term Incentive Plan |
Save As You Earn (SAYE) |
|
Grant date |
Various |
12/05/2023 |
|
Share price at grant £ |
£18.60 - £19.48 |
£19.35 |
|
Vesting period |
27 - 51 months |
36 months |
|
Volatility % |
37.82 - 40.98% |
37.86% |
|
Annual dividend % |
3.65 - 4.21% |
4.05% |
|
Risk-free rate % |
3.75 - 4.38% |
3.79% |
|
Option value £ |
£16.33 - £18.22 |
£6.39 |
The exercise price and fair value of share options granted during the year were as follows:
|
|
Exercise price £ |
Fair value £ |
Number of options |
|
Long-Term Incentive Plan |
- |
16.33 - 18.22 |
306,603 |
|
Employee Sharesave Scheme |
19.35 |
6.39 |
161,518 |
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. 1,452 awards expired during the year (FY22: none).
|
|
2023 |
2022 |
||
|
|
Number of options |
Weighted average exercise price £ |
Number of options |
Weighted average exercise price £ |
|
At 1 July |
711,763 |
- |
806,057 |
- |
|
Awarded in the year |
306,603 |
- |
153,726 |
- |
|
Exercised in the year |
(168,107) |
- |
(112,501) |
- |
|
Forfeited in the year |
(162,899) |
- |
(135,519) |
- |
|
At 30 June |
687,360 |
- |
711,763 |
- |
i. Deferred Bonus Plan ("DBP") Awards
The number of share options outstanding at the reporting date was as follows:
|
Scheme year (grant date) |
Exercise price £ |
Vesting period |
2023 Number of options |
2022 Number of options |
|
2018 |
- |
2019 - 2021 |
12,491 |
18,114 |
|
2019 |
- |
2020 - 2022 |
13,132 |
30,882 |
|
2020 |
- |
2021 - 2023 |
27,689 |
49,120 |
|
2021 |
- |
2022 - 2024 |
44,239 |
64,804 |
|
2022 |
- |
2023 - 2025 |
78,834 |
- |
|
All years |
|
|
176,385 |
162,920 |
ii. Long-Term Incentive Plan ("LTIP") Awards
The number of share options outstanding at the reporting date was as follows:
|
Scheme year (grant date) |
Exercise price £ |
Vesting period |
2023 Number of options |
2022 Number of options |
|
2019 |
- |
2022 |
- |
16,292 |
|
2020 |
- |
2023 |
10,128 |
23,955 |
|
2021 |
- |
2024 |
44,619 |
81,890 |
|
2022 |
- |
2025 |
59,088 |
- |
|
All years |
|
|
113,835 |
122,137 |
iii. Exceptional Share Option Awards ("ESOA")
The number of share options outstanding at the reporting date was as follows:
|
Financial year of grant |
Exercise price £ |
Vesting period |
2023 Number of options |
2022 Number of options |
|
2019 |
- |
2019 - 2024 |
130,394 |
185,361 |
|
2020 |
- |
2020 - 2024 |
45,419 |
102,524 |
|
2021 |
- |
2021 - 2024 |
116,580 |
131,789 |
|
2022 |
- |
2022 - 2025 |
7,032 |
7,032 |
|
2023 |
- |
2023 - 2026 |
97,715 |
- |
|
All years |
|
|
397,140 |
426,706 |
b. Long-Term Incentive Scheme ("LTIS")
The Group made no new awards under the LTIS during the year. 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. No awards expired during the year (FY22: none). Off-cycle awards were made in 2017 to senior executives to replace awards forfeited from previous employers.
|
|
2023 Number of options |
2022 Number of options |
|
At 1 July |
5,442 |
43,340 |
|
Exercised in the year |
- |
(37,898) |
|
Forfeited in the year |
- |
- |
|
At 30 June |
5,442 |
5,442 |
The number of share options outstanding at the reporting date was as follows:
|
Scheme year (grant date) |
Exercise price £ |
Vesting period |
2023 Number of options |
2022 Number of options |
|
2015 |
- |
2018 |
1,077 |
1,077 |
|
2016 |
- |
2019 |
1,416 |
1,416 |
|
2017 (off-cycle) |
- |
2020 |
2,949 |
2,949 |
|
All years |
|
|
5,442 |
5,442 |
At 30 June 2023, options for schemes up to and including the 2017 scheme have vested and are able to be exercised.
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.
|
|
2023 Number of shares |
2022 Number of shares |
|
At 1 July |
580,806 |
608,683 |
|
Acquired in the year |
140,495 |
124,297 |
|
Exercised in the year |
(168,668) |
(152,174) |
|
At 30 June |
552,633 |
580,806 |
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.
|
|
2023 |
2022 |
||
|
|
Number of options |
Weighted average exercise price £ |
Number of options |
Weighted average exercise price £ |
|
At 1 July |
18,821 |
16.32 |
28,431 |
16.67 |
|
Exercised in the year |
(1,866) |
15.89 |
(6,886) |
17.40 |
|
Forfeited in the year |
- |
- |
(2,724) |
17.23 |
|
At 30 June |
16,955 |
16.37 |
18,821 |
16.32 |
The number of share options outstanding at the reporting date was as follows:
|
Scheme year (grant date) |
Exercise price £ |
Vesting period |
2023 Number of options |
2022 Number of options |
|
2013 |
14.52 |
2016 |
2,067 |
2,067 |
|
2014 |
13.81 |
2017 |
2,537 |
3,262 |
|
2015 |
17.19 |
2018 |
9,016 |
9,596 |
|
2016 |
17.25 |
2019 |
3,335 |
3,896 |
|
All years |
|
|
16,955 |
18,821 |
At 30 June 2023, all options for the CSOP schemes have vested and are able to be exercised. No awards expired during the year under the CSOP schemes (FY22: 1,851).
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.
|
|
2023 |
2022 |
||
|
|
Number of options |
Weighted average exercise price £ |
Number of options |
Weighted average exercise price £ |
|
At 1 July |
254,111 |
14.25 |
248,390 |
13.15 |
|
Granted in the year |
161,518 |
19.35 |
44,109 |
19.88 |
|
Exercised in the year |
(143,701) |
11.85 |
(17,518) |
14.02 |
|
Forfeited in the year |
(46,925) |
17.21 |
(20,870) |
13.30 |
|
At 30 June |
225,003 |
15.23 |
254,111 |
14.25 |
The number of share options outstanding at the reporting date was as follows:
|
Scheme year (grant date) |
Exercise price £ |
Vesting period |
2023 Number of options |
2022 Number of options |
|
2019 |
14.00 |
2022 |
- |
7,207 |
|
2020 |
11.72 |
2023 |
7,611 |
152,650 |
|
2021 |
17.04 |
2024 |
36,473 |
50,597 |
|
2022 |
19.88 |
2025 |
21,911 |
43,657 |
|
2023 |
14.34 |
2026 |
159,008 |
- |
|
All years |
|
|
225,003 |
254,111 |
At 30 June 2023, options for the 2020 scheme have vested and are able to be exercised. 77 awards under the 2019 scheme expired during the year (FY22: 761).
16. Contingent liabilities and guarantees
In the normal course of business, the Group is exposed to certain legal issues, which, in the event of a dispute, could develop into litigious proceedings and, in some cases, may result in contingent liabilities. Similarly, a contingent liability may arise in the event of a finding in respect of the Group's tax affairs, including the accounting for VAT, which could result in a financial outflow and/or inflow from the relevant tax authorities.
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.
During the year ended 30 June 2020, a small number of clients rejected the goodwill offers made to them by Brooks Macdonald Asset Management (International) Limited in connection with the exceptional costs of resolving legacy matters, and as of 30 June 2022, one claim had been issued against the company. That claim was resolved during the financial year ended 30 June 2023 with no cash outflow for the Group. While the Group have never accepted, nor been adjudged to have, any legal liability in relation to the legacy matters, the Group continues to recognise a contingent liability in relation to the possibility that one or more clients might make new complaints or claims. There are no further claims in issue nor any complaints active as at 30 June 2023.
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.
17. 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:
|
|
Amounts owed by related parties |
Amounts owed to related parties |
||
|
|
2023 £'000 |
2022 £'000 |
2023 £'000 |
2022 £'000 |
|
Brooks Macdonald Asset Management Limited |
239 |
238 |
- |
- |
|
Brooks Macdonald Asset Management (International) Limited |
83 |
- |
- |
89 |
|
Brooks Macdonald Funds Limited |
- |
- |
900 |
- |
|
Brooks Macdonald Financial Consulting Limited |
- |
- |
- |
34 |
All of the above amounts are interest-free and repayable on demand.
18. Events since the end of the year
No material events have occurred between the reporting date and the date of signing the financial statements.
Non-IFRS financial information
Non-IFRS financial information or alternative performance measures ("APMs") are used as supplemental measures in monitoring the performance of the Group. The adjustments applied to IFRS measures to compute the Group's APMs exclude income and expense categories, which are deemed of a non-recurring nature or a non-cash operating item. The Board considers the disclosed APMs to be an appropriate reflection of the Group's performance.
The Group follows a rigorous process in determining whether an adjustment should be made to present an alternative performance measure compared to IFRS measures. For an adjustment to be excluded from underlying profit as an alternative performance measure compared to statutory profit, it must initially meet at least one of the following criteria:
• It is unusual in nature, e.g. outside the normal course of business and operations.
• It is a significant item, which may be recognised in more than one accounting period.
• It has been incurred as a result of an acquisition, disposal or a company restructure process.
The Group uses the below APMs:
|
APM |
Equivalent IFRS measure |
Definition and purpose |
|
Underlying profit before tax |
Statutory profit before tax |
Calculated as profit before tax excluding income and expense categories, which are deemed of a non-recurring nature or a non-cash operating item. It is considered by the Board to be an appropriate reflection of the Group's performance and considered appropriate for external analyst coverage and peer group benchmarking. |
|
Underlying tax charge |
Statutory tax charge |
Calculated as the statutory tax charge, excluding the tax impact of the adjustments excluded from underlying profit. See Note 6 Taxation of the Consolidated financial statements. |
|
Underlying earnings / Underlying profit after tax |
Total comprehensive income |
Calculated as underlying profit before tax less the underlying tax charge. See Note 8 of the Consolidated financial statements for a reconciliation of underlying profit after tax and statutory profit after tax. |
|
Underlying profit margin before tax |
Statutory profit margin before tax |
Calculated as underlying profit before tax over revenue for the year. This is another key metric assessed by the Board and appropriate for external analyst coverage and peer group benchmarking. |
|
EBITDA/Underlying EBITDA |
N/A |
Earnings before interest, tax, depreciation and amortisation ("EBITDA"). Underlying EBITDA is EBITDA excluding income and expense categories which are deemed of a non-recurring nature or a non-cash operating item. |
|
Underlying basic earnings per share |
Statutory basic earnings per share |
Calculated as underlying profit after tax divided by the weighted average number of shares in issue during the year. This is a key management incentive metric and is a measure used within the Group's remuneration schemes. See Note 8 of the Consolidated financial statements for the Earnings per share. |
|
Underlying diluted earnings per share |
Statutory diluted earnings per share |
Calculated as underlying profit after tax divided by the weighted average number of shares in issue during the year, including the dilutive impact of future share awards. This is a key management incentive metric and is a measure used within the Group's remuneration schemes. |
|
Underlying costs |
Statutory costs |
Calculated as total administrative expenses, other net gains/(losses), finance income and finance costs and excluding income and expense categories, which are deemed of a non-recurring nature or a non-cash operating item. This is a key measure used in calculating underlying profit before tax. |
|
Segmental underlying profit before tax |
Segmental statutory profit before tax |
Calculated as profit before tax, excluding income and expense categories, which are deemed of a non-recurring nature or a non-cash operating item for each segment. See Note 3 of the Consolidated financial statements for the Segmental information. |
|
Segmental underlying profit before tax margin |
Segmental statutory profit before tax margin |
Calculated as segmental underlying profit before tax over segmental revenue.
|
|
Own Funds Capital Adequacy Ratio |
N/A |
Calculated as the Group's total regulatory resources relative to its Fixed Overhead requirement. |
Finance information
The financial information contained within this preliminary announcement has been extracted from the Group's Financial statements, which have been approved by the Board of Directors and agreed with the Company's auditors'.
The financial information set out above does not constitute the Group's statutory financial statements for the years ended 30 June 2023 or 2022. Statutory financial statements for 2022 have been delivered to the Registrar of Companies. Statutory financial statements for 2023 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditor has reported on both the 2023 and 2022 financial statements. Their reports were unqualified.
Forward looking statements
This announcement has been prepared to provide information to shareholders to assess the current position and future potential of Brooks Macdonald Group. It contains certain forward-looking statements with respect to the Group's financial condition, operations, and business opportunities. Forward looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from what is expressed or implied by the statements. Any forward-looking statement is made in good faith based on information available to the Directors as of the date of the statement. Past performance cannot be relied on as a guide to future performance.
Financial calendar
|
Results announcement |
14 September 2023 |
|
Ex-dividend date for final dividend |
21 September 2023 |
|
Record date for final dividend |
22 September 2023 |
|
Annual General Meeting |
26 October 2023 |
|
Final dividend payment date |
3 November 2023 |
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
COMPANIES COVERED:
Latest directors dealings
- 17 hours ago Cerillion
- 19 hours ago Associated British Foods
- 19 hours ago B&M European Value Retail S.A. (DI)
- 19 hours ago B&M European Value Retail S.A. (DI)
- 19 hours ago Haleon