Brooks Macdonald underlying profit rises, international business falls short

Brooks Macdonald reported a strong first-half performance on Thursday, as its underlying profit before tax rose 18% to £17.1m, with its underlying profit margin climbing to 26.9%, although it did flag struggles in its international operations.

The AIM-traded firm put the increase down to a number of factors, including a record total funds under management of £17.6bn, up 4.3% from the last half-year period.

It said the growth in funds under management was particularly notable within private clients, where funds under management or advice (FUMA) reached £5.2bn.

Revenue also saw a notable uptick, rising by 8% to £63.6m for the six month period ended 31 December, driven by higher financial planning revenue and transactional and net interest income.

Despite facing net outflows of £0.2bn during the period, which accounted for 1% of opening funds under management, the company said it managed to maintain its investment performance at 5.3%, aligning with the MSCI PIMFA balanced index.

However, Brooks Macdonald acknowledged that the performance of its international operations fell short of expectations.

As a result, it had initiated a strategic review of the business.

Additionally, an £11.6m one-off, non-cash impairment charge on goodwill associated with the International business acquired in 2012 was recognized, leading to a statutory loss before tax of £0.8m at the group level.

In response to market conditions and to fortify its operational efficiency, the company executed organisational changes in the half-year, resulting in a reduction of about 10% in headcount, with an anticipated annual cost saving of around £4m.

Additionally, Brooks Macdonald said it was continuing to prioritise digital transformation, having completed the first phase of implementing a new client relationship management system and embedding outsourced adviser- and client-facing processes and systems to enhance client service.

Looking ahead, the company was optimistic about achieving its underlying profit targets for the year, with momentum expected to persist in gross inflows.

However, the company anticipated continued elevated levels of outflows given prevailing macroeconomic conditions, resulting in a projected net outflow for the full year at the group level.

However, it added that the benefits of organisational changes were expected to materialise from the second half of the year.

“I am pleased to report that demand for our products and services remains strong across our group with £1.2bn of gross inflows during the period,” said chief executive officer Andrew Shepherd.

“This rounds out a solid half year in which revenue growth and a focus on cost control delivered an improved underlying profit margin of 26.9%.

“During the last six months our priority has been to help our clients and advisers navigate the challenging markets that the wealth management industry has continued to face.”

Shepherd said the need for trusted advice and robust long-term investment management remained “as strong as ever”.

“As a management team, we have been proactive in adapting our business to the current environment, resulting in a group that is in a stronger operational position, well-placed to take advantage of the opportunity ahead.

“These results are a testament to the expertise and hard work of our people and our collective drive to deliver long-term sustainable results.

“Although the short-term macroeconomic outlook remains uncertain, we have confidence in our growth strategy and our ability to keep delivering for all our stakeholders.”

At 1023 GMT, Brooks Macdonald Group shares were down 2.73% at 1,605p.

Reporting by Josh White for Sharecast.com.