Final results for the year ended 30 June 2024

12 September 2024

BROOKS MACDONALD GROUP PLC

Final results for the year ended 30 June 2024

Focusing on clients to reignite growth

Brooks Macdonald Group plc ("Brooks Macdonald" or "the Group") today announces its audited results for the year ended 30 June 2024, which show a rise in funds under management, a double-digit increase in underlying profit before tax, a strong capital and cash position and the nineteenth successive annual dividend increase for the Group. Also released today are two further announcements regarding the disposal of the International business and appointment of the new CFO.

Andrew Shepherd, CEO of Brooks Macdonald, said:

"Despite the challenging market conditions, we have delivered good results, with our Funds Under Management growing to £18.0 billion and having maintained strong underlying profit margins. This performance is a testament to our robust business model and the unwavering commitment of our people. I want to thank the entire team at Brooks Macdonald for their hard work, dedication, and resilience throughout this past year and indeed during the three years of my tenure as CEO. As I hand over the reins to Andrea Montague, who has already made a significant impact as CFO, I have every confidence that she will lead Brooks Macdonald to even greater success as CEO."

Andrea Montague, CEO Designate of Brooks Macdonald, said:

"Over the last 12 months, I have been impressed with the deep client relationships that we have at Brooks Macdonald as well as the expertise and commitment of our people to our clients. To be the best, we know there is more we can do. Today we are redefining our strategy to reignite growth with a renewed focus on excellent client service, broadening and deepening our client reach and exploring targeted opportunities to drive scale and efficiencies. We are also simplifying the Group by announcing the sale of our International business for a total consideration of up to £50.85 million.

"I announced this morning the appointment of Katherine Jones as our new Chief Financial Officer.  This appointment will strengthen my leadership team so we can continue to drive performance and execute our strategy. Looking ahead, I am hugely excited about what we can achieve as we unlock the full potential of Brooks Macdonald."

Good financial performance and strategic progress

·     Group Funds Under Management ("FUM") reached £18.0 billion (FY23: £16.8 billion), up 7.0% on prior year reflecting a strong investment performance:

o  Gross inflows totalled £2.3 billion (FY23: £2.7 billion) reflecting strong client demand with the fourth quarter showing an improvement on each of the prior quarters of the financial year

o  Gross outflows in the year were elevated, driven by the macroeconomic backdrop and higher interest rate environment leading to net outflows of £0.6 billion (FY23: net inflows of £0.8 billion)

o  Performance in absolute terms over the 10-year period, across all our risk profiles, is very strong delivering a range of +30% (for low risk) through to +97% for our highest risk strategy (all net of fees).  

o  The last 12 months to the end of June 2024 has seen this outperformance compared to peers cemented. All 5 risk profiles have delivered outstanding absolute returns for clients and outperformed the ARC Private client index series.

·     Revenue of £128.3 million (FY23: £123.8 million), up 3.6% driven by increased transactional and FX income, and the full year contribution from the financial planning businesses acquired part way through FY23

·     Management actions realised annualised cost savings of £4.0 million through organisational changes resulting in broadly flat underlying costs for the year

·     Underlying profit¹ of £34.1 million (FY23: £30.3 million), up 12.5% and an improved underlying profit margin of 26.6% (FY23: 24.5%).

·     Total dividend up 4.0% to 78.0p (FY23: 75.0p) reflecting the Board's confidence in the Group's medium-term growth strategy. This is the nineteenth successive annual dividend increase since shares began trading on AIM

·     Sale of Brooks Macdonald International (BMI) to Canaccord Genuity Wealth Management for a total consideration of up to £50.85 million, including an initial consideration of £28 million payable in cash upon completion.

Key financial results

Underlying results¹

Statutory results

Dividends

¹The 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 for the Group. A reconciliation between the Group's statutory and underlying profit before tax is also included in the Financial Review.

²During the year, the Group invested £30 million of surplus cash resources into UK Gilts which are held on the balance sheet as financial assets held at amortised cost.

Redefining our Strategy and setting medium-term targets

We plan to reignite growth through a renewed focus on:

1. Delivering excellent client service:

o  unlock the full potential of Brooks Macdonald's client-centric culture;

o  proactively tailor our service to client needs; and,

o  launch differentiated and innovative new products to further drive business growth.

2. Broadening and deepening our client reach

o  take the Group's broad product range to our existing network and build new connections;

o  increase brand awareness; and,

o  enhance client data management and analytics to support lead generation.

3. Driving scale and efficiencies:

o  build talent and execution capabilities to support delivery of client service;

o  leverage automation across front-office and support teams to increase productivity; and,

o  optimise investment and client reporting processes to improve efficiency.

As a result of this strategy, we announce today the following medium-term targets:

·     5% annualised net inflows

·     underlying cost growth of less than 5% per annum

Successful Execution of M&A strategy

The completion of the following transaction will progress our strategy to reignite growth and create a simplified wealth management and financial planning business in the UK:

·     Following a strategic review of Brooks Macdonald International (BMI), the Board concluded that a sale of the business was in the best interests of the Group. The separately announced sale to Canaccord Genuity Wealth Management for a total consideration of up to £50.85m which includes initial consideration of £28 million payable in cash upon completion, with additional contingent consideration of up to £22.85 million payable on the second anniversary of completion, subject to meeting certain revenue targets and secures a highly credible future owner for BMI.

Update on regulatory matters

·     Regarding the FCA's review of ongoing advice: the Group undertook a review of historical data and practices in the second half of the financial year and consequently, the Board concluded no provision was required.

·     Consumer Duty: the Group fully supports the principles of Consumer Duty and completed its first annual Consumer Duty Board report in the year.  

We continue to have a constructive, ongoing dialogue with all of our regulators and remain committed to delivering excellent outcomes for all of our clients.

FY25 Guidance and Outlook

The structural growth opportunity in our industry remains highly attractive, underpinned by demographics, government policy and increasing need for advice. This, coupled with an improving economic outlook gives us strong confidence in delivering the strategy we have announced today.

As a result, we anticipate a return to overall positive net flows later in the financial year. We continue to expect to see the blended revenue yield follow its established trend as our Platform MPS business continues to grow at pace, which will drive operational leverage through the business.

The BMI transaction is subject to regulatory approval with anticipated completion by March 2025 and an impact of c £2m on group underlying profit in FY25.

As we guided at the half year, H224 interest income was in line with our guidance at £5m. Following on from that, we expect interest income to be impacted by further BOE base rate reductions. For FY25, we expect client interest turn to be c. £7-8m.

We continue to actively manage our costs and drive efficiencies to ensure we are well-positioned for future growth.

We expect capital expenditure to average £4-5m in FY25.

Conference call and investor presentation details

A video presentation and results presentation slides will be available from 7:00 a.m. today on the Investor Relations section of Brooks Macdonald's website using the following link:

https://www.brooksmacdonald.com/investor-relations

There will be a Q&A session for analysts and investors at 9:30 a.m. today via conference call.

For details please contact FTI Consulting on +44 (0) 07976 870961 or [email protected]

Enquiries to:

Notes to editors

Brooks Macdonald Group plc, through its various subsidiaries, provides leading wealth 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 £18.0 billion as at 30 June 2024.

Brooks Macdonald offers outsourced discretionary investment management for intermediaries and advice-led integrated wealth management for private clients. The Group also acts as fund manager to a range of onshore and international funds.

The Group has a strong local presence across the UK and Crown Dependencies.

The information contained within this announcement was previously deemed by the Company to constitute inside information as stipulated by Market Abuse Regulation (EU) No 596/2014 ("EU MAR") and the retained UK law version of EU MAR pursuant to the Market Abuse (Amendment) (EU Exit) Regulations 2019 (SI 2019/310) ("UK MAR"). With the publication of this announcement via a Regulatory Information Service, this information is now considered to be in the public domain. For the purposes of UK MAR, the person responsible for arranging for the release of this information on behalf of Brooks Macdonald is Company Secretary Phil Naylor.

Forward-looking statements

This announcement may include statements, beliefs or opinions that are, or may be deemed to be, "forward-looking statements". These forward-looking statements may be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "targets", "aims", "continues", "expects", "intends", "hopes", "may", "will", "would", "could" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. No representation or warranty is made that any of these statements or forecasts will come to pass or that any forecast results will be achieved. Forward-looking statements may and often do differ materially from actual results. Any forward-looking statements contained in the announcement speak only as of their respective dates, reflect Brooks Macdonald's current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to Brooks Macdonald's business, results of operations, financial position, liquidity, prospects, growth and strategies.

Except as required by any applicable law or regulation, Brooks Macdonald expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this announcement or any other forward-looking statements it may make whether as a result of new information, future developments or otherwise.

LEI: 213800WRDF8LB8MIEX37

www.brooksmacdonald.com / @BrooksMacdonald

Chair's statement

Focus on reigniting growth

I am delighted to present my first Annual Report as your new chair. I have spent recent months getting to know Brooks Macdonald and I have great first impressions. In particular, our client-centric culture - the service and commitment we provide to clients and advisers is exemplary, together with the strength of our relationships and the calibre of our people. I have also met shareholders, corporate advisers and competitors, and have gained a good understanding of Brooks Macdonald, and it's position in the UK wealth market.

Brooks Macdonald is an excellent business that serves a critical need for individual saving and investment. The structural opportunity for our industry remains strong and we are well positioned to help clients navigate all market conditions. We will continue to focus on delivering consistently good investment returns for our clients and partners.  

The Group delivered good financial results in the year to 30 June 2024. Underlying PBT increased by 12.5% to £34.1m, with our results reflecting the resilience of our business model and the added value of the services we provide. The financial review in this Annual Report contains detailed information on our performance.

Since our financial year end, the Bank of England ("BOE") has cut the interest base rate for the first time since the aggressive hikes that started late 2021 to stave off soaring inflation. As macroeconomic conditions stabilise, we are confident that our business is well positioned to benefit, with clients being more likely to commit funds for long-term investment. As a Board, we are focused on implementing our strategy and achieving the goals we have set for the Group.

Enhancing our strategy

We have set out our strategy to reignite growth with a renewed focus on:

•    Delivering excellent client service

•    Broadening and deepening client reach

•    Driving scale and efficiencies

By focusing on these growth levers, which include enhancing our technology, scaling our products and being more data-led, and by carrying out targeted M&A (using strict criteria) we are confident that we will achieve the new medium-term targets that we have set. We recognise that we need to improve our flows, to attract new clients and to retain existing clients, and are committing to a medium-term target of 5% net inflows per annum. However, we also recognise the importance of doing this efficiently and will limit underlying cost growth to less than 5% per annum.

Our tailored distribution, to advisers and direct to clients, and our broad proposition set that meets clients' needs throughout their entire investment lifecycle give us an excellent base from which to grow. With an enhanced focus on our refined strategy, I look forward to seeing BM delivering enhanced returns for all our stakeholders.

Dividend

The Board has recommended a final dividend of 49.0p (FY23: 47.0p), which, subject to approval by shareholders, will result in total dividends for the year of 78.0p (FY23: 75.0p). This represents an increase of 4.0% in the 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 1 November 2024 to shareholders on the register at the close of business on 20 September 2024.

We have increased our dividend each year for 19 years, demonstrating the capital strength of our business through the cycle and our commitment to shareholder returns.

Governance

In March 2024, following a nine-year term on the Board, Richard Price stepped down after various positions including Chair of the Audit Committee, Senior Independent Director and Acting Chair. I would like to thank Richard for the significant contribution he made to Brooks Macdonald and for leaving the Group in a strong position.

In June this year, we announced that CEO, Andrew Shepherd will be retiring after 22 years with the Group. From 1 October 2024, our Chief Financial Officer, Andrea Montague, will be appointed as CEO, subject to regulatory approval. Andrea has been working closely with Andrew since this announcement and has been in position as CEO Designate since 1 July 2024. I am confident of a smooth handover and that Andrea's demonstrated experience, pace and leadership stand her in excellent stead to deliver our ambitious growth plans.

I would like to take this opportunity to reiterate the gratitude of the Group to Andrew for the immense contribution he has made to Brooks Macdonald during his tenure as CEO and for the many years before. He has shown extraordinary dedication and commitment to the Group. We will miss 'Shep' and wish him all the best in the future.

Culture and colleagues

Our people are our greatest strength and we are focused on developing them to be the best they can be. Throughout the year, we have evolved our People strategy to increase leadership and management capability, to drive high performance and to improve the employee experience. Each of these is underpinned by our 'Inclusive by Design' strategy which challenges us to ensure we adopt an inclusive approach to everything that we do, in turn fostering a culture that inspires motivation and engagement from our workforce.

In July this year, we conducted a 'Speak-up' employee engagement survey and had a participation rate of 79%. We saw improved scores in Performance Management and Fulfilling Careers with employees commenting positively on our culture of continuous improvement. Based on this survey, we provide each business area with a report to enable managers to address specific needs of their teams. The Board and the Executive leadership team will ensure that we make Brooks Macdonald an even better place to work by implementing changes suggested by our people.

Looking ahead

Demographics in the form of an ageing population continue to underpin the strategic opportunity for Brooks Macdonald. With an ambitious new government in place we must hope that dis-incentivising pension savings does not become a new source of funding for the various state spending plans. The high inflation stress seems to be behind us and a first BOE base rate reduction bodes well for the clients of wealth managers. The bank of mum and dad alongside the temptation of debt reduction has been and remains tough competition for wealth managers, but with further rate cuts on the horizon, prospects are looking up for long-term investment strategies as offered by Brooks Macdonald. Under Andrea's leadership our redefined strategy, coupled with a strong balance sheet and robust cash generation will ensure we continue to be well positioned for the future. Finally I would like thank our shareholders for their continued support, our colleagues for their hard work and our clients and partners for their business and trust in our organisation.

Maarten Slendebroek
Chair
11 September 2024

CEO's review

As I present my final review as CEO of Brooks Macdonald, I reflect on the immense pride I have felt in holding this position. Brooks Macdonald is a great business that delivers excellent outcomes for our clients across their entire investment lifecycle. By generating consistently strong investment returns to support their long-term financial goals, we provide them with increased certainty and reassurance over their financial futures, regardless of the economic backdrop.

Throughout my tenure as CEO, we have remained focused on our Purpose of realising ambitions and securing futures, which means we keep our clients at the forefront of our minds, whilst also providing for all our stakeholders - employees, intermediaries and shareholders.

This year has been no different. Clients have benefitted from the close relationships with our investment managers and financial planners which is even more important when markets are challenging, and have further benefitted from strong returns from our rigorous investment process.

Financial performance

For much of our financial year, inflation remained high, together with persistently high interest rates. Clients remained under pressure in terms of higher costs of living and continued to be encouraged to pay down increasingly expensive debt. These factors impacted our industry and our Group, where we saw net outflows of £616 million, largely in our Bespoke and Funds products. MPS continued to be a driver of growth with net inflows of £388 million, reflecting the trend for MPS as a solution of choice for accumulation.

Gross inflows across our propositions were strong throughout the year, with £2.3 billion gross inflows at the Group level and we ended the year with the best-performing quarter. Platform MPS gross inflows contributed approximately half of these flows. Although outflows were stubbornly high, we saw signs of improvement in the fourth quarter. Given our internal efforts on client retention, combined with a more stable economic outlook, we are confident that outflows will decrease.

We had a year of good financial performance in FY24, with underlying profit before tax increased to £34.1 million (FY23: £30.3 million). The underlying profit margin increased by 2.1 percentage points to 26.6% as we implemented cost efficiencies and benefited from increased interest and transactional income. Statutory profit before tax fell to £11.6 million from £22.2 million, primarily due to the impairment of the International goodwill balance announced in our half-year results.

Our year-end closing FUM was a record £18.0 billion, up 7% in the year, with investment performance of £1.8 billion more than offsetting the impact of net outflows.

Investment performance and market conditions

Our aggregate investment performance across all our risk profiles for the year was 10.7%. These strong returns have been generated through our robust Centralised Investment Proposition where we have constructed portfolios with a balanced approach utilising multiple asset classes and investment vehicles against a backdrop that has seen headline index returns dominated by a focussed set of large and mega cap stocks.

During the second half of the year, we saw an improvement for UK companies benefitting from better sentiment, signs of political stability and economic improvement. Our clients continued to benefit from our rigorous investment process, which provides diversified portfolios for their long-term investment horizons. Our investment strategies outperformed their relevant ARC peer group indices for the year and maintained strong results over the 10-year period.

Looking ahead, we are encouraged by the recent falls in inflation and anticipate interest rate cuts across Western economies that should be supportive of asset prices. Additionally, the change in government in the UK is seen to encourage international asset allocators to review exposure to the region.

We are retaining our slight overweight position to equity markets but maintaining our balance between value and growth investment styles as we recognise diversification as critical in the current uncertain outlook.

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 resulting in strong gross inflows of £2.0 billion in the year.

The Platform Managed Portfolio Service ("PMPS") was the strongest performer, achieving net inflows of approximately £330 million for the year. This reflects both the robust current and potential growth of this product at Brooks Macdonald and within the broader industry.

BM Investment Solutions ("BMIS"), our business-to-business offering, collaborates with adviser firms to provide tailored services aligned to their objectives. Once again, BMIS demonstrated good performance, achieving net inflows of approximately £140 million.

In our Bespoke Portfolio Service ("BPS") product, UKIM has experienced significant growth in our specialist offerings - Responsible Investing Service, Decumulation, and Court of Protection, and especially with our Gilts product which was introduced to meet client demand for their portfolios to take advantage of higher interest rates whilst avoiding equity risk. However, beyond these specialist offerings, BPS saw net outflows due to a broader market trend, compounded by the impact of higher interest rates and macroeconomic uncertainty.

Despite our funds business facing challenges this year, with net outflows similar to much of the sector, we remain optimistic about the potential for growth in our multi-asset funds. We are confident in the actions we have already taken to drive medium-term growth and are actively reviewing additional steps to further strengthen our position.

International

In our interim results in March 2024, we announced a strategic review of the International business following performance that had been behind plan. I would like to thank the International team for their unwavering commitment during this time. We conducted a thorough review aimed at determining how to maximise value from the business. It has been concluded that the sale of the International business is in the best interests of the Group as it simplifies the Group's operations to focus on its core activities of high-quality investment management and financial planning within the UK.

Distribution

We operate in a significant and growing market and have traditionally leveraged our relationships with advisers to distribute our products. In recent years we have recognised the growing opportunity in distributing direct to clients, especially where we have a financial planning relationship. As at 30 June 2024, the Group had £5.3 billion Funds under Management or Advice ("FUM/A") with private clients who deal with the Group directly. £4.5 billion related to portfolios in the Group's investment management and £0.8 billion to portfolios with third-party investment managers.

We made two senior appointments to newly created roles in the year to reflect this targeted distribution with Alex Charalambous joining the Group as Head of Wealth and, since year end, Greg Mullins joining as Head of Adviser Solutions. Alex is leading the Group's advice-led integrated wealth management offering for private clients and Greg will focus on delivering exceptional service to the adviser community, both supporting our ambitious growth plan.

Investing in our people

Our commitment to a strong people agenda has been unwavering, and our client-centric culture continues to be one of our most valuable assets. This year, we have deepened our investment in our people, bringing in talented new hires and enhancing our team's capabilities. We have made significant strides in our people strategy by advancing management training programmes, expanding professional development opportunities, and refining our performance management approach. These efforts are complemented by regular employee feedback, which we use to continuously improve our processes and ensure they align with the needs of our people.

Leadership transitions are a critical moment in any organisation, and in June 2024, I announced my resignation alongside the Board's decision to appoint Andrea Montague as our new CEO, effective 1 October 2024, subject to regulatory approval.

As Chief Financial Officer since August 2023, Andrea has been a vital member of our leadership team. Her drive to redefine our strategy to reignite growth puts Brooks Macdonald in excellent hands and in a strong position for the future.

This financial year, we also undertook necessary organisational changes to ensure the Group's long-term competitiveness. These changes, which included a reduction in roles by approximately 10%, were difficult but necessary to align our resources with our strategic objectives. The resulting cost savings of approximately £4 million per annum have strengthened our commercial position and enhanced our ability to compete effectively in the market.

Employee wellbeing remains at the forefront of our agenda, particularly during times of change. We continue to support our people through various initiatives, including enhanced employee assistance programmes, mental health support, and professional development opportunities. Our goal is to foster an environment where every employee can thrive, both personally and professionally.

Andrew Shepherd
CEO
11 September 2024

Our strategy

Brooks Macdonald has redefined its strategy to take advantage of the growth opportunities in the UK wealth management sector. We have strong foundations in place and we continue to make substantial progress. Although persistently high interest rates have made the short term difficult, the longer-term outlook for the business is excellent.

Reigniting growth

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.

Focused distribution

We have aligned our business around our two key distribution channels - financial advisers and private clients. Our proposition is different in the two channels - outsourced discretionary investment management for advisers, in our Adviser Solutions unit, and integrated wealth management for private clients in our Wealth team. Aligning the organisation to the needs of the different propositions is helping make us more effective and efficient in serving our clients and advisers.

Strategic priorities

Our strategy is grounded in three key areas, each with a number of principal initiatives for 2025.

1. Delivering excellent client service

We aim to unlock the full potential of Brooks Macdonald's client-centric culture, proactively tailor our service to client needs and launch differentiated and innovative new products to further drive business growth.

2. Broadening and deepening our client reach

We will focus on taking the Group's broad product range to our existing network and new connections, increase brand awareness and, enhance client data analytics to support lead generation.

3. Driving scale and efficiencies

We will focus on building talent and execution capabilities to support delivery of client service, leverage automation across the front-office and support teams to increase productivity and optimise investment and client reporting processes to improve efficiency.

Strategic progress in FY24

Following Consumer Duty 'go live' in July, we updated our Target Market Guide and published it on our website.

We continued to make incremental improvements to our client and adviser portal InvestBM.

We continued to align the advice process across our financial planning teams.

Gross inflows held up well in FY24 at 13.8%, despite persistent higher interest rates weakening investor sentiment.

Our Platform MPS product had net flows of c.13%.

We have continued to see positive net flows (c.22%) and FUM growth (27%) in our specialist BPS products, including Decumulation, Responsible Investment and Gilts.

We rebuilt our marketing function to align to the new distribution channel focus and to deliver high-quality marketing support to our distribution and front office teams.

We upgraded our capabilities with selective external hires in key functional areas, including Finance, HR, Risk and Compliance.

We experimented with generative AI to bring greater efficiency to internal processes and to build our understanding of what the technology can deliver.

Financial review

Review of results for the year

The Group delivered a good set of results for FY24, seeing growth in revenue and an improvement in underlying profit and underlying profit margin on the prior year.

The Group recorded net outflows in the year of £0.6 billion as a result of the challenging macroeconomic environment and the impact of higher interest rates prevailing during the year. These were offset by positive investment performance of £1.8 billion, leading to a record closing FUM of £18.0 billion at 30 June 2024 (£16.8 billion at 30 June 2023).

Revenue increased by 3.6% on the prior year to £128.3 million, and underlying profit was up 12.5% to £34.1 million, resulting in an underlying profit margin of 26.6% (FY23: 24.5%).

On a statutory basis, profit before tax was £11.6 million, down 47.7% from the prior year as a result of the previously communicated goodwill impairment charge recognised at 31 December 2023 of £11.6 million in relation to the International business.

Refer to the reconciliation between underlying and statutory profits section for details on the statutory adjustments, including the goodwill impairment.

Group financial results summary

Table 1 shows the Group's financial performance for the year ended 30 June 2024 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 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

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

FUM increased by £1.2 billion or 7.0% during the year, to £18.0 billion at 30 June 2024 (30 June 2023: £16.8 billion). The Group's broad product offering and continued focus on serving clients in a changing economic environment has resulted in robust gross inflows of £2.3 billion for the year, however, gross outflows were elevated driven by the prevailing backdrop of market volatility and higher interest rates continuing to affect client behaviour, resulting in net outflows for the period of £0.6 billion.

Investment performance for the year added £1.8 billion to the closing FUM, representing an increase of 10.7%. Performance in absolute terms over the 10-year period, across all our risk profiles, is very strong delivering a range of +30% (for low risk) through to +97% for our highest risk strategy (all net of fees). 

The last 12 months to the end of June 2024 has seen this outperformance compared to peers cemented. All 5 risk profiles have delivered outstanding absolute returns for clients and outperformed the ARC Private client index series.

BPS experienced net outflows of £0.6 billion or 4.1% during the year, as clients withdrew funds to repay debt or to hold higher cash balances. The gilts offering launched at the end of the last financial year within the BPS product range saw strong demand, enabling clients to take advantage of higher interest rates whilst avoiding equity risk. Our Decumulation specialised product, offering a solution to meet clients' income requirements by shielding their portfolio from downturn in the early years of withdrawal, grew by 6.3% in the year.

Platform MPS, including the Group's B2B offering for financial advisers, BM Investment Solutions ("BMIS"), grew to £4.4 billion, an increase of 25.2%, with organic net flows contributing 13.4%.

Funds saw net outflows during the period, driven by the wider market conditions and in line with the trend observed across the sector.

International FUM grew moderately by 4.9% over the period with net outflows of £0.1 billion, offset by investment performance.

Revenue

Table 3 - Breakdown of the Group's total revenue

The Group's revenue for FY24 increased by 3.6% from £123.8 million to £128.3 million. Fee income was slightly up on last year to £92.1 million, driven by a combination of the impact from flows, product mix, and investment performance.

Transactional and FX income increased by 15.0% on the prior year due to higher trading volumes in the year and the impact of asset allocation strategies in response to the volatile market during the year.

Financial planning fees totalled £8.2 million in FY24, with an additional £1.8 million of revenue recognised in the current year from the full period impact of the Integrity Wealth Solutions Limited and Adroit Financial Planning Limited businesses acquired in FY23.

Interest income, net of increasing amounts paid out to clients on cash holdings, was up by £0.3 million to £12.7 million in the current year as a result of the continued rise in the Bank of England base rates during the year.

Table 4 - Revenue, average FUM and yields

The Group's overall yield decreased by 3.2bps or 4.5% compared to the prior year. This was driven by a number of factors across the products set out below.

The yield on BPS fees for UKIM decreased by 1.6bps to 63.5bps during the year (FY23: 65.1bps), driven by the impact of flows, the underlying product mix and rates achieved on new business.

The BPS non-fee transactional and FX income yield increased by 1.7bps in the year, as a result of higher trading volumes. The yield on interest income was up 0.2bps, due to the increase of the Bank of England base rate in Q1, offset by higher amounts paid to clients.

The MPS Custody yield of 59.2bps continued to remain stable on FY23, whereas the yield on MPS Platform fell slightly by 0.6bps to 18.2bps due to the impact of product mix as Platform MPS includes our BM Investment Solutions offering that attracts relatively larger mandates and benefits from discounted tiered rates. Additionally, we saw growth in our passive Platform MPS offering during the year, which attract lower yields. This has resulted in the overall MPS yield decreasing from 32.3bps to 29.0bps in the year.

The UK Funds fee yields reduced by 0.6bps to 47.7bps during the year, primarily driven by the impact and timing of flows during the year.

International fee income yield reduced by 2.9bps to 70.4bps during FY24, driven by a change in product mix and the impact of flows. International non-fees transactional and FX income increased by 1.5bps, whilst interest income yield reduced by 1.0bp due to the impact of cash balances denominated in foreign currencies. This has resulted in the overall International yield decreasing from 92.2bps to 89.8bps during the year.

Underlying costs

Total underlying costs were broadly flat on last year, increasing marginally by 0.7% to £94.2 million in FY24 (FY23: £93.5 million). Excluding the full-year impact of the Integrity and Adroit businesses acquired part way through the prior year, underlying costs reduced by £0.4 million.

Staff costs

Total staff costs increased by £2.5 million to £58.6 million. Of this, £1.4 million was driven by the full-year impact of the two acquired businesses last year. Excluding acquired costs, staff costs increased by £1.1 million, from £54.5 million to £55.6 million.

Excluding the full-year impact of acquisitions, fixed staff costs decreased by £0.3 million. This was contributed by the organisational restructure the Group carried out in October 2023 where opportunities to streamline and remove duplication from core processes were identified with roles being made redundant as a result. This saving was offset by inflationary pay rises, the impact of net joiners and further investment in staff training and development.

Variable staff costs increased from £10.9 million to £12.8 million driven by the increase in pre-variable pay profit. Within this, the share-based payments charge was down £0.3 million on the prior year due to lapses recognised in FY24 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 £38.5 million, broadly flat on last year, a reflection of management's continued cost discipline. The Group continued to incur generic inflationary increases on the cost base, in addition to an increase in legal and professional fees to assist with the review of the Group's targeted operating model and potential M&A opportunities.

Net finance income

The Group's net finance income increased from £0.9 million to £2.9 million in FY24 as the Group attracted higher interest rates on its corporate cash balances.

Profit before tax

Combined, the above gave rise to an underlying profit before tax for the year of £34.1 million, an increase of 12.5% on the prior year (FY23: £30.3 million) and resulting in a profit margin of 26.6%, up by 2.1 points on last year's margin of 24.5%.

The Group's statutory profit before tax was £11.6 million, a reduction from last year (FY23: £22.2 million), contributed by the impairment charge recognised at 31 December 2023 in relation to the goodwill held in respect of the International business.

Segmental analysis

For FY24, the Group continued to report 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.

UKIM, which includes the Group's Private Clients business, increased its revenue by 4.7%, driven by higher financial planning revenue of £1.7 million as a result of the full period impact of the acquisitions, along with £2.2 million additional Investment Management fees and £1.8 million additional transactional income. These uplifts were offset by a decline in Fund Management fees. Total underlying costs increased by 8.6% as a result of the factors outlined previously, including the full-period impact of the acquisitions. This gave rise to an underlying profit for FY24 of £33.5 million (FY23: £34.5 million) and an underlying profit margin of 30.9% (FY23: 33.3%).

The International segment reported reduced revenues of £19.9 million, down 2.0% from the prior year, with reductions in Investment Management fees, Fund Management fees and Interest income, slightly offset by increases in Transactional and foreign exchange fees. The total International cost base reduced by 16.2%, as a result of the organisational restructure and cost discipline. This resulted in underlying profit increasing from £0.1 million to £3.3 million this year, and an underlying profit margin of 16.6% (FY23: 0.5%).

Table 5 - Segmental analysis

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 2024 with comparatives is shown in the table below:

Table 6 - Reconciliation between underlying profit and statutory profit before tax

Goodwill impairment (£11.6 million)

Goodwill is reviewed for impairment indicators at each reporting period, and if indicators are present, an impairment test is carried out based on the carrying value of the asset compared to its expected recoverable amount. The review of our International business at 31 December 2023 indicated that the estimated recoverable amount arising from future cash flows, was less than the carrying value of the goodwill held on the Group's Consolidated statement of financial position that was recognised upon the acquisition of the business in 2012. The goodwill impairment charge has been excluded from underlying profit in view of its non-recurring nature, and the fact that it does not impact cash or regulatory capital. The annual impairment review at 30 June 2024 was also carried out and the remaining goodwill balance was fully supported. (Refer to Note 9 in the Notes to the consolidated financial statements for more details).

Amortisation of client relationship contracts (£6.0 million)

These intangible assets are created in the course of acquiring funds under management and financial advice portfolios, which are amortised over their useful life, which have been assessed to range between 6 and 20 years. This amortisation charge has been excluded from the underlying profit since it is a significant non-cash item. (Refer to Note 9 in the Notes to the consolidated financial statements for more details).

Organisational restructure (£3.0 million)

The Group carried out an organisational restructure in December 2023 to ensure it is set up for future success. The Group identified opportunities to streamline and remove duplication from core processes, resulting in redundancy and associated third-party consultancy costs. These have been excluded from underlying earnings in view of their one-off nature.

International strategic review (£1.5 million)

As announced as part of the Group's half-year results in March 2024, the Group is carrying out a strategic review of the International business as a result of its performance falling behind plan. The costs incurred relate to third-party consultancy spend to assist with the review and have been excluded from underlying earnings in view of their non-recurring nature.

Acquisition and integration-related costs (£0.4 million)

These represent the share-based payment integration charge for share options awarded to acquired employees as part of acquisitions in the prior period. In the prior year, costs were incurred in relation to the acquisitions of Integrity Wealth Solutions on 31 October 2022 and Adroit Financial Planning on 15 December 2022, in addition to the share-based payment integration charges.

FY23 - Dual running operating platform costs (£1.6 million)

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 in the prior year, the Group incurred net incremental costs in running two operating platforms concurrently. The dual running costs were excluded from underlying profit in view of their non-recurring nature.

FY23 - Changes in fair value and finance cost of deferred contingent consideration (£0.2 million)

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.

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 7 - Underlying EBITDA reconciliation

Table 8 - EBITDA reconciliation

Taxation

The Group's total tax charge for the year was £5.2 million, representing an increase of 26.8% from last year (FY23: £4.1 million). The Group's underlying effective tax rate has increased from 19.7% to 22.7% and the statutory effective tax rate increased from 18.4% to 44.4%. This has been contributed to by the goodwill impairment not deductible for tax purposes, the increased CT rate in the current year and under provision from prior period tax charges. (Details on taxation are provided in Note 6 in the Notes to the consolidated financial statements).

Earnings per share

Basic statutory earnings per share for the Group in FY24 was 40.1p (FY23: 114.7p), reducing as a result of the goodwill impairment charge. On an underlying basis, basic earnings per share was 163.8p representing an increase of 6.5% on the prior year (FY23: 153.8p) driven by the increase in underlying earnings. (Details on the basic and diluted earnings per share are provided in Note 7 in the Notes to 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 49.0p per share (FY23: 47.0p).

Including the interim dividend of 29.0p per share (FY23: 28.0p), this results in a total dividend for the year of 78.0p per share (FY23: 75.0p), which is an overall increase of 3.0p or 4.0%. (Refer to Note 8 in the Notes 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 24 October 2024.

Financial position and regulatory capital

Net assets were £152.3 million at 30 June 2024 (FY23: £157.3 million), demonstrating the Group's robust financial position. The Group's tangible net assets (net assets excluding intangibles) was £69.1 million at 30 June 2024 (FY23: £56.7 million). As at 30 June 2024, the Group had regulatory capital resources of £75.7 million (FY23: £64.6 million). As at 30 June 2024, the Group had an own funds adequacy ratio of 348.5% (FY23: 328.1%). 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 year'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 9 - Own funds reconciliation

The Group includes five regulated entities that provide personalised investment management and financial consultancy services to clients within the UK and abroad. These entities comply with regulations set by the Financial Conduct Authority ("FCA"), Jersey Financial Services Commission ("JFSC"), and Guernsey Financial Services Commission ("GFSC"). The Group operates under its parent company, Brooks Macdonald Group plc ("BMG"), which is incorporated and registered in England and Wales, with the UK as its primary business market. The Group's main operating subsidiary, Brooks Macdonald Asset Management Limited ("BMAM"), is categorised as a MIFIDPRU Non-SNI Firm under the Investment Firms Prudential Regime ("IFPR") and is authorised and regulated by the FCA. As such, the Group, being the parent entity, is obliged to adhere to MIFIDPRU rules within the IFPR framework and reports to the FCA on a prudential consolidation basis.

In compliance with the regulations of the FCA, JFSC, and GFSC, the Group routinely conducts assessments of its regulatory capital and liquidity. This is achieved through the Internal Capital Adequacy and Risk Assessment ("ICARA") and Adjusted Net Liquid Asset ("ANLA") evaluations. These include a series of stress tests and scenario analyses to ascertain the requisite levels of regulatory capital and liquidity. The Group forecasts surplus capital and liquidity, factoring in anticipated outflows and proposed dividends, to ensure the perpetual adequacy of capital and liquidity.

The FY23 ICARA review was conducted for the year ended 30 June 2023 and signed off by the Board in December 2023. 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 £44.7 million (FY23: £53.4 million) and the Group had no borrowings at 30 June 2024. The reduction in cash balance compared to the previous year was contributed by the Group investing surplus corporate cash into financial assets at amortised cost of £30.0 million, refer to Note 12 in the Notes to the consolidated financial statements for further information. Combining the financial assets at amortised cost and the cash balance totals £74.7 million at 30 June 2024, an increase of £21.3 million on the prior year.

The Group incurred capital expenditure of £1.8 million (FY23: £3.7 million). This comprised technology-related development of £1.7 million (FY23: £3.0 million), property-related and IT and office equipment of £0.1 million (FY23: £0.7 million). Half of the technology-related spend was incurred in connection with continued developments on 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 from migration.

Reigniting growth

We have a strong business model that consistently delivers for our clients. Our current strengths include a broad investment proposition, strong distribution and brand, a robust investment process yielding attractive returns, and a talented team. Moving forward, we aim to build on these strengths to drive further growth in the attractive markets we serve. We have identified three key enablers to achieve this:

1.  Delivering excellent client service. This includes working to continually improve our technology delivery to clients, scaling our existing specialist products and creating new products to serve client demand.

2.  Broadening and deepening client reach. Improving distribution both directly to clients and to advisers by using data more heavily and effectively. We will also adapt employee incentives to reward retention of client funds as well as winning new business.

3.  Driving scale and efficiencies. Remaining focused on managing costs across the business and optimising our technology to best serve clients, freeing up time for our client-facing employees.

FY25 guidance and outlook

The structural growth opportunity in our industry remains highly attractive, underpinned by demographics, government policy and increasing use of advice. This, coupled with an improving economic outlook gives us strong confidence in delivering our strategy.

We anticipate a return to overall positive net flows later in the financial year. We expect to see the established blended revenue yield trend to follow as our Platform MPS business continues to grow at pace, which will drive operational leverage through the business.

The International transaction is due to complete by March 2025 with an impact of c. £2 million on group underlying profit in FY25.

As we guided at the half year, H2 FY24 interest income was in line with our guidance at £5 million. Following on from that, we expect interest income to be impacted by further BOE base rate reductions. For FY25, we expect client interest turn to be c. £7 million - £8 million.

We remain focused on cost discipline and efficiency to ensure we are well-positioned for future growth. Capital expenditure for FY25 is expected to be c. £4 million - £5 million.

Andrea Montague
CEO Designate and Chief Financial Officer
11 September 2024

Risk management

We have a robust approach to risk management to support positive client outcomes.

We continue to enhance our risk management processes across the Group as we look to continue to embed risk management and deliver positive risk outcomes. This work is enhancing efficiencies across the risk management framework through the greater use of data-driven evidence-based risk analysis and reporting.

We remain mindful of the current geopolitical and macroeconomic uncertainties and continue to monitor these closely both as an Executive and a Risk and Compliance Committee ("RCC").

Risk management framework

The Group's risk management framework consists of the following components:

Risk culture. We promote a risk culture that encourages ownership of and management of risk. Risk management is the responsibility of everyone.

Risk governance. The Board is ultimately responsible for the Group's risk management framework but has delegated certain responsibilities to the Risk and Compliance Committee ("RCC"), a sub-committee of the Board. The Group operates a 'three lines of defence' approach to managing risks across the Group.

Risk appetite. The objective of the Group's risk appetite framework is to ensure that the Board and senior management are properly engaged in agreeing and monitoring the Group's appetite for risk and setting acceptable boundaries for business activities and behaviours. The risk appetite categories are reviewed by the Executive Risk Management Committee ("ERMC"), RCC and approved by the Board on an annual basis. Key Risk Indicators ("KRIs") are mapped to the risk appetite categories, with KRI tolerances aligned to risk appetite. The KRIs and tolerances are subject to an annual approval process by the ERMC, RCC and Board.

Risk reporting. Risk reporting is presented to ERMC and RCC. This includes details of underlying KRIs mapped to the risk appetite categories, breaches, risk events and emerging risks.

Risk identification. The Group adopts a top-down and a bottom-up approach to the identification of risks. The ERMC and the RCC have identified the principal risks that could impact the ability of the Group to meet its strategic objectives. In addition, the Group maintains a bottom-up operational Group risk register, mapped to the Group's risk appetite categories.

Risk assessment and management. All of the risks included in the Group risk register are scored according to probability and impact and assessed on an inherent basis (before the impact of controls) and on a residual basis (after the impact of controls). Where risks are classed as outside the Group's risk appetite, actions must be taken to bring the risk back within appetite.

Risk and control self-assessment ("RCSA"). The Group's bottom-up assessment of risk is managed through the RCSA process which supports a comprehensive understanding of risks and controls in place at the operational and business process level. The RCSA process enables the risk and control owners to identify any omissions in the risk environment and to close any control gaps or weaknesses as necessary.

Policy governance framework. The policy governance framework provides minimum standards for managing the key risks that the Group faces. Each Group policy has an Executive Committee-level owner who is ultimately accountable for the design, implementation and maintenance of the policy.

Internal Capital Adequacy and Risk Assessment ("ICARA"). The Group conducts an ICARA process to ensure that it has appropriate systems and controls in place to identify, monitor and, where proportionate, reduce all potential material harms that may result from the ongoing operation of its business. The Group holds financial resources (capital and liquidity) in excess of our minimum regulatory requirements.

Principal risks

The principal risks facing the Group are detailed below, as well as any change in the year-on-year risk profile.

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 2023 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 Risk management 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, 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 FY24 to FY28, which underpins the 2023 ICARA, was challenged and approved by the Board in December 2023. The MTP for the five-year period covering FY25 to FY29 was reviewed and challenged by the Board in August 2024.

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 (with UK equities modelled to lose 45% of their value with correlated impacts modelled across the Group's portfolios, with 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 a significant reduction to regulatory capital surpluses, 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 to impose departmental cost reductions to ensure a greater capital surplus was maintained against the minimum capital requirement. Although the Group does not fall into a regulatory capital deficit during the stress period, management actions were implemented to strengthen regulatory resources and bolster profitability. If deemed appropriate, mitigating actions could include reduction of external dividend payments and an increased focus on cost reduction across the business. 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 subject to regular review to ensure they remain relevant and continue to be a suitable tool for developing our controls and mitigating actions. 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 in the Notes to the consolidated financial statements.

Consolidated statement of comprehensive income

For the year ended 30 June 2024

Consolidated statement of financial position

As at 30 June 2024

The Consolidated financial statements were approved by the Board of Directors and authorised for issue on 11 September 2024, and signed on their behalf by:

Andrew Shepherd                                                    Andrea Montague

CEO                                                                            CEO Designate and Chief Financial Officer

Company registration number: 4402058

Consolidated statement of changes in equity

For the year ended 30 June 2024

Consolidated statement of cash flows

For the year ended 30 June 2024

Notes to the consolidated financial statements

For the year ended 30 June 2024

1. General information

Brooks Macdonald Group plc (the "Company") is the Parent Company of a group of companies (the "Group"), which offer 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 England, 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 2024 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 certain financial instruments or deferred contingent consideration that are measured at fair value. Historic cost is generally based on the fair value of the consideration given in exchange for the assets. The principal accounting policies adopted are set out below. Unless otherwise stated, they have been applied consistently to all periods presented in the Financial statements.

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, refer to the Viability statement. There have been no post balance sheet events that have materially impacted the Group's liquidity headroom and going concern assessment.

b. Changes in accounting policies

The Group's accounting policies, which have been applied in preparing these Financial statements, are consistent with those disclosed in the Annual Report and Financial Statements for the year ended 30 June 2023, except as explained below.

New accounting standards, amendments and interpretations adopted in the year

In the year ended 30 June 2024, 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 2024 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.

c. Critical accounting estimates and material accounting policy information

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. Management also needs to exercise judgement in applying the Group's accounting policies.

The preparation of the Group's Consolidated financial statements includes the use of estimates, assumptions and significant judgements. 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 acquired client-relationship contracts.

The Consolidated financial statements include other areas of judgement and accounting estimates. Whilst 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 International, Braemar, Cornelian, Adroit and Integrity CGU goodwill impairment reviews. See Note 9 for further details on the discount rate and the perpetuity growth for the various CGUs. Additionally, the inputs into the Black-Scholes model used to value the Group's equity-settled share-based payments (Note 18).

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 9. 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 2024, the expected amortisation charge for the year ending 30 June 2025 is £5,326,000. If the useful economic lives were to reduce by one year, the estimated charge would increase by £3,547,000.

Goodwill recognised as part of a business combination is not amortised but instead 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 9.

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 9 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 18). 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 £381,000 and £87,000, respectively, hence these assumptions do not constitute a critical estimate. The key inputs into the fair value calculations for the options granted during the year are disclosed in Note 18.

Income tax

The Directors have to estimate at each year end a provision for income taxes that takes into account the utilisation of existing deferred tax assets when available and, therefore, the level of the future taxable profits of the Company that support the recoverability of these deferred tax assets. The key inputs are management approved forecasts, determining if there will be sufficient future taxable profits to recognised deferred tax assets.

Non-current assets held for sale

IFRS 5 'Non-current assets held for sale and discontinued operations' outlines how to account for non-current assets held for sale. Management judgement is required in determining whether the IFRS 5 held for sale criteria are met, including whether a sale is highly probable and expected to complete within one year of classification. Judgement typically involves evaluating the likelihood of obtaining any necessary approvals, determining the stage of negotiations and commitment of any potential interested parties, the likelihood of selling at a reasonable price and any possibility of a sale plan to change. Once classified as held-for-sale, continuous judgement is required to ensure the classification remains appropriate in future accounting periods.

As part of the ongoing strategic review of the International business, the Group evaluated potential outcomes, including the possible disposal of the International business. Management applied judgement in assessing that the International business did not meet the IFRS 5 criteria for classification as held for sale at 30 June 2024 on the basis that a potential sale was still at the early stages. Consequently, the International business has not been classified as held for sale within these Consolidated financial statements.

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 that 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.

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.