Brooks Macdonald Regulatory News (BRK)

16 September 2021

BROOKS MACDONALD GROUP PLC

Final results for the year ended 30 June 2021

Strong strategic progress underlined by excellent financial performance

Return to positive net flows in H2 with momentum growing

Brooks Macdonald Group plc ("Brooks Macdonald" or "the Group") today announces its audited results for the year ended 30 June 2021.

Financial highlights

· Group FUM reached record level of £16.5 billion (up 20.3% on FY20)

· Net flows improved each quarter and were positive in H2 at a Group level, with the core UKIM discretionary business positive for the full year, demonstrating organic growth momentum which has continued into FY22 with both months positive

· Group revenue of £118.2 million, up 8.8% on FY20, driven by FUM growth and the successful integration of the two recently acquired businesses

· Underlying profit margin up by 4.7 points to 25.9%, in line with the Group's commitment to deliver top quartile margin over the medium term

· Continued strong investment performance of 15.8% for the year, well ahead of the 12.9% for the MSCI PIMFA Private Investor Balanced Index

· Improved performance and underlying profit margin in both the UKIM and International business segments, in part boosted by the contribution of the acquired businesses

· Total dividend increased by 18.9% to 63.0p (FY20: 53.0p) reflecting the Board's confidence in the Group's prospects.

Strategic progress

· Andrew Shepherd appointed as new CEO, bringing unrivalled experience and knowledge of the industry from his 27-year financial services career, including 19 years at Brooks Macdonald

· Successfully completed integration of two high-quality acquisitions, Cornelian Asset Managers and Lloyds Banking Group's Channel Islands funds and wealth management business, which have both delivered above the targeted earnings accretion, underlining the Group's acquisition capabilities

· Rapid growth of Brooks Macdonald Investment Solutions proposition, with strong pipeline for FY22

· Near 50% increase in FUM for specialised Bespoke Portfolio Service products - Responsible Investment Service ("RIS"), Court of Protection, Decumulation, AIM Portfolio Service - underlining ongoing strong demand as the Group continued to innovate for clients and advisers

· Private Clients proposition launched post period end to build an integrated wealth management service with specialist advice from internal IFA team, designed to ensure direct clients get the best possible service, operating alongside core outsourced investment offering to third party IFAs

· Material progress on the Group's digital transformation - partnered with SS&C, the global wealth management technology and operations company, to deliver best-in-class client and intermediary experience and service levels. Initial deliveries of funds business processes and digital onboarding successful. Expecting SS&C to complete the current phase, which is the transition of all client- and intermediary-facing processes on to their platform, by the end of this calendar year.

Outlook

· Fundamental opportunity remains strong, driven by demographic and policy trends as well as increasing adviser demand for outsourced investment management, where the Group aims to be the partner of choice

· Well positioned to continue to deliver on ambitious growth strategy with a strong pipeline and net flows expected to improve further over FY22, looking to the future with confidence.

Andrew Shepherd, CEO designate of Brooks Macdonald, commented:

"I am pleased to report that, in a period dominated by the pandemic, we have not only again delivered strong financial performance, but we have also made further progress against our strategic ambitions. FUM reached record levels, we increased our profit margin and delivered record revenue and underlying profit - at the same time as successfully integrating two acquisitions to increase the Group's scale, service offerings, and capabilities. And all in our 30th anniversary year!

"We continued to deliver a high-quality service to clients and made great progress in our ongoing ambitions to transform client and intermediary service levels through technology and innovation. None of this would have been possible without the steadfast commitment and hard work of our people who have done an exceptional job during the most unprecedented circumstances.

"I am excited to lead the firm at a time of great opportunity for Brooks Macdonald, based on our vision as the leading investment manager for intermediaries. Our strategy is working, grounded in our purpose of realising ambitions and securing futures. We are in a strong position, primed to deliver on our ambitious growth aspirations."

Key financial results

Underlying results1

Statutory results

Dividends

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 for the Group. 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 presentation for analysts and investors at 9:30am today via webcast and conference call. For details please contact FTI Consulting on +44 (0) 07976 870961 or brooksmacdonald@fticonsulting.com

Presentation slides will be available from 7:00 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:

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 £16.5 billion as at 30 June 2021.

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 thirteen offices across the UK and the Channel Islands including London, Cheltenham, East Anglia, Exeter, Hampshire, Leamington Spa, Leeds, Manchester, Tunbridge Wells, Scotland, Wales, Jersey and Guernsey.

LEI: 213800WRDF8LB8MIEX37

www.brooksmacdonald.com / @BrooksMacdonald

Chairman's statement

Brooks Macdonald has had a strong year, setting records for FUM and revenue.

Introduction

I am pleased to report that Brooks Macdonald has had a strong year, setting records for FUM and revenue. The Group has also delivered further improvement in underlying profit and underlying profit margin in line with our medium-term commitments. The closing FUM figure of £16.5 billion was delivered through strong investment performance and the completion of our acquisition of Lloyds Banking Group's Channel Islands wealth management and funds business ("Lloyds Channel Islands"), partially offset by net outflows over the year. Although net flows for the full year were negative, they improved each quarter and we were pleased to return to positive net flows in Q4 and for H2 overall.

Our Centralised Investment Process continues to deliver strong performance, underpinning our mission to protect and enhance our clients' wealth. Overall investment performance of 15.8% for the financial year to June was well ahead of the MSCI PIMFA Private Investor Balanced Index which was up 12.9%.

In May, I was delighted to announce the appointment of Andrew Shepherd as our new Group CEO, subject to regulatory approval, following the resignation of Caroline Connellan. Andrew's unrivalled knowledge of the industry and commitment to the Group made him uniquely qualified to build on the significant momentum in the business and he has certainly hit the ground running since his appointment.

I would also like to reiterate my thanks to Caroline for her leadership of Brooks Macdonald over a four-year period, where she has been central to the transformation of the business, leaving it in a position of strength and primed for further growth.

Andrew has a strong focus on people and culture and, as we emerge from the pandemic and associated restrictions, he will continue to prioritise the wellbeing and safety of our people, while ensuring that the Group supports its intermediaries and clients.

Performance overview

Brooks Macdonald continues to grow strongly, driven by our strategy of focusing on intermediaries, for whom we aim to be partner of choice. Underlying profit before tax was £30.6 million, up 33.0% on the year (FY20: £23.0 million), and underlying diluted earnings per share ("EPS") was up 25.4% to 155.1p (FY20: 123.7p).

Statutory profit before tax rose 151.0% to £25.1 million (FY20: £10.0 million), driven mainly by a gain related to the Lloyds Channel Islands acquisition. Statutory diluted EPS rose 189.8% to 124.9p (FY20: 43.1p).

Dividend

The Board has recommended a final dividend of 40.0p (FY20: 32.0p) which, subject to approval by shareholders, will result in total dividends for the year of 63.0p (FY20: 53.0p). This represents an increase of 25.0% in the final dividend and 18.9% in the total dividend on the previous year and underlines the Board's confidence in the prospects for the Group, and our commitment to a progressive dividend policy. The final dividend will be paid on 5 November 2021 to shareholders on the register at the close of business on 24 September 2021.

Board changes

There have been several changes to the Board during the financial year and in the post-close period. As mentioned in last year's Annual Report and Accounts, Dagmar Kershaw and Robert Burgess joined the Board with effect from 1 July 2020 and 1 August 2020 respectively. Following her resignation as CEO, Caroline Connellan formally stepped down from the Board with effect from 27 May 2021. Post-close, our new CEO designate, Andrew Shepherd, and the Group Chief Operating Officer, Lynsey Cross, were appointed to the Board with effect from 13 July 2021.

Looking ahead

The macroeconomic outlook in the short term remains tightly linked to progress in moving beyond the pandemic and its impact on the economy, markets and client sentiment. The fundamental opportunity for Brooks Macdonald remains strong, driven by demographic and policy trends as well as increasing adviser demand for outsourced investment management, where we aim to be the partner of choice. The Group has a strong balance sheet, supportive shareholders and an ambitious growth agenda. We look to the future with confidence.

Alan Carruthers

Chairman

15 September 2021

CEO's review

Another year when Brooks Macdonald delivered strong financial performance.

Introduction

Having taken over as CEO of Brooks Macdonald in May, I am delighted to present my first report covering another year when we delivered strong financial performance, despite pandemic-related restrictions persisting throughout the year. Under the leadership of my predecessor, Caroline Connellan, the business has emerged stronger from a period of change followed by the rigours of lockdown. I am excited to take over a business primed for growth with exceptional opportunities and I am grateful to Caroline for the work she has done in her four years as CEO. While this was a turbulent time for both the economy and wider society, with the impact of Brexit and the pandemic, the Group has been able to trade largely as normal, deliver robust financial results and support our clients and intermediaries.

Nonetheless, it has been a challenging year in many ways and I would like to thank several groups of people without whom this performance would not have been possible. Our first priority is our clients and I am pleased that we have been able to continue to protect and enhance their wealth with strong investment performance and high levels of service, and I thank them for their confidence in our business and our people. Likewise, I thank the intermediaries we work with for their continuing support, which is critical to our continued success. However, most of all, I want to thank all the people who work for Brooks Macdonald. Their hard work and commitment to our clients and intermediaries has been unwavering despite the challenging context, and I am enormously grateful to them.

Delivering our strategy

Brooks Macdonald has been through a period of change, building the foundations for our future success. Our strategy is clear, founded on the three value drivers of organic growth, service and operational excellence, and selective high-quality acquisitions.

Our vision for Brooks Macdonald is as the leading investment manager for intermediaries and we are working with our intermediary network - present and future - to ensure we understand what they need from us. We continue to look to deliver further improvements in returns, delivering consistently top quartile underlying profit margins, through building on the sustainable and scalable business model we are putting in place. We are making substantial progress, ready to capitalise on the growth opportunities we see ahead.

A core element of our strategy, alongside our robust Centralised Investment Process and our compelling investment proposition, is to transform our intermediary experience and client service levels to be best-in-class. Our digital experience for intermediaries and clients - complementing our face-to-face relationships - will be market-leading, including automated onboarding, full intermediary and client portal functionality, and bespoke reporting. We are partnering with SS&C Technologies ("SS&C"), the leading wealth management technology and services company, to deliver this transformation. We expect SS&C to complete the current phase of the transformation, transition of all client- and intermediary-facing processes on to their platform, by the end of this calendar year.

Financial performance

Brooks Macdonald had another year of strong financial performance in FY21, delivering on our medium-term commitment to improve profit margins with underlying profit margin up 4.7 points to 25.9%. We also delivered record revenue and underlying profit levels of £118.2 million and £30.6 million respectively.

Our year-end closing FUM also increased sharply to £16.5 billion, up 20.3% on the FY20 figure of £13.7 billion. The biggest contributor was strong investment performance, delivering £2.2 billion of growth, supported by £0.9 billion from the acquisition of the Lloyds Channel Islands business (which completed in November 2020), partially offset by £0.3 billion of net outflows over the year. Net flows improved every quarter over the year, with positive flows of £0.1 billion in H2 overall, and we have a strong pipeline going into FY22.

Investment performance and market conditions

Our investment performance through FY21 was strong at 15.8%, well ahead of the 12.9% recorded by the MSCI PIMFA Private Investor Balanced Index. We were also ahead of the ARC benchmark for all our risk profiles over the year, as well as, over the last 5 and 10 years.

Investment markets in FY21 were complicated by the significant sector rotation at the start of calendar 2021, as cyclical and value sectors recovered after the growth and defensive dominance of 2020. Despite the challenging conditions, we navigated this market well, outperforming in the first half of the financial year and bringing more balance to client portfolios in the second half.

Looking ahead, we expect equities to continue to outperform bonds due to the strong relative valuation preference for equity markets. We also expect higher inflation levels in 2021 to encourage investors still in cash to deploy these funds into risk assets to seek an above inflation return. This scenario would support our overweight equity portfolio positioning, as well as, improving flows into asset management in general.

Review of business performance

Robin Eggar, our Head of UK Investment Management ("UKIM"), and his team have continued to serve clients and intermediaries across the UK, providing outstanding levels of service. We have seen a steady improvement in flows throughout the year, with particularly strong performance from Brooks Macdonald Investment Solutions, Platform Managed Portfolio Service ("PMPS"), and our specialist Bespoke Portfolio Service ("BPS") offerings. Investment Solutions is a more business-to-business offering, where we work with an adviser firm to provide a tailored investment proposition, in either model portfolio or fund format, to meet the needs of their clients. This has been highly successful in the past year with several material deals agreed. PMPS is the platform version of our traditional custody Managed Portfolio Service ("MPS") and we have continued to increase the number of platforms where it is available, now up to 20 of the most popular platforms, and this has helped drive strong growth in the year.

In our flagship BPS product, we have 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. The success of these more specialised offerings underlines the importance of our focus on client needs.

The Funds business has experienced net outflows in each quarter, particularly in our Defensive Capital Fund ("DCF") which has been affected by a downturn in sentiment in the Investment Association's Targeted Absolute Return sector. DCF did have strong investment performance for the year at 14.4% for the main institutional share class, well ahead of the sector. For Funds overall, the quarterly trend showed declining outflows so we are optimistic for FY22.

We have integrated our Financial Planning business with our existing UKIM direct client activities, which were boosted by the Cornelian acquisition, into a new Private Clients arm within UKIM designed to ensure our direct clients receive the best possible service.

We have continued to take action to position the business for future success. As examples, during the year we opened offices in Exeter and Cheltenham, replacing our office in Taunton, and moved premises in Edinburgh, Manchester, Leeds and Jersey, to improve facilities for clients and staff, and to access a larger group of intermediaries and greater pools of wealth.

In International, Richard Hughes took over from me as CEO International when I took the Group role, and I am delighted to leave the business in such capable hands, having worked closely with him as my deputy for the past two years. We continued to improve International's commercial performance, with the underlying profit margin before tax up six points, now just short of 25% and materially closing the gap to UKIM. International was reinforced by the completion in November of the acquisition of the Lloyds Channel Islands business and we are delighted with the quality of people we brought in, all allowing us to accelerate the margin improvement. We will also shortly be opening an Isle of Man office, subject to regulatory approval. Over the year, solid investment performance was largely outweighed by net outflows, driven in particular by a number of larger, low margin mandates, with overall FUM growth in International being mainly driven by the Lloyds addition.

Client need and demand for the benefits provided by the combination of high-quality financial planning and investment management remain strong, driven by underlying demographics and increasing policy onus on the individual to save for retirement. We continue to see a strong opportunity both to build relationships with more intermediaries and to extend our relationships with our current intermediaries, as well as, building our new Private Clients unit.

People

People and culture are high priorities for me and I am pleased to report that we have continued to invest in our people throughout the year, supporting the talent we have in the business, as well as, bringing in new, high-quality hires. I am particularly pleased that we have been able to promote two more of our most talented internal leaders to the Executive Committee: Richard Hughes, who replaced me in International, and Edward Park, who took over as Chief Investment Officer last October when co-founder Richard Spencer decided to step down from the role. Richard Spencer's decision was made all the easier by having a strong deputy in place to take up the reins, and Richard remains very much a presence in the business, looking after his clients and acting as senior adviser to the Investment Committee.

We communicate frequently with our people and also gather their feedback through town halls, more informal sessions and Group-wide employee engagement surveys. We continue to see strong engagement metrics as we emerge from lockdown and we continue to explore ways to improve Brooks Macdonald's proposition to our people.

Outlook

I am hugely excited by our ambitious vision for the Group as the leading investment manager for intermediaries. We will build on our success to date:

• Driving organic growth, both through intermediaries and among private clients, with strong investment performance;

• Ensuring service and operational excellence, particularly through our partnership with SS&C to transform the intermediary experience and client service levels; and

• Seeking selective high-quality acquisitions.

We will also continue to strive to deliver strong financial performance with improving returns, targeting consistent top quartile profit margins.

The fundamental potential for Brooks Macdonald remains strong. The disruption caused by COVID-19 has reinforced the importance of high-quality financial planning and investment management and we are well positioned to help clients and intermediaries realise their ambitions and secure their futures.

I would like to finish by reiterating my thanks to the intermediaries we work with and our clients for their continuing support, as well as - most importantly - to our people. I am delighted to have been invited to take on the role of CEO for many reasons but, above all else, for the opportunity to lead these people at a time of great excitement and opportunity for the Group.

Andrew ShepherdCEO designate

15 September 2021

Our strategy

Brooks Macdonald has emerged a stronger business after a period of change, building the foundations for our future success, followed by the rigours of lockdown. Our strategy is clear and we are making substantial progress, ready to capitalise on the growth opportunities we see ahead.

Looking forward

Our vision for Brooks Macdonald is as the leading investment manager for intermediaries, both in the UK and internationally. Our strategy also includes a strong and growing Private Clients business providing financial planning and investment management - an integrated wealth management offering.

Our Purpose

Realising ambitions and securing futures

Our Vision

To be the leading investment manager for intermediaries

Our Mission

To protect and enhance our clients' wealth through the provision of investment management and advice underpinned by excellent client service

Our strategy

1. Market-leading organic growth

Best-in-class adviser experience and excellent client service, rigorous Centralised Investment Process, compelling investment proposition

2. Service and operational excellence

Easy to do business with, digital enhancement, margin growth through efficiency and scalability resilience

3. Agile, high-quality M&A

Strict criteria, delivery of benefits

Committed to top quartile underlying profit margin over the medium-term

Value drivers

Our strategy is based on the three value drivers of strong organic growth, service and operational excellence, and selective high-quality acquisitions. We will deliver further improvements in returns, committing to top quartile margins over the medium term, by building on the sustainable and scalable business model we are putting in place.

Organic growth

• Maintain and enhance our Centralised Investment Process, delivering consistent robust investment returns for clients

• Continue to add to our compelling investment proposition in specialised bespoke portfolios, model portfolios and fund/unitised solutions, and in business-to-business solutions for advisers, all supported by a high-impact strategy for how we take these products and services to market

• Deliver market-leading adviser experience and client service levels, through our partnership with SS&C, the world-class wealth management technology and service company

Service and operational excellence

• Continue high levels of cost discipline, freeing up investment into service differentiators

• Benefit from efficiencies of new technology and services partnership

Selective high-quality acquisitions

• Continue to observe our published criteria for acquisition targets - high-quality businesses that are a good strategic and cultural fit and who bring compelling economics

• Leverage the scalability of the digital solutions we are putting in place

This is all underpinned by our investment in people and culture with the objective of attracting, engaging and retaining the best talent in the industry.

Delivering our strategy

We announced our new strategy in our annual results presentation last year, since then we have made material progress on all three value drivers.

Financial review

In FY21, the Group reported strong strategic and financial progress, delivering record underlying profit and margin, returning to positive organic net flows and successfully integrated the Lloyds Channel Islands business.

Review of results for the year

The Group delivered a strong set of results for FY21 as we entered the next phase of our strategy announced in September 2020. Despite the year under review still being characterised by periods of national lockdown, economic uncertainly and market volatility arising from the COVID-19 pandemic, the Group continued to operate resiliently and emerged as a stronger business. The acquisition of the Lloyds Channel Islands business was completed at the end of November 2020 with the business and our new colleagues successfully integrated within our International division, now led by Richard Hughes. We have also seen growing momentum in our organic business, particularly within our discretionary specialised products and Investment Solutions offering. In addition, our disciplined management of the Group's financial resources and focus on operational efficiency contributed to a record underlying profit and underlying profit margin, which increased from 21.2% to 25.9%.

The table below shows the Group's financial performance for the year ended 30 June 2021 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 performance, and the statutory results. A breakdown of the underlying adjustments is shown further below in the Financial review.

Group financial results summary

Revenue

The Group's total revenue for FY21 increased by 8.8% to £118.2 million (FY20: £108.6 million). This was due to higher average FUM levels driven by strong investment performance, particularly in H2, and the contribution from the two recent acquisitions. The Cornelian business contributed an additional £6.5 million compared to the prior year, given completion part way through FY20, and the Lloyds Channel Islands business boosted revenue by £5.3 million during the latter seven months of the financial year. FUM-related revenue overall increased by 10.1%, whilst non-FUM-related revenue dropped by 10.4% to £6.0 million (FY20: £6.7 million). The rise in fee income during the year, was offset by a reduction in interest turn of £4.3 million or 72.9% driven by the fall in the Bank of England base rate. The reduction in non-FUM-related revenue was principally due to a decline in other income including the termination of the third-party administration business at the start of the year, as the focus is directed on the core offering.

Revenue, yields and average FUM

1. Average FUM for Lloyds Channel Islands time weighted to seven months for the purposes of the yield calculation.

The yield on BPS fees for UKIM decreased marginally by 0.5bps to 67.3bps (FY20: 67.8bps) driven by the attrition seen in H1 and phasing of inflows in H2. The BPS non-fee income yield also declined, primarily due to the decrease in interest turn revenue noted above, resulting in a yield of 1.6bps compared to 5.5bps reported for FY20.

MPS recorded a decline in fee yield of 6.7bps to 40.1bps compared to the prior year. This was principally driven by a change in mix with Platform MPS growing more rapidly than custody MPS. The Platform MPS service includes our BM Investment Solutions, business-to-business offering that generates a relatively lower yield. Moreover, as announced to the market on 7 January 2021, the standard fee rate for MPS fees has reduced in view of the removal of the application of VAT to this service.

The Funds fee yields rose by 2.9bps to 55.3bps in FY21 due to a change in mix reflecting the outflows seen during the period in the Defensive Capital Fund and other BM funds relative to the higher yielding Cornelian Risk Managed Funds range.

International fee-income yields were up marginally by 0.2bps to 54.4bps whilst non-fee income yield declined by 7.2bps driven by a decrease in interest and FX income during the period. The acquired Lloyds Channel Islands assets generated a yield of 98.1bps based on time weighted FUM for seven months of the year.

Underlying costs

Total underlying costs have increased by 2.3% to £87.6 million (FY20: £85.6 million) mainly due to the incremental costs arising from the two recent acquisitions of £4.2 million and higher variable staff costs.

Staff costs

Total staff costs increased by 5.1% to £53.2 million. Fixed staff costs increased marginally by 0.5% from £39.8 million to £40.0 million. The incremental cost from the two acquired businesses amounted to £1.7 million whilst the Group's core operations recorded a net decrease of £1.5 million in the year. This comprised additional payroll costs of £2.0 million from net new hires, primarily within the front office areas, and inflationary pay rises, offset by savings of £1.5 million arising from the transfer of a number of roles from the Investment Services and Technology Services departments to SS&C during the year under the partnership arrangement, and reductions in temporary staff costs and recruitment fees of £2.0 million.

Variable staff costs increased by 22.2% to £13.2 million in FY21. Of this, £0.7 million was attributable to the two acquired businesses. The higher bonus pool accrual for the year reflects the Group's resilient performance against a challenging macroeconomic background and our focus on retaining key talent.

Non-staff costs

Non-staff costs amounted to £34.4 million representing a decrease of 1.7% on the prior year. Excluding the additional acquired costs of £1.8 million, non-staff costs for the core business fell by £2.4 million or 7.1%. The bulk of this cost reduction was seen within Change costs, down £2.4 million, as the Group completed business remediation in FY20 and is now focused on growth and ongoing client and adviser focused technology enhancements. Property and office costs decreased by £1.0 million, partly driven by the saving achieved from the Group moving to a single office in London in March 2020 and travel and entertainment spend was down £0.9 million as a result of reduced travel and client facing activities caused by the COVID-19 pandemic. These reductions were offset by an increase in operational costs as part of the transformation of our operating platform, in partnership with SS&C, amounting to £1.5 million and legal and professional fees of £0.4 million.

Combined, the above gave rise to an underlying profit before tax of £30.6 million, representing an increase of 33.0% on the previous year and resulting in a profit margin of 25.9% up 4.7 points on last year (FY20: 21.2%).

On a statutory basis, the profit before tax more than doubled on the prior year to £25.1 million (FY20: £10.0 million) partly due to a £5.0 million gain recognised on the Lloyds Channel Islands acquisition. The other one-off underlying adjustments for the period are broadly similar in quantum to the prior year, however, the amortisation of client-relationship intangible assets has increased from £2.9 million to £4.9 million due to the recognition of intangible assets arising on the Cornelian and Lloyds Channel Islands acquisitions. A breakdown of the underling adjustments, together with an explanation of each, is included further below in the Financial review. The statutory profit margin before tax is of 21.2% compared to 9.2% reported in FY20.

FUM movement in the year

1. Closing value of the acquired Lloyds Channel Islands FUM at the completion date, 30 November 2020.

2. Capital-only index.

During FY21, FUM increased by £2.8 billion or 20.3%. This reflects the assets acquired from Lloyds Channel Islands in November 2020 of £0.9 billion and positive investment performance of £2.2 billion, partly offset by organic net outflows of £0.3 billion. The net outflows were predominantly seen in the first half of the financial year, which was impacted by the macroeconomic uncertainty and market volatility caused by the COVID-19 pandemic. The Group returned to positive net flows in H2 with growing momentum seen in the last quarter driven by its strong client and intermediary relationships.

Overall investment performance for the year to June was 15.8%, well ahead of the MSCI PIMFA Private Investor Balanced Index which rose by 12.9% over the same period.

Closing FUM by service and segment

The table below shows the closing FUM broken down by segment and by our key services within UKIM at 30 June 2021 and the comparative period.

Within UKIM, the BPS core offering made good progress closing the year at £9.5 billion. We continue to see good growth 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 client needs.

Within MPS, we continue to see good momentum on Platform MPS and particularly in Brooks Macdonald Investment Solutions, our business-to-business offering, with several material deals agreed during the year.

The Funds business has experienced net outflows during the year, particularly in our Defensive Capital Fund which has been affected by a downturn in sentiment in the Absolute Return sector. However, outflows have slowed down during H2.

In addition to the solid investment performance, the FUM growth in International during the year was principally driven by the acquisition of the Lloyds Channel Islands business. This was partly off-set by net outflows in the core business, driven in particular by a number of larger, low margin mandates. With the acquired business, now fully integrated, International is best positioned to continue to grow and attract new business.

Segmental analysis

As previously announced in January 2021, the Financial Planning division was integrated with the UK Investment Management business in a move to ensure the Group is best placed to deliver quality service to both private clients and intermediaries. Accordingly, going forward, the Group has two distinct business segments; UKIM and International. The results of Cornelian since acquisition are included in the UKIM segment, whilst the results of the Lloyds Channel Islands business since acquisition have been included in the International segment.

The tables below provide a breakdown of the annual performance broken down by these segments. Comparative figures have been presented on the same basis to ensure a like-for-like comparison.

Both business segments delivered an improvement in performance during the year with increases registered across revenues, contribution, underlying profit and underlying profit margin.

UKIM reported a 4.8% increase in revenue, driven by a full year contribution of the Cornelian business and an improvement in flows seen during the year, particularly within the specialist BPS products, Platform MPS and Brooks Macdonald Investment Solutions offerings. The increase in revenue, combined with disciplined cost management, resulted in a 21.3% rise in underlying profit and an improvement in underlying profit margin of 3.9 points.

International reported an increase in revenues of 35.8% driven primarily by the acquisition of the Lloyds Channel business adding £0.9 billion in FUM and £5.3 million in revenues during the year since November 2020. The division's profits almost doubled, and its underlying profit margin was up by six percentage points on the prior year.

Reconciliation between underlying and statutory profits

Underlying profit before tax is considered by the Board to be an accurate reflection of the Group's performance when compared to the statutory results, as this excludes income and expense categories which are deemed of a non-recurring nature or a non-cash operating item. Reporting at an underlying basis is also considered appropriate for external analyst coverage and peer group benchmarking. A reconciliation between underlying and statutory profit before tax for the year ended 30 June 2021 with comparatives is shown in the table below:

Acquisition related costs (£2.3 million credit)

i. Gain arising on acquisition (£5.0 million credit)A gain on purchase was recognised in respect of the Lloyds Channel Islands acquisition as the net identifiable assets acquired were greater than the total purchase consideration paid. Refer to Note 6 of the Notes to the preliminary announcement further below for details on the acquisition accounting.

ii. FY20 - Deal structuring and legal costs (£2.8 million charge)These represent costs incurred in relation to the acquisition of Cornelian Asset Managers Group Limited announced on 22 November 2019 and the acquisition of the Lloyds Channel Islands business announced on 24 June 2020. The costs incurred included corporate finance services, legal fees and due diligence fees.

iii. Integration and staff retention costs (£2.7 million charge)These comprise the costs incurred in integrating the Cornelian business (acquisition completed on 28 February 2020) and the Lloyds Channel Islands business (acquisition completed on 30 November 2020). They also include payments made to key employees who were retained by the Group for a short period of time to assist with the integration of the businesses.

The above costs are being excluded from the Group's underlying performance as they were one-off in nature.

Amortisation of client relationship contracts and contracts acquired with fund managers (£4.9 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 5 and 20 years. The charge for the year includes the newly acquired investment management contracts arising on the Lloyds Channel Islands transaction. This amortisation charge has been excluded from the underlying profit since it is a significant non-cash item. Refer to Note 9 to the Notes to the preliminary announcement further below for more details.

Client relationship contracts impairment (£1.5 million charge)

Client relationship contracts are reviewed annually for impairment. In view of accelerated withdrawals from the previously acquired business, DPZ Limited, seen during the year, the estimated useful economic life of the intangible assets associated with this business is reduced. Accordingly, an impairment charge of £1.5 million has been recognised in the year. Refer to Note 9 to the Notes to the preliminary announcement further below for more details.

Dual running operating platform costs (£1.0 million charge)

As announced in October 2020, the Group has entered into a partnership agreement with SS&C to transform our adviser and client service including the onboarding process and digital experience, as well enhancing our operating platform. As part of the transition process, during FY21, the Group incurred incremental costs in running two operating platforms concurrently. The dual running costs have been excluded from underlying profit in view of their non-recurring nature.

Changes in fair value and finance cost of deferred consideration (£0.4 million charge)

This comprises the fair value measurement arising on deferred consideration payments from acquisitions carried out by the Group, together with their associated net finance costs where applicable. The increase is due to the recognition of deferred consideration on the Cornelian and Lloyds Channel Islands acquisitions.

FY20 - Goodwill impairment (£4.5 million charge)

Goodwill is reviewed annually for impairment based on the carrying value of the asset compared to its expected recoverable amount. The impairment charge recognised in the prior year related to the Levitas transaction. In 2019, the Group entered into a new five-year partnership with the distributor of the Levitas fund that carried a lower fund sponsorship fee, the aim of this reduction was to enhance FUM flows and deepen the relationship. Unfortunately, for reasons beyond our control, the anticipated inflows were not forthcoming and we reassessed the carrying value of this intangible asset. As a result, the associated goodwill carrying value was no longer supported and triggered an impairment charge in the prior year.

FY20 - Head office relocation costs (£1.2 million charge)

The Group's previous London offices based in Welbeck Street and Bevis Marks were relocated to a single site at 21 Lombard Street in the City of London. As a result of the move, dual running costs were incurred on the three locations until the office leases for Bevis Marks and Welbeck Street came to an end in March 2020. The dual running costs and other costs associated with the move have been excluded from underlying profit in view of their one-off nature.

Taxation

The Group's total tax charge for the year of £5.5 million is up by 52.8% on the prior year. This is in part attributable to higher statutory profits, and a higher proportion of disallowable expenses added back for tax purposes, such as those arising on amortisation of intangible assets and share-based payments, compared to deductible tax allowances. The increase is also attributable to the deferred tax debit recognised as a result of remeasuring our deferred tax assets and liabilities for the substantively enacted corporation tax rate to 25% from 1 April 2023. Details on taxation are provided in Note 5 of the Notes to the preliminary announcement further below.

Earnings per share

The Group's basic statutory earnings per share for the year ended 30 June 2021 was 125.3p (FY20: 43.2p). On an underlying basis, diluted earnings per share was of 155.1p representing an increase of 25.4% on the prior year (FY20: 123.7p) largely driven by the contribution from the two acquired businesses. Details on the basic and diluted earnings per share are provided in Note 7 of the Notes to the preliminary announcement further below.

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 40.0p per share (FY20: 32.0p). Taking into account the interim dividend of 23.0p per share (FY20: 21.0p), this results in a total dividend for the year of 63.0p per share (FY20: 53.0p), an overall increase of 10p or 18.9%. Refer to Note 8 to the Notes to the preliminary announcement further below for more details. The recommended dividend is subject to shareholders' approval, which will be sought at the Company's Annual General Meeting on 28 October 2021.

Financial position and regulatory capital

The Group's financial position is strong with net assets increasing by 8.5% to £134.0 million at 30 June 2021 (FY20: £123.5 million) and tangible net assets (net assets excluding intangibles) up to £44.1 million (FY20: £39.7 million). As at 30 June 2021, the Group had regulatory capital resources of £52.6 million (FY20: £46.6 million). The own funds calculation takes into account the respective years' profit after tax as these are deemed to be verified at the date of publication of the annual results. The Group continues to be well capitalised with a total capital ratio of 21.6% over the Pillar I risk exposure requirement (FY20: 20.7%).

Brooks Macdonald Asset Management Limited, the Group's main operating subsidiary, is an IFPRU EUR125k 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 Assessment Process ("ICAAP") and Adjusted Net Liquid Asset ("ANLA") assessments, which include performing a range of stress tests and scenario analyses 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 FY20 ICAAP review was conducted for the year ended 30 June 2020 and signed off by the Board in December 2020. Regulatory capital forecasts are performed monthly and take into account expected dividends and intangible asset acquisitions and disposals, as well as, budgeted and forecast trading results. The Group's Pillar III disclosures are published annually on the Group's website (www.brooksmacdonald.com) and provide further details about the Group's regulatory capital resources and requirements. 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 £54.9 million (FY20: £50.2 million). During the year, the Group financed the Lloyds Channel Islands acquisition resulting in a net cash outflow of £5.3m from own funds. The Group had no borrowings at 30 June 2021 (FY20: £nil).

During the year ended 30 June 2021, the Group incurred capital expenditure of £3.7 million. This comprised technology-related development of £3.1 million, property-related costs of £0.4 million and IT and office equipment of £0.2 million. The technology-related spend was incurred in connection with the partnership arrangement with SS&C to enhance our operating platform and transform the Group's adviser and client service. The capital expenditure incurred during the year includes legal fees in relation to the master agreement, planning and scoping the implementation programme and software costs to re-platform. These will be amortised over a ten-year period from the point the new platform goes live in FY22.

Financial outlook

The economic uncertainty and market disruption caused by the COVID-19 pandemic has reinforced the importance of high-quality financial planning and investment management. The past year has proven the resilience of the Group's business model and gives us a high degree of confidence in our ability to deliver for shareholders, advisers and clients. The continued growth in our core business, combined with the successful integration of the Cornelian and the Lloyds Channel Islands businesses, together with the enhancements we are putting in place to our operating platform, position the Group well for further success. As we implement the next phase of our strategy, we remain focused on positive momentum in organic growth, delivery of a scalable operating platform and progression in operating margin.

Ben ThorpeChief Financial Officer

15 September 2021

Risks

Taking a dynamic approach to risk management to accelerate digital transformation and positive client outcomes

Over the past year, the Group has continued in its commitment to promote a positive compliance and risk culture across the organisation. Furthermore, it has sustained its focus on embedding and enhancing the risk management framework, through its focus on harm, third parties and resilience. The Group has also continued its drive towards efficient, data-driven and evidenced-based risk management, which has facilitated the transition to an agile and dynamic approach to identifying, assessing, managing and monitoring risks. Not only has this proven valuable with the acquisition of Cornelian and the Lloyds Channel Islands acquisition, but also during the COVID-19 pandemic and the concurrent change management initiatives, including the new partnership with SS&C. Overall, the Group remains well capitalised and liquid with significant buffers above all regulatory requirements.

How we manage risk

The Group Risk Management Framework ("RMF")

Risk management starts with oversight through an appropriate governance structure using a board and committee structure, with individual and collective roles and delegated authorities and a set of core policies to provide guidance to staff.

Effective risk management relies on insight through robust and timely management information. We manage our risks by learning lessons from past events, such as, errors, breaches, near misses and complaints, by conducting point-in-time risk assessments in the present and attempting to predict what the future risk landscape might look like through our suite of key indicators.

The risk management methodology within the Group's risk management framework consists of the following six interlinked steps:

Risk identification. This takes place through regular business monitoring and periodic reviews, including risk mapping exercises and the risks arising from change or new products and services.

Risk appetite. Once we have identified risks, we set an appetite for each material risk. This defines the amount of risk that the Board is prepared to accept in order to deliver its business objectives. Risk appetite reflects culture, strategic goals and the existing operating and control environment.

Risk analysis. Having set the risk appetite, we can assess the impact and probability of each material risk against the agreed risk appetite. This can include the quantification of capital risk as part of the Internal Capital Adequacy Assessment Process ("ICAAP").

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 either: to accept, avoid or transfer part or all of those risks which are outside our risk appetite; or to reconsider the risk appetite.

Reporting. Ongoing reporting of risks to senior management provides insight to inform decision-making and allocation of resources to achieve business objectives.

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 will 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 will help 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 following three dimensions.

Client outcome

• We will put client interests at the heart of everything we do to ensure appropriate client outcomes.

Control environment

• We will, at all times, operate within our risk appetite, operational risk parameters and regulatory framework, ensuring a robust control and oversight environment.

Financial performance and resources

• We will optimise profitability and use resources efficiently to drive financial performance.

• We will, at all times, maintain adequate capital and liquid assets to meet financial and funding obligations as theyfall due.

• We will invest in the development and wellbeing of our employees.

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

Business level risks

Emerging risks

Viability statement

In accordance with the UK Corporate Governance Code, the Board has assessed the Group's viability over a five-year period from FY22 through to FY26. The decision to do so over this period is aligned with the Group's strategy, its budgeting and forecasting process and the scenarios set out in the Internal Capital Adequacy Assessment Process ("ICAAP").

The Board has carried out a robust assessment of the principal risks facing the Group along with the stress tests and scenarios that would threaten the sustainability of its business model, future performance, solvency or liquidity. This assessment is based on the Group's Medium-Term Plan ("MTP"), the ICAAP and an evaluation of the Group's emerging and principal risks, as set out in the Risks section of this Strategic report and outlined in the Risk and Compliance Committee report.

In assessing the future viability of the overall business, the Board has considered the current and future strategy, as well as any significant business restructuring and legacy issues. The Board has also considered the business environment of the Group and the potential threats to its business model arising from regulatory, demographic, political and technological changes. Moreover, the Board's assessment considered the widespread economic impact arising from the outbreak of the COVID-19 pandemic 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 maintaining 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 FY22 to FY26 was reviewed, challenged and approved by the Board in June 2021.

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 ICAAP, 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 42.5% and 19.0% 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.

 Management identified a number of mitigating actions that could be implemented in the event of such severe stresses. These include a reduction in staff variable pay and Group dividends as well as a reduction in discretionary expenditure (T&E, marketing and similar) and a recruitment freeze or headcount reduction. Over the longer term, 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. 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. The implementation of the above actions depends on the nature of the specific stress events and the time frames over which they occur.

The Group's business continuity planning enabled it to react effectively to the COVID-19 crisis and move seamlessly to remote working during the various lockdown periods with a strong focus on staff well-being and maintaining high-quality service to clients and intermediaries. The Group was also able to transition to a hybrid operating model as Government restrictions eased.

The COVID-19 outbreak last year caused economic uncertainty and market volatility and whilst the markets have since recovered, the pandemic is still present and its full scale and duration are still not known. However, taking into consideration the assessment of the above factors, including the results of the latest ICAAP, the Group's risk management framework and the mitigating actions that can be put in place, together with the Group's successful navigation of the pandemic thus far, 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.

Consolidated statement of comprehensive income

For the year ended 30 June 2021

Consolidated statement of financial position

As at 30 June 2021

1 See Note 2b for details regarding the reclassification of current deferred consideration and current provisions as at 30 June 2020.

The Consolidated financial statements were approved by the Board of Directors and authorised for issue on 15 September 2021, and signed on their behalf by:

Andrew Shepherd Ben ThorpeCEO Chief Financial Officer

Company registration number: 4402058

Consolidated statement of changes in equity

For the year ended 30 June 2021

Consolidated statement of cash flows

For the year ended 30 June 2021

1 See Note 13 for details regarding changes to the prior year classification of cash flows from operating activities and cash flows from investing activities.

Notes to the preliminary announcement

For the year ended 30 June 2021

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, 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.

2. Principal accounting policies

a. Basis of preparation

The Group's Consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the EU, and IFRS Interpretations Committee ("IFRS IC") interpretations, as adopted by the Companies Act 2006 applicable to companies reporting under IFRS. The Financial statements have been prepared on the historical cost basis, except for the revaluation of financial assets at fair value through other comprehensive income, financial assets and financial liabilities at fair value through profit or loss and deferred consideration such that they are measured at their fair value.

At the time of approving the Financial statements, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Financial statements.

b. 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 2020, except as explained below.

New accounting standards, amendments and interpretations adopted in the year

In the year ended 30 June 2021, the Group did not adopt any new standards or amendments issued by the IASB or interpretations by the IFRS IC that have had a material impact on the Consolidated financial statements.

As a result of the UK leaving the European Union on 31 January 2021, the Group's Consolidated financial statements for the year ended 30 June 2021 have been prepared under international accounting standards in conformity with the Companies Act 2006. This has not had any impact on the recognition, measurement or disclosure in these Consolidated financial statements.

Other new standards, amendments and interpretations listed in the table below were newly adopted by the Group but have not had a material impact on the amounts reported in these Financial statements. They may, however, impact the accounting for future transactions and arrangements.

Comparative year reclassification

Current deferred consideration has been recognised on the face of the Consolidated statement of financial position in the current year. In previous periods, current deferred consideration was recognised within current provisions. The comparative information has therefore been reclassified by moving £1,691,000 from current provisions to current deferred consideration at 30 June 2020 to be consistent with the current period.

c. Critical accounting estimates and judgements

The preparation of financial information requires the use of assumptions, estimates and judgements about future conditions. Use of currently available information and application of judgement are inherent in the formation of estimates. Actual results in the future may differ from those reported. In this regard, the Directors believe that the accounting policies where important estimations are used relate to the measurement of intangible assets, deferred consideration, the estimation of the fair value of share-based payments and client compensation provisions.

There have been no critical judgements required in applying the Group's accounting policies in this period, but there have been the use of important estimations detailed separately below.

The underlying assumptions made are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised only if the revision affects both current and future periods.

Further information about key assumptions and sources of estimation uncertainty is set out below.

Intangible assets

The Group has acquired client relationships and the associated investment management contracts as part of business combinations, through separate purchase or with newly employed teams of fund managers, as described in Note 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. Contracts acquired with fund managers and acquired client relationship contracts are amortised on a straight-line basis over their estimated useful lives, ranging from 5 to 20 years.

Goodwill recognised as part of a business combination is reviewed annually for impairment, or when a change in circumstances indicates that it might be impaired. The recoverable amounts of cash-generating units ("CGU") are determined by value in use calculations, which require the use of estimates to derive the projected future cash flows attributable to each unit. Details of the more significant assumptions are given in Note 9.

In assessing the value of client relationships and the associated investment management 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. 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.

Deferred consideration

As described in Note 11, the Group has a deferred consideration balance in respect of the acquisition of Cornelian Asset Managers Group Limited in February 2020, and the Lloyds Channel Island acquisition in November 2020. Deferred consideration is recognised at its fair value, being an estimate of the amount that will ultimately be payable in future periods. For Cornelian, the deferred consideration has been calculated allowing for estimated growth in the acquired funds and estimated cost savings, discounted by the estimated interest rate. For the Lloyds Channel Islands acquisition, the deferred consideration has been calculated based on client attrition, discounted by the estimated interest rate. If the estimated discount rate used in the deferred consideration calculations increased by 2%, the Group's estimated deferred consideration at 30 June 2021 would decrease by £73,000.

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. 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 vesting assumptions would decrease the charge in the Consolidated statement of comprehensive income for the year by £801,000.

Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event, where it is probable that it will result in an outflow of economic benefits and can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation.

Where the outflow is not probable or cannot be reliably measured, the potential obligation is disclosed as a contingent liability in the Financial statements.

Insurance recoveries relating to legal fees are recognised when, and only when, it is virtually certain that reimbursement will be received if the corresponding obligation is settled. Reimbursements received are disclosed net in the Consolidated statement of comprehensive income and gross in the Consolidated statement of financial position.

The Group may receive complaints from clients in relation to the services provided. Complaints are assessed on a case-by-case basis and provisions are made where it is judged to be likely that compensation will be paid.

As described in Note 12, the Group has recognised a provision in respect of exceptional costs of resolving legacy matters. The Group has a present obligation relating to a number of discretionary portfolios formerly managed by Spearpoint, which was acquired by the Group in 2012 and the provision has been reliably measured at the value of expenditures expected to be required to settle the obligation.

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 Executive Committee, 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.

From 1 January 2021, the Group integrated its previous Financial Planning segment into its UK Investment Management segment. As a result, the prior year information has been restated to reflect the new segments of UK Investment Management, International and Group and other consolidation adjustments, consistent with the current year.

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 offers a similar range of investment management and financial planning 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 Lloyds Channel Islands acquisition (Note 6), the activities since acquisition have been included in the International 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.

1 The prior year has been restated to reflect the integration of the previous Financial Planning into UK Investment Management as described earlier in this Note.

4. Revenue

Portfolio management fees and financial services commission

Portfolio management and other advisory and custody services are billed in arrears but are recognised over the period the service is provided. Fees are calculated on the basis of a percentage of the value of the portfolio over the period. Dealing charges are levied at the time a deal is placed for a client. Fees are only recognised when the fee amount can be estimated reliably and it is probable that the fee will be received. Amounts are shown net of rebates paid to significant investors.

Performance fees are earned from some clients when contractually agreed performance levels are exceeded within specified performance measurement periods. They are only recognised, at the end of these performance periods, when a reliable estimate of the fee can be made and is virtually certain that it will be received.

Fund management fees

Where amounts due are conditional on the successful completion of fundraising for investment vehicles, revenue is recognised where, in the opinion of the Directors, there is reasonable certainty that sufficient funds have been raised to enable the successful operation of that investment vehicle. Amounts due on an annual basis for the management of third-party investment vehicles are recognised on a time apportioned basis. Fees are calculated on the basis of a percentage of the value of the portfolio over the period.

Advisory fees

Advisory fees are charged to clients using an hourly rate or by a fixed fee arrangement and are recognised over the period the service is provided. Commissions receivable and payable are accounted for in the period in which they are earned.

a. Geographic analysis

The Group's operations are located in the United Kingdom and the Channel Islands. The following table presents external revenue analysed by the geographical location of the Group entity providing the service.

b. Major clients

The Group is not reliant on any one client or group of connected clients for the generation of revenues.

5. Taxation

The tax charge on profit for the year was as follows:

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:

The deferred tax credits for the year arise from:

On 1 April 2017, the standard rate of Corporation Tax in the UK was reduced to 19%. As a result, the effective rate of Corporation Tax applied to the taxable profit for the year ended 30 June 2021 is 19% (FY20: 19%).

It was outlined in the Finance Bill 2021 (11 March 2021) and substantively enacted having received royal ascent on the 10 June 2021 that the UK corporation tax rate would increase to 25% from 1 April 2023 and remain at 19% until that date. As a result, the relevant deferred tax balances have been remeasured. 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.

6. Business combinations

2021

On 30 November 2020, the Group acquired Lloyds Bank International's Channel Islands wealth management and funds business ("Lloyds Channel Islands acquisition"). The acquisition brings a high-quality discretionary client base, adds a multi-asset and fixed income fund range to the Group's offering, and increases distribution reach through well-established intermediary relationships. The acquisition consisted of the entire share capital of Lloyds Investment Fund Managers Limited (renamed Brooks Macdonald International Fund Managers Limited following acquisition), and a portfolio of discretionary management private clients.

The acquisition has been accounted for using the acquisition method and details of the purchase consideration are as follows:

i. Following completion, an adjustment was made to the business consideration in relation to the revenue that has transferred to the Group. The adjustment reflects the fall in revenue acquired by the Group compared to the expected revenue that would transfer to the Group in the Sale and Purchase Agreement ("SPA").

ii. Per the SPA, the completion balance sheet was to contain net assets of £2,500,000 to be acquired by the Group. Any excess or deficit of the actual net assets acquired would be paid or recouped by the Group. The actual net assets acquired by the Group were £2,595,000 resulting in the Group paying additional consideration of £95,000.

iii. The total cash deferred contingent consideration is £334,000, payable in two years following completion, based on the client attrition of the funds under management acquired over the two-year period.

The fair value of the deferred consideration liability has been remeasured at 30 June 2021, and remains unchanged, which assumes the deferred consideration criteria will be met resulting in the full £334,000 to be paid in two years. The client attrition has been forecast using a similar outflows pattern to that experienced by the rest of the Group. The client attrition is dependent on several unpredictable variables including client sentiment and market conditions.

Client relationship intangible assets of £9,080,000 and £3,147,000 were recognised on acquisition in respect of the expected cash inflows and economic benefit from the discretionary and fund management contracts acquired respectively. A gain on bargain purchase of £4,284,000 was recognised on acquisition in relation to the discretionary business and a gain on bargain purchase of £682,000 was recognised on acquisition in relation to the funds business as the net identifiable assets acquired were greater than the total purchase consideration, which has been recognised in the Consolidated statement of comprehensive income. The fair value of the assets acquired are the gross contractual amounts and all are considered to be fully recoverable. The fair value of the identifiable assets and liabilities acquired, at the date of acquisition, are detailed in (a) below.

Directly attributable acquisition costs of £19,000 (FY20: £606,000) and integration costs of £2,225,000 (FY20: £nil) were incurred in the acquisition and integration of the Lloyds Channel Islands acquisition, which have been charged to administrative costs in the Consolidated statement of comprehensive income but excluded from underlying profit. During H1 of the year ended 30 June 2021, the Group incurred the remaining integration costs of £456,000 (FY20: £1,426,000) in relation to the Cornelian acquisition that completed during the prior year, see further details below in this Note.

a. Net assets acquired through business combination

The trade and other receivables were recognised at their fair value, being the gross contractual amounts, deemed fully recoverable.

b. Impact on reported results from date of acquisition

In the period from acquisition to 30 June 2021, the Lloyds Channel Islands acquisition earned revenue of £5,315,000 and statutory profit before tax of £3,005,000.

c. Net cash outflow resulting from business combinations

2020

On 28 February 2020, the Group acquired the entire share capital of Cornelian Asset Managers Group Limited ("Cornelian"), an Edinburgh-based independent, well-established wealth manager with national distribution reach. Cornelian Asset Managers Group Limited had two wholly owned subsidiaries: Cornelian Asset Managers Limited and Cornelian Asset Managers Nominees Limited, which also formed part of the Group on acquisition.

The acquisition has been accounted for using the acquisition method and details of the purchase consideration are as follows:

i. The Group issued 1,690,141 ordinary shares in November 2019 to fund the cash consideration, based on the share price on 21 November 2020 of £18.25 discounted by £0.50 to £17.75 per share.

ii. The Group issued 453,172 ordinary shares to the previous shareholders of Cornelian Asset Managers Group Limited at a price of £19.86 per share, based on the share price at 28 February 2020.

iii. The total cash deferred contingent consideration is £8,000,000, payable in up to three instalments in March 2021, October 2021 and March 2022, based on the future value of the funds under management acquired, and cost savings and synergies achieved on integrating the business (Note 11).

The fair value of the deferred consideration liability has been remeasured at 30 June 2020, and remains unchanged, which assumes the deferred consideration criteria will be met resulting in the full £8,000,000 to be paid at the various payment dates. The growth of funds under management ("FUM") has been forecast using a similar growth pattern to that experienced by the rest of the Group. The future value of the FUM is dependent on several unpredictable variables including client retention and market movements. The cost savings and synergies are expected to be yielded in full, which has been forecast based on the Group's five-year Medium-Term Plan ("MTP").

Client relationship intangible assets of £25,623,000 were recognised on acquisition in respect of the expected cash inflows and economic benefit from the discretionary and fund-management contracts acquired. Goodwill of £16,111,000 was recognised on acquisition in respect of the expected growth in the funds under management and associated cash inflows. The fair value of the assets acquired are the gross contractual amounts and all are considered to be fully recoverable. The fair value of the identifiable assets and liabilities acquired, at the date of acquisition, are detailed in (d) below.

Directly attributable acquisition costs of £2,229,000 and integration costs, including staff retention costs of £1,426,000, were incurred in the acquisition and integration of Cornelian, which have been charged to administrative costs in the Consolidated statement of comprehensive income but excluded from underlying profit.

d. Net assets acquired through business combination

The trade and other receivables were recognised at their fair value, being the gross contractual amounts.

e. Impact on reported results from date of acquisition

In the period from acquisition to 30 June 2020, Cornelian earned revenue of £3,048,000 and statutory profit before tax of £452,000. Had Cornelian been consolidated from 1 July 2019, the Consolidated statement of comprehensive income would show revenue of £7,328,000 and statutory profit before tax of £1,685,000.

f. Net cash outflow resulting from business combinations

7. Earnings per share

The Directors believe that underlying earnings per share provide a truer reflection of the Group's performance in the year. Underlying earnings per share, which is an alternative performance measure, are calculated based on 'underlying earnings', which is also an alternative performance measure and is defined as earnings before finance costs of deferred consideration, finance income of contingent consideration, changes in the fair value of deferred and contingent consideration, gain on bargain purchase, goodwill impairment, client relationship contracts impairment, amortisation of client relationships and contracts acquired with fund managers, acquisition related costs, dual running costs of operating platform and head office relocation costs. The tax effect of these adjustments has also been considered.

Earnings for the year used to calculate earnings per share as reported in these Consolidated financial statements were as follows:

Basic earnings per share is calculated by dividing earnings attributable to ordinary shareholders by the weighted average number of shares in issue throughout the year. Diluted earnings per share represents the basic earnings per share adjusted for the effect of dilutive potential shares issuable on exercise of employee share options under the Group's share-based payment schemes, weighted for the relevant period.

The weighted average number of shares in issue during the year was as follows:

Earnings per share for the year attributable to equity holders of the Company were:

8. Dividends

Amounts recognised as distributions to equity holders of the Company in the year were as follows:

The interim dividend of 23.0p (FY20: 21.0p) per share was paid on 16 April 2021.

A final dividend for the year ended 30 June 2021 of 40.0p (FY20: 32.0p) per share was declared by the Board of Directors on 15 September 2021 and is subject to approval by the shareholders at the Company's Annual General Meeting. It will be paid on 5 November 2021 to shareholders who are on the register at the close of business on 24 September 2021. In accordance with IAS 10 'Events After the Reporting Period', the aggregate amount of the proposed dividend expected to be paid out of retained earnings is not recognised as a liability in these Financial statements.

9. Intangible assets