Brooks Macdonald Regulatory News (BRK)

12 September 2019

BROOKS MACDONALD GROUP PLC

Final Results for the year ended 30 June 2019

Record level of funds under management, increased underlying profit margin, strategy on track

Brooks Macdonald Group plc ("Brooks Macdonald" or "the Group"), the AIM listed wealth management group, today announces its audited results for the year ended 30 June 2019.

Underlying Results1

Statutory Results

Dividends

1 The underlying figures represent the results for the Group's continuing activities excluding certain adjusting items as listed on page 11. A reconciliation between the Group's statutory and underlying profit before tax is also included on page 11. Comparative results have been restated to exclude discontinued operations and present a more appropriate year-on-year comparison

2 Lower improvement in underlying and statutory earnings per share due to FY18 tax credit not recurring in FY19

Caroline Connellan, Chief Executive of Brooks Macdonald, commented:

"I am delighted that we continue to make good progress on our strategy, with underlying profit margin increased to 19.6% reflecting our commitment to improve margins in the medium-term. The actions we announced in January have started to streamline the business, deliver efficiencies and make Brooks Macdonald easier to do business with. Looking ahead, we expect to deliver improved margins in the medium term by investing in our talent and capabilities to drive growth while continuing to exercise tight cost discipline.

"Our net new business of 5.4% in UK Investment Management is again one of the best in the sector, reflecting the strength of our client and adviser relationships. This, coupled with robust investment performance, drove FUM to a new record of £13.2 billion at the year end.

"We remain cautious about the short-term outlook given the backdrop of political and macroeconomic uncertainty and its continuing effect on client sentiment. Nonetheless, the fundamental opportunity for Brooks Macdonald remains strong, and we are confident in our positioning and our continued ability to drive sustainable value-enhancing growth over the medium term."

Financial highlights

·; Underlying profit margin up from 18.8% to 19.6%, reflecting the Group's commitment to increase profit margins in the medium term

·; Positive organic growth (net new business) of 3.3% (£0.4 billion) and robust investment performance contributing to an increase of 6.8% (£0.8 billion) in FUM to a new record £13.2 billion, reflecting strength of offering and relationships:

o Net flows of 5.4% in UK Investment Management ("UKIM"), remaining among the best in the sector

- BPS and MPS grew strongly, up 7.2% and 14.6% respectively

- Double-digit growth in Funds, up 10.9% to £1.6 billion FUM (FY18: £1.5 billion) with the Defensive Capital Fund now up to £0.7 billion based on net flows of 17.7%

o International FUM down 5.2% to £1.6 billion (FY18 FUM: £1.7 billion) due to client attrition following the previously disclosed loss of a client-facing team in summer 2018

·; Total dividend increased by 8.5% to 51.0p (FY18: 47.0p) reflecting the Board's continued confidence in the strength of the underlying business and commitment to a progressive dividend policy

Strategic progress

·; Strategy execution on track:

o Successful completion of first phase of our strategy, strengthening the foundations of the business and focusing on our core offering through sale of the Employee Benefits business to Brunsdon and exiting Investment Management Agreement for the Ground Rent Income Fund

o Now in the second phase, investing in our talent at all levels to drive growth, while enhancing our proposition to clients and advisers with a pipeline of innovative products and services (revamped Court of Protection product and new Responsible Investment Service and Decumulation offerings)

·; Decisive action taken in January 2019 to streamline the organisation and eliminate duplication, driving efficiency and effectiveness in support of our commitment to continue to improve profit margins in the medium term, underpinned by ongoing strong cost discipline against a backdrop of weaker market conditions

·; New CEO of International appointed in April to reinvigorate the business and drive medium-term growth and margin improvement

·; Resolution of Channel Islands legacy issues progressing, with shareholders of Dublin-based fund voting unanimously to approve our goodwill offer. Working with all stakeholders, including relevant regulators

Analysis of discretionary fund flows over the year

An analyst meeting will be held at 9.15 for 9.30am on Thursday, 12 September at the offices of MHP Communications, 6 Agar Street, London, WC2N 4HN.

Please contact Ailsa Prestige on

020 3128 8147 or e-mail brooks@mhpc.com for further details.

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 £13.2 billion as at 30 June 2019.

Brooks Macdonald offers a range of investment management services to private high net worth individuals, pension funds, institutions, and trusts. The Group also provides financial planning as well as offshore investment management and acts as fund manager to a regulated OEIC providing a range of risk-managed multi-asset funds and a specialised absolute return fund.

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

www.brooksmacdonald.com / @BrooksMacdonald

LEI: 213800WRDF8LB8MIEX37

Chairman's statement

Introduction

This is my first Chairman's statement since taking over from Christopher Knight in March and, before discussing the Group's continuing progress, I would like to reiterate my thanks to Chris for his service to Brooks Macdonald. He completed 17 years on the Board and 14 as Chairman, all conducted with diligence and distinction, and handed over to me a company with an increasingly robust risk management and operating platform, a continuing track record of growth and a strong management team.

FY19 was Caroline Connellan's second full year as Chief Executive, and Caroline and her team have continued to drive the business forward. We have maintained strong commercial performance, increasing underlying profit margin and growing funds under management, despite a backdrop of macroeconomic and political uncertainty, weaker client sentiment and lower flows. As part of our drive to deliver improvement in profit margin in the medium term, we announced in January measures to streamline our processes and eliminate duplication, driving efficiency and effectiveness through the business. These changes helped us deliver continued profit growth despite the more difficult economic conditions.

Shifting focus in our strategy

We have continued to implement the strategy defined by Caroline and her team in 2017. During the year, we completed the first phase of reinforcing the foundations of the business and took decisive action to improve margins. We also moved into the second phase where we are increasing value by enhancing what we do and how we do it, across three main areas.

First, we have maintained focus on our clients and advisers, including most recently starting to roll out our new adviser and client portal, giving advisers and clients a significant upgrade in prompt and rapid access to data on their investments. Second, as discussed above, we have driven greater efficiency and effectiveness, capturing economies of scale and making us easier to deal with. Third, we have continued to invest in our talent and capability, with new development programmes at leadership and management levels.

Our culture is to support our clients throughout their investment journey, giving access to information and making it easy for them to do business with us, all in support of our mission to protect and enhance their wealth and helping them to realise their ambitions. Our culture is underpinned by our guiding principles:

• We do the right thing

• We are connected

• We care

• We make a difference

Our Centralised Investment Process continues to drive robust performance, even in difficult market conditions, underpinning our mission to protect and enhance our clients' wealth. Our investment performance continues to be ahead of the Asset Risk Consultants ("ARC") Private Client Index benchmarks across all risk mandates over three and five years.

Performance overview

The Group continues to make strong progress - our funds under management increased during the financial year from £12.3 billion to £13.2 billion, an increase of 6.8%. Our rate of organic net flows (3.3% at Group level, 5.4% for UK Investment Management) continues to be among the highest in the sector, although below levels of recent years, reflecting weak client sentiment, driven by elevated macroeconomic and political uncertainty.

Our revenue has grown by 7.3% in line with funds under management ("FUM") , bringing the full year total to £107.3 million. The increase we have reported in underlying profit before tax, at 11.8%, is well ahead of both FUM and revenue growth, resulting in a figure of £21.0 million, up from last year's £18.8 million. Underlying profit margin has risen from 18.8% to 19.6%, reflecting our commitment to increased margins in the medium term, and underlying earnings per share have risen 2.2% from 123.2 pence to 125.9 pence.

Statutory profit from continuing operations rose 22.4% to £8.2 million (FY18: £6.7 million). Statutory earnings per share rose 5.8% to 41.7 pence (FY18: 39.4 pence).

Dividend

The Board has recommended a final dividend of 32.0 pence (FY18: 30.0 pence) which, subject to approval by shareholders, will result in total dividends for the year of 51.0 pence (FY18: 47.0 pence). This represents an increase of 8.5% on the previous year and reaffirms the Board's confidence in the strength of the business and our commitment to a progressive dividend policy. The final dividend will be paid on 8 November 2019 to shareholders on the register at the close of business on 27 September 2019.

Board changes

There have been several changes to the Board during the last year. Last August, Ben Thorpe arrived as Group Finance Director from Brewin Dolphin and last September, John Linwood, a former Chief Technology Officer for the BBC, joined the business as a Non-Executive Director. In November, we announced that Nicholas Holmes had decided to leave the business after 22 years to pursue other opportunities. Nicholas left with the firm's best wishes for his future career. Finally, on 1 April, when Andrew Shepherd took over as CEO of our International business in the Channel Islands, he stepped down from the Group Board to focus on realising the potential of International.

Governance and regulatory

We have continued to keep abreast of regulatory change. The two major activities in the year were the completion of work related to the Second Markets in Financial Instruments Directive ("MiFID II") with the implementation of the Costs and Charges regulations, and preparation for the Senior Managers and Certification Regime ("SMCR") which goes live on 9 December. We also continued to embed the earlier elements of MiFID II and the General Data Protection Regulation ("GDPR").

Looking ahead

Looking ahead, the macroeconomic and political outlook is highly uncertain, even in the very short term. The UK's future relationship with the EU remains unclear and broader global risks, including the potential for trade wars, are also affecting client sentiment. While we remain cautious in our external outlook, it is also true that the fundamental opportunity remains strong, driven by longer-term demographic and regulatory trends. The Group is well positioned with a strong balance sheet and supportive shareholders. Given the fundamental opportunity and the Group's growing organisational capabilities, we expect to deliver both enhanced profit margins in the medium term and strong future growth.

Alan Carruthers

Chairman

11 September 2019

Chief Executive's review

Introduction

FY19 was my second full year as CEO of Brooks Macdonald and I am delighted to report that we have continued to deliver on our strategic priorities, as well as achieving good financial performance. In particular, I am pleased with the increase in our underlying profit margin, up 0.8 points to 19.6% (FY18: 18.8%), reflecting our commitment to improve profit margins in the medium term. We have also continued to deliver net new business levels among the best in the sector which, alongside robust investment performance, drove funds under management to a new record of £13.2 billion (FY18: £12.3 billion).

During the year, we completed the first phase of our strategy, reinforcing the foundations of the business and taking immediate action to improve margins, and moved into a second phase of enhancing what we do and how we do it to deliver further growth and increased value. This second phase includes initiatives to maintain and deepen our focus on clients and advisers, to achieve further improvements in organisational efficiency and effectiveness, and to invest in our talent and capabilities.

We are now well advanced in the second phase, taking the company to a position from which we expect to deliver consistently improved returns from a growing, sustainable and scalable business model.

Going forward, we will continue to invest in the business, delivering market-leading products and services for our clients and advisers, ensuring that our risk management and operating framework keeps pace with the changing technological and regulatory environment, and investing in and developing our talent.

I would like to take this opportunity to thank everyone who has contributed to another successful year for Brooks Macdonald. Without the commitment and hard work of our people, it would not have been possible for the company to make the progress it has, and I am grateful to them all.

Financial performance

We are pleased to have maintained positive FUM growth with Group FUM growing 6.8% over the year, one of the highest growth rates in the sector.

The increase in FUM was delivered evenly between net new business and investment performance, with £409 million of net flows, and £430 million of investment performance or 3.5% of performance, compared to 2.2% for the MSCI WMA Private Investor Balanced Index.

Revenue grew in line with FUM to £107.3 million (FY18: £99.9 million), up 7.3% on prior year.

Delivering our strategy

Our strategy and our progress in implementing it are dealt with in the Strategy section later in the document but I would highlight two key points here. First, in the financial year we completed the first phase of our strategy, where we reinforced the foundations of the business and took immediate actions to improve margins.

We continued to focus on our core offering by selling our Employee Benefits business in December and by exiting our role as investment manager to the Ground Rent Income Fund in May.

In the second phase, we are making good progress in increasing value by enhancing what we do and how we do it, to deliver sustainable, value-enhancing growth.

The second point I wanted to highlight is our improving underlying profit margin, which increased from 18.8% in FY18 to 19.6% this year. As referenced above, we have made improving margins in the medium term a central goal of our strategy and I am especially pleased we have been able to deliver this improvement against a background of weaker client sentiment driven by political and macroeconomic uncertainty.

Investment performance and market conditions

Our investment performance over FY19 was robust, maintaining our position of being ahead of ARC benchmarks for all risk profiles over 3 and 5 years, despite more difficult markets, especially in the first half of the financial year. This has further demonstrated the value of our Centralised Investment Process.

Markets were volatile over the first half of the financial year although the second half saw a broad recovery in risk assets.

Despite a supportive employment and consumer outlook, a weakening of inflationary pressures combined with global growth and trade concerns has encouraged central banks to move to a more accommodative monetary stance.

This has seen a shift in central bank policy globally, from expectations of gradual rate tightening to markets now expecting: (i) a series of rate cuts from the Federal Reserve; (ii) the possibility of renewed quantitative easing from Europe's ECB; and (iii) greater accommodation from other developed and emerging market countries.

We are mindful of the risks to markets, in particular the expected pace and scale of central banks' easing and geopolitical factors such as the ongoing US-China trade impasse or UK political tensions around Brexit. Preparing for such risks, our modest underweight to equity markets and our modest overweight cash positions mean we are well-placed to withstand a down-turn in markets and take advantage of any corrections to increase equity allocations in line with our longer-term preference for equities over bonds.

Review of business performance

UK Investment Management ("UKIM"), our largest and most profitable business, saw the appointment of new Co-Heads in the year - Robin Eggar and John Wallace were promoted to their new roles internally, reflecting the depth of talent in the business.

UKIM delivered net new business flows of 5.4% over the year, a growth rate among the best in the market. UKIM profit margins improved over the year, particularly following the actions we took in January 2019 to drive efficiency and effectiveness through the business in a more difficult external environment.

Our ability to deliver positive net flows stems from the strength of our relationships with advisers and we continue to expand the number of adviser relationships. While the proportion of advisers who outsource any of their investment management activities to a discretionary fund manager has continued to edge up in the past year, driven by both the opportunity for access to investment expertise and the increasing regulatory burden, it is still only 39% and less than a third of these outsource more than half of their client portfolios (source: GlobalData).

Hence, we see a continuing opportunity to go broader, building relationships with more advisers, and deeper, extending our relationships with our current advisers.

Our flagship Bespoke Portfolio Service ("BPS") had a strong year against a more difficult market backdrop with 3.9% net flows and overall growth of 7.2%. In the year, we revamped our Court of Protection offering and introduced two new BPS variants, our Responsible Investment Service and our Decumulation Service. Alongside our continuing innovation, the need for individuals to save for retirement, the impact of pension freedoms, and the growing use of Self-Invested Personal Pensions ("SIPPs") and Individual Savings Accounts ("ISAs") are all helping support our continuing growth.

Our Managed Portfolio Service ("MPS") was the fastest growing element of our discretionary business, particularly MPS sold through third party platforms which grew over 20% in the year, with 16.9% net flows. Our multi-asset funds and third party investment solution funds both had positive years. We continue to expect both our managed portfolio and fund-based solutions to deliver material growth in the future. The more difficult economic conditions attracted clients to our Defensive Capital Fund, which continued to go from strength to strength, up 22.1% (net flows 17.7%) to £663 million at the year end.

I am delighted that Group Deputy CEO Andrew Shepherd took on the role of CEO of International in April. His appointment is central to our efforts to revitalise International as it comes towards the conclusion of its Spearpoint legacy issues and after a difficult year for flows.

In the past year, robust investment performance of 4.4% did not fully offset negative net flows driven by customer attrition following the loss of a client-facing team in summer 2018.

Andrew and his team have now mapped out a clear plan to make International a material contributor to the Group, driving margins up to the levels of UKIM in the medium term, and the initial steps are well under way.

Financial Planning, our in-house Independent Financial Adviser, had a year of transition following the arrival of its new Managing Director, Adrian Keane-Munday, in July 2018. He has restructured the business, emphasising the provision of comprehensive independent financial advice and exceptional client service, as well as introducing a new pricing framework. While it is still early days, Adrian and his team are already seeing a positive client response to their initiatives and we continue to seek new opportunities to support future growth.

People strategy

We continued rolling out our people strategy initiatives across the business. During the year, we made material investment in leadership capability, increasing the diversity of our workforce, and engaging with our people. The initiatives we announced in January to streamline processes and eliminate duplication led to overall headcount reduction, but also created capacity for us to invest in attracting and retaining the best people to the firm, building capability in critical areas.

Also in FY19, we completed the transition in compensation structures resulting from our 2018 compensation and benefits review - all staff now have an appropriate balance between their fixed and variable pay and have a discretionary bonus measured against a balanced scorecard of objectives.

Legacy matters arising from the former Spearpoint business

We announced in July 2017 our decision to deal proactively with certain legacy matters arising from the former Spearpoint business which we acquired in 2012. These matters relate both to a number of discretionary portfolios formerly managed by Spearpoint, now managed by our Jersey office, and to a Dublin-based fund, for which Spearpoint acted as investment manager. While we accept no legal liability in these matters, we have a deep commitment to treating customers fairly and seeking to protect our clients' best interests. We developed a plan to resolve these matters and, accordingly, we made a £6.5 million provision in FY17, and a further £5.5 million provision in FY18.

We issued goodwill offer letters to the discretionary clients in March 2018. The deadline for acceptance of offers has now passed, with 84% of the clients who received a goodwill offer having accepted. A small number of clients have rejected their goodwill offers and some of those clients may take other routes to pursue their claims. No such claims have been received to date.

In parallel, we have been in extensive discussions with the Board of the Dublin-based fund, seeking to deal with the matter proactively. New Directors, who were appointed in November 2018, agreed our goodwill offer of £3.4 million and received unanimous shareholder approval at an Extraordinary General Meeting in April 2019. Shareholders had until 4 September 2019 to claim their share, and the company is now going into voluntary liquidation.

Throughout the discussion, our focus has been on treating customers fairly and seeking to protect the fund's shareholders' best interests.

As at 1 July 2018, £5.8 million of the total £12.0 million provision had been utilised, leaving £6.2 million outstanding. Over the financial year to 30 June 2019, a further £5.5 million was utilised, leaving a balance of £0.7 million. The total expensed provision remains unchanged and we intend to deal with any residual issues in the ordinary course of business.

We continue to be in discussions with all stakeholders, including relevant regulators, as we seek to bring these matters to a conclusion.

Outlook

I am delighted that we have been able to report a year of good performance despite more challenging conditions. I would like to thank the advisers we work with and our clients for their continuing support.

I look forward to continuing to deliver our strategy and build on the success to date. We will continue to maintain our focus on serving our clients and advisers, and to drive for greater efficiency and effectiveness, capturing economies of scale and making Brooks Macdonald easy to do business with. For example, we are starting the roll-out of our new client and adviser portal and recently opened our new office in Leeds.

We remain cautious about the short-term outlook given the backdrop of political and macroeconomic uncertainty and its continuing effect on client sentiment. Nonetheless, the fundamental opportunity for the Group remains strong, and we are confident in our positioning and our continued ability to drive sustainable value-enhancing growth over the medium-term.

Our strong foundations also allow us to start looking at potential high quality acquisitions.

Finally, all that we have achieved over the past year has been made possible by the hard work of our people at all levels and I would like to thank them for all they have done for our clients and the advisers we work with. I look forward to what we can achieve together as we look to take advantage of the opportunities ahead.

Caroline Connellan

Chief Executive

11 September 2019

Finance Director's report

Review and results of the year

Over the course of my first year at Brooks Macdonald, we have taken decisive steps to grow revenue, manage costs and enhance profitability. The efficiency and effectiveness programme announced in January 2019 has delivered slightly ahead of plan, resulting in a material improvement in the Group's underlying profit margin to 19.6%, underpinning our confidence in the Group's medium-term outlook.

The Group's total revenue for FY19 was £107.3 million, up 7.3% from £99.9 million in FY18. The recent trend towards higher quality fee only income has continued during FY19, with circa 75% of BPS flows going into our fee-only products. At a divisional level, BPS, MPS and Funds all recorded an improvement in revenues during the year. Revenues from our International business were relatively flat on the prior year largely due to the previously announced loss of a small client team. Financial Planning has been impacted by a fall in defined benefit transfers following the exceptional levels of business written in FY18, and the sale of the sub scale Employee Benefits business to Brunsdon Employee Benefits Limited.

Underlying costs for the year increased by 6.4% from £81.1 million to £86.3 million. Staff costs including variable pay were flat year-on-year. Average headcount for continuing operations fell by 2.9% during the year and the headcount at the end of the year was of 401 down 14.5% on the prior year. The restructuring charge associated with this reduction of £3.3 million has been excluded from underlying earnings and presented as a one-off item.

Non staff costs including Change spend increased by £4.9 million to £33.7 million primarily driven by higher spend on IT, an increase in amortisation in relation to the Group's successfully completed MiFID II and GDPR programmes and a higher FSCS levy.

The key priority over the year has been reducing the cost growth trajectory and changing the way the organisation thinks about its cost base. In addition to the significant savings achieved during the year in connection with regulatory projects, we have completed a number of initiatives to address other areas, including a review of the Group's property portfolio (resulting in the announced consolidation of the Group's London offices into its new headquarters at 21 Lombard Street in the city), the rollout of a new adviser and client portal and the successful implementation of a new web-based employee expense management system.

Combined, the impact to the Group's underlying profit before tax has been an increase of 11.8% from £18.8 million to £21.0 million, accompanied by a significant improvement in the underlying profit before tax margin from 18.8% to 19.6%. This highlights the strength of the management team, our functional and business capabilities and our ability to deliver.

Group financial results summary

FUM

Amidst the relatively weak market sentiment driven by the global macroeconomic slowdown, trade tensions and political uncertainty in the UK, the Group recorded positive net flows (£0.4 billion) and strong investment performance (£0.4 billion) resulting in a new record discretionary FUM total of £13.2 billion, an increase of 6.8% over the previous year.

Investment performance continues to be robust at 3.5%, beating the benchmark MSCI WMA Private Investor Balanced Index which increased by 2.2% over the same period.

FUM movement in the year

At a divisional level, within UKIM, our onshore business, we have seen decent net flows across the BPS (3.9%), MPS (10.8%) and Funds (7.5%) divisions. These were partially offset by negative net outflows (-9.6%) recorded within our International business, driven principally by the loss of a client-facing team in the prior year.

FUM by segment

Revenue by segment

The Group reports its income across three key operating segments, UK Investment Management, International and Financial Planning, all of which complement each other:

UKIM continues to make up the bulk of the Group's revenues, representing 83.0% of total revenues, driven by BPS, MPS on platforms and the Defensive Capital Fund within our Funds offering. UKIM overall recorded a year-on-year revenue increase of 8.9%, up from £81.8 million to £89.1 million, driven by the continued strength of our client franchise and the increasing quality of the business as the average client size increases and clients continue to move onto fee-only rate cards.

From April 2019, Andrew Shepherd, Group Deputy CEO, took over as CEO of our International business. Whilst International revenues grew marginally to £14.6 million (FY18: £14.2 million), this move highlights our commitment to International and the important role it has to play in the future growth of the Group. Going forward, we will be integrating International more closely into the Group, including improving access to Group functions and resources, and working to maximise cross-referral opportunities across our businesses.

Financial Planning has seen the effects of the industry-wide reduction in defined benefits transfers. The new Head of Financial Planning, Adrian Keane-Munday, has started an operating review of the business and we expect performance to improve markedly over the medium term.

Group underlying profit before tax ("PBT") and margin

Underlying PBT is considered by the Board to be a more accurate reflection of the Group's performance when compared to the statutory results as this excludes income and expense categories which are deemed of a non recurring nature or a non cash operating item. Reporting at an underlying basis is also considered more appropriate for external analyst coverage and peer group benchmarking allowing a more accurate like to like comparison.

Reconciliation between Underlying and statutory profits

A reconciliation between underlying PBT and statutory PBT for FY19 with comparatives shown below:

The statutory figures for FY18 have been restated, where applicable, to adjust for the Group's disposal of the Employee Benefits business in December 2018 and the termination of the investment management agreement with the Ground Rents Income Fund plc in May 2019, so as to ensure a more appropriate like to like comparison. Refer to Note 5.

Goodwill impairment (£4.8 million)

Goodwill is reviewed annually for impairment based on the carrying value of the asset compared to its expected recoverable amount. The impairment charge recognised in the year relates to the Levitas transaction as the Group moves to a new 5-year partnership that has a lower sponsorship fee on which the associated goodwill carrying value is based. Refer to Note 8.

Restructuring charge (£3.3 million)

This relates to the efficiency and effectiveness programme announced in January 2019. The Group identified a range of opportunities to streamline and remove duplication from core processes. The headcount reduction resulted in redundancy costs, payment in lieu of notice, settlement and other restructuring related costs. These have been excluded from underlying earnings in view of their one-off nature.

Client relationship contracts impairment (£2.3 million)

This impairment charge relates to the value of Spearpoint client relationships following the previously disclosed loss of a client facing team. Refer to Note 8.

Amortisation of client relationship contracts and contracts acquired with fund managers (£2.2 million)

These intangible assets are created in the course of acquiring funds under management and are amortised over their useful life, which has been assessed to range between 15 and 20 years. This amortisation charge has been excluded from the underlying profit since it is a significant non-cash item. Refer to Note 8.

Changes in fair value of consideration and related disposals (£0.2 million)

This comprises the fair value remeasurement arising on deferred payments from previous acquisitions and disposals carried out by the Group together with their associated net finance costs and costs of disposals where applicable.

Taxation

The Group's corporation tax charge for FY19 was £2.5 million (FY18: £1.3 million), representing an effective tax rate of 30.5% (FY18: 19.8%). The prior year effective tax rate was lower due to the recognition of a higher Research & Development ("R&D") credit covering the prior two financial years, giving rise to an overall year on year variance of £0.7 million. Moreover, this year's effective tax rate is higher due to the goodwill and intangible assets impairment charge recognised in the Consolidated income statement which are disallowable for corporation tax purposes.

Earnings per share

The Group's basic statutory earnings per share for the year ended 30 June 2019 were 41.7 pence (FY18: 39.4 pence). On an underlying basis, earnings per share increased by 2.2% to 125.9 pence (FY18: 123.2 pence).

Dividend

The Group has a progressive dividend policy growing dividends in line with the Group's underlying earnings. The Board recognises the importance of dividends to shareholders and the benefit of providing sustainable shareholder returns. In determining the level of dividend in any year the Board considers a number of factors such as the level of retained earnings, future cash commitments, statutory profit cover, capital and liquidity requirements and the level of profit retention required to sustain the growth of the Group.

The Group is well positioned to continue funding dividend payments in accordance with its policy. The ability to maintain future dividends will be influenced by the continued assessment of the principal risks identified below.

The Board has proposed a final dividend of 32.0 pence per share (FY18: 30.0 pence). Taking into account the interim dividend of 19.0 pence per share (FY18: 17.0 pence), this results in a total dividend for the year of 51.0 pence per share (FY18: 47.0 pence), an increase of 8.5%. The recommended dividend is subject to shareholder's approval, which will be sought at the Company's Annual General Meeting on 31 October 2019.

Regulatory capital and cash resources

The Group's financial position remains strong with net assets remaining flat at £87.6 million (FY18: £88.0 million) and tangible net assets (net assets excluding intangibles) up to £37.4 million (FY18: £27.4 million). As at 30 June 2019, the Group had regulatory capital resources of £39.0 million (FY18: £30.0 million) after taking into account deductions for current and non-current deferred tax liabilities of £1.6 million (FY18: £2.6 million). The Group continues to be well capitalised with a capital adequacy ratio of 226% over our Pillar I requirement.

Brooks Macdonald Asset Management Limited, the Group's main operating subsidiary, is an IFPRU €125k Limited Licence Firm regulated by the Financial Conduct Authority ("FCA"). In view of this, the Group is classified as a regulated group and subject to the same regime.

The Group monitors a range of capital and liquidity statistics on a daily and monthly basis.

As required under FCA rules, and those of both the Jersey and Guernsey Financial Services Commission, the Group assesses its regulatory capital and liquidity on an ongoing basis through the Internal Capital Adequacy Assessment Process ("ICAAP") and Adjusted Net Liquid Asset ("ANLA") assessments, which include performing a range of stress tests and scenario analysis to determine the appropriate level of regulatory capital and liquidity that the Group needs to hold. Surplus levels of capital and liquidity are forecast, taking into account known outflows and proposed dividends to ensure that the Group maintains sufficient capital and liquidity at all times.

The latest ICAAP review was conducted for the period ended 30 June 2018 and signed off by the Board in January 2019. Regulatory capital forecasts are performed monthly and take into account expected dividends and intangible asset acquisitions and disposals as well as budgeted and forecast trading results.

The Group's Pillar III disclosures are published annually on the Group's website (www.brooksmacdonald.com) and provide further details about the Group's regulatory capital resources and requirements.

Cash flow and capital expenditure

The Group continues to have strong levels of cash generation from continuing operations. Total cash resources at the end of the year were £34.6 million (FY18: £30.9 million). The Group had no borrowings at 30 June 2019 (FY18: £nil).

Cash spend on exceptional items was up to £7.7 million (FY18: £5.8 million) due to further payment of goodwill offers, the settlement of the Dublin OEIC issue and the cost of the restructuring programme. This now means the vast majority of the Spearpoint legacy matters provision of £12.0 million has now been paid out with only £0.7 million remaining.

Capital expenditure was down significantly as we completed our MiFID II and GDPR projects. We also began to manage dilution more actively via market purchase of shares for the Employee Benefit Trust. Tax payments were lower this year due to the receipt of prior year R&D credits.

Financial outlook

In summary, 2019 has seen good progress across the Group with a growth in profitability, an improvement in the underlying profit margin and a more disciplined approach to financial resource management.

The underlying market trends are positive and the fundamental opportunity remains strong. IFAs continue to outsource investment management, driven in part by regulatory and commercial trends and the need for high quality investment management solutions underpinned by a robust centralised investment proposition. However, in the short-term, we see some headwinds on asset flows given the backdrop of political and macroeconomic uncertainty.

We continue to make good progress in resolving legacy matters in our International business which coupled with the new senior leadership team will help drive this important segment of our business forward. There is also an increasing onus on individuals to save for retirement, with pensions freedoms driving a greater need for good quality advice, creating opportunities for our Financial Planning offering.

While cross business collaboration across our core offerings will continue to drive organic growth, going forward there will be additional focus on corporate activity and evaluating accretive, complimentary acquisitions that enhance our existing offerings or provide new capabilities to drive growth.

We will continue to simplify the business, focus on our core offerings across UKIM, International and Financial Planning. Cost discipline in non-staff costs and focus on efficiency will still be a priority but is now business as usual. Where required we will invest to support our growth strategy and resources will be made available to ensure that we continue to win and deliver industry leading net flows.

Ben Thorpe

Finance Director

11 September 2019

Risks

Investing in a robust and practical approach to risk management

Over the past year, the Group delivered the final phase of its risk transformation project and over the coming years will continue to invest in embedding the Group risk management framework. Our approach to risk management combines a top-down strategic assessment of risk and associated risk appetite, with a bottom-up operational identification and reporting process which also looks at the impact of a combination of emerging risks. We have invested in a risk management system which has been implemented across the Group and empowers all staff to manage risks as first-line risk managers. With the implementation of a new centralised incident management process, our staff are able to more easily raise potential issues so that prompt action can be taken to minimise any impact on clients or our wider stakeholders.

How we manage risk

The Group Risk Management Framework ("RMF")

Risk management starts with oversight through an appropriate governance structure through 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 is 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").

Assess controls. We also assess the effectiveness of controls in reducing the probability of a risk occurring or, should it materialise, in mitigating its impact.

Additional actions. Where differences exist between our risk appetite and the current residual risk profile, we take action either: to accept, avoid or transfer part or all of those risks which are outside our risk appetite; or to reconsider the risk appetite.

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

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.

Viability statement

In accordance with the UK Corporate Governance Code, the Board has assessed the Group's viability over a five-year period from FY19 through to FY23. The decision to do so over this period is aligned with the Group's strategy, its budgeting process and the scenarios set out in the Internal Capital Adequacy Assessment Process.

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

In assessing the future viability of the overall business, the Board has considered the current and future strategy as well as any significant business restructuring and legacy issues. The Board has also considered the business environment of the Group and the potential threats to its business model arising from regulatory, demographic, political and technological changes.

The five-year MTP is maintained as part of the Group's annual corporate planning process. The model translates the Group's current and future strategy into a detailed year-one budget, followed by higher level forecasts for years two through to five. The combination of this detailed budgeting, longer term forecasting and various stress tests provides an holistic and transparent view of the forward-looking financial prospects of the Group. The Board reviews and challenges the Group's MTP annually.

The Group undertakes an ICAAP as required by our UK regulator, the Financial Conduct Authority ("FCA"), which documents a range of stress tests, including a reverse stress test. These are all designed to assess the Group's ability to withstand a market-wide stress, a Group-specific stress and a combination of both. The tests documented within the ICAAP are scenarios designed by senior management to assess the Group's exposure to a range of extreme, but plausible, situations, as well as an assessment of the cost to the Group of a wind-down in the event of a non-recoverable shock to the operating model. These scenarios are refreshed at least annually to ensure they remain relevant and continue to be a suitable tool for developing our controls and mitigating actions.

Following consideration and assessment of the above factors, including the results of the latest ICAAP and the risk management controls and procedures in place, the Board has reasonable expectations the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment. Accordingly, the Board continues to adopt the going concern basis in the preparation of these financial statements.

Statement of Directors' responsibilities

The Directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union and have elected to prepare the Parent Company financial statements on the same basis.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing the financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable, relevant and reliable;

• state whether they have been prepared in accordance with applicable IFRSs as adopted by the European Union;

• assess the Group and Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

• use the going concern basis of accounting unless they either intend to liquidate the Group and Parent Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that the financial statements comply with the Companies Act 2006.

The Directors are also responsible for such internal controls as they determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic report, Directors' report, Directors' remuneration report and Corporate governance report that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' responsibility statement

We confirm that to our knowledge:

• the Group and Parent Company financial statements, which have been prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company and the undertakings included in the consolidation taken as a whole; and

• the Strategic Report and financial statements include a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

We consider the Report and accounts taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's position and performance, business model and strategy.

By order of the Board

Caroline Connellan

Chief Executive

11 September 2019

Consolidated statement of comprehensive income

For the year ended 30 June 2019

* Prior periods have been restated to separate the results of discontinued operations, consistent with the presentation in the current period. Refer to Note 5 for details of the results of discontinued operations.

Consolidated statement of financial position

As at 30 June 2019

Approved by the Board of Directors and authorised for issue on 11 September 2019.

Signed on its behalf by:

Caroline Connellan

Chief Executive

Ben Thorpe

Finance Director

Consolidated statement of changes in equity

For the year ended 30 June 2019

Consolidated statement of cash flows

For the year ended 30 June 2019

Notes to the consolidated financial statements

For the year ended 30 June 2019

1. General information

Brooks Macdonald Group plc is the parent company of a group of companies ("the Group"), which offers a range of investment management services to private high net worth individuals, pension funds, institutions and trusts. The Group also provides financial planning as well as offshore investment management and acts as fund manager to a regulated OEIC providing a range of risk-managed multi-asset funds and a specialised absolute return fund.

The Company is a public limited company, incorporated and domiciled in the United Kingdom under the Companies Act 2006 and listed on AIM. The address of its registered office is 72 Welbeck Street, London, W1G 0AY.

2. Principal accounting policies

The general accounting policies applied in the preparation of these financial statements are set out below. These policies have been applied consistently to all years presented, unless otherwise stated.

a. Basis of preparation

The Group's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and IFRS Interpretations Committee ("IFRS IC") interpretations, as adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared on the historical cost basis, except for the revaluation of financial assets at fair value through other comprehensive income, financial assets and financial liabilities at fair value through profit or loss and deferred consideration such that they are measured at their fair value.

During the year, the Group disposed of its Employee Benefits business within the Financial Planning segment and Brooks Macdonald Funds Limited, a subsidiary within the Group, resigned as investment manager of the Ground Rents Income Fund plc ("GRIF"). As a result, the prior year has been restated to separate the results of discontinued operations, consistent with the presentation in the current year. Refer to Note 5 for details of discontinued operations.

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

b. Basis of consolidation

The Group's financial statements are a consolidation of the financial statements of the Company and its subsidiaries. The underlying financial statements of the subsidiaries are prepared for the same reporting year as the Company, using consistent accounting policies. Subsidiaries and structured entities are all entities controlled by the Company, deemed to exist where the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of the subsidiaries are included from the date on which control is transferred to the Group to the date that control ceases.

All intercompany transactions and balances between Group companies are eliminated on consolidation.

c. Changes in accounting policies

The Group's accounting policies that have been applied in preparing these financial statements are consistent with those disclosed in the Annual Report and Accounts for the year ended 30 June 2018, except as explained below.

New accounting standards, amendments and interpretations adopted in the year

In the year ended 30 June 2019, the Group adopted two new standards being IFRS 9 'Financial instruments' and IFRS 15 'Revenue from contracts with customers'. The Group did not adopt any other new standards and amendments issued by the International Accounting Standards Board ("IASB") or interpretations issued by the IFRS IC in the year ending 30 June 2019.

IFRS 9 'Financial instruments'

IFRS 9 governs the accounting treatment for the classification and measurement of financial instruments and the timing and extent of credit provisioning, replacing the previously adopted IAS 39 'Financial instruments: recognition and measurement'. The standard concerns guidance for the classification and measurement of financial assets by introducing a fair value through other comprehensive income category for certain financial assets. It also contains a new impairment model which intends to result in earlier recognition of losses.

Transition

The Group has taken advantage of the exemption per paragraph 5.6.1 of IFRS 9, regarding restated comparative information for prior years with respect to classification, measurement and impairment requirements. Where differences arise in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9, they are to be recognised in retained earnings as at 1 July 2018. Accordingly, the information presented for the year ended 30 June 2018 will not reflect the requirements of IFRS 9 but will be presented in line with IAS 39.

Classification and measurement of financial assets and financial liabilities

IFRS 9 requires the Group to hold its financial assets and liabilities at amortised cost, fair value through profit or loss ("FVPL") or fair value through other comprehensive income ("FVOCI"). The categorisation of assets as 'held to maturity' ("HTM") and 'available for sale' ("AFS") are no longer recognised under IFRS. The classification criteria for designating financial assets between the categories under IFRS 9 require the Group to assess and document the business models under which the assets are actually managed. Consideration needs to be given to management of the asset in terms of if the asset is held for contractual cash flow, if the contractual cash flow represents solely payment of principal and interest and if the asset is held for selling purposes.

The effect of adopting IFRS 9 on the carrying amounts of financial assets at 1 July 2018 has resulted in a change of classification on the Consolidated statement of financial position, however has not impacted the Consolidated statement of comprehensive income or Consolidated statement of cash flows.

The following table summarises the original measurement categories under the previously adopted IAS 39 and the new measurement categories and carrying amount under IFRS 9 for each of the Group's financial assets at 1 July 2018.

The basis of classification for financial liabilities under IFRS 9 remains unchanged from IAS 39. There remains two categories being amortised cost or FVPL. The Group has assessed its financial liabilities at 1 July 2018 and concluded that no change in classification is required. Therefore there has been no impact on the Consolidated statement of financial position, Consolidated statement of comprehensive income or Consolidated statement of cash flows as a result of IFRS 9 in relation to financial liabilities.

Impairment of financial assets

Under IFRS 9, an expected credit loss ("ECL") model is used to measure the impairment of financial assets. Under an ECL model a credit loss provision is recognised once a loss is expected to arise, instead of when it occurs as previously required under IAS 39. The objective of the impairment requirements is to recognise lifetime expected credit losses for all financial instruments, considering all reasonable information, including that which is forward-looking. The Group applies the simplified lifetime expected credit loss model. This requires an assessment of the total amount of credit losses expected over the lifetime of the asset and is performed on an asset by asset basis. As a result, the Group has determined that the application of IFRS 9's impairment requirements has not had a material impact on the financial statements.

IFRS 15 'Revenue from contracts with customers'

IFRS 15 governs the accounting treatment of revenue recognition from contracts with customers which replaces the existing IFRS revenue guidance adopted previously, in particular IAS 18 'Revenue'. IFRS 15 creates a single model for revenue recognition from contracts with customers and aims to provide greater consistency and comparability across industries by linking revenue to the fulfilment of identified performance obligations that are detailed in the customer contract. The core principle underlying the new recognition is that an entity should recognise revenue in a manner that depicts the pattern of transfer of goods and services to customers. It also requires that the incremental cost of obtaining a customer contract should be capitalised if that cost is expected to be recovered.

Transition

The Group has taken advantage of the exemption per Appendix C of IFRS 15 regarding restated comparative information for prior years with respect to revenue recognition. Where differences arise resulting from the adoption of IFRS 15, they are to be recognised in retained earnings as at 1 July 2018. Accordingly, the comparative information presented for the year ended 30 June 2018 will not reflect the requirements of IFRS 15 but will be presented in line with previous revenue recognition from contracts with customers.

Impact of IFRS 15 on financial statements for the year ended 30 June 2019

The Group has reviewed IFRS 15 and its impact on its existing revenue streams, as well as on its policy of capitalising the cost of obtaining customer contracts. As described below, the adoption of IFRS 15 has not had a significant impact on the Group's revenue recognition accounting policy.

Portfolio management fee income and fund management fees

The core portfolio management fee income is contracted with customers and is in relation to the continued management of their portfolio during a defined period. As a result, the performance obligation is ongoing over the contract resulting in no impact on revenue recognition as a result of IFRS 15.

Portfolio management fee income includes income earned on supporting activities and revenues that are part of the overall service provided, and as a result do not present a separate and stated performance obligation. These supporting activities are for one-off services and revenue is recognised once the service has occurred, therefore IFRS 15 has no impact on the supporting activities for portfolio management fee income.

Financial services commission

The revenue is earned as a result of the core services provided in the Financial Planning segment through advisory fees (see below). The revenue is earned as a result of a past service being satisfied resulting in no impact to revenue recognition due to IFRS 15.

Advisory fees

Advisory fees are subject to client agreements to provide financial advice and assistance. Clients are charged based on an agreed rate of funds under advice, invoiced over the period the service is provided. Under IFRS 15 the Group is required to identify distinct performance conditions in order to recognise 'work in progress' relating to unbilled revenue earned by an advisor. The client contracts do not include any distinct performance conditions meaning this work in progress revenue cannot be recognised under IFRS 15. The work in progress balance and movement from year to year is consistently immaterial, and therefore the adoption of IFRS 15 has not had a material impact on advisory fee revenue.

Costs of obtaining or fulfilling a contract

Under IFRS 15 the scope requirements for recognising an asset in relation to costs of obtaining or fulfilling a contract are broader such that costs to obtain any contract with a customer should be capitalised if those costs are incremental and the Group expects to recover them. Amortisation should then be charged on a basis that is consistent with the transfer to the customer of the services to which the capitalised costs relate.

The Group's policy for capitalising contract costs currently recognises the fair value of the future benefits accruing to the Group from the acquired client relationship contracts. The amortisation of client relationships is charged to the Consolidated statement of comprehensive income on a straight-line basis over their estimated useful lives of 15 to 20 years. The Group has assessed the impact of IFRS 15 on these and concluded that the current policies in place are sufficient and therefore will remain unchanged.

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

New accounting standards, amendments and interpretations not yet adopted

A number of new standards, amendments and interpretations, which have not been applied in preparing these financial statements, have been issued and are effective for annual years beginning after 1 July 2018:

† Not yet endorsed by the EU.

The impact of these changes is currently being reviewed and there is no intention to early adopt.

IFRS 16 'Leases'

IFRS 16 is effective for years commencing on or after 1 January 2019. The standard was endorsed by the EU during 2017. Under the previous treatment, operating leases had lease payments charged to the Consolidated statement of comprehensive income over the life of the lease and no recognition on the Consolidated statement of financial position. Finance leases created a lease liability on the statement of financial position using the present value of lease payments and amortised over the life of the lease to the statement of comprehensive income. The change to IFRS 16 removes the classification of leases as either operating or finance leases for lessees and introduces a single, on-balance sheet accounting model, which requires:

• the recognition of a right-of-use asset and corresponding lease liability with respect to all lease arrangements in which the Group is the lessee, except for leases that have a period less than 12 months and low value leases;

• depreciation charge on the right-of-use asset on a straight-line basis over the lease term, with the lease term duration dictated by management's intentions of the lease and underlying asset; and

• a finance cost arising from the implied interest expense unwinding of the discounted lease liability over the lease term using the effective interest rate method.

Transition

The Group has decided not to early adopt this standard and as a lessee, the Group will apply IFRS 16 initially with effect from 1 July 2019, using the modified retrospective approach with optional practical expedients. Therefore the cumulative effect of adopting IFRS 16 will be recognised as an adjustment to the opening Statement of Financial Position at 1 July 2019, with no restatement of comparative information. As a result of using the modified retrospective approach, the Group will apply IFRS 16 to all lease arrangements entered into before 1 July 2019 and identified as leases in accordance with IAS 17.

Lessee accounting

The Group has assessed the impact of adopting the new standard based on its existing lease arrangements at 30 June 2019. The Group's total assets and total liabilities will be increased by the recognition of right-of-use assets and lease liabilities. The right-of-use assets will be depreciated over the lease term and the lease liability will be reduced by lease payments, offset by the implied interest expense, unwinding the liability over the lease term which will be recognised in finance costs in the Consolidated statement of comprehensive income.

Based on the available information at 30 June 2019, IFRS 16 impacts the recognition of the Group's office lease arrangements. The Group estimates that it will recognise lease liabilities of approximately £2,070,000 at 1 July 2019 and right-of-use assets with also an approximate value of £2,070,000. There is an estimated increase of equity by £300,000 due to the impact of accrued lease incentives at 30 June 2019. The impact on the Consolidated statement of comprehensive income will see lease costs accelerated as the implied interest charge is higher in the early years of a lease term as the discount rate unwinds over the life of the discount period.

The total cost and cash outflow of the lease over the lease term is not expected to change. In addition to the above impacts, recognition of lease assets will increase the Group's regulatory capital requirement.

d. Critical accounting estimates and judgements

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

There have been no critical judgements required in applying the Group's accounting policies in this period, apart from those involving estimations which are detailed separately below.

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

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

Intangible assets

The Group has acquired client relationships and the associated investment management contracts as part of business combinations, through separate purchase or with newly employed teams of fund managers (as described in Note 8). In assessing the fair value of these assets the Group has estimated their finite life based on information about the typical length of existing client relationships. Contracts acquired with fund managers and acquired client relationship contracts are amortised on a straight-line basis over their estimated useful lives, ranging from 5 to 20 years.

Goodwill recognised as part of a business combination is reviewed annually for impairment, or when a change in circumstances indicates that it might be impaired. The recoverable amounts of cash generating units are determined by value in use calculations, which require the use of estimates to derive the projected future cash flows attributable to each unit. Details of the more significant assumptions are given in Note 8.

Deferred consideration

The Group has a deferred consideration balance in respect of the acquisition of Levitas Investment Management Services Limited in July 2014. Deferred consideration is recognised at its fair value, being an estimate of the amount that will ultimately be payable in future periods. The outstanding deferred consideration liability at 30 June 2019 relates entirely to the present value of fixed amounts owed to the vendors of Levitas.

Contingent consideration

The Group has a contingent consideration balance in respect of the disposal of Braemar Estates (Residential) Limited in December 2017 and the disposal of the Employee Benefits business in December 2018. Contingent consideration is recognised at its fair value, being an estimate of the amount that will ultimately be receivable in future periods. This has been calculated from forecast revenue of the business disposed, discounted by the estimated interest rate.

Share-based payments

The Group operates various share-based payment schemes in respect of services received from certain employees. Estimating the fair value of these share-based payments requires the Group to apply an appropriate valuation model and determine the inputs to that model. The charge to the Consolidated statement of comprehensive income in respect of share-based payments is calculated using assumptions about the number of eligible employees that will leave the Group and the number of employees that will satisfy the relevant performance conditions. These estimates are reviewed regularly.

Provisions

The Group may receive complaints from clients in relation to the services provided. Complaints are assessed on a case-by-case basis and provisions are made where it is judged to be likely that compensation will be paid. The accounting policy for provisions and contingent liabilities is outlined in Note 10.

As described in Note 10, the Group has recognised a provision in respect of exceptional costs of resolving legacy matters. The Group has a present obligation relating to a number of discretionary portfolios formerly managed by Spearpoint which was acquired by the Group in 2012 and the provision has been reliably measured at the value of expenditures expected to be required to settle the obligation.

e. Exceptional items

Exceptional items are disclosed and described separately in the financial statements where it is necessary to do so to provide further understanding of the underlying financial performance of the Group. These include material items of income or expense that are shown separately due to the significance of their nature and amount.

f. Business combinations

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured at the fair value of the aggregate amount of the consideration transferred at the acquisition date, irrespective of the extent of any minority interest. Acquisition costs are charged to the Consolidated statement of comprehensive income in the year of acquisition.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions at the acquisition date. If the business combination is achieved in stages, the fair value of the Group's previously held equity interest is remeasured at the acquisition date and the difference is credited or charged to the Consolidated statement of comprehensive income. Identifiable assets and liabilities assumed on acquisition are recognised in the Consolidated statement of financial position at their fair value at the date of acquisition.

Any contingent consideration to be paid by the Group to the vendor is recognised at its fair value at the acquisition date, in accordance with IAS 39. Subsequent changes to the fair value of contingent consideration are recognised in accordance with IFRS 9 in the Consolidated statement of comprehensive income.

Goodwill is initially measured at cost, being the excess of the consideration transferred over the acquired company's net identifiable assets and liabilities assumed. If the consideration is lower than the fair value of the net assets acquired, the difference is recognised as a gain on a bargain purchase in the Consolidated statement of comprehensive income.

Impairment

Goodwill and other intangible assets with an indefinite life are tested annually for impairment. For the purposes of impairment testing, goodwill acquired in a business combination is allocated to each of the Group's cash generating units ("CGU") that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquisition are assigned to those units. The carrying amount of each CGU is compared to its recoverable amount, which is determined using a discounted future cash flow model.

Where goodwill forms part of a CGU and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the CGU retained.

g. Revenue

Portfolio management fees and financial services commission

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

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

Advisory fees

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

Fund management fees

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

Interest

Interest receivable is recognised on an accruals basis.

h. Cash and cash equivalents

Cash comprises cash in hand and call deposits held with banks. Cash equivalents comprise short-term, highly liquid investments, with a maturity of less than three months from the date of acquisition.

i. Share-based payments

Equity-settled schemes

The Group engages in equity-settled share-based payment transactions in respect of services received from certain employees. The fair value of the services received is measured by reference to the fair value of the shares or share options on the grant date. This cost is then recognised in the Consolidated statement of comprehensive income over the vesting period, with a corresponding credit to equity.

The fair value of the options granted is determined using option pricing models, which take into account the exercise price of the option, the current share price, the risk free rate of interest, the expected volatility of the Company's share price over the life of the award and other relevant factors.

j. Segmental reporting

The Group determines and presents operating segments based on the information that is provided internally to the Group Board of Directors, which is the Group's chief operating decision-maker.

k. Fiduciary activities

The Group commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. These assets and income arising thereon are excluded from these financial statements, as they are not assets of the Group.

The Group holds money on behalf of some clients in accordance with the client money rules of the Financial Conduct Authority ("FCA"). Such monies and the corresponding liability to clients are not included within the Consolidated statement of financial position as the Group is not beneficially entitled thereto.

l. Property, plant and equipment

All property, plant and equipment is included in the Consolidated statement of financial position at historical cost less accumulated depreciation and impairment. Costs include the original purchase cost of the asset and the costs attributable to bringing the asset into a working condition for its intended use.

Provision is made for depreciation to write off the cost less estimated residual value of each asset, using a straight-line method, over its expected useful life as follows:

The assets' residual values and useful economic lives are reviewed, and adjusted if appropriate, at the end of each reporting period. Gains and losses arising on disposal are determined by comparing the proceeds with the carrying amount. These are included in the Consolidated statement of comprehensive income.

During the year, property, plant and equipment non-current assets were reviewed in terms of useful economic life and classification of assets.

m. Intangible assets

Amortisation of intangible assets is charged to administrative expenses in the Consolidated statement of comprehensive income on a straight-line basis over the estimated useful lives of the assets (4 to 20 years).

Acquired client relationship contracts and contracts acquired with fund managers

Intangible assets are recognised where client relationship contracts are either separately acquired or acquired with investment managers who are employed by the Group. These are initially recognised at cost and are subsequently amortised on a straight-line basis over their estimated useful economic life. Separately acquired client relationship contracts are amortised over 15 to 20 years and those acquired with investment managers over 5 years. Both types of intangible asset are reviewed annually to determine whether there exists an indicator of impairment or an indicator that the assumed useful economic life has changed.

Computer software

Costs incurred on internally developed computer software are initially recognised at cost, and when the software is available for use, the costs are amortised on a straight-line basis over an estimated useful life of four years. Initial research costs and planning prior to a decision to proceed with development of software are recognised in the Consolidated statement of comprehensive income when incurred.

Goodwill

Goodwill arising as part of a business combination is initially measured at cost, being the excess of the fair value of the consideration transferred over the Group's interest in the net fair value of the separately identifiable assets, liabilities and contingent liabilities of the subsidiary at date of acquisition. In accordance with IFRS 3 'Business Combinations', goodwill is not amortised but is reviewed annually for impairment and is therefore stated at cost less any provision for impairment of value. Any impairment is recognised immediately in the Consolidated statement of comprehensive income and is not subsequently reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. On acquisition, any goodwill acquired is allocated to CGUs for the purposes of impairment testing. If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the Consolidated statement of comprehensive income.

n. Financial investments

The Group classifies financial assets in the following categories: fair value through profit or loss; fair value through other comprehensive income; and amortised cost. The classification is determined by management on initial recognition of the financial asset, which depends on the purpose for which it was acquired.

Fair value through profit or loss

Financial instruments are classified as fair value through profit or loss if they are either held for trading or specifically designated in this category on initial recognition. Assets in this category are initially recognised at fair value and subsequently re-measured, with gains or losses arising from changes in fair value being recognised in the Consolidated statement of comprehensive income.

Fair value through other comprehensive income

Financial instruments are classified as fair value through other comprehensive income if the objective of the business model is achieved by both collecting contractual cash flows and selling financial assets and that the asset's contractual cash flows represents solely payment of principal and interest. Assets in this category are initially recognised at fair value and subsequently remeasured, with gains or losses arising from changes in fair value being recognised in the other comprehensive income.

Amortised cost

Financial instruments are classified as amortised cost if the asset is held to collect contractual cash flows and the asset's contractual cash flows represents solely payment of principal and interest.

o. Provisions and contingent liabilities

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

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

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

Client compensation

Complaints are assessed on a case-by-case basis and provisions for compensation are made where it is judged necessary.

p. Foreign currency translation

The Group's functional and presentational currency is the Pound Sterling. Foreign currency transactions are translated using the exchange rate prevailing at the transaction date. At the reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the prevailing rates on that date. Foreign exchange gains and losses resulting from settlement of such transactions and from the translation of period-end monetary assets and liabilities are recognised in the Consolidated statement of comprehensive income.

q. Retirement benefit costs

Contributions in respect of the Group's defined contribution pension scheme are charged to the Consolidated statement of comprehensive income as they fall due.

r. Taxation

Tax on the profit for the year comprises current and deferred tax. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Group's financial statements. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability settled based on tax rates (and laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax assets are only recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

s. Trade receivables

Trade receivables represent amounts due for services performed in the ordinary course of business. They are recognised in trade and other receivables and if collection is expected within one year they are recognised as a current asset and if collection is expected in greater than one year, they are recognised as a non-current asset. Trade receivables are measured at amortised cost less any provision for impairment.

t. Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. These are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). Otherwise, they are presented as non-current liabilities in the Consolidated statement of financial position.

Trade payables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method.

u. Operating lease payments

Rent payments due under operating leases are charged to the Consolidated statement of comprehensive income on a straight-line basis over the term of the lease. Where leases include lease incentives such as rent-free periods, the benefit of these incentives is recognised over the lease term as a reduction in the rental expense.

v. Financial instruments

The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial instruments are recognised in the Consolidated statement of financial position at fair value when the Group becomes a party to the contractual provisions of the instrument.

w. Employee Benefit Trust ("EBT")

The Company provides finance to an EBT to purchase the Company's shares on the open market in order to meet its obligation to provide shares when an employee exercises certain options or awards made under the Group's share-based payment schemes. The administration and finance costs connected with the EBT are charged to the Consolidated statement of comprehensive income. The cost of the shares held by the EBT is deducted from equity. A transfer is made between other reserves and retained earnings over the vesting periods of the related share options or awards to reflect the ultimate proceeds receivable from employees on exercise. The trustees have waived their rights to receive dividends on the shares.

The EBT is considered to be a structured entity. In substance, the activities of the trust are being conducted on behalf of the Group according to its specific business needs, in order to obtain benefits from its operation. On this basis, the assets held by the trust are consolidated into the Group's financial statements.

x. Share capital

Ordinary share capital is classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Where the Company purchases its own equity share capital (treasury shares) the consideration paid, including any directly incremental costs (i.e. net of income taxes) is deducted from equity attributable to the Company's equity holders until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received (net of any directly attributable incremental transaction costs and the related income tax effects) is included within equity attributable to the Company's equity holders.

y. Dividend distribution

The dividend distribution to the Company's shareholders is recognised as a liability in the Group's financial statements in the period in which the dividend is authorised and no longer at the discretion of the Company. Final dividends are recognised when approved by the Company's shareholders at the Annual General Meeting and interim dividends are recognised when paid.

3. Segmental information

For management purposes the Group's activities are organised into three operating divisions: UK Investment Management, Financial Planning and International. The Group's other activity, offering nominee and custody services to clients, is included within UK Investment Management. These divisions are the basis on which the Group reports its primary segmental information to the Group Board of Directors, which is the Group's chief operating decision-maker. In accordance with IFRS 8 'Operating Segments', disclosures are required to reflect the information which the Board of Directors uses internally for evaluating the performance of its operating segments and allocating resources to those segments. The information presented in this note is consistent with the presentation for internal reporting.

Revenues and expenses are allocated to the business segment that originated the transaction. Revenues and expenses that are not directly originated by a particular operating business segment are reported as 'all other segments and consolidation adjustments.' Sales between segments are carried out at arm's length. Centrally incurred expenses are allocated to business segments on an appropriate prorata basis. Segmental assets and liabilities comprise operating assets and liabilities, those being the majority of the Consolidated statement of financial position.

The below segmental analysis has been restated to reflect the previously reported Funds segment which was integrated into UK Investment Management on 1 July 2018. Property Funds have been included in 'all other segments and consolidation adjustments' along with the non-reportable Group segment. The analysis has also been restated to reflect the additional discontinued operations recognised during the year (Note 5) and a change in presentation to disclose administrative expenses, allocated costs and underlying other gains and losses, finance income and finance costs by segment.

4. 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:

Non-taxable income includes the gain from changes in fair value of deferred consideration.

During the year, the Group made a claim for research and development tax relief in relation to qualifying expenditure on software development incurred in the year ended 30 June 2018. This resulted in a reduction in the Corporation Tax liabilities in the respective years, and a repayment of £325,000 (FY18: £855,000) is due from HM Revenue and Customs. The Group will consider whether claims can also be made for qualifying expenditure incurred in the year ended 30 June 2019 and thereafter in due course.

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 2019 is 19% (FY18: 19%).

In addition to the change in the rate of UK Corporation Tax disclosed above, the Finance (No.2) Act 2015, which was substantively enacted in October 2015, will further reduce the main rate to 17% in 2020. Deferred tax assets and liabilities are calculated at the rate that is expected to be in force when the temporary differences unwind, but limited to the extent that such rates have been substantively enacted. The tax rate used to determine the deferred tax assets and liabilities is therefore 17% (FY18: 17%) and will be reviewed in future years subject to new legislation.

5. Discontinued operations

On 10 May 2019, Brooks Macdonald Funds Limited, a subsidiary within the Group, resigned as investment manager of the Ground Rents Income Fund plc ("GRIF"). The fund management of GRIF was classed as Property Funds within internal management information and was managed separately to the other funds managed within the Group. As a result the operations were classified as discontinued operations upon resignation. Disposal costs of £12,000 were incurred by the Group in relation to the resignation.

On 31 December 2018, the Group disposed of its Employee Benefits business within the Financial Planning segment. Profit from discontinued operations is disclosed separately in the Consolidated statement of comprehensive income, being the results of the disposal to 31 December 2018 and the gain on disposal. Initial cash consideration of £50,000 was received on completion. Additional cash consideration will also be receivable in the first calendar quarter of 2020, being a multiple of revenue earned by the disposed business for the year ended 31 December 2019. On disposal the contingent consideration receivable was estimated at £282,000, which was recognised at its fair value of £219,000 based on the discounted forecast cash flows.

This gain is presented within profit from discontinued operations in the Consolidated statement of comprehensive income for the year ended 30 June 2019. Disposal costs of £21,000 were incurred by the Group in relation to the sale.

On 1 December 2017, the Group disposed of its Property Management division, comprising the wholly owned subsidiaries Braemar Estates (Residential) Limited and Braemar Facilities Management Limited. Profit from discontinued operations is disclosed separately in the Consolidated statement of comprehensive income, being the results of the disposal group to 1 December 2017 and the gain on disposal. Full details of this disposal are disclosed in Note 11 of the 2018 Brooks Macdonald Group plc Annual Report and Accounts. During the year ended 30 June 2019 the Group received £483,000 of contingent consideration and a further £60,000 as additional post-completion consideration.

The presentation of the prior year below has been restated to separate the results of the additional discontinued operations, consistent with the presentation in the current period. The previously reported discontinued operations recognised the operations of Braemar Estates (Residential) Limited and Braemar Facilities Management Limited; however, the Employee Benefits and GRIF operations have now been included.

* The prior year figures have been restated to separate the results of discontinued operations, consistent with the presentation in the current year.

a. Loss of discontinued operations

* The prior year figures have been restated to separate the results of discontinued operations, consistent with the presentation in the current year.

b. Gain on disposal of discontinued operations

6. Earnings per share

The Directors believe that underlying earnings per share provide a truer reflection of the Group's performance in the year. Underlying earnings per share are calculated based on 'underlying earnings', which is an alternative performance measure and is defined as earnings before finance costs of deferred consideration, finance income of contingent consideration, changes in the fair value of deferred consideration, changes in fair value of contingent consideration, goodwill impairment, client relationship contracts impairment, amortisation of client relationships and contracts acquired with fund managers, finance income from contingent consideration, restructuring charge, business disposal costs and profit or loss from discontinued operations. The tax effect of these adjustments has also been considered.

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

\* The prior year figures have been restated to separate the results of discontinued operations, consistent with the presentation in the current year.

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

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

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

\* The prior year have been restated to separate the results of discontinued operations, consistent with the presentation in the current year.

7. Dividends

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

The interim dividend of 19.0p (FY18: 17.0p) per share was paid on 23 April 2018.

A final dividend for the year ended 30 June 2019 of 32.0p (FY18: 30.0p) per share was declared by the Board of Directors on 11 September 2019 and is subject to approval by the shareholders at the Company's Annual General Meeting. It will be paid on 8 November 2019 to shareholders who are on the register at the close of business on 27 September 2019. In accordance with IAS 10 'Events after the reporting period', the aggregate amount of the proposed dividend expected to be paid out of retained earnings is not recognised as a liability in these financial statements.

8. Intangible assets

a. Goodwill

Goodwill acquired in a business combination is allocated at acquisition to the cash generating units ("CGUs") that are expected to benefit from that business combination. The carrying amount of goodwill in respect of these CGUs within the operating segments of the Group comprises:

Goodwill is reviewed annually for impairment and its recoverability has been assessed at 30 June 2019 by comparing the carrying amount of the CGUs to their expected recoverable amount, estimated on a value-in-use basis. The value-in-use of each CGU has been calculated using pre-tax discounted cash flow projections based on the most recent budgets approved by the relevant subsidiary company boards of directors, covering a period of five years. Cash flows are then extrapolated beyond the forecast period using an expected long-term growth rate.

At 31 December 2018, there were some impairment indicators present for the Levitas CGU and based on a value-in-use calculation, the recoverable amount as at 31 December 2018 was £5,152,000. This was lower than the carrying amount of the CGU, reflecting both a reduction in forecast revenue growth and an increase in the discount rate applied, indicating that it should be impaired. An impairment loss of £4,756,000 has been recognised against the goodwill attributable to the CGU and is shown in the Consolidated statement of comprehensive income within other losses.

The key underlying assumptions of the calculation were the discount rate, the growth in funds under management of the Levitas funds and the long-term growth rate of the business. A pre-tax discount rate as at 31 December 2018 of 12% (FY18: 11%) was used, based on the Group's assessment of the risk-free rate of interest and specific risks pertaining to Levitas. Annual funds under management growth rates of between 8% and 36% were forecast in the following four financial years, the period covered by the most recent forecasts, which reflected historic actual growth and planned management activities, and were considered to be achievable at 31 December 2018. A 2% long-term growth rate was applied to cash flows beyond the forecast period and is considered prudent in the context of the long-term average growth rate for the funds industry in which the CGU operates.

The value-in-use calculation was performed at 30 June 2019 in relation to the Levitas CGU, and the recoverable amount was £5,374,000, indicating that there is no further impairment required. The key underlying assumptions of the calculation are the discount rate, the growth in funds under management of the Levitas funds and the long-term growth rate of the business. A pre-tax discount rate of 12% (FY18: 11%) has been used, based on the Group's assessment of the risk-free rate of interest and specific risks relating to Levitas. Annual funds under management growth rates of between 24% and 37% are forecast in the next five financial years, the period covered by the most recent forecasts, which reflect historic actual growth and planned management activities and are considered to be achievable given current market and industry trends. The 2% long-term growth rate applied is considered prudent in the context of the long-term average growth rate for the funds industry in which the CGU operates.

At 30 June 2019, the Levitas CGU had limited headroom due to the impairment recognised at 31 December 2018. The impairment was driven by the reduced sponsorship fee earned by the Levitas CGU, but management remain focussed on the recently agreed 5-year partnership in driving higher FUM flows. Given the limited headroom, the Group has performed the following sensitivity analysis on the Levitas CGU at 30 June 2019:

• A 1% increase in the pre-tax discount rate would result in a decrease of £561,000 in the recoverable amount and an impairment of the goodwill balance by £453,000.

• A 10% decrease in the revenue growth would result in a £715,000 reduction of the recoverable amount and an impairment of the goodwill balance by £607,000.

Based on a value-in-use calculation, the recoverable amount of the Brooks Macdonald International CGU at 30 June 2019 was £28,780,000, indicating that there is no impairment. The key underlying assumptions of the calculation are the discount rate, the short-term growth in earnings and the long-term growth rate of the business. A pre-tax discount rate of 12% (FY18: 10%) has been used, based on the Group's assessment of the risk-free rate of interest and specific risks relating to Brooks Macdonald International. Annual cash inflow growth rates of up to 65% are forecast over the next five financial years, the period covered by the most recent forecasts, which reflect historic actual growth and planned management actions and are considered to be achievable given current market and industry trends. The 2% long-term growth rate applied is considered prudent in the context of the long-term average growth rate for the funds, investment management and financial planning industries in which the CGU operates.

Based on a value-in-use calculation, the recoverable amount of the Braemar CGU at 30 June 2019 was £55,688,000, indicating that there is no impairment. A pre-tax discount rate of 13% (FY18: 12%) has been used, based on the Group's assessment of the risk-free rate of interest and specific risks relating to Braemar. The key underlying assumptions of the calculation are the discount rate, the growth in funds under management of the funds business and the long-term growth rate. Annual funds under management growth rates of between 8% and 37% for the various funds are forecast in the next five financial years, the period covered by the most recent forecasts, which reflect historic actual growth and planned management activities and are considered to be achievable given current market and industry trends. The 2% long-term growth rate applied is considered prudent in the context of the long-term average growth rate for the funds industry in which the CGU operates.

 At 30 June 2019 headroom exists in the calculations of the respective recoverable amounts of these CGUs over the carrying amounts of the goodwill allocated to them. On this basis, the Directors have concluded that there is no further impairment required in addition to the impairment recognised at 31 December 2018 in relation to the Levitas CGU.

b. Computer software

Costs incurred on internally developed computer software are initially recognised at cost and when the software is available for use, the costs are amortised on a straight-line basis over an estimated useful life of four years.

c. Acquired client relationship contracts

This asset represents the fair value of future benefits accruing to the Group from acquired client relationship contracts. The amortisation of client relationships is charged to the Consolidated statement of comprehensive income on a straight-line basis over their estimated useful lives (15 to 20 years).

During the year ended 30 June 2019, an impairment charge of £2,328,000 was recognised in relation to one of the Group's acquired relationship contracts due to a reduction in the expected useful economic life from 15 to 12 years.

d. Contracts acquired with fund managers

This asset represents the fair value of the future benefits accruing to the Group from contracts acquired with fund managers. Payments made to acquire such contracts are stated at cost and amortised on a straight-line basis over an estimated useful life of five years.

9. Deferred income tax

Deferred income tax assets are only recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. An analysis of the Group's deferred assets and deferred tax liabilities is shown below.

The gross movement on the deferred income tax account during the year was as follows:

The change in deferred income tax assets and liabilities during the year was as follows: