Brooks Macdonald Regulatory News (BRK)

15 September 2022

BROOKS MACDONALD GROUP PLC

Final results for the year ended 30 June 2022

Strong net flows, record underlying profit margin, and continued strategic delivery.

Brooks Macdonald Group plc ("Brooks Macdonald" or "the Group") today announces its audited results for the year ended 30 June 2022.

Financial highlights

· Group Funds Under Management ("FUM") closing at £15.7 billion (down 4.8% on FY21) as positive net flows were offset by the impact of declining markets on asset values

· Positive net flows throughout the year, now five successive quarters, with net flows for the full year of 4.8%, representing a £1.1 billion improvement on prior year

· Flows particularly strong in the fourth quarter (three months to 30 June 2022) with the annualised rate reaching 6.7% and 8.6% for Group and UK Investment Management respectively

· Group revenue of £122.2 million, up 3.4% on FY21, driven by higher average FUM and the full year impact of the Group's acquisition of the Lloyds Channel Islands business

· Underlying profit margin up by 2.3 points to 28.2%, in line with the Group's commitment to deliver top quartile margin over the medium term

· Investment performance across the range of services of (9.6)% for the year, driven by declining and volatile markets

· Total dividend increased by 12.7% to 71.0p (FY21: 63.0p), in line with the increase in underlying profit before tax, reflecting the Board's confidence in the Group's prospects.

Strategic progress

· Remaining client- and adviser-facing processes now live on the SS&C platform, shortly after year end, a major milestone in the Group's digital transformation which will make Brooks Macdonald increasingly easy to do business with. Work now continuing to embed and refine the systems and processes

· Investing for growth, with repositioning of the Group's Funds business under way through material repricing of the Cornelian Risk Managed Fund range to drive medium-term growth

· Continued rapid growth of Brooks Macdonald Investment Solutions ("BMIS"), with FUM more than doubling during the financial year

· Increasing momentum in the Managed Portfolio Service ("MPS") with 34.4% net flows for the year

· Continued positive net flows in the Group's specialist Bespoke Portfolio Service products - Responsible Investment Service, Decumulation, AIM Portfolio Service and Court of Protection

· Improving flows and solid commercial performance in International despite difficult market conditions. New Isle of Man office progressing well and expected to be a source of growth, particularly through the Group's referral agreement with Lloyds Bank

· Acquisition of Integrity Wealth Solutions, subject to regulatory approval, bringing further scale, capability and management expertise to the Private Clients business.

Outlook

· Fundamental long-term opportunity remains strong, driven by demographic and policy trends as well as continuing adviser demand for outsourced investment management

· Medium-term ambition for net flows is 8-10%p.a., and the Group expects that flows will remain positive despite ongoing short-term market uncertainty affecting client confidence and conversion times

· FY23 underlying profitability in line with current market expectations

· Well positioned, continuing to deliver on the Group's ambitious growth strategy, looking forward with confidence.

Andrew Shepherd, CEO of Brooks Macdonald, commented:

"This has been another strong year for Brooks Macdonald - we've delivered higher net flows, we've hit another record for underlying profit margin, and we've increased our full year dividend for the seventeenth consecutive year. We have made good progress in driving our digital transformation forward, having now gone live with our remaining client- and adviser-facing processes on the SS&C platform. This will make Brooks Macdonald increasingly easy to do business with, delivering a best-in-class adviser experience and client service.

"Our clients and advisers are facing a challenging macroeconomic and market environment and, as ever, we will support them through these difficult times. Nonetheless, the fundamental long-term opportunity for Brooks Macdonald remains strong despite these challenges. We have momentum, we have an ambitious growth strategy and we have a strong team with the capabilities to take full advantage of the opportunities ahead."

Key financial results

Underlying results1

Statutory results

Dividends

1 The underlying figures represent the results for the Group's continuing activities excluding certain adjusting items as listed in the Financial Review. These represent an alternative performance measure ("APM") for the Group. Refer to the Non-IFRS financial information section for a glossary of the Group's APMs, their definition, and the criteria for how underlying adjustments are considered. A reconciliation between the Group's statutory and underlying profit before tax is also included in the Financial Review.

2 The underlying and statutory diluted earnings per share for FY21 have been restated in line with the current year methodology of calculating the diluted weighted average number of shares. Refer to note 8 for further details on the restatement.

Conference call and investor presentation details

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

Presentation slides will be available from 7:00 a.m. today by going to the Investor Relations section of Brooks Macdonald's website using the following link:

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

Enquiries to:

Notes to editors

Brooks Macdonald Group plc, through its various subsidiaries, provides leading investment management services in the UK and internationally. The Group, which was founded in 1991 and began trading on AIM in 2005, had discretionary Funds under Management of £15.7 billion as at 30 June 2022.

Brooks Macdonald offers a range of investment management services to private high net worth individuals, pension funds, institutions, charities and trusts. The Group also provides financial planning as well as international investment management, and acts as fund manager to a range of onshore and international funds.

The Group has fourteen offices across the UK and Crown Dependencies including London, Birmingham, Cheltenham, East Anglia, Exeter, Leeds, Manchester, Southampton, Tunbridge Wells, Scotland, Wales, Jersey, Guernsey and Isle of Man.

LEI: 213800WRDF8LB8MIEX37

www.brooksmacdonald.com / @BrooksMacdonald

Chairman's statement

Introduction

I am pleased to report that Brooks Macdonald has had an excellent first year under the leadership of Andrew Shepherd as CEO. Despite challenging market conditions, the Group set records for revenue, underlying profit and underlying profit margin. The closing FUM figure of £15.7 billion was delivered through positive and improving net flows, offset by the impact on asset values of declining and volatile markets. After the Group's net flows returned to being positive in Q4 of the previous financial year, they remained positive throughout the twelve months to 30 June 2022, delivering 4.8% organic net new business for the year. The fourth quarter (three months to 30 June 2022) was particularly pleasing with an annualised positive net flows rate of 6.7%.

Our Centralised Investment Process continues to deliver strong performance over the medium and longer term, underpinning our mission to protect and enhance our clients' wealth. Our investment performance remains robust versus our peer group, as measured by the ARC indices, particularly over 3, 5 and 10 years. Overall Group investment performance for this financial year was (9.6)%, driven by three factors: the overall market decline, which affected both equity markets (MSCI All Countries World Index was down 12.3%) and bond markets (Bloomberg Gilts Total Return Index fell 14.3%); exposure to small- and medium-sized companies, which is common across the wealth management industry; and the impact of equity volatility on some of the portfolios the Group runs for clients with higher risk appetite.

Performance overview

Brooks Macdonald continues to grow strongly, driven by our strategy of focusing on intermediaries, alongside our complementary Private Clients business. Underlying profit before tax was £34.5 million, up 12.7% on the year (FY21: £30.6 million), and underlying basic earnings per share ("EPS") was up 11.9% to 174.1p (FY21: 155.6p).

Statutory profit before tax rose 17.5% to £29.5 million (FY21: £25.1 million). Statutory basic EPS rose 18.9% to 149.0p (FY21: 125.3p).

Delivering our strategy

We have a clear strategy based on the three value drivers of market-leading organic growth, service and operational excellence, and selective high-quality M&A. We have continued to deliver against all three drivers:

• On organic growth, our focus on BM Investment Solutions and our Managed Portfolio Service (both in custody and on third-party platforms) has been highly successful with FUM growth of 25%.

• We have driven improvements in our adviser experience and client service levels, with all client- and adviser-facing processes moving to the SS&C platform shortly after year end, continuing our digital transformation.

• We announced the acquisition of Integrity Wealth Solutions, subject to regulatory approval.

In parallel, we have maintained our focus on the culture of the business and taken forward Our Promise, which is the Group's commitment to its people, to deliver an inclusive culture, fulfilling careers, and great recognition.

Dividend

The Board has recommended a final dividend of 45.0p (FY21: 40.0p), which, subject to approval by shareholders, will result in total dividends for the year of 71.0p (FY21: 63.0p). This represents an increase of 12.7% in total dividend on the previous year and underlines the Board's confidence in the prospects for the Group, despite the challenging macroeconomic environment, and our commitment to a progressive dividend policy. The final dividend will be paid on 4 November 2022 to shareholders on the register at the close of business on 23 September 2022.

Board changes

There were two changes to the Board during the financial year. As mentioned in last year's Annual Report and Accounts, our CEO, Andrew Shepherd, and the Group Chief Operating Officer, Lynsey Cross, were appointed to the Board with effect from 13 July 2021.

Looking ahead

The UK macroeconomic outlook in the short term remains highly uncertain, with high inflation, a cost of living crisis, increasing interest rates, and recessionary risks. Nonetheless, the fundamental opportunity for Brooks Macdonald remains strong, driven by demographic and policy trends as well as increasing adviser demand for outsourced investment management. The Group has a strong balance sheet, consistently supportive shareholders and an ambitious growth agenda. We look to the future with confidence.

Alan Carruthers Chairman

14 September 2022

CEO's review

Introduction

I am delighted that my first full year as CEO of Brooks Macdonald has been another year of record performance across a number of dimensions, further demonstrating the strength and resilience of our business model.

The ongoing macroeconomic and market conditions have been challenging for all our stakeholders, and I thank them for their support. I am pleased that our positive and improving net flows show that our clients and their intermediaries recognise and value our products and services. I am also extremely grateful to our people who, over recent years, have dealt with Brexit, the pandemic and a global economic crisis whilst, despite all that, maintaining their service and commitment to our clients and their intermediaries.

Delivering our strategy

Brooks Macdonald's strategy is founded on the three value drivers of organic growth, service and operational excellence, and selective high-quality acquisitions. We are committed to delivering consistently top quartile underlying profit margins, through building on the sustainable and scalable business model we have put in place. We continue to make progress, ready to capitalise on the growth opportunities we see ahead, achieving higher returns as we go.

A core element of our strategy, alongside our robust Centralised Investment Process and our compelling investment proposition, is delivering a high-quality intermediary experience alongside exceptional client service. We are committed to continuous improvement on that dimension and I am delighted that, shortly after our financial year end, we reached a major milestone in our digital transformation when we went live with all our client- and intermediary-facing processes to the SS&C platform.

This is a critical step in our digital transformation, giving our clients and their intermediaries improved digital self-service capabilities, complementing the high-quality of our face-to-face relationships. The platform includes automated onboarding, full intermediary and client portal functionality, and bespoke reporting.

The migration has been a massive effort and I want to thank all our staff for their commitment and indeed patience as we continue the work to embed and refine the new processes and systems.

However, although this is a major milestone, it is by no means the end of our digital transformation, which will continue with further improvements in, for example, our use of data and the application of artificial intelligence.

We announced another building block in our M&A agenda with the acquisition of Integrity Wealth Solutions ("Integrity"), an IFA firm whom we have worked closely with for almost a decade now. We expect the acquisition to complete, subject to regulatory approval, later this calendar year. As well as being an important addition to our Private Clients business, Integrity will give us deeper insight into the products and services a high-quality, growing IFA firm values from a discretionary fund manager. This was one of a number of M&A discussions and going forward we expect further acquisitions.

We continue to review how we can further help the intermediaries we know well and with whom we have built a long-term trust-based relationship. While we do not set out to be a consolidator of IFAs, we are keen to give the opportunity to successful financial advisers, like Integrity, to join a larger wealth management company, and we expect this to become an increasingly important part of our proposition. We firmly believe that the biggest single factor in successful integration of acquisitions is complementary cultures, so working with firms we know well gives us a head start in integration.

Financial performance

We had another year of strong financial performance in FY22, continuing to deliver on our medium-term commitment to top quartile margins, with the underlying profit margin up 2.3 points to 28.2%. We also delivered record revenue and underlying profit levels of £122.2 million and £34.5 million respectively.

Statutory profit before tax rose 17.5% to £29.5 million (FY21: £25.1 million).

Our year-end closing FUM was £15.7 billion. Net flows were positive in all quarters, 4.8% at Group level for the full year, and reaching an annualised level of 6.7% for the final quarter. Total FUM was down 4.8% over the year, with the decline being the result of strong flows offset by the impact of declining markets on asset values. We have a strong pipeline going into FY23, although market conditions are resulting in some clients taking longer to commit funds.

Investment performance and market conditions

Investment performance for the year came in at (9.6)%, with declining markets bringing down FUM totals. Nonetheless, our investment performance remains strong for client portfolios over 3, 5 and 10 years against peers as represented by ARC benchmarks.

The path of investment markets over the year was complex, with the market environment favouring different asset classes and different investment styles at different times. In the first quarter, equities were strong and Brooks Macdonald's growth and mid-cap positions performed well. Later in 2021, equity sentiment worsened, with smaller companies most affected. Active funds, which tend to have a smaller companies skew, therefore underperformed, which was negative for the Group given our active bias. During 2022, the market has focused on inflationary risks, resulting initially in good performance for our short-duration bond positions but declines in our growth-orientated equity positions. The last quarter of our financial year saw investors shift focus to possible recessionary risks, leading to falls across asset classes. Brooks Macdonald performed broadly in line with peers.

Looking ahead, we expect inflation to begin to moderate in the United States but remain sticky in Europe. Despite the higher yields now available in bond markets, equities remain our preferred asset class given the lower valuations after the sell-off to date in 2022. The impact of inflation is creating a catalyst for flows as clients look to 'put money to work' to help offset the effect of rising prices on real returns.

Review of business performance

UK Investment Management

In UK Investment Management ("UKIM"), led by Robin Eggar and his team, we have continued to provide high-quality service to clients and intermediaries across the UK. We have seen positive net flows throughout the year, reaching an annualised rate of 8.6% at UKIM level in the final quarter. The standout performance was from BM Investment Solutions ("BMIS"), our business-to-business offering, where we work with an adviser firm to provide a tailored investment proposition, in either model portfolio or fund format, to meet the needs of their clients. Over the course of FY22, the team continued to build on their previous success, signing a series of material deals.

Our Platform Managed Portfolio Service ("PMPS") also had a good year. PMPS is the platform version of our traditional custody Managed Portfolio Service ("MPS") and we have continued to increase the number of platforms where it is available, now up to over 20 of the most popular platforms, and this has helped drive strong growth in the year. BMIS and PMPS combined to deliver the material majority of our net flows over the year.

In our flagship Bespoke Portfolio Service ("BPS") product, we have continued to see good growth in our specialist offerings, the AIM Portfolio Service, the Responsible Investment Service, our Decumulation Service, and our Court of Protection service. The continued success of these more specialised offerings highlights how we have been able to innovate to meet developing client needs.

In common with much of the industry, our Funds business had a challenging year, with persistent net outflows. Within that, our Defensive Capital Fund ("DCF") had a stronger year, with a particular highlight being positive investment performance in such a difficult year, although flows continued to be affected by the ongoing downturn in sentiment in the Investment Association's Targeted Absolute Return sector. We see multi-asset funds as a major potential source of growth for Brooks Macdonald, and we have therefore started repositioning our Funds business, with the first step being a material repricing of our Cornelian Risk Managed Fund range to drive medium-term growth.

During the year, we opened offices in Southampton and Birmingham, replacing our former offices in Fareham and Leamington Spa respectively, to improve facilities for clients and colleagues, and to access a larger group of intermediaries and greater pools of wealth.

Private Clients

Our new Private Clients arm, bringing together Financial Planning and UKIM direct client investment management services, has also had strong flows and has restructured processes to ensure our direct clients receive the best possible service. The acquisition of Integrity Wealth Solutions (expected to complete, subject to regulatory approval, later this calendar year) brings further scale, capability and management expertise to our Private Clients business, and we look forward to welcoming Martin Lindsey and his team to the Group.

International

In International, Richard Hughes' first full year since he took over from me as CEO International has been a good one, with improving flows and solid commercial performance in difficult market conditions. We opened a new Isle of Man office, which we expect to be an increasing source of business growth, particularly through our referral agreement with Lloyds Bank.

People

I am personally committed to ensuring that we support the talent we have in the business, as well as bringing in new, high-quality hires. The aim of our people agenda is to enable our strategy by attracting, engaging and retaining the best talent in the industry. The people agenda is founded on our Guiding Principles and promoting and advancing our culture is a core priority for me. The current focus of our people agenda, what we call 'Our Promise,' is to offer an inclusive culture, fulfilling careers, and great recognition.

Among internal promotions this year, we brought two more of our most talented internal leaders on to the Executive Committee in March: Caroline Abbondanza, our Chief Technology Officer, and Simon Broomfield, our General Counsel. I am also delighted to welcome Sarah Ackland as our new Global Head of Distribution. Sarah is an experienced senior executive with deep expertise in the UK retail funds market, most recently at Liontrust and Architas, and took up her post after the financial year end.

Outlook

One year into my tenure as CEO, we are well positioned to take advantage of the opportunities facing Brooks Macdonald, despite the external macroeconomic and markets challenges. We will build on our success to date:

• Driving organic growth, both through intermediaries and among private clients;

• Ensuring service and operational excellence, building on our migration of all client- and intermediary-facing processes to the SS&C platform to further our digital transformation; and

• Executing selective high-quality acquisitions.

We will also continue to deliver top quartile profit margins and improving returns.

The fundamental opportunity for Brooks Macdonald remains strong. An ageing population, a supportive policy environment that both encourages individuals to save for their retirement and gives them pension freedoms to invest as they please, plus growing wealth in our target demographic, all combine to give us a highly positive market opportunity so long as we continue to deliver strong investment performance alongside exceptional client service.

We have a strong team and we are well positioned for the future, with deep experience in navigating a wide range of economic conditions. I would like to finish by reiterating my thanks to our clients, the intermediaries we work with, and our people for their continuing support. I look forward with excitement to what we can achieve together.

Andrew Shepherd CEO

14 September 2022

Our strategy

Brooks Macdonald is delivering strong performance and has put in place foundations for our continued future success. Our strategy is clear and we are making substantial progress, ready to capitalise on the growth opportunities we see ahead.

Looking forward

Our vision for Brooks Macdonald is to be the leading investment manager for intermediaries, both in the UK and internationally.

Our strategy also includes a strong and growing Private Clients business providing financial planning and investment management - an advice-led integrated wealth management offering.

Our Purpose - Realising ambitions and securing futures

Our Vision - To be the leading investment manager for intermediaries

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

Our strategy

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

Service and operational excellence - Easy to do business with, digital enhancement, margin growth through efficiency and scalability resilience

Agile, high-quality M&A - Strict criteria, delivery of benefits

Value drivers

Our strategy is based on the three value drivers of strong organic growth, service and operational excellence, and selective high-quality acquisitions. We will deliver further improvements in returns, committing to top quartile margins over the medium term, by building on the sustainable and scalable business model we have put in place. Within the three value drivers of the existing strategy, we announced five priority areas for 2022:

Organic growth

• Investment Solutions: strong focus on MPS, Funds and BMIS, the fastest-growing sectors of the wealth marketplace.

• Private Clients: standardisation and streamlining of our financial planning processes, building a strong advice-led pillar of the Group.

Service and operational excellence

• Being the best we can be: driving continuous improvement in our client and adviser service levels, delivering digital transformation, increasing data-driven decision making throughout the firm.

• Delivering Our Promise: attracting, engaging and retaining the best talent in the industry.

Agile, high-quality M&A

• Selective acquisitions: disciplined acquisition criteria - high-quality businesses that are a good strategic and cultural fit and bring compelling economics - and ambitious inorganic growth plans, with Integrity Wealth acquisition announced in May (subject to regulatory approval).

Delivering our strategy

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

Financial review

Review of results for the year

The Group delivered another strong set of results for FY22, despite the second half of the financial year being impacted by the Russian invasion of Ukraine. The change in financial markets and client sentiment has been significant, with the situation being further impacted by the increase in energy prices, the resulting rise of inflation and the need for central banks to respond with higher interest rates. However, the Group responded well and flows in H2 were up on H1 and financial performance was resilient. Therefore, once again, the Group reported improved revenue, underlying profit and underlying profit margin.

The improved performance was due to increased revenue driven by higher average FUM for the year and the full year impact of the Lloyds Channel Islands acquisition, and the Group's continued discipline around costs and financial resources.

This contributed to an underlying profit of £34.5 million, an increase of 12.7% on the previous year and an underlying profit margin of 28.2%, up 2.3 percentage points from last year's margin of 25.9%.

Group financial results summary

The table below shows the Group's financial performance for the year ended 30 June 2022 with the comparative period and provides a reconciliation between the underlying results, which the Board considers to be an appropriate reflection of the Group's underlying performance, and the statutory results. Underlying profit represents an alternative performance measure ("APM") for the Group. Refer to the Non-IFRS financial information section at the end of the document for a glossary of the Group's APMs, their definition, and the criteria for how underlying adjustments are considered. A breakdown of the underlying adjustments is shown in the Reconciliation between underlying and statutory profits section below.

FUM movement in the year

The table below shows the opening and closing FUM position and the flows for the year broken down by segment and by our key services within UK Investment Management ("UKIM").

1 Capital-only index.

During the year, the Group recorded positive net flows of £0.8 billion or 4.8%, representing an upswing of £1.1 billion on last year. This was offset by the market downturn experienced in the second half leading to an overall decrease in the Group's closing FUM of 4.8% to £15.7 billion (FY21: £16.5 billion).

Investment performance for the year came in at (9.6%), with declining markets bringing down FUM totals. Nonetheless, investment performance remains strong for client portfolios over the three, five and ten-years against peers as represented by ARC benchmarks.

Within UKIM, the BPS core offering made good progress with net inflows of £0.1 billion in the year. We continue to see good growth in our specialist products - the AIM Portfolio Service, the Responsible Investment Service, the Decumulation Service, and the Court of Protection Service - all focused on meeting different client needs.

Increasing flows in MPS has been an area of strategic focus for the Group in FY22 and our MPS services delivered flows of £0.8 billion in the year, primarily seen within Platform MPS and in Brooks Macdonald Investment Solutions, with several material deals agreed during the year.

The Funds business recorded total net outflows of £0.1 billion during the year. Whilst still experiencing net outflows overall, we have seen a notable decline in outflows in the Defensive Capital Fund compared to the prior year, assisted in part by its robust investment performance over the last six months.

International made good progress in the year, returning to positive net flows for two-quarters of the year, with net outflows reducing from £59.8 million to £25.4 million overall for the year.

Revenue

The Group's total revenue for FY22 increased by 3.4% to £122.2 million (FY21: £118.2 million). FUM-related revenue overall increased by 3.5% to £116.1 million, whilst non-FUM-related revenue increased marginally to £6.1 million. The rise in fee income was driven by higher average FUM as a result of net inflows and favourable markets in H1, and the full-year impact of the Lloyds Channel Islands business, which contributed an additional £3.4 million of revenue compared to FY21.

This was offset by a reduction in transactional income as a result of the Group's relatively stable asset allocation during the year and the continued trend of clients moving to a fee-only rate card.

 Interest turn increased slightly on the prior year, driven by the rise in the Bank of England base rates in the latter part of the financial year, although it continues to remain low by historic levels.

Total financial planning and wealth management advice income increased slightly by £0.2 million during the year. Within that, UKIM financial planning fees were up by £0.4 million as we continue to grow our Private Clients business, whilst International saw a slight reduction as more private clients moved to an all-in investment management fee.

Revenue, yields and average FUM

1 The Lloyds Channel Islands yields for FY21 were calculated on a pro rata basis reflecting the relative period the business was owned by the Group.

2 The yield calculation is based on the average FUM at the respective billing dates.

The yield on BPS fees for UKIM decreased by 1.5bps to 65.8bps during the year (FY21: 67.3bps). This was driven by the movement from net outflows to net inflows year on year and also a number of IFA partners passing through pricing thresholds, as we captured higher levels of their new business. This highlights the alignment between us and IFAs and how our collective success can ultimately lead to better outcomes for clients. The BPS non-fee income yield also declined, primarily due to the decrease in transactional income (3.3bps) due to a higher proportion of fee-only accounts and a relatively stable asset allocation; and lower interest turn (0.5bps) driven by lower Bank of England base rates at the start of the financial year.

MPS recorded a decline in yields of 5.2bps to 34.9bps. This reduction was principally driven by a change in mix with Platform MPS growing more rapidly than custody MPS. The Platform MPS service includes our Brooks Macdonald Investment Solutions offering that attracts relatively larger mandates, which benefit from discounted tiered rates.

The Funds fee yields rose by 2.5bps to 57.8bps in FY22, also as a result of a change in mix and the impact of timing inflows and outflows.

International fee-income yields were up by 2.3bps to 56.7bps as a result of higher performance and custody fees, whilst non-fee income yield declined by 1.1bps driven by a decrease in interest and FX income during the year. The Lloyds Channel Islands assets reported a yield of 103.0bps, slightly up on the prior year.

Underlying costs

Total underlying costs have remained relatively flat at £87.7 million (FY21: £87.6 million) with the increase in staff costs fully offset by a reduction in non-staff costs.

Staff costs

Total staff costs increased by £2.1 million to £55.3 million. Of this, £0.9 million was driven by the incremental costs arising from the Lloyds Channel Islands acquisition, which completed at the end of November 2020.

Fixed staff costs for the Group's core operations decreased slightly by £0.3 million. This comprised an increase of £1.0 million resulting from pay rises and net new joiners, with FTE headcount increasing slightly from 430 to 446 during the year, offset by savings of £1.3 million arising from the transfer of a number of roles from the Investment Services and the Technology departments to SS&C in December 2020 as part of the Group's digital transformation project.

Variable staff costs increased by 12.1% to £14.8 million in FY22. Apart from the impact of the Lloyds Channel Islands acquisition, the increase comprised a higher bonus pool reflecting the improvement in the Group's financial performance, offset by a reduction in the share-based payment charge as the share option schemes held at the end of the year were marked to market.

Non-staff costs

Non-staff costs amounted to £32.4 million representing a decrease of 5.8% on the prior year. Excluding the impact of the acquired costs of £1.1 million, non-staff costs for the core business fell by £3.1 million or 11.0%. Within that there were a number of movements, which are set out in the bridge chart on the left and the key items explained below.

With the Group's return to office and increased travel and client facing activities, travel and entertainment spend increased by £0.8 million on the prior year.

During the year, the Group turned on portions of the new SS&C technology landscape with a full go-live taking place shortly after year end. This gave rise to additional external technology spend of £1.9 million in the year. This was in part driven by the transition from our legacy systems but also by the delivery of brand-new capabilities to the Group to support our growth agenda. In FY22, the main delivery being a whole new suite of tools to support our Funds business, which has grown rapidly through the acquisition of the Cornelian and Lloyds offshore funds businesses.

This movement to an outsourced technology and operations provider has allowed us to make further structural non-staff costs reductions. For example, during the year, the Group fully amortised the remaining legacy operating platform-related assets in advance of moving onto the SS&C platform. This gave rise to a decrease in computer software amortisation of £1.3 million compared to FY21. The Group also spent £0.6 million less on technology and operational change as it focused on the new system go-live.

The Group also received a further benefit from the partnership agreement with SS&C as it received a transition funding credit of £1.2 million due to the partial utilisation of the new operating platform during the transition period.

Following agreement with HMRC over the VAT treatment on the supply of certain Group services and other historic tax provisions, the Group recognised a release of £1.4 million during the year. Moreover, the FSCS levy for the year represented a reduction of £1.1 million on the fee charged for FY21.

Profit before tax

Combined, the above gave rise to an underlying profit before tax of £34.5 million, representing an increase of 12.7% on FY21 and resulting in a profit margin of 28.2%, an increase of 2.3 percentage points (FY21: 25.9%).

On a statutory basis, the profit before tax increased by 17.5% to £29.5 million (FY21: £25.1 million). The statutory profit margin before tax also saw an increase from last year, up to 24.1%. The quantum of one-off underlying adjustments for the year has reduced by £0.5 million, with just three material adjustments.

Segmental analysis

The Group reports its results across two key operating segments, UK Investment Management and International. The tables below provide a breakdown of the half-year performance broken down by these segments, with comparatives.

UKIM, which includes the Group's Private Clients business, reported a 1.0% increase in revenue, arising from higher fee income offset by a fall in transactional income. The increase in revenue, combined with disciplined cost management and efficiencies, resulted in an underlying profit of £32.2 million, up by 11.0%, and an underlying profit margin of 31.9%, an improvement of 2.9 percentage points.

The International segment reported an increase in revenues of 16.5% driven by higher fee income during the year, primarily due to a full-year contribution from the Lloyds Channel Islands business. Direct costs of £14.0 million were ahead of the prior year, largely as a result of the incremental costs from the Lloyds Channel Islands business, investment in setting up the Isle of Man office, which is now fully up and running and legal and professional costs incurred in re-domiciling and simplifying the legal entity corporate structure. This resulted in a slight decline in underlying profit to £4.0 million and a lower underlying profit margin of 18.9% for the year. Excluding the Isle of Man office direct costs of £0.5 million, the International underlying profit margin would have been 21.2%, a reduction of 3.5 percentage points on FY21 due to the impact of markets on fee income in the second half of the year and the additional costs noted above.

Reconciliation between underlying and statutory profits

Underlying profit before tax is considered by the Board to be an appropriate reflection of the Group's performance compared to the statutory results as it excludes income and expense categories, which are deemed to be of a non-recurring nature or a non-cash operating item. Reporting at an underlying basis is also considered appropriate for external analyst coverage. Underlying profit is deemed to be an alternative performance measure ("APM"); refer to the Non-IFRS financial information section at the end of the document for a glossary of the Group's APMs, their definitions, and the criteria for how underlying adjustments are considered. A reconciliation between underlying and statutory profit before tax for the year ended 30 June 2022 with comparatives is shown in the table below:

Amortisation of client relationship contracts (£5.5 million charge)

These intangible assets are created in the course of acquiring funds under management and are amortised over their useful life, which have been assessed to range between 6 and 20 years. The increase in the charge from last year is due to the full year impact of the Lloyds Channel Islands acquisition. This amortisation charge has been excluded from the underlying profit since it is a significant non-cash item.

Dual running operating platform costs (£2.4 million charge)

The Group is in a partnership agreement with SS&C to transform our client- and intermediary-facing processes, launch a digital onboarding solution and enhance our operating platform. As part of the transition process, during FY22 the Group incurred incremental costs in running two operating platforms concurrently. The increase is due to the full-year impact given the partnership agreement commenced half way through FY21. The dual running costs have been excluded from underlying profit in view of their non-recurring nature.

Changes in fair value and finance cost of deferred consideration (£0.1 million charge)

This comprises the associated net finance costs arising on deferred consideration payments from acquisitions carried out by the Group, together with their fair value measurements where applicable.

Other non-operating income (£3.0 million credit)

During the year, the Group received confirmation from HMRC that the supply of certain Group services was exempt from VAT. As a result, the Group received a refund from HMRC in respect of VAT arising on those services during the period from 1 July 2017 to 30 June 2020 of £3.0 million. This has been treated as an adjusting item to the underlying profit in view of its non-recurring nature.

FY21 - Client relationship contracts impairment (£1.5 million charge)

Client relationship contracts are reviewed annually for impairment. In view of accelerated withdrawals from the previously acquired business, DPZ Limited, seen during FY21, the estimated useful economic life of the intangible assets associated with this business was reduced. Accordingly, an impairment charge of £1.5 million was recognised in FY21.

FY21 - Acquisition related costs (£2.3 million credit)

i. Gain arising on acquisition (£5.0 million credit)

A gain on purchase was recognised in respect of the Lloyds Channel Islands acquisition as the net identifiable assets acquired were greater than the total purchase consideration paid.

ii. Integration and staff retention costs (£2.7 million charge)

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

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

Reconciliation between profits and earnings before interest, tax depreciation and amortisation ("EBITDA")

The table below provides a reconciliation between the Group's underlying profit before tax and the earnings before interest, tax and depreciation ("EBITDA"), which constitutes an APM, and which the Board considers to be an appropriate alternative measure to the Group's BAU performance.

Taxation

The Group's total tax charge for the year was £6.1 million, representing an increase of 10.9% from last year (FY21: £5.5 million). The Group's underlying effective tax rate has increased marginally from 20.3% to 20.8% and the statutory effective tax rate has decreased from 21.7% to 20.8%. This is due to a higher proportion of allowable deductions for tax purposes, such as those arising from the allowance on share-option exercises, compared to taxable add backs, which have not changed significantly from the prior year.

Earnings per share

Basic statutory earnings per share for the Group in FY22 was 149.0p (FY21: 125.3p). On an underlying basis, basic earnings per share was 174.1p representing an increase of 11.9% on the prior year (FY21: 155.6p) driven by the increase in underlying earnings.

Dividend

The Board recognises the importance of dividends to shareholders and the benefit of providing sustainable shareholder returns. In determining the level of dividend in any year, the Board considers a number of factors, such as, the level of retained earnings, future cash commitments, statutory profit cover, capital and liquidity requirements and the level of profit retention required to sustain the growth of the Group. The Board has proposed a final dividend of 45.0p per share (FY21: 40.0p). Including the interim dividend of 26.0p per share (FY21: 23.0p), this results in a total dividend for the year of 71.0p per share (FY21: 63.0p), an overall increase of 8.0p or 12.7%. The recommended dividend is subject to shareholders' approval, which will be sought at the Company's Annual General Meeting on 27 October 2022.

Financial position and regulatory capital

Net assets increased by 10.7% to £148.4 million at 30 June 2022 (FY21: £134.0 million), demonstrating the Group's continued strong financial position. The Group's tangible net assets (net assets excluding intangibles) was up to £62.5 million at 30 June 2022 (FY21: £44.1 million). As at 30 June 2022, the Group had regulatory capital resources of £70.0 million (FY21: £52.6 million). The own funds calculation takes into account the respective years' profit after tax as these are deemed to be verified at the date of publication of the annual results. The Group continues to be well capitalised with a total capital ratio of 28.5% over the Pillar I risk exposure requirement (FY21: 21.6%). The total capital ratio is the Group's total regulatory capital resources relative to its Pillar I risk exposure requirement.

Brooks Macdonald Asset Management Limited, the Group's main operating subsidiary, is a MIFIDPRU Investment Firm regulated by the Financial Conduct Authority ("FCA"). In view of this, the Group is classified as a regulated group and subject to the same regime. As required under FCA rules, and those of both the Jersey and Guernsey Financial Services Commission, the Group assesses its regulatory capital and liquidity on an ongoing basis through the Internal Capital Adequacy Assessment Process ("ICAAP") and Adjusted Net Liquid Asset ("ANLA") assessments, which include performing a range of stress tests and scenario analyses to determine the appropriate level of regulatory capital and liquidity that the Group needs to hold. Surplus levels of capital and liquidity are forecast, taking into account known outflows and proposed dividends to ensure that the Group maintains sufficient capital and liquidity at all times.

The FY21 ICAAP review was conducted for the year ended 30 June 2021 and signed off by the Board in December 2021. 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 IFPR Public Disclosures (previously referred to as the Pillar III disclosures) are published annually on the Group's website (www.brooksmacdonald.com) and provide further details about the Group's regulatory capital resources and requirements. The Group monitors a range of capital and liquidity statistics on a daily and monthly basis.

Cash flow and capital expenditure

The Group continues to have strong levels of cash generation from operations. Total cash resources at the end of the year were £61.3 million (FY21: £54.9 million) and the Group had no borrowings at 30 June 2022.

During the year ended 30 June 2022, the Group made the final payment in relation to the acquisition of Cornelian Asset Managers Group Limited of £6.0 million.

The Group incurred capital expenditure of £3.2 million (FY21: £3.7 million). This comprised technology-related development of £2.9 million, property-related costs of £0.2 million and IT and office equipment of £0.1 million. The capital expenditure comprised the programme implementation and software costs incurred in respect of the migration of the Group's client- and intermediary-facing processes onto the SS&C platform. The amortisation for these costs will commence in FY23 and will be amortised over the remaining eight years of the ten-year agreement entered into with SS&C.

FY23 guidance and outlook

Looking ahead, we anticipate the impact of lower markets year on year to have some impact on financial performance, although this will be in part offset by lower variable performance-based pay. The Group has a clear plan in place to manage and offset inflationary cost pressures and we are focused on containing cost growth to a mid-single digit percentage increase. We remain mindful of the need to support staff through these difficult times, whilst balancing our desire to deliver top quartile underlying profit margins.

Despite these short-term headwinds, the Group is well placed to deliver on our strategy in the medium term. The fundamental opportunity is huge and building and we now have all the required elements to deliver our ambitious organic and inorganic growth agenda and we look forward to the future with confidence.

The Strategic report in its entirety has been approved by the Board of Directors and is signed on its behalf by:

Ben Thorpe Chief Financial Officer

14 September 2022

Risks

Continued dynamic approach to risk identification and management in order to support positive client outcomes

Despite the pandemic, geopolitical and macroeconomic challenges faced in the last year and the subsequent increase in certain risk exposures, the Group has continued in its commitment to promote a positive compliance and risk culture across the organisation.

Furthermore, it has maintained its focus on embedding and enhancing the risk management framework, through its focus on resilience, third parties, and client outcomes.

The Group has also continued its drive towards efficient, data-driven and evidenced-based risk management, which has facilitated the transition to a more agile and dynamic approach to identifying, assessing, managing and monitoring risks.

Overall, the Group remains well capitalised and liquid, with significant buffers above all regulatory requirements.

How we manage risk

The Group Risk Management Framework ("RMF")

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

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

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

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

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

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

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

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

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

Overarching risk appetite statement

• The Group's overarching risk appetite statement ("ORAS"), as defined by the Board, sets out the acceptable level of current and emerging risk we are willing to take to achieve our strategic business objectives. It provides a framework to allow the Group to effectively balance the risk and reward relationship in decision-making.

• Clients, both existing and prospective, are at the heart of everything we do. As such, we aim to operate a sustainable business that conducts itself in a reputable and prudent manner, taking into account the interests of our clients through providing products and services suited to their needs and risk profile, which demonstrate value for money.

• As the business continues to grow through sustainable organic growth and strategic value-adding acquisitions, the ORAS helps ensure our key stakeholder obligations are met, supported by internal policies and regulatory requirements. We commit to using this framework to ensure we make strategic and business decisions that do not exceed our overarching risk appetite.

• In all of the Group's decisions and operations, we balance risk versus reward and we consider the following three dimensions.

Client outcome

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

Control environment

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

Financial performance and resources

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

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

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

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.

Business level risks

Emerging risks

Viability statement

In accordance with the UK Corporate Governance Code, the Board has assessed the Group's viability over a five-year period from FY23 through to FY27. The decision to do so over this period is to be aligned with the Group's strategy, its budgeting and forecasting process and the scenarios set out in the 2021 Internal Capital Adequacy Assessment Process ("ICAAP").

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

In assessing the future viability of the overall business, the Board has considered the current and future strategy, as well as any significant business restructuring and legacy issues. The Board has also considered the business environment of the Group and the potential threats to its business model arising from regulatory, demographic, political and technological changes. Moreover, the Board's assessment considered the widespread economic impact arising from the Russian invasion of Ukraine and subsequent impact on markets and rising inflation, on the Group's profitability, regulatory capital and liquidity forecasts. The Board's assessment of the Group's capital and liquidity position also considers the implications of maintaining the Group's proposed interim and final dividend pay-outs.

The five-year MTP forms part of the Group's annual business planning process. The model translates the Group's current and future strategy into a detailed year-one budget, followed by higher level forecasts for years two through to five. The combination of this detailed budgeting, longer-term forecasting and various stress tests provides a transparent and holistic view of the forward-looking financial prospects of the Group. The Board reviews and challenges the Group's MTP annually. The MTP covering the five-year period from FY23 to FY27 was reviewed, challenged and approved by the Board in June 2022.

In addition to the annual MTP preparation process, a re-forecast is carried out by management and reviewed by the Board on a quarterly basis. These reflect updates for prevailing trading conditions and other changes required to the budget assumptions set at the start of the year.

As part of the ICAAP, the Group models a range of downside scenarios and a severe but plausible stress scenario designed to assess the Group's ability to withstand a market-wide shock such as a sharp market decline triggered by a global recession; Group-specific stresses, such as the loss of an investment management team or key introducer; and a combination of both.

The Group modelled a multi-layered scenario involving a significant decline in financial markets over a five-year period (a drop of 28% and 12% in years one and two respectively, followed by a gradual recovery), combined with the loss of a key investment management team. This scenario would have a material impact on the Group's profitability compared to the MTP base case, with the CET1 capital ratio forecast to decrease by 63% over the five-year period, without management applying any mitigating actions.

Management identified a number of mitigating actions that could be implemented in the event of such severe stresses. These include a reduction in staff variable pay and Group dividends as well as a reduction in discretionary expenditure (T&E, marketing and similar), as well as freezing and deferring purchases of non-current assets and a recruitment freeze or headcount reduction. In the Group's modelling on the above-mentioned multi-layered scenario, the management mitigating actions implemented forecast that the Group's forecast CET1 capital ratio would increase by 29% as opposed to fall by 63% without any mitigating actions. Over the longer term, mitigating actions could include a broader and more significant reduction in the Group's cost base (IT, property, change initiatives and others). The implementation of the above actions depends on the nature of the specific stress events and the time frames over which they occur.

These scenarios are refreshed on a regular basis to ensure they remain relevant and continue to be a suitable tool for developing our controls and mitigating actions. Management also considers a reverse stress case and carries out an assessment of the cost to the Group of a wind-down in the event of a non-recoverable shock to the operating model. Moreover, Management has identified a number of actions that could be implemented in the event of severe stresses. The implementation of the above actions depends on the nature of the specific stress events and the time frames over which they occur.

Taking into consideration the assessment of the above factors, including the results of the latest ICAAP, the Group's risk management framework and the mitigating actions that can be put in place, together with the Group's successful navigation of the pandemic thus far, the Board has reasonable expectations the Group will be able to continue in operation and meet its liabilities as they fall due over the period under assessment.

Consolidated statement of comprehensive income

For the year ended 30 June 2022

1 See Note 8 for details regarding the restatement of diluted earnings per share.

Consolidated statement of financial position

As at 30 June 2022

The Consolidated financial statements were approved by the Board of Directors and authorised for issue on 14 September 2022, and signed on their behalf by:

Andrew Shepherd

CEO

Ben Thorpe Chief Financial Officer

Company registration number: 4402058

Consolidated statement of changes in equity

For the year ended 30 June 2022

Consolidated statement of cash flows

For the year ended 30 June 2022

Notes to the consolidated financial statements

For the year ended 30 June 2022

1. General information

Brooks Macdonald Group plc ("the Company") is the Parent Company of a group of companies ("the Group"), which offers a range of investment management services to private high net worth individuals, pension funds, institutions, charities and trusts. The Group also provides financial planning as well as international investment management, and acts as fund manager to a range of onshore and international funds.

The Company is a public limited company, incorporated and domiciled in the United Kingdom under the Companies Act 2006 and listed on AIM. The address of its registered office is 21 Lombard Street, London, EC3V 9AH.

2. Principal accounting policies

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

a. Basis of preparation

The Group's Consolidated financial statements for the year ended 30 June 2022 have been prepared in accordance with UK-adopted International Accounting Standards ("IFRS") and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. These Consolidated financial statements have been prepared on a historical cost basis, except for the revaluation of financial assets at fair value through other comprehensive income, financial assets and financial liabilities at fair value through profit or loss and deferred consideration such that they are measured at their fair value.

At the time of approving the Financial statements, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Financial statements. For further details on the Group's going concern assessment, see the Viability statement. There have been no post balance sheet events that have materially impacted the Group's liquidity headroom and going concern assessment.

b. Changes in accounting policies

The Group's accounting policies that have been applied in preparing these Financial statements are consistent with those disclosed in the Annual Report and Accounts for the year ended 30 June 2021, except as explained below.

New accounting standards, amendments and interpretations adopted in the year

In the year ended 30 June 2022, the Group did not adopt any new standards or amendments issued by the International Accounting Standards Board ("IASB") or interpretations by the IFRS Interpretations Committee ("IFRS IC") that have had a material impact on the Consolidated financial statements.

Other new standards, amendments and interpretations listed in the following table 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.

c. Critical accounting estimates and judgements

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

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

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

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

Intangible assets

The Group has acquired client relationships and the associated investment management contracts as part of business combinations, through separate purchase or with newly employed teams of fund managers, as described in Note 10. In assessing the fair value of these assets, the Group has estimated their finite life based on information about the typical length of existing client relationships. 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.

Of the client-relationship intangible assets held by the Group at 30 June 2022, the expected amortisation charge for the year ending 30 June 2023 is £5,443,000. If the useful economic lives were to reduce by one year, the charge would increase by £1,302,000.

Goodwill recognised as part of a business combination is reviewed annually for impairment, or when a change in circumstances indicates that it might be impaired. The recoverable amounts of cash-generating units ("CGU") are determined by value-in-use calculations, which require the use of estimates to derive the projected future cash flows attributable to each unit. Details of the more significant assumptions and sensitivity analysis are given in Note 10.

In assessing the value of client relationships and the associated investment management contracts and goodwill or gain on bargain purchase arising as part of a business combination, the Group prepares forecasts for the cash flows acquired and discounts to a net present value. The Group uses a pre-tax discount rate, adjusting from a post-tax discount rate calculated by the Group's weighted average cost of capital ("WACC"), adjusted for any specific risks for the relevant CGU. The Group uses the capital asset pricing model ("CAPM") to estimate the WACC, which is calculated at the point of acquisition for a business combination, or the relevant reporting period. The key inputs are the risk-free rate, market risk premium, the Group's adjusted beta with reference to beta data from peer listed companies, small company premium and any risk adjusted premium for the relevant CGU. See Note 10 for further details on the discount rate for the various CGUs.

Share-based payments

The Group operates various share-based payment schemes in respect of services received from certain employees. Estimating the fair value of these share-based payments requires the Group to apply an appropriate valuation model and determine the inputs to that model. The charge to the Consolidated statement of comprehensive income in respect of share-based payments is calculated using assumptions about the number of eligible employees that will leave the Group and the number of employees that will satisfy the relevant performance conditions. These estimates are reviewed regularly. A decrease of 10% in the total options would decrease the share-based payment charge and the associated national insurance charge in the Consolidated statement of comprehensive income for the year by £891,000 and £159,000 respectively.

3. Segmental information

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

The UK Investment Management segment offers a range of investment management services to private high net worth individuals, pension funds, institutions, charities and trusts, as well as wealth management services to high net worth individuals and families, giving independent 'whole of market' financial advice enabling clients to build, manage and protect their wealth. The International segment is based in the Channel Islands and the Isle of Man, offering a similar range of investment management and wealth management services as the UK Investment Management segment. The Group segment principally comprises the Group Board's management and associated costs, along with the consolidation adjustments.

Revenues and expenses are allocated to the business segment that originated the transaction. Sales between segments are carried out at arm's length. Centrally incurred expenses are allocated to business segments on an appropriate pro rata basis.

4. Revenue

1 The revenue note has been updated to provide a more appropriate breakdown of how revenue is recorded and monitored by the Directors. As a result, the prior year revenue breakdown has been reclassified to ensure a consistent, like-for-like comparison to the current year.

Investment management fees

Investment management fees are earned for the management services provided to clients. Fees are billed quarterly in arrears but are recognised over the period the service is provided. Fees are calculated based on a percentage of the value of the portfolio at the billing date. 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.

Transactional income

Transactional income is earned through dealing and admin charges levied on trades at the time a deal is placed for a client. Revenue is recognised at the point of the trade being placed.

Foreign exchange trading fees are also included, that are charged on client trades placed in non-base currencies, and therefore requiring a foreign currency exchange in order to action the trade. Revenue is recognised at the point of the trade being placed.

Fund management fees

Fund management fees are earned for the management services provided to several Open-Ended Investment Company ("OEICs"). Fees are billed monthly in arrears but are recognised over the period the service is provided. Fees are calculated daily based on a percentage of the value of each fund. 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.

Wealth management fees

Wealth management fees relate to fees for the provision of financial advice. Fees are charged to clients using an hourly rate, by a fixed fee arrangement, or by a fund-based arrangement whereby fees are calculated based on a percentage of the value of the portfolio at the billing date. All fees are recognised over the period the service is provided. Commissions receivable and payable are accounted for in the period in which they are earned.

Interest turn

Interest turn is bank interest earned on client cash deposits. Income is recognised over the period for which the deposit is held with the bank. Amounts shown are net of any interest passed on to clients.

a. Geographic analysis

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

b. Major clients

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