Brooks Macdonald Regulatory News (BRK)

BROOKS MACDONALD GROUP PLC

FINANCIAL REPORT FOR THE SIX MONTHS ENDED 31 DECEMBER 2016

Strong growth in funds under management drives revenue and profits, and higher dividend

Brooks Macdonald Group plc ("Brooks Macdonald" or the "Group"), the AIM listed integrated wealth management group, today announces its report for the six months ended 31 December 2016.

Financial Highlights

*Adjustments are in respect of the costs of deferred consideration and the amortisation of intangible assets

Business Highlights:

· Over £1bn in discretionary FUM added during the half year driving double digit increases in profit and earnings per share

o Organic growth (net new discretionary business) of £332m or 4.0% over the half year excluding market growth

o Total growth of over £1.5bn year on year includes benefit of market growth

· Double digit growth in all three investment divisions - Investment Management, Funds and Brooks Macdonald International ('BMI')

o In Funds we launched two new multi-asset funds for specific third party mandates and the Defensive Capital Fund is now in excess of £300m

· Two further strategic alliances completed over the period, including our first internationally in the UAE

· Interim dividend increased by 25% to 15p (2015: 12p) reflecting the Board's continued confidence in the Group's progress and our strong balance sheet

Chris Knight, Chairman, commented:

"It's been another strong six months for the Group. Growth in discretionary funds under management drove increases in in profit and earnings per share.

"Chris Macdonald will retire as Chief Executive on 10th April. The principal architect of the Group's success, he has led the business with vigour, with determination and with vision for twenty-five years and all our stakeholders have reason to thank him. Although he will no longer be an executive director he will remain on the Board as Deputy Chairman, in which role I know that he will continue to provide help and encouragement to the business.

"As previously announced, Caroline Connellan will join the business in April and succeed Chris Macdonald as Chief Executive. Caroline brings considerable experience to the business and we are confident that under her leadership the Group will continue to grow and prosper."

Chris Macdonald, Chief Executive, commented:

"In my final set of results as Chief Executive, I'm delighted to be reporting further strategic progress across the Group and double digit increases in both funds under management and profits. We continue to see encouraging levels of organic growth across all our divisions despite volatile client sentiment in light of the macro environment. We are therefore on track to meet our expectations for the full year.

"The last 25 years have been an incredible journey, from setting up the business, to listing on AIM, and growing FUM to over £9bn. It has been fantastic to lead a business defined by a strong culture and talented people, and I look forward to continuing to be a part of it in my new role."

An analyst meeting will be held at 9.15 for 9.30am on Wednesday, 15 March at the offices of MHP Communications, 6 Agar Street, London, WC2N 4HN. Please contact Robert Collett-Creedy 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 (FUM) of £9.33bn as at 31 December 2016.

Through its core divisions, 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 offshore fund management and administration services and acts as fund manager to regulated OEICs, providing specialist funds in the property and structured return sectors and managing property assets on behalf of these funds and other clients.

The Group has twelve offices across the UK and the Channel Islands including London, Edinburgh, Guernsey, Hale, Hampshire, Jersey, Leamington Spa, Manchester, Taunton, Tunbridge Wells and York.

CHAIRMAN'S STATEMENT

Introduction

In the first six months of our financial year to the end of December 2016, the Group has continued to make good progress. Growth in discretionary funds under management drove increases in profit and earnings per share. This was against a difficult political and economic background with client sentiment being volatile, albeit investment markets remained supportive over the period.

We have continued to achieve strong risk adjusted returns for our clients and have progressed several significant projects across the Group which will help drive future growth.

Results

Revenues have risen to £45.34m (2015: £38.70m) and underlying pre-tax profit has increased by 24% to £8.87m (2015: £7.13m), with underlying earnings per share up 22% to 51.83p (2015: 42.59p).

Statutory profit before tax was £8.16m compared to £5.48m in the same period last year.

Reconciliation of underlying profit before tax to profit before tax

Cash resources at the period end amounted to £20.54m (2015: £15.43m). The Group had no borrowings as at 31 December 2016 (2015: £nil).

Dividend

The Board has declared an interim dividend of 15p (2015: 12p). This represents an increase of 25% compared to the previous year, reaffirming the Board's confidence in the future and our strong balance sheet. The interim dividend will be paid on 21 April 2017 to shareholders on the register as at 24 March 2017.

Funds under management ('FUM')

Funds under management grew by over £1bn in the six months and all three investment businesses, Investment Management and Funds in the UK and Brooks Macdonald International ('BMI'), based in the Channel Islands, achieved double digit growth. This growth consisted of £332m of organic growth and £697m of investment growth.

As previously announced, the Group's discretionary funds under management rose to £9.33bn as at 31 December 2016 (as at 30 June 2016: £8.30bn), representing a rise of 12.4%. This compares to the WMA Balanced index, which rose 7.8% over the same six month period. Over the calendar year our FUM have grown £1.51bn, representing 19.3% growth.

Analysis of discretionary fund flows over the period

Business review

Our vision is focused on being the investment manager of choice for professional intermediaries and private clients on and offshore. Our core investment management business continues to grow its professional connections and now works with over 1,000 introducing firms who refer business to both the UK and international parts of the Group. Over many years we have built up strong relationships with a large number of quality professional intermediaries and this remains our key focus. Over the period we have continued to gain traction in this space and have completed a further two strategic alliances, including our first internationally, with Abacus, based in the UAE.

Within Investment Management we've seen continued traction across all our client service lines. In particular we have renewed our focus on our Bespoke Portfolio Service (BPS) for higher net worth clients, and continue to benefit from changes in the pension landscape, as well as the growth of ISAs.

Funds had a strong period largely due to growth in our Multi Asset Funds and also in our Defensive Capital Fund which now exceeds £300m. The Levitas risk rated funds continue to grow in scale but at a slower rate than originally forecast at the time of the acquisition which has resulted in a reduction of £1.3m in the estimated fair value of the deferred consideration payable to the previous owners of the business, as detailed in note 16 to the accounts.

As previously announced, we will be moving our Funds and Investment Management businesses closer together during 2017. Both businesses already work closely with regards to investment management and the intent is that this should extend to distribution, also encapsulating our international business.

BMI has achieved improved operating profits following the fall in revenue which resulted from the change in focus from advisory to discretionary clients in 2016. This move was aimed to generate more stable long term revenues and is in line with the strategic focus of the Group, as is the increased focus on distribution to advisers in jurisdictions whose regulators are following a path similar to that of the FCA.

The need for advice for high net worth individuals continues to grow and our Financial Planning business has had a good period as well as being a significant introducer of investment management work across the Group.

Braemar Estates, the Group's property management business, saw an increase in the value of property assets under administration over the period to £1.21bn (June 2016: £1.10bn) and this has also been reflected in an improvement in its earnings.

The Group remains focused on its organic growth strategy and is committed to investing in its infrastructure to support the ongoing development, increasing regulatory demands and expansion of the Group. We continue to make substantial progress on the delivery of our information technology upgrade, which is due to complete in July of this year. We hope shortly after this to be able to merge our two back office departments into one entity which will enhance reporting for our clients.

The sector we operate in is currently experiencing a period of consolidation driven by a number of factors and we continue to consider potential acquisitions to enhance the core offerings of the Group and to complement our organic growth. We have also reviewed the opportunities offered by adding further UK regional offices to our existing geographic footprint and will be expanding our coverage through the opening of an office in Cardiff later in the year.

Principal risks and uncertainties

The Group's activities expose it to a variety of financial and non-financial risks. Our principal risks, which are described in the Strategic Report and note 32 of the 2016 Annual Report and Accounts, include: loss of clients or reputational damage as a result of poor performance or service; regulatory breaches; loss of key staff; potential service issues with IT infrastructure; operational risk due to inadequate processes and controls; and financial risks such as liquidity risk, market risk and credit risk.

Board succession

Chris Macdonald, one of the founders of Brooks Macdonald and the principal architect of the Group's success, will retire as Chief Executive on 10th April. Chris has led the business with vigour, with determination and with vision for twenty five years and all our stakeholders have reason to thank him. Although he will no longer be an executive director he will remain on the Board and will be appointed Deputy Chairman, in which role I know that he will continue to provide help and encouragement to the business.

As already announced, Caroline Connellan will join Brooks Macdonald in April and succeed Chris Macdonald as Chief Executive. Caroline brings considerable experience to the business: for the last five years, she has held senior management positions at HSBC Bank, most recently as Head of UK Premier and Wealth. Earlier in her career she worked for Standard Life as Group Strategy Director and for McKinsey. We are delighted that Caroline has agreed to join Brooks Macdonald and are confident that under her leadership the Group will continue to grow and prosper.

Outlook and summary

The Group remains focused on delivering strong performance at all levels of the business following good progress in the first half with discretionary funds and earnings growth.

Market sentiment remains volatile but we have an excellent team and a well established growth strategy. We therefore look forward with confidence and are currently on track to deliver in line with our expectations for the full year.

Christopher Knight

Chairman

14 March 2017

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 31 December 2016

The accompanying notes form an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 31 December 2016

The condensed consolidated financial statements were approved by the Board of Directors and authorised for issue on 14 March 2017, signed on their behalf by:

C A J Macdonald S J Jackson

Chief Executive Finance Director

Company registration number: 4402058

The accompanying notes form an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six months ended 31 December 2016

The accompanying notes form an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

for the six months ended 31 December 2016

The accompanying notes form an integral part of these condensed consolidated financial statements.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the six months ended 31 December 2016

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 and related professional advice to private high net worth individuals, charities and trusts. The Group also provides financial planning as well as offshore fund management and administration services and acts as fund manager to regulated OEICs, providing specialist funds in the property and structured return sectors and managing property assets on behalf of these funds and other clients. The Group's primary activities are set out in its Annual Report and Accounts for the year ended 30 June 2016.

The Group has offices in London, Edinburgh, Guernsey, Hale, Hampshire, Jersey, Leamington Spa, Manchester, Taunton, Tunbridge Wells and York. 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.

The consolidated interim financial information was approved for issue on 14 March 2017. It has been independently reviewed but is not audited.

2. Accounting policies

a) Basis of preparation

The Group's condensed consolidated half yearly financial statements are prepared and presented in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union. They have been prepared on a going concern basis with reference to the accounting policies and methods of computation and presentation set out in the Group's consolidated financial statements for the year ended 30 June 2016, except as stated below. The half yearly financial statements should be read in conjunction with the Group's audited financial statements for the year ended 30 June 2016, which have been prepared in accordance with IFRS as adopted by the European Union.

The information in this announcement does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The Group's accounts for the year ended 30 June 2016 have been reported on by the Group's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not draw attention to any matters by way of emphasis. It contained no statement under section 498(2) or (3) of the Companies Act 2006.

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 2016, except as described below.

New accounting standards, amendments and interpretations adopted in the period

In the six months ended 31 December 2016, the Group did not adopt any new standards or amendments issued by the IASB or interpretations issued by the IFRS Interpretations Committee (IFRS IC) that have had a material impact on the condensed 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.

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 and interim periods beginning after 1 July 2016:

† Not yet endorsed for use in the EU

The impact of these changes is currently being reviewed and there is no intention to early adopt. During the six months ended 31 December 2016, IFRS 9 and IFRS 15 were endorsed for use in the EU.

IFRS 9 'Financial Instruments' may affect the classification and measurement of financial assets. IFRS 15 'Revenue from Contracts with Customers' could change how and when revenue is recognised from contracts with customers. The extent of their impact has not yet been fully determined.

IFRS 16 'Leases' is expected to have a significant impact on the Group's future consolidated financial statements. This new standard will require the recognition a right-of-use asset and associated lease liability for the office premises that are leased by the Group. The asset would be depreciated over the lease term and the liability would accrue interest, resulting in a front-loaded expense profile. This accounting treatment contrasts with the current treatment for operating leases, where no asset or liability is recognised and the lease payments are charged to the Consolidated Statement of Comprehensive Income on a straight line basis over the term of the lease.

3. Segmental information

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

Revenues and expenses are allocated to the business segment that originated the transaction. Revenues and expenses that are not directly originated by a particular business segment are reported as group or consolidation adjustments. Sales between segments are carried out at arm's length. Centrally incurred expenses are allocated to business segments on an appropriate pro-rata basis.

a) Geographic analysis

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

b) Major clients

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

4. Administrative costs

The following items are included within administrative expenses in the Condensed Consolidated Statement of Comprehensive Income.

Financial Services Compensation Scheme levies

A charge of £nil was incurred in respect of Financial Services Compensation Scheme ('FSCS') levies in the six months ended 31 December 2016 (six months ended 31 December 2015: £nil; year ended 30 June 2016: £475,000).

5. Realised gains and losses on investments

During the six months ended 31 December 2016, the Group realised a net gain of £4,000 (six months ended 31 December 2015: £20,000; year ended 30 June 2016: £20,000) on disposal of investments. This comprised of a gain of £13,000 on the investment in the Braemar Group PCC Limited Student Accommodation Cell and a loss of £9,000 on the investment in GLI Finance Limited redeemable preference shares. The £20,000 gain in the six months ended 31 December 2015 and the year ended 30 June 2016 related to the final disposal of the Group's investment in Sancus Holdings Limited, through the voluntary winding up of the company.

6. Other gains and losses

Other gains and losses represent the net changes in the fair value of the Group's financial instruments recognised in the Consolidated Statement of Comprehensive Income.

7. Finance income and finance costs

8. Taxation

The current tax expense for the six months ended 31 December 2016 was calculated based on the estimated average annual effective tax rate.

The Finance (No.2) Act 2015, which was substantively enacted in October 2015, will reduce the main rate of UK Corporation Tax to 19% with effect from 1 April 2017. As a result the effective rate of Corporation Tax applied to the taxable profit for the period ended 31 December 2016 is 19.75% (six months ended 31 December 2015: 20.00%; year ended 30 June 2016: 20.00%).

The Finance Act 2016, which was substantively enacted in September 2016, will further reduce the rate to 17% with effect from 1 April 2020, replacing the rate of 18% set by the Finance (No.2) Act 2015. 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 measure the deferred tax assets and liabilities of the Group is therefore 18.70% (six months ended 31 December 2015: 18.90%; year ended 30 June 2016: 18.00%) and will be reviewed in future years subject to new legislation.

9. Earnings per share

The directors believe that underlying earnings per share provide a truer reflection of the Group's performance. Underlying earnings per share are calculated based on 'underlying earnings', which is defined as post-tax profit attributable to equity holders of the Company ('earnings') before the finance costs of deferred consideration, changes in the fair value of deferred consideration and amortisation of intangible non-current assets. The tax effect of these adjustments is also considered and the tax charge is adjusted accordingly.

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

Basic earnings per share is calculated by dividing earnings by the weighted average number of shares in issue throughout the period. 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 period was as follows:

10. Dividends

An interim dividend of 15.0p (six months ended 31 December 2015: 12.0p) per share was declared by the Board of Directors on 14 March 2017. It will be paid on 21 April 2017 to shareholders who are on the register at the close of business on 24 March 2017. In accordance with IAS 10, this dividend has not been included as a liability in the financial statements at 31 December 2016.

A final dividend for the year ended 30 June 2016 of 23.0p (year ended 30 June 2015: 20.5p) per share was paid on 28 October 2016.

11. 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:

Due to the slower than anticipated growth in FUM of the Levitas funds and the resulting reduction in the estimated fair value of deferred consideration payable, the calculation of the recoverable amount of the Levitas CGU was reviewed as at 31 December 2016. Based on the latest forecasts, it was concluded that the estimated value-in-use of the business is still greater than the carrying amount and therefore it is not considered that the associated goodwill is impaired. At the reporting date, there were no indicators that the carrying amount of goodwill in relation to the other CGUs should be impaired.

b) Computer software

Computer software includes capitalised software development costs, where work has been undertaken to improve the Group's IT software systems that will have a lasting economic benefit. Computer software is amortised over an estimated useful life of four years on a straight line basis.

c) Acquired client relationship contracts

This asset represents the fair value of future benefits accruing to the Group from client relationship contracts acquired either as part of a business combination or when separate payments are made to third parties in exchange for a book of clients. The amortisation of client relationship contracts is charged to the Condensed Consolidated Statement of Comprehensive Income on a straight line basis over their estimated useful lives (15 to 20 years).

d) Contracts acquired with fund managers

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

12. Property, plant and equipment

During the six months ended 31 December 2016, the Group acquired assets at a cost of £440,000 (six months ended 31 December 2015: £568,000; year ended 30 June 2016: £751,000). The net book value of fixed assets disposed of in the period was £9,000 (six months ended 31 December 2015: £11,000; year ended 30 June 2016: £27,000), resulting in a gain on disposal of £4,000 (six months ended 31 December 2015: £nil; year ended 30 June 2016: £9,000 loss).

13. Available for sale financial assets

At 1 July 2016, the Group held investments of 1,426,793.64 class B ordinary shares, representing an interest of 10.88% in Braemar Group PCC Limited Student Accommodation Cell ('Student Accommodation fund') and 750,000 zero dividend preference shares in GLI Finance Limited ('GLIF'), an AIM-listed company incorporated in Guernsey. The Group also holds an investment of 500,000 redeemable preference shares in an unlisted company incorporated in the UK.

During the six months ended 31 December 2016, the Group disposed of its holding in the Student Accommodation fund at a market value of £484,000, realising a gain of £13,000, and its holding in GLIF at a market value of £735,000, realising a loss of £9,000. The net gain of £4,000 has been recognised in the Consolidated Statement of Comprehensive Income for the six months ended 31 December 2016 within realised gains and losses on investments (note 5).

During the six months ended 31 December 2016, the Group acquired an offshore bond at a cost of £5,000 and converted an existing loan of £150,000, issued by Brooks Macdonald Asset Management (International) Limited to a third party, into redeemable preference share capital. The loan was previously included within trade and other receivables as a non-current asset and has been reclassified as an available for sale financial asset. The preference shares carry an entitlement to a fixed preferential dividend at a rate of eight per cent per annum.

14. Investment in joint venture

Brooks Macdonald Funds Limited, a subsidiary of Brooks Macdonald Group plc, holds a 60% interest in North Row Capital LLP. The Group has joint control over the partnership, with the remaining interest owned by two individual partners who developed the investment approach behind the IFSL North Row Liquid Property Fund, which was launched in February 2014. The fund offers investors liquid exposure to global real estate markets by investing predominantly in property derivatives, as well as property equity and debt, to gain exposure to the direct property markets.

At 31 December 2016 the carrying amount of the Group's investment in North Row Capital LLP has been further reduced to an estimated recoverable amount of £nil by recognising an impairment loss of £193,000 against the investment in joint venture (six months ended 31 December 2015: £400,000; year ended 30 June 2016: £400,000). The expense is included within other gains and losses on the Condensed Consolidated Statement of Comprehensive Income. The impairment arose as the forecast future cash flows from the partnership are estimated to accumulate slower than originally anticipated and as a result it is not expected that the Group will realise a return on its investment in the joint venture in the foreseeable future.

15. Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss comprise investments in equity share capital of publicly listed companies and Open Ended Investment Companies (OEICs). The market value of the investments at 31 December 2016 was £1,109,000 (at 31 December 2015: £5,000; at 30 June 2016: £1,000,000). These investments are classified as level 1 within the fair value hierarchy, as the inputs used to determine the fair value are quoted prices for the shares in active markets at the measurement date.

16. Deferred consideration

Deferred consideration, which is also included within provisions in current liabilities (note 17) to the extent that it is due to be paid within one year of the reporting date, relates to the directors' best estimate of amounts payable in the future in respect of a subsidiary undertaking that was acquired by the Group. Deferred consideration is measured at its fair value based on discounted expected future cash flows. The movements in the total deferred consideration balance during the year were as follows:

Payments totalling £1,580,000 were made during the period (six months ended 31 December 2015: £1,772,000; year ended 30 June 2016: £3,901,000). The payments during the period as well as the outstanding liability at 31 December 2016 relate entirely to amounts owed to the vendors of Levitas.

17. Provisions

a) Client compensation

Client compensation provisions relate to the potential liability arising from client complaints against the Group. Complaints are assessed on a case by case basis and provisions for compensation are made where judged necessary.

b) Deferred consideration

Deferred consideration has been included within provisions as a current liability to the extent that it is due for payment within one year of the reporting date. Details of the total deferred consideration payable are provided in note 16.

c) FSCS levy

At 31 December 2016 provisions include an amount of £nil (at 31 December 2015: £nil; at 30 June 2016: £470,000) in respect of expected levies by the Financial Services Compensation Scheme. The expected levy for the 2017/18 scheme year has been announced by the FSCS but does not yet meet the recognition criteria for a provision.

18. Reconciliation of operating profit to net cash inflow from operating activities