Brooks Macdonald Regulatory News (BRK)

10 March 2022

BROOKS MACDONALD GROUP PLC

HALF-YEAR RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2021

"Strategy delivering strong results: annualised net flows of 4%, record underlying profit margin of over 28% and 13% increase in the interim dividend"

Brooks Macdonald Group plc ("Brooks Macdonald" or the "Group") today announces its half-year results for the six months ended 31 December 2021.

Strong financial performance with momentum building in organic growth

· Total Funds under Management ("FUM") reached £17.3bn, up 5.3% over the half year (30 June 2021: £16.5 billion)

- Positive and increasing net flows over the six months, totalling £326 million (H1 FY21: £(367) million), with annualised net flows of 4.7% for Q2 up from 3.1% for Q1 and (2.0)% for FY21

- Positive investment performance of 3.3% for the half year.

· The Group's core UK discretionary business had annualised net flows of 6.3% for the period driven by:

- Strong growth in Brooks Macdonald Investment Solutions ("BMIS"), the firm's B2B offering for advisers, with FUM up 60% over the half year, and in Platform Managed Portfolio Service ("MPS") which saw a rise of 20%

- Sustained positive net flows in the Group's Bespoke Portfolio Service ("BPS"), particularly in our Private Clients business and in the specialist products - Responsible Investment, Decumulation, Court of Protection and AIM.

· International returned to positive net flows, reflecting improved client retention and increasing inflows during the period.

· Revenue increased by 10.7% to £61.9 million (H1 FY21: £55.9 million) driven by improving positive net flows and a complete half year contribution from our acquisition of Lloyds Banking Group's Channel Islands funds and wealth management business, partly offset by lower transaction-related revenues.

· Underlying profit before tax rose 25.7% to £17.6 million (H1 FY21: £14.0 million), with underlying profit margin up 3.3 percentage points to a new high of 28.4%, driven by higher revenue and continued cost discipline, delivering on our commitment to top quartile underlying profit margin.

· Statutory profit before tax fell by 6.4% to £13.2 million (H1 FY21: £14.1 million), with the decrease driven by an exceptional gain in H1 FY21 related to the Lloyds Channel Islands acquisition.

· Underlying basic earnings per share increased by 20.7% to 88.6p (H1 FY21: 73.4p).

· In line with Brooks Macdonald's progressive dividend policy, the Group has raised the interim dividend by 13.0% to 26.0p (H1 FY21: 23.0p), reflecting the strong results for the period, the Group's strong capital position, and the Board's continuing confidence in the firm's prospects.

Continued strategic progress

Acquisitions delivering, further M&A planned

· The Group continued to see strong delivery from its acquisitions of Cornelian Asset Management and Lloyds' Channel Islands wealth management and funds business, achieving higher than planned EPS accretion.

· As part of its ambitious growth strategy, the Group continues to seek inorganic opportunities that meet its stated acquisition criteria of high quality businesses with a good strategic and cultural fit that will deliver strong economics.

Continued investment to deliver best-in-class adviser experience and client service

· The Group continued its focus on making Brooks Macdonald easy to do business with through digital transformation:

- Commenced the phased roll-out of a market-leading digital onboarding solution

- Worked with the firm's technology partner SS&C to identify how its prospective acquisition of Hubwise, the innovative financial services technology provider, could enhance the new platform currently being implemented for Brooks Macdonald.

· Progress continued on the Group's migration of its adviser- and client-facing processes to the SS&C/Hubwise platform.

Delivering our Corporate Social Responsibility ("CSR") agenda

· As part of its developing CSR agenda, the Group launched its "Inclusive Futures" programme, working to widen access to sector by providing career opportunities to young people through its partnerships with Investment 2020 and #10000blackinterns.

· The firm is marking its 30th anniversary by partnering with the Dame Kelly Holmes Trust to support the Trust's work in tackling youth inequality and disadvantage.

Russia exposure

· The Group has no direct exposure to Russia in its discretionary client portfolios or its funds. Its indirect exposure, through holdings in third party funds in the client portfolios, is c.0.1% of total FUM. The holdings are being monitored closely and we are engaging with third party fund managers where appropriate.

Andrew Shepherd, CEO, commented:

"I am pleased to report that we delivered sustained strong financial performance for the first half year with positive net flows and record underlying profit margin of over 28%, enabling us to increase our interim dividend once again by 13%. These results clearly show growing client demand for our products and services alongside continued cost discipline.

"We are announcing these results against the backdrop of the human tragedy unfolding in Ukraine. During these troubled times, our thoughts are with those who are directly and indirectly affected, and we have made a donation towards humanitarian aid efforts in the region on behalf of the Group and BM Foundation.

"This is a challenging time for investors and we are grateful for the trust they continue to place in us, as they have done for over 30 years. I'm pleased we've been able to grow the assets we manage on behalf of clients to over £17 billion, which is up 12% on last year. We could not have delivered these results, or served our clients and advisers in the way we have, without the commitment and dedication of our people.

 "Although the short-term macroeconomic outlook is highly uncertain, looking ahead we remain confident in our long-term prospects building on our ambitious organic and inorganic growth strategy, grounded in our purpose of realising ambitions and securing futures." 

1The underlying figures represent the results for the Group's activities excluding underlying adjustments as listed in the Interim management report. The Board considers the underlying profit to be an appropriate reflection of the Group's performance compared to statutory profit. A reconciliation between the Group's statutory and underlying profit before tax is also included in the Interim management report.

An analyst meeting will be held at 9.30am on Thursday 10 March. Please contact Katherine Bell at FTI Consulting on 07976 870961 or e-mail brooksmacdonald@fticonsulting.com for further details.

Enquiries to:

Notes to editors

Brooks Macdonald Group plc, through its various subsidiaries, provides leading investment management services in the UK and internationally. The Group, which was founded in 1991 and began trading on AIM in 2005, had discretionary Funds under Management of £17.3 billion as at 31 December 2021.

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

The Group has fourteen offices across the UK and Crown Dependencies: 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

Brooks Macdonald Group plc

Interim Report and Accounts for the six months ended 31 December 2021

Interim management report

Strong performance in H1

Brooks Macdonald has had an excellent six months, with FUM growing to £17.3 billion, strong financial results, improving organic growth and clear evidence of our strategy delivering for advisers, clients and shareholders alike.

The Group increased revenues by 10.7% to £61.9 million (H1 FY21: £55.9 million) driven by improving positive net flows and a complete half year contribution from our Lloyds Channel Islands acquisition, partly offset by lower transaction-related revenues. Underlying costs increased by 5.7% to £44.3 million (H1 FY21: £41.9 million), driven by the Lloyds Channel Islands acquisition and investment for growth, moderated by continued strong cost discipline. This resulted in an underlying profit before tax of £17.6 million, a 25.7% increase on the prior period (H1 FY21: £14.0 million).

Our underlying profit margin rose 3.3 percentage points to a record 28.4% (H1 FY21: 25.1%), reflecting our commitment to top quartile underlying profit margin over the medium term, and underlying basic EPS increased by 20.7% to 88.6p (H1 FY21: 73.4p).

Statutory profits declined from £14.1 million to £13.2 million with the prior period figure inflated by an exceptional gain arising on the Lloyds Channel Islands acquisition.

In keeping with our stated progressive dividend policy, the excellent results for the period, and the Board's continuing confidence in the firm's prospects, the Group is declaring an interim dividend of 26.0 pence per share, a 13.0% uplift on the interim dividend paid last year.

Our investment performance remains positive. Comparing against the relevant PIMFA and ARC benchmarks over investment time horizons shows that our Centralised Investment Process ("CIP") continues to achieve robust risk adjusted returns for clients. For example, our Bespoke Portfolio Service ("BPS") delivered performance ahead of ARC benchmarks for all risk profiles over five and ten years.

We maintained our focus on advisers and clients, working in partnership with SS&C to deliver best-in-class adviser experience and client service.

The highlight of our people agenda in the period was the launch of the Group's "Inclusive Futures" programme, offering three training schemes with entry-level career opportunities. The focus in the programme on diversity and inclusion, with a recruitment process as free as possible from unconscious bias, meant that it was fully aligned to the Group's Guiding Principles and its developing Corporate Social Responsibility agenda.

Strategy delivering

As we have worked through our strategy, we have at all times been conscious of building on the long-standing strengths of the organisation - our client and adviser relationships, our culture and our Centralised Investment Process. These critical strengths continue to position us well for the future, and we see clear evidence of the strategy delivering. Our strategy is based on three key value drivers:

• Market-leading organic growth

• Service and operational excellence

• Selective high-quality acquisitions.

Market-leading organic growth

The first half of our financial year saw continuing positive net flows, running at an annualised rate of 4.0% for the period, picking up from 3.1% in Q1 to 4.7% in Q2. This strengthening growth was underpinned by our continued focus on clients and intermediaries, supported by our teams' welcome return to more face-to-face meetings as pandemic-related restrictions fell away.

Our UK Investment Management ("UKIM") business, under the leadership of Robin Eggar, had a strong half. We saw particularly good growth in BM Investment Solutions, our B2B offering for advisers, with FUM up 60% over the half year, and in Platform Managed Portfolio Service ("PMPS") which saw a rise of 20%. We also continued to see progress in the specialised variants of our Bespoke Portfolio Service, including the Responsible Investment Service ("RIS") and the Decumulation Service, with both seeing FUM up close to 20% over the period. Overall, our core UK Investment Management discretionary business had annualised net flows of 6.3% for the half year.

The UKIM Funds business saw solid investment performance largely offset by net outflows, although the Defensive Capital Fund returned to positive net flows in Q2.

A highlight of the period was the return to positive net flows of our International business in Q2, with outflows down sharply compared to the previous half and inflows increasing each month in the period. The underlying profit margin for International was also up on the prior period by 2.1 percentage points to 21.8%, and we see potential to close the gap further to UKIM levels of profitability.

With markets continuing to be volatile, our Centralised Investment Process emphasised the need for portfolios at all risk levels to maintain balance across multiple dimensions. This has proved a sound approach as we continued to deliver robust risk-adjusted returns for clients, with performance ahead of ARC benchmarks across all risk profiles over five and ten years.

Our vision for Brooks Macdonald is as the leading investment manager for intermediaries - we are an investment manager focused on working with intermediaries to support their clients and to help them build successful businesses. In parallel, we have a material Private Clients business with c.£2.5 billion funds under management in the UK, covering both Wealth Management and Specialist Financial Advice propositions. Over the period, we have continued integrating Private Clients with UK Investment Management. Our intention is to ensure that we deliver the same high level of service and experience for those private clients as we do for our intermediated clients.

Service and operational excellence

SS&C Technologies ("SS&C"), a global provider of software and technology services to the financial services industry, is our technology partner. In H1, we completed the transition of full support of our Funds business to SS&C and commenced the phased rollout of our new digital onboarding tool to advisers. In the period, SS&C acquired Hubwise, the innovative financial services technology provider, (subject to regulatory approval) allowing SS&C to redesign some elements of the new platform being implemented for Brooks Macdonald to incorporate some features of the Hubwise functionality. We continue to work with SS&C to complete the transition of all client- and adviser-facing processes on to their platform, which is the next milestone in our journey to deliver best-in-class adviser experience and client service through technology and innovation. As we continue the journey, our digital transformation will provide a market-leading digital experience for the Group's intermediaries and clients.

In parallel, we maintain a strong focus on delivering continuous improvement in our internal practices to ensure that we make Brooks Macdonald as easy as possible to do business with.

Selective high-quality acquisitions

We have been transparent that acquisitions form part of our medium-term strategy and we reviewed a number of potential targets in H1. As previously disclosed, we have four strict criteria for acquisitions: (i) the target must be a good business in its own right; (ii) there must be clear strategic logic to the combination; (iii) it must be a good cultural fit with Brooks Macdonald; and (iv) the economics of the transaction must be compelling. In the period at hand, we did not find a target that fully met those criteria. We will continue to seek inorganic opportunities that meet our criteria.

Corporate Social Responsibility

The Group strengthened its focus on our Corporate Social Responsibility ("CSR") agenda in H1. We published our CSR brochure in September 2021, showcasing the range of initiatives we have under way and explaining how well they complement the Group's Guiding Principles. Initiatives included covered a wide range - for example, our Responsible Investment Service, our approach to new offices, our commitment to diversity and inclusion, and how we are using our continuing 30th anniversary celebrations to support our CSR agenda.

The Group's Responsible Investment Service, continued to show rapid growth. In November 2021, we launched our Responsible Investment Hub with a range of materials dedicated to facilitating conversations about responsible investment and streamlining the way advisers access the resources they need.

We opened three new offices in the period and continue to relocate existing premises as leases end. In all cases, we focus on ensuring the workspace supports the wellbeing of everyone who enters, with contemplation rooms, biophilic design and collaboration and relaxation spaces. We moved our Manchester office to the city's most cycle-friendly building (according to CycleScore), certified outstanding by BREEAM, the leading sustainability assessment method for buildings.

The Group's "Inclusive Futures" recruitment programme has three strands - our graduate intake and our partnerships with Investment 2020 and #10000blackinterns. We have redesigned our recruitment process with talent experts Zircon BeTalent to eliminate unconscious bias, giving us a robust approach to talent assessment. The strands all offer great opportunities to young people who might not have otherwise considered a career in investment management.

In H1, the Group reached the 30th anniversary of its founding. To mark the anniversary, we have partnered with the Dame Kelly Holmes Trust to put together a series of events and fundraising activities to support the Trust's work in tackling youth inequality and disadvantage. The Trust runs programmes designed to improve young people's wellbeing, help them build healthy relationships and unlock the confidence, self-esteem and resilience needed to achieve in education, work and life. Their mission resonates strongly with the Group's commitment to diversity and inclusion, and we are delighted to be working with them.

We are also working with a respected independent organisation with the intention of achieving certified status on their standards programme, measuring a company's entire social and environmental impact, and we expect to make an announcement in the first half of our next financial year.

Positive medium-term outlook, short-term uncertainty

We are announcing these results against the backdrop of the human tragedy unfolding in Ukraine. During these troubled times, our thoughts are with those who are directly and indirectly affected, and we have made a donation towards humanitarian aid efforts in the region on behalf of the Group and BM Foundation.

Although the short-term geopolitical and macroeconomic outlook is highly uncertain, looking ahead the fundamental opportunity for the Group remains as strong as it has ever been. We are confident in our long-term prospects building on our ambitious organic and inorganic growth strategy, grounded in our purpose of realising ambitions and securing futures.

Review of the results for the period

Revenue

Total revenue for the Group grew by 10.7% to £61.9 million in the first half of the financial year. This increase was due to higher average FUM levels driven by strong positive net flows and investment performance, along with the full period impact of the Lloyds Channel Islands business which contributed £4.6 million to the Group's H1 FY22 headline figure. The rise in fee income was offset by a reduction in transactional income of £1.9 million as a result of the Group's relatively stable asset allocation during the period and a reduction in interest turn of £0.6 million off the back of lower base rates.

As noted in the following table, the yield on BPS fees for UKIM decreased by 1.0 bp to 66.3 bps during the first half. This was principally driven by the impact of timing of inflows and outflows during the period. The BPS non-fee income declined by 7.3 bps to 10.9 bps largely due to a reduction in transactional income and interest turn as noted above.

MPS saw a decline in fee yield by 4.4 bps compared to FY21 with the reduction driven by strong levels of net new business within Platform MPS and the BM Investment Solutions offering.

Funds fee yields have increased marginally by 0.4 bps during the six-month period due to a change in mix and a slowdown in outflows seen in the Defensive Capital Fund.

International fee income yields are up by 1.6 bps on FY21 due to higher performance and custody fees in the period. The Lloyds Channel Islands fee yields are up slightly by 0.7 bps on FY21 as a result of the full six-month impact on the average FUM. Non-fee income yields declined by 2.2 bps driven by a decrease in interest and FX income during the period.

Revenue, yields and average FUM

1 Yield variance change is between H1 FY22 and FY21 yields as this represents a more appropriate comparison of the composition and mix of the portfolios.

2 The Lloyds CI yields for H1 FY21 and FY21 were calculated on a pro rata basis reflecting the relative period the business was owned by the Group.

Underlying costs

Total underlying costs for the Group increased by 5.7% from £41.9 million to £44.3 million. Excluding the full period impact of the Lloyds Channel Islands acquisition amounting to £2.4 million, total underlying costs were flat with the prior period.

Staff costs

Total staff costs increased by 3.3% from £27.4 million to £28.3 million. Fixed staff costs were in line with H1 FY21 at £20.0 million. The incremental costs of the Lloyds Channel Islands acquisition of £1.1 million and the net impact of pay rises and new hires were offset by savings of £1.3 million arising from the transfer of a number of roles from the Investment Services and Technology Services departments to SS&C during December 2020 and reductions in temporary staff costs and recruitment fees of £0.2 million.

Variable staff costs increased by 12.2% to £8.3 million in H1 FY22, including the incremental cost in respect of the acquired Lloyds Channel Islands business of £0.3 million. The share-based payments charge for the year is up £0.9 million on the prior period due to lapses recognised in H1 FY21 and a rise in the Group's share price during the period impacting the associated employer national insurance contributions. The bonus pool accrual is relatively in line with H1 FY21.

Non-staff costs

Non-staff costs amounted to £16.0 million representing an increase of £1.5 million (10.3%) on H1 FY21. The increase was primarily driven by the full period impact of the Lloyds Channel Islands acquisition contributing additional costs of £1.3 million, and other net incremental costs of £0.2 million as the Group maintained its cost discipline.

Combined, the above gave rise to an underlying profit before tax for the half year of £17.6 million, an increase of 25.7% on the prior period (H1 FY21: £14.0 million) resulting in a profit margin of 28.4%, up by 3.3 points on last year (H1 FY21: 25.1%).

The Group's statutory profit before tax fell by £0.9 million to £13.2 million (H1 FY21: £14.1 million). The prior period statutory profit included a £5.0 million gain recognised on the Lloyds Channel Islands acquisition.

Funds under management

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

2 Capital-only index.

FUM increased to £17.3 billion at 31 December 2021 (H1 FY21: £15.5 billion; FY21: £16.5 billion), representing an increase of 11.8% and 5.3% on the FUM levels at H1 FY21 and FY21 respectively. The increase in FUM reflected the Group's return to positive net flows of £0.3 billion and positive investment performance of £0.5 billion.

Investment performance remained positive at 3.3%, although marginally behind the benchmark index of 4.0% for the six months ended 31 December 2021, investment performance is ahead of ARC benchmarks across all risk profiles over five and ten years.

Closing FUM by service and segment

The table below shows the closing FUM broken down by segment and by our key services within UKIM at 31 December 2021 and comparative periods.

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.

1 Comparative figures have been restated to reflect the integration of the Financial Planning division into UK Investment Management on 1 January 2021.

Both operating segments reported improved performance across all metrics. UKIM saw revenue grow by 4.3% contributed by strong positive net flows and an increase of the Private Clients revenue (formerly Financial Planning). Underlying profit grew by 17.5% to £16.8 million and the underlying profit margin rose by 3.7 points to 33.0%.

Revenue grew by £3.9 million in the International segment largely as a result of the full period impact of the Lloyds Channel Islands acquisition. Total underlying costs increased by £2.9 million, also primarily as a result of the acquired business. This resulted in underlying profit growing from £1.4 million to £2.4 million, and underlying profit margin rising by 2.1 points to 21.8%.

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 when compared to the statutory results as this excludes income and expense categories, which are deemed of a non-recurring nature or a non-cash operating item. Reporting at an underlying basis is also considered appropriate for external analyst coverage and peer group benchmarking, allowing a like-for-like comparison. Underlying profit is deemed to be an alternative performance measure ("APM"), refer to the Non-IFRS financial information section in the Condensed consolidated financial statements for a glossary of the Group's APMs, their definition, and the criteria for how underlying adjustments are considered.

A reconciliation between underlying and statutory profit before tax for the six months ended 31 December 2021, with comparatives is shown in the following table:

Amortisation of client relationships (£2.7 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 from H1 FY21 to H1 FY22 is due to the Lloyds Channel Islands acquisition, which completed on 30 November 2020. This amortisation charge has been excluded from the underlying profit since it is a significant non-cash item. Refer to Note 9 of the Condensed consolidated financial statements for more details.

Dual running operating platform costs (£1.6 million charge)

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

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

This comprises the fair value measurement arising on deferred consideration payments from acquisitions carried out by the Group, together with their associated net finance costs where applicable. Refer to Note 14 of the Condensed consolidated financial statements for more details.

FY21 Acquisition-related costs

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

ii. Integration and staff retention costsThese comprised the costs incurred in integrating the Cornelian acquisition, which completed on 28 February 2020, and the Lloyds Channel Islands acquisition, which completed on 30 November 2020. It also includes 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.

FY21 Client relationship contracts impairment

In FY21, the Group experienced accelerated withdrawals from a previously acquired business, DPZ Limited, resulting in the estimated useful economic life of the intangible assets associated with the business to reduce. Accordingly, an impairment charge of £1.5 million was recognised in the prior year.

Taxation

The Group's Corporation Tax charge on underlying profits for the period was £3.7 million (H1 FY21: £2.5 million) representing an effective tax rate of 21.1% (H1 FY21: 17.7%). The statutory Corporation Tax charge was £3.0 million (H1 FY21: £2.0 million). The increase in the effective tax rate on the previous year is principally as a result of the impact of remeasuring deferred tax assets and liabilities for the substantively enacted Corporation Tax rate to 25.0% from 1 April 2023. Refer to Note 6 of the Condensed consolidated financial statements for more details.

Earnings per share

The Group's basic statutory earnings per share for the six months ended 31 December 2021 was 65.5p, which reduced by 11.8p from H1 FY21 as a result of the one-off gain recognised on the Lloyds Channel Islands acquisition in the prior period. On an underlying basis, basic earnings per share increased by 20.7% to 88.6p (H1 FY21: 73.4p). Details on the basic and diluted earnings per share are provided in Note 7 of the Condensed consolidated financial statements.

Dividend

The Group has a progressive dividend policy, growing dividends year-on-year. 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 declared an interim dividend of 26.0p (H1 FY21: 23.0p). This represents an increase of 13.0% compared to the previous period. The interim dividend will be paid on 14 April 2022 to shareholders on the register as at 18 March 2022. Refer to Note 8 of the Condensed consolidated financial statements for more details.

Financial position and regulatory capital

The Group's financial position remains strong with net assets of £140.3 million at 31 December 2021 (H1 FY21: £129.0 million; FY21: £134.0 million). As at 31 December 2021, the Group had a total capital ratio of 22.9% (H1 FY21: 17.2%). Total capital ratio is defined as the Group's own funds as a proportion of the total fixed overhead exposure amount (being 12.5 times the Pillar I requirement). The total net assets and the total capital ratio calculation take into account the respective period's interim profits (net of the declared interim dividends) as these are deemed to be verified at the date of publication of the half year results.

Brooks Macdonald Asset Management Limited, the Group's main operating subsidiary, is an IFPRU 125k Limited Licence Firm regulated by the Financial Conduct Authority ("FCA"). In view of this, the Group is classified as a regulated group and subject to the same regime. As required under FCA rules, and those of both the Jersey and Guernsey Financial Services Commission, the Group assesses its regulatory capital and liquidity on an ongoing basis through the Internal Capital Adequacy Assessment Process ("ICAAP") and Adjusted Net Liquid Asset ("ANLA") assessments, which include performing a range of stress tests and scenario analysis to determine the appropriate level of regulatory capital and liquidity that the Group needs to hold. Surplus levels of capital and liquidity are forecast, taking into account known outflows and proposed dividends to ensure that the Group maintains sufficient capital and liquidity at all times.

The FY21 ICAAP review was conducted for the period 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 where applicable, as well as budgeted and forecast trading results.

The Group's Pillar III disclosures are published annually on the Group's website (www.brooksmacdonald.com) and provide further details about the Group's regulatory capital resources and requirements. The Group monitors a range of capital and liquidity statistics on a daily and monthly basis.

Cash flow and capital expenditure

The Group continues to have strong levels of cash generation from operations. Total cash resources at the end of December 2021 grew by £7.1 million to £45.7 million (H1 FY21: £38.6 million). The Group continued to have no borrowings at 31 December 2021.

During the six months ended 31 December 2021, the Group incurred capital expenditure of £2.4 million. This comprised technology-related development of £2.2 million, property-related costs of £0.1 million and IT and office equipment of £0.1 million. The technology-related spend was primarily incurred in connection with our partnership with SS&C where the collaboration will provide a market-leading digital experience for the Group's intermediaries and clients. These will be amortised over a ten-year period from the point at which the new platform goes live.

Condensed consolidated statement of comprehensive income

for the six months ended 31 December 2021

1 See Note 7 for details regarding the restatement of diluted earnings per share.

Condensed consolidated statement of financial position

as at 31 December 2021

The Condensed consolidated financial statements were approved by the Board of Directors and authorised for issue on 9 March 2022, signed on their behalf by:

Andrew Shepherd

CEO

Ben Thorpe

Chief Financial Officer

Company registration number: 4402058

Condensed consolidated statement of changes in equity

for the six months ended 31 December 2021

Condensed consolidated statement of cash flows

for the six months ended 31 December 2021

Notes to the condensed consolidated financial statements

for the six months ended 31 December 2021

1. General information

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

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

The Interim Report and Accounts were approved for issue on 9 March 2022. The Condensed consolidated financial statements have been independently reviewed but are not audited.

2. Accounting policies

a) Basis of preparation

The Group's Condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the Companies Act 2006 applicable to companies reporting under IFRS. The Financial statements have been prepared on the historical cost basis, except for the revaluation of financial assets at fair value through other comprehensive income, financial assets 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.

Developments in reporting standards and interpretations

Standards and interpretations adopted during the current reporting period

In the six months ended 31 December 2021, the Group did not adopt any new standards or amendments issued by the IASB or interpretations by the IFRS Interpretations Committee ("IFRS IC") that have had a material impact on the Condensed consolidated financial statements.

Future new standards and interpretations

A number of new standards are effective for annual periods beginning after 1 July 2021 and earlier application is permitted; however, the Group has not early adopted the new or amended standards in preparing these Condensed consolidated financial statements. None of the standards not yet effective are expected to have a material impact on the Group's financial statements.

b) Changes in accounting policies

The accounting policies applied in these Condensed consolidated financial statements are the same as those applied in the Group's Consolidated financial statements as at and for the year ended 30 June 2021.

In the six months ended 31 December 2021, the Group did not adopt any new standards or amendments issued by the IASB or interpretations issued by the IFRS IC that have had a material impact on the Condensed consolidated financial statements.

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

• Definition of a Business (Amendments to IFRS 3)

• Definition of Material (Amendments to IAS 1 and IAS 8)

• Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)

• COVID-19-related Rent Concessions (Amendment to IFRS 16).

3. Segmental information

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

The UK Investment Management segment offers a range of investment management services to private high net worth individuals, pension funds, institutions, charities and trusts, and also provides 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 Isle of Man, offering a similar range of investment management and financial planning services as the UK Investment Management segment.

The Group segment principally comprises the Group Board's management and associated costs, along with the consolidation adjustments. Revenues and expenses are allocated to the business segment that originated the transaction. Transactions between segments are carried out at arm's length. Centrally incurred expenses are allocated to business segments on an appropriate pro rata basis.

From 1 January 2021, the Group integrated its previous Financial Planning segment into its UK Investment Management segment. As a result, the information for the six months ended 31 December 2020 has been restated to reflect the new segments of UK Investment Management, International and Group and other consolidation adjustments, consistent with the current year.

4. Revenue

Portfolio management fees and financial services commission

Portfolio management and other advisory and custody services are billed in arrears but are recognised over the period the service is provided. Fees are calculated on the basis of a percentage of the value of the portfolio over the period. Dealing charges are levied at the time a deal is placed for a client. Fees are only recognised when the fee amount can be estimated reliably and it is probable that the fee will be received. Amounts are shown net of rebates paid to significant investors. Performance fees are earned from some clients when contractually agreed performance levels are exceeded within specified performance measurement periods. They are only recognised, at the end of these performance periods, when a reliable estimate of the fee can be made and is virtually certain that it will be received.

Fund management fees

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

Advisory fees

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

a) Geographic analysis

The Group's operations are located in the United Kingdom, Channel Islands and Isle of Man. The Group has recently established operations in the Isle of Man, which has yet to generate revenue for the six months ended 31 December 2021. The following table presents external revenue analysed by the geographical location of the Group entity providing the service.

b) Major clients

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

5. Other gains/(losses) - net

Other gains and losses represent the net changes in the fair value of the Group's financial instruments and intangible assets recognised in the Condensed consolidated statement of comprehensive income.

6. Taxation

The current tax expense for the six months ended 31 December 2021 was calculated based on the Corporation Tax rate of 19%, applied to the taxable profit for the six months ended 31 December 2021 (six months ended 31 December 2020: 19%; year ended 30 June 2021: 19%).

Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the time apportioned tax rate applicable to profits of the consolidated entities in the UK as follows, split out between underlying and statutory profits:

On 1 April 2017, the standard rate of Corporation Tax in the UK was reduced to 19%. As a result, the effective rate of Corporation Tax applied to the taxable profit for the six months ended 31 December 2021 is 19% (six months ended 31 December 2020: 19%; year ended 30 June 2021: 19%).

On 11 March 2021 it was outlined in the Finance Bill 2021, and substantively enacted having received royal ascent on 24 May 2021 that the UK Corporation Tax rate would increase to 25% from 1 April 2023 and remain at 19% until that date. Deferred tax assets and liabilities are calculated at the rate that is expected to be in force when the temporary differences unwind.

7. Earnings per share

The Board of Directors considers that underlying earnings per share provides an appropriate reflection of the Group's performance in the period. Underlying earnings per share are calculated based on 'underlying earnings', which is defined as earnings before underlying adjustments listed below. The tax effect of these adjustments has also been considered. Underlying earnings is an alternative performance measure ("APM") used by the Group. Refer to the Non-IFRS financial information section for a glossary of the Group's APMs, their definition and criteria for how underlying adjustments are considered.

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 attributable to ordinary shareholders 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 six months ended 31 December 2021 were as follows:

1 The Group previously reported the dilutive effect of potential shares issuable on exercise of employee share options for employee share options that are satisfied from newly created shares. This did not take into account share options that are satisfied from shares bought in the market and held in the Group's Employee Benefit Trust ("EBT"). The Group now considers it is appropriate to also take into account the share options that are satisfied from shares held in the EBT where the average market price of the ordinary shares during the period exceeds the exercise price of the options, in calculating the dilutive weighted average number of shares in issue. Accordingly, the diluted weighted average number of shares in issue and diluted earnings per share for the comparative periods have been restated to be consistent with the current period calculation.

For the six months ended 31 December 2020, the reported effect of dilutive potential shares was 26,391 and the reported diluted weighted average number of shares in issue was 15,736,590. For the six months ended 31 December 2020, the reported diluted earnings per share on statutory and underlying earnings was 77.2p and 73.2p respectively. For the year ended 30 June 2021, the reported effect of dilutive potential shares was 50,891 and the reported diluted weighted average number of shares in issue was 15,722,563. For the year ended 30 June 2021, the reported diluted earnings per share on statutory and underlying earnings was 124.9p and 155.1p respectively.

8. Dividends

An interim dividend of 26.0p (six months ended 31 December 2020: 23.0p) per share was declared by the Board of Directors on 9 March 2022. It will be paid on 14 April 2022 to shareholders who are on the register at the close of business on 18 March 2022. In accordance with IAS 10, this dividend has not been included as a liability in the Condensed consolidated financial statements at 31 December 2021.

A final dividend for the year ended 30 June 2021 of 40.0p (year ended 30 June 2020: 32.0p) per share was paid to shareholders on 5 November 2021.

9. Intangible assets