Brooks Macdonald Regulatory News (BRK)

27 July 2017

BROOKS MACDONALD GROUP PLC

Year End Trading Update and Notice of Results

"Strong organic growth takes FUM through £10bn; further investment in underlying business."

Brooks Macdonald Group plc (the "Group"), the AIM Listed investment management group, today announces a trading update together with funds under management ("FUM") for its final quarter and year ended 30 June 2017.

· Strong growth momentum maintained in the final quarter, ending the financial year with record discretionary FUM of £10.5bn, an increase of 25.9% over the year and 5.3% over the quarter:

o Strong net new business and above benchmark investment performance

o All segments increased FUM over the year: Asset Management grew strongly across both BPS and MPS; BMI is now through £1.5bn; Funds business performing well with Defensive Capital Fund now over £400m FUM.

· Group underlying profits* are anticipated to be in line with expectations.

· Completion of our previously announced IT system development, on budget and on time, enhancing customer service and delivering operational efficiencies over time.

· The Group continues to invest to meet current and future regulatory demands, such as MiFID II, in line with the wider industry. In addition, to ensure a robust risk management and operational framework to support the business today, and allowing for future growth, the Group will be investing further in its functional capability. This is expected to result in additional operating expenses of £4m in the financial year ending 30 June 2018, falling to circa £2m in subsequent years.

· The Group has decided to deal proactively with certain legacy matters arising from the former Channel Islands-based Spearpoint business, acquired in 2012. We expect the total cost to be £6.5m. This sum will be provided for as an exceptional item within the June 2017 results.

· The Group's capital position remains strong and the Board remains committed to a progressive dividend policy.

*Adjustments are in respect of deferred consideration, the amortisation of intangible assets and the exceptional item of £6.5m relating to legacy matters.

Caroline Connellan, Chief Executive of Brooks Macdonald, commented

"I am pleased to report that Brooks Macdonald has completed another successful year with funds under management growing over 25% and exceeding £10bn for the first time. In addition, underlying profits for the year are anticipated to be in line with expectations. 

"To position the business for future growth, we will be stepping up investment in our regulatory and risk management capabilities. While the associated costs will have an impact on profitability in the near term, this will result in a much stronger platform both now and for delivering sustainable growth in the future. 

"Today we have also announced that we are dealing decisively with certain legacy matters. This decision upholds our commitment to protect our clients' best interests and supports our relationships with key intermediaries.

"As the incoming CEO of Brooks Macdonald, I am excited by the opportunities we have to deliver value for our clients, partners and shareholders in the years to come. We enter our new financial year with strong momentum across the Group while remaining cautious around markets and client sentiment."

Discretionary funds under management

As at 30 June, discretionary FUM totalled £10.5 billion (30 June 2016: £8.3 billion). 

Over the year, FUM grew by £2,154 million (25.9%). Of this, 11.5% (£951m) was net new business and 14.5% (£1,203m) was investment performance. As a comparison, the FTSE Private Investor Balanced index increased by 10.5% over the year.

In the final quarter, FUM rose by £523 million (5.3%). Of this, 3.2% (£314m) was net new business and 2.1% (£209m) was investment performance. As a comparison, the FTSE Private Investor Balanced index declined by 0.3% over the quarter.

Analysis of discretionary fund flows over the quarter and year

Enhancing functional capabilities

The Group has delivered its investment in an integrated IT system across the business by the end-June timeline set out in the half year report. This is already offering an enhanced client portal, as well as a new customer relationship management system, supporting future growth.

The business continues to grow rapidly, tripling FUM to £10.5bn over the past five years, in a fast evolving external environment and against a backdrop of increasing regulation. The Group has been investing to meet the requirements of key regulatory changes, such as MiFID II, the General Data Protection Regulation and the Senior Managers & Certification Regime, and will continue to do so in the coming year.

Allowing for future growth it is also important that we invest more broadly in our functional capabilities and as a priority will be focusing on enhancing our risk management and operational framework. We will be increasing our capabilities, including the appointment of a Chief Risk Officer and a Chief Operating Officer, to provide the support needed for our front line investment teams and to ensure we continue to meet and exceed our clients' expectations. These initiatives will add approximately £4m to operating expenses in the financial year ending 30 June 2018, circa £2m of which will recur in subsequent years.

This investment will enhance our infrastructure, appropriate to our ambition to build on our success to date and grow the business materially and sustainably. The Group will continue to work on initiatives to drive margin improvement over time.

Legacy matters arising from the former Spearpoint business 

Following a review we have decided to deal proactively with certain legacy matters arising from the former Spearpoint business, which we acquired in 2012. These matters relate to a number of discretionary portfolios formerly managed by Spearpoint, now managed by our Jersey office, and a Dublin-based fund, for which Spearpoint acted as investment manager. We intend to contact relevant clients shortly to explain how we propose to resolve these matters. While we accept no legal liability in these matters, we have a deep commitment to treating customers fairly and seeking to protect our clients' best interests. We expect this exercise will cost £6.5m, including associated expenses, and this amount will be provided for as an exceptional item in the financial results for the year to 30 June 2017.

Capital position and dividend

The Group's capital position remains strong and the Board remains committed to a progressive dividend policy.

Notice of results

The Group intends to issue its results for the year to 30 June 2017 on Thursday, 21 September 2017.

The information communicated in this announcement contains inside information for the purposes of Article 7 of Regulation 596/2014.

Enquiries

Brooks Macdonald Group plc www.brooksmacdonald.com

Caroline Connellan, Chief Executive 020 7499 6424

Simon Jackson, Finance Director

Andrew Shepherd, Deputy Chief Executive

Peel Hunt LLP (Nominated Adviser & Broker)

Guy Wiehahn / Adrian Haxby 020 7418 8900

MHP Communications

Reg Hoare / Simon Hockridge / Charlie Barker 020 3128 8100

Brooks@mhpc.com

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 £10.5bn as at 30 June 2017.

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.