Half year results for the six months ended 31 December 2017 Caroline Connellan, Group Chief Executive; and Simon Jackson, Group Finance Director
Caroline Connellan Chief Executive
Highlights strong underlying business performance continues Organic net inflows ( m) +143% Discretionary FUM ( bn) +26% Revenue 1 ( m) +11% 808 9.3 11.7 44.0 48.8 332 H1 FY17 H1 FY18 H1 FY17 H1 FY18 H1 FY17 H1 FY18 Underlying 2 PBT ( m) +3% 9.6 Without one-off investment in risk Underlying 2 EPS (p) +1% Interim dividend (p) +13% 8.2 8.5 47.1 47.7 15.0 17.0 H1 FY17 Margin 18.7% H1 FY18 Margin 17.4% H1 FY17 19.7% without one-off investment in risk H1 FY18 H1 FY17 H1 FY18 1 Continuing operations 2 Excludes acquisition/disposal costs, finance costs of deferred consideration, changes in fair value of deferred consideration, amortisation of non-software intangible assets, and discontinued operations 3
Update on provision to deal with legacy matters 6.5m provision announced July 2017 to deal proactively with certain legacy matters arising from former Spearpoint business (acquired 2012) relating to some discretionary portfolios formerly managed by Spearpoint, now managed by our Jersey office, and a Dublin-based fund, for which Spearpoint acted as investment manager No legal liability accepted but deeply committed to treating customers fairly and seeking to protect our clients best interests; accordingly developed a plan to resolve those matters On the discretionary portfolios: Became apparent that offer calculations were affected by quality issues in data derived from legacy systems Initiated a review of the data sources, calculations and methodology, requiring extensive use of third party expertise to extract the data, and for advice and quality assurance to ensure that any revision was fair to clients Review now concluded, final offer letters to be issued by end of March 2018 In parallel, extensive discussions with the Board of the Dublin-based fund Goodwill proposal made to the directors of the fund in October 2017 Made some progress but have been unable to reach agreement yet Remain committed to reaching a settlement on terms in line with initial proposal Effect of movements in the expected total cost of goodwill offers and associated expenses is an increase of 5.5m from the previous provision to 12.0m, providing for the additional amount as an exceptional item 4
Simon Jackson Finance Director
Summary P&L m, continuing operations H118 H117 % Change All figures excluding Braemar Estates Funds under management 11,738 9,330 25.8% Revenue 48.8 44.0 10.9% Without the impact of the one-off risk programme, cost growth would be lower than revenue growth at 9.6% Total underlying costs 40.3 35.8 12.6% Underlying profit before tax 8.5 8.2 3.2% Underlying profit margin (%) 17.4% 18.7% -1.3pts Underlying EPS (p) 47.7 47.1 1.4% 6
Reconciliation of underlying profits to statutory 000 H118 H117 % Change Underlying profit before tax, continuing operations 8,500 8,236 +3% Amortisation of intangible assets (1,196) (1,250) -4% Finance income/costs of deferred consideration (84) (159) -47% Changes in fair value of deferred consideration (985) 1,318 n/m Disposal related costs (82) - n/m Exceptional costs of resolving legacy matters (5,506) - n/m Profit before tax, continuing operations 648 8,145-92% Throughout the presentation, references to underlying measures (profit, eps, etc.) relate to continuing operations only Software amortisation is now a more material continuing item, so we have changed treatment to include it in underlying profit Profit after tax, continuing operations (481) 6,555-107% Profit / (loss) from discontinued operations (326) 16 n/m Gain on disposal of Braemar Estates 823 n/a n/m Discontinued operations 497 16 3006% Profit after tax 16 6,571-100% 7
Growth in discretionary FuM 6 months to Dec 2017 6 months to Dec 2016 m UKIM Funds Total UKIM Funds International International Total Opening discretionary FUM Net new business 7,764 1,163 1,529 10,456 6,158 796 1,348 8,301 519 205 83 808 216 76 40 332 Performance 402 16 55 474 537 59 100 697 Closing FUM 8,686 1,384 1,667 11,738 6,911 931 1,488 9,330 Organic growth % Total growth % 6.7% 17.7% 5.4% 7.7% 3.5% 9.5% 3.0% 4.0% 11.8% 19.4% 9.1% 12.3% 12.3% 17.0% 10.4% 12.4% Organic growth across all segments: UK Investment Management and Funds remain strong, improving growth in International Note: from FY19 onward we will present UKIM and Funds as a combined entity, following completion of Funds integration into UKIM 8
Underlying segmental results H1 FY18 vs H1 FY17 H1 18 000 UK Investment management Funds Financial planning International Group and central costs Revenue 35,934 3,675 2,466 6,720-48,795 Underlying profit before tax 9,437 710 292 539 (2,478) 8,500 Margin 26.3% 19.3% 11.8% 8.0% - 17.4% Annualised yield* 86bps 58bps - 78bps - Total H1 17 000 UK Investment management Funds Financial planning International Group and central costs Revenue 32,789 2,415 2,267 6,526-43,997 Underlying profit before tax 10,333 (32) 177 601 (2,843) 8,236 Margin 31.5% (1.3%) 7.8% 9.2% - 18.7% Annualised yield* 96bps 56bps - 85bps - Total Strong revenue growth, particularly in Funds and UK Investment Management UK Investment Management margin in particular affected by costs of regulatory change and investment in our risk management and operational framework Yield calculation includes only discretionary investment management revenues and FUM within each segment 9
Cash bridge 000 35,000 30,000 25,000 32,183 1,388 2,873 3,524 1,852 409 966 2,988 26,909 20,000 15,000 10,000 5,000 - Opening balance 30 June Tax paid Fixed, intangible and financial assets Dividends Deferred consideration payments Issue of new shares Proceeds from sale of subsidiaries Cash generated from operations and other income Closing balance 31 December 10
Investment programme Continued investment to meet regulatory requirements and to support next phase of growth IT investment continuing in overall platform given growth, increased client and adviser expectations, and to deliver efficiency e.g., online application portal, continuing enhancements to portfolio management platform Good progress on previously announced improvements to risk management and operational framework, spend in line with prior announcement 4m for full year, of which 2m ongoing Building internal capability, COO joined in October and today s CRO announcement plus new permanent roles, now largely complete One-off costs mix of short-term contract staff, third party consultants and recruitment costs Enhancements to risk management framework on track Regulatory developments: Met requirements for MiFID II, now embedding; focus turned to upcoming GDPR requirements, significant work required in line with the industry Combined MiFID II and GDPR FY18 IT investment now forecast to be over 2m for the year, increased from the 1m originally expected Other regulatory changes ongoing requirements of IFPRU significant status, preparation for SMCR Implications Rigorous management of overall change portfolio to offset increased regulatory spend where possible; some deferrals of discretionary investment required Investment to improve risk management and operational framework on track to complete in early FY19 Level of ongoing IT investment in software likely to remain at 3-4m p.a. over medium term Need for tight focus on payback and continued cost discipline 11
Caroline Connellan Chief Executive
Particularly high net organic growth in H1 FY18, reflecting strength of core offering and relationships Net organic growth by half year FY13 to H1 FY18 900 FY15 9.8% FY16 11.6% FY17 11.5% H1 FY18 7.7% 9.0% 800 8.0% 700 7.0% 600 6.0% 500 5.0% 400 4.0% 300 3.0% 200 2.0% 100 1.0% 0 H1 '15 H2 '15 H1 '16 H2 '16 H1 '17 H2 '17 H1 '18 Net organic growth ( m) Net organic growth (%) 0.0% 13
Consistent outperformance of ARC private client benchmark underlining value of our Centralised Investment Proposition Increment by which Brooks Macdonald risk profiles cumulative performance exceeds relevant ARC PCI (percentage points) Low 0.91 2.5 5.83 Low-to- Medium 1.23 1.55 3.80 Medium 1.47 0.6 1.22 Mediumto-high 2.95 3.88 3.73 High 5.28 9.08 12.54 1 year 3 years 5 years Past performance is no guide to future performance. All performance figures are net of underlying fund charges and Brooks Macdonald management fees but gross of professional adviser management fees. Deduction of these fees will impact on the performance shown. Source: Brooks Macdonald, ARC 14
Shifting shape of UK IM discretionary revenue Higher quality earnings as shift from transaction income to flat fees continues Yield decline levelling off in H1 FY18 Lower dealing volumes resulting from low volatility in the markets UK IM discretionary revenue ( m) 97.9 50 95.3 92.2 98.3 96.3 Revenue yield, bps 100 88.7 85.7 CAGR -3.5% 40 30 20 0.7 6.7 0.6 0.6 8.3 7.0 0.7 8.9 0.9 8.6 0.4 8.2 0.6 7.1 80 60 40-4.0% 1.8% 10 16.6 17.9 18.4 19.7 22.1 24.0 27.5 20 18.3% 0 0 Fees Transactional Income Interest turn Revenue yield Average FUM for the period ( bn): 10 0 5.0 5.5 5.6 6.0 6.6 7.3 8.2 H1 '15 H2 '15 H1 '16 H2 '16 H1 '17 H2 '17 H1 '18 17.8% 15
Significant market opportunity Market opportunity remains Increasing wealth: Wealth forecast to continue to rise Advice requirements growing Pensions and ISAs: Changing pension regulation major opportunity Pensions transfer demand (DB & DC) SIPPs and ISAs Professional intermediaries: Number of individual advisers continuing to rise, nearing pre-rdr levels Professional high-end advisers to stay independent Trend of specialisation spreading, with continuing move to outsourced investment management Opportunities for bespoke segregated multiasset fund solutions Responding to external trends Technology and digital playing increasingly important role Essential part of client experience and satisfaction levels Improves efficiency through client take-on and servicing, and processing engines Supports sustainability of adviser business models High pace of regulatory change Ensuring compliance (MiFIDII, GDPR, SMCR) Growth elevated BM to FCA s IFPRU significant categorisation Increased regulatory reporting requirements Automatic SMCR enhanced regime Competition Increasing competition in adviser intermediated discretionary market Consolidation trend appearing to slow but fundamentals remain supportive 16
Well positioned to build on our success to date and deliver future growth while progressively improving margins Focus on our core businesses of UK IM (including Funds), International and Financial Planning Build on a foundation of success Track record of success, continue to leverage our strengths Strength of relationships and strategic partnerships Client-centric, can do culture Service to clients and intermediaries Strong Centralised Investment Process (CIP) Focus our business to deliver increased value Strive for efficiency and effectiveness, deliver improved profit margins over the medium term Easy to do business with Robust risk management Technology and digital Scalable operating platform Talent and succession Seek new opportunities for growth Continue to grow FUM organically with new segments, propositions and partnerships Strong branding and reputation Leverage our core capabilities and relationships Cross-business collaboration, bringing best of BM Selectively expanding geographic footprint Without one-off investment in risk FY12 13 14 15 16 17 H1 18 FY12 FY13 FY14 FY15 FY16 FY17 H1 18 Funds under management, FY12 H1 FY18 Underlying PBT margin, FY12 H1 18 H1 15 H2 15 H1 16 H2 16 H1 17 H2 17 H1 18 Organic net inflows, H1 15 H1 18 17
Leadership team Investing in our leadership team, building functional capability to complement client focused leadership and investment expertise Caroline Connellan Chief Executive Officer Andrew Shepherd Deputy CEO, MD Distribution Nick Holmes MD, UK Investment Management Darren Zaman CEO, International Richard Spencer Chief Investment Officer [Adrian Keane- Munday] [MD, Financial Planning] Simon Jackson Finance Director Leaving the Group in April. To be replaced by Ben Thorpe in August 2018 Joining the Group in Summer 2018 [Priti Verma] [Chief Risk Officer] Joining the Group in Summer 2018 Jason Wood Chief Operating Officer Started October 2017 Tom Emery HR Director Started August 2017 Simon Broomfield General Counsel & Company Secretary 18
Following a strong first half of the year, we remain confident in our prospects for the full year Significant opportunity available to us, with underlying trends including increased savings and advice needs, pensions freedoms and adviser outsourcing Maintained momentum in FUM, delivering particularly high net inflows supported by abovebenchmark investment performance Revenue growth continuing, improving quality of earnings with shift to all-in fees Continued investment and good progress in meeting current and future regulatory demands and building a sustainable and scalable operating platform Investment in the broader leadership team, in place by summer, building functional capability to complement existing client focused leadership and investment expertise Interim dividend increase reflecting the Board s continued confidence in the strength of the underlying business and commitment to a progressive dividend policy Strongly positioned to deliver further growth in FUM and revenue across all businesses, pursue greater efficiency and progressively improve margins. 19
Appendices
Appendices Funds under management EPS and dividend growth Asset allocation Investment performance Industry recognition 21
FUM continuing to grow rapidly 12 10 8 6 4 2 0 Year to June 12 Year to June 13 Year to June 14 Year to June 15 Year to June 16 Year to June 17 Half year to Dec 17 Total BM FUM ( m) 3,520 5,110 6,550 7,413 8,301 10,456 11,738 % Increment 18.6 45.0 28.2 13.2 12.0 25.9 12.3 % MSCI WMA Private Investor Balanced (1.8) 10.3 6.0 3.5 5.0 10.9 4.3 22
Underlying earnings per share, dividend growth and cover 120 115.8 4 100 80 3.5 Underlying earnings per share (p) Total dividend (p) Interim dividend (p) Underlying dividend cover (multiple) 3.2 87.9 3.5 86.2 3.3 91.3 3.0 87.9 2.5 2.8 3.5 3 2.5 60 40 20 0 62.8 55.1 48.0 41.2 35.0 41.0 30.5 26.0 24.8 22.5 18.5 15.0 12.0 15.0 12.4 9.0 17.0 5.5 6.5 7.0 10.0 3.5 5.0 6.0 3.0 2008 2008 2010 2011 2012 2013 2014 2015 2016 2017 H1 '18 2 1.5 1 0.5 0 23
Asset allocation Current guidance portfolios March 2018 The investment managers tolerance limits: +/- 3% +/- 5% +/- 7% Low Income Low Growth, Income & Low to Med Medium Med to High High Growth UK FI 26 25 17 11 3 0 INT FI 20 17 11 3 2 0 UK Eq 7 7 14 20 25 29 North American Eq 2 2 8 12 16 19 Euro Eq 0 0 3 6 9 10 Japan, FE & Em Eq 0 0 3 8 13 16 Int & Thematic 10 9 12 15 20 22 Alternatives 10 11 10 8 5 3 Property 4 4 4 4 2 0 Structured Return 14 18 13 10 4 0 Cash 7 7 5 3 1 1 100 100 100 100 100 100 24
Our performance vs. ARC s Private Client Index Over the last five years, BM has generally achieved strong relative performance compared to the ARC PCI. Please note that due to rounding, the figures shown in this table may not precisely add up to the totals / differentials shown. Past performance is no guide to future performance. All performance figures are net of underlying fund charges and Brooks Macdonald management fees but gross of professional adviser management fees. Deduction of these fees will impact on the performance shown. Source: Brooks Macdonald, ARC 25
Recent awards 2018 PAM: 50 Most Influential Citywire Wealth Manager: Regional Stars (Midlands, South East and North) 2017 City of London Wealth Management: Wealth Manager of the Year Citywire: Top 30 Under 30 Citywire Wealth Manager: Regional Stars (Midlands and South East) Defaqto: 5 star rating for MPS, BPS and MPS platform Defaqto: Gold Standard for DFM Service Financial Times: 5 star rating for Financial Adviser Service Financial Times: Investment Adviser 100 Club Incisive Media Gold Standard: Awarded the Gold Standard for Discretionary Fund Management PAM: Top 40 Under 40 Professional Paraplanner: Best Outsourced Investment Provider Brooks Macdonald services have achieved a 5 Star Rating in every category of DFM Rating produced by Defaqto. Past performance is not a reliable indicator of future results. 26
Contacts Caroline Connellan Group Chief Executive 72 Welbeck Street London W1G 0AY T 020 7499 6424 D 020 7408 5577 F 020 7499 5718 E caroline.connellan@brooksmacdonald.com Simon Jackson Group Finance Director 72 Welbeck Street London W1G 0AY T 020 7499 6424 D 020 7408 5541 F 020 7499 5718 E simon.jackson@brooksmacdonald.com Guy Wiehahn Peel Hunt Moor House, 120 London Wall London EC2Y 5ET T 020 7418 8893 F 020 7305 7087 E guy.wiehahn@peelhunt.com Reg Hoare MHP Communications 6 Agar Street London WC2N 4HN T 020 3128 8793 F 020 3128 8171 E reg.hoare@mhpc.com 27
Important information This presentation has been prepared for general information on matters of interest only and does not constitute an invitation to treat or a promotion, solicitation, or offer capable of acceptance and does not constitute professional advice of any kind. You should not act upon the information contained in this publication without first obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy, completeness or fitness for any particular purpose of the information contained in this presentation, which may not be up-to-date, and your use of the information in this presentation is at your own risk. To the extent permitted by law, Brooks Macdonald Group plc, its directors, employees and agents neither accept nor assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this presentation or for any decision based on it. Brooks Macdonald Group plc, registered in England (company number 4402058). 72 Welbeck Street, London W1G 0AY. Copyright 2018 Brooks Macdonald Group plc. All rights reserved. 28