Aim-listed Brooks Macdonald has reported a 25.8% year-on-year increase in total discretionary funds under management (FUM), reaching £11.7bn at 31 December 2017, but said statutory profits fell due to a £5.5m increase in the provision for resolving its Spearpoint legacy matters.
The group said the rise in FUM led to a 10.9% rise in revenues from £44m in the half-year ended 31 December 2016 to £48.8m or the same period in 2017.
However, statutory profit before tax fell from £8.1m in 2016's second half to £600,000 in the latter half of 2017.
Statutory earnings per share was also down from 48.5p to -3.5p as the wealth manager said it had set a further £5.5m aside for resolving its legacy matters, while there was "a £1m increase in fair value of Levitas deferred consideration in light of strong net inflows into the funds.
In July 2017, the group revealed it had decided to "deal proactively" with certain legacy matters arising from the former Spearpoint business, which it acquired in 2012.
"These matters relate both 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. 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," the group said.
Last year, the firm developed a plan to resolve these matters and accordingly made a £6.5m provision in the financial results for the year to 30 June 2017.
However, the statement added, it became apparent that the calculation of the goodwill offers for the discretionary portfolio clients "was affected by quality issues with data derived from legacy systems" so another review was carried out. A goodwill proposal was made to the directors of the board of the Dublin-based fund in October 2017, but the parties have been unable to reach an agreement.
"The review has now concluded and final goodwill offer letters will be issued by the end of March 2018. We remain committed to reaching a settlement on terms in line with the initial goodwill proposal and we continue to engage with the directors," Brooks Macdonald said.
The extra £5.5m provision brings the total goodwill offer and associated expenses to £12m.
Meanwhile, the group said underlying profit before tax grew by 3.2% "with all four businesses making good contributions".
The 1.25bn added to discretionary FUM was a result of organic growth, with net new business of £800m in the adviser distribution channel, high rates of growth across UK investment management (11.8%), funds (19.4%) and international (9.1%).
However, a decline in revenue yield was driven principally by lower transactional income due to lower dealing volumes more clients choosing flat fees, which the firm said was "in line with the industry".
It added fee income had continued to grow in line with FUM.
Chris Knight, chairman, commented on the results: "I am pleased to report continued momentum for the group in the period, with strong growth in discretionary funds under management driving increases in both revenue and underlying profit.
"The early weeks of the second half have seen momentum maintained in the underlying business and we remain confident in our prospects for the full year."
Caroline Connellan, chief executive, added: "I'm pleased to report a strong half-year with double digit increases in both funds under management and revenue. We have maintained organic growth momentum across all our segments, alongside above-benchmark investment performance, reflecting the strength of our core offerings and relationships
"We have made good progress with our investment programme to enable the business to grow sustainably while enhancing efficiency. Our medium-term focus is on delivering improved operating margins."
Chairman Knight also announced former CEO Chris Macdonald has decided to step down from the board on 31 March in order to concentrate on other business interests, but will remain an adviser to Brooks Macdonald.
"We are grateful for Chris's support in the transition process since Caroline Connellan took over as CEO last April", Knight said.
The group has also hired Ben Thorpe, most recently head of finance at Brewin Dolphin, as group finance director to replace the outgoing Simon Jackson, who has been at the group for 17 years.
In addition, Priti Verma has been hired as group chief risk officer and Adrian Keane-Munday as managing director of financial planning.
Stuart Duncan, analyst at Peel Hunt, rated the wealth manager as a hold following the half-year results: "Although the results were brought forward given an increase in the exceptional cost of certain legacy issues, the numbers were as expected. Strong AUM growth is being offset by the planned investments in the business, but the outcome will be a business that can continue to benefit from strong intermediary relationships."
The share price of Brooks Macdonald was down 3.45% in mid-morning trading at £21.00.
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