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Brooks profit wiped as it adds £5.5m to liability fund

Brooks profit wiped as it adds £5.5m to liability fund

Brooks Macdonald has upped the cash held against potential future liabilities arising from its 2012 acquisition of Spearpoint Capital by £5.5 million bringing the total capital cushion to £12 million.

The provision near wiped out statutory profits for the second half of the year, which fell from £8.1 million in the same period of 2016 to just £600,000.

Excluding one-off items underlying profit continued a recent history of solid gains however, climbing from £8.2 million to £8.5 million, as discretionary funds rose 25.8% from £9.3 billion to £11.7 billion.

At 9am shares in Brooks were down 1.1% or 25p to £21.49. Broker Cantor Fitzgerald downgraded the group from buy to hold on an unchanged price target of £22.

'We continue to make all possible efforts to bring the matter to a conclusion,' said chief executive Caroline Connellan (pictured).

'Following an encouraging first half of the year and continued momentum in the early weeks of the second half, we remain confident of the significant growth opportunities open to us.

In addition to the liability charge the business recognised a £1.1 million charge against the value of Levitas Investment Management, the fund group it acquired for £24 million five years ago.

‘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,’ the business said in a statement.

‘Goodwill offers were made to the discretionary portfolio clients in September 2017 however it became apparent that the calculation was affected by quality issues with the data derived from legacy systems.

‘A comprehensive review of the data sources, calculations and methodology was initiated, requiring extensive use of third party expertise. The review has now concluded and final goodwill offer letters will be issued by the end of March 2018. 

‘The group has also been involved in extensive and prolonged discussions with to the board of the Dublin-based fund, seeking to deal with the matter proactively.

‘A goodwill proposal was made to the directors of the fund in October 2017. Some progress has been made but it has not been possible to reach an agreement. The group remains committed to reaching a settlement on terms in line with the initial goodwill proposal.’

The contingency issues overshadowed a solid period for the group with an £800 million inflow contributing a 7.7% increase in client assets, with the remainder of the growth due to markets.

Cantor Fitzgerald's Keith Baird said that he expected that the company would continue to deliver above-average AUM growth but that he was moderating his outlook on a valuation basis, as the company hit a PE multiple of 18.


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