Brooks Macdonald Group plc (BRK) Earnings Call Transcript & Summary

Good morning, and welcome to Brooks Macdonald's 2026 Half Year Results Q&A session hosted by Andrea Montague, CEO of Brooks Macdonald; and Katherine Jones, CFO. Before I hand over to Andrea, let me remind you that you can raise questions via the conference call with details available on this morning's announcement as well as via webcast [Operator Instructions]. With that, let me hand over to Andrea.

Thanks, Eva. Good morning, all. Great to see so many of you on the call. So I'm looking forward to the conversation. Before we go to questions, let me just pull out a few highlights. So we've returned to net flows. We've exceeded GBP 20 billion of FUMA for the first time. We have 12% revenue growth, and we have double-digit MPS growth with 50% growth in BPS and strong investment performance. Brooks Financial is now an integrated and scalable business and we have made deliberate investments in the business to improve customer service, expand our propositions and increase efficiency. So let's go to questions. We will start with the conference line and then move on to questions submitted via the webcast. [Operator Instructions]

[Operator Instructions] Our first question this morning is from Andrew Watson calling from Singer Capital Markets.

I think I always ask this question, so forgive me. Just in terms of the technological upgrades you've made to the business and the optimization around process that you've done and completed now, would you be able to just give us a sense of how things have really changed at the core face? Just maybe a few vignettes in terms of examples of things that were heavily human high-touch processes and have now been absorbed into SS&C and really being refined through. And I just think it's really helpful to kind of bring some of that life, if that will be possible.

Andrew, just one question. Great. Lovely to hear from you. So yes, we've set out in the video and in the pack, our deliberate investment in the business. But as you say, this is really focused on 2 key things, the service for clients and our own people so that they have a better experience across the business, and there's genuine feedback on that. So if I -- there's a lot -- there's been a lot of end-to-end systems investment. We've invested in HR and finance, Katherine's world, and that's much improved the experience of our people and those that are using those systems. But in terms of clients, we now digitally onboard those clients. It's hard to imagine, Andrew, that only 18 months ago, we had a 42-page document that clients had to fill in before they came on board. Now for me, that would have put me off, but clearly, our clients were much more resilient. But now we are digitally onboarding those. And then in terms of AI, a very topical point. We've used it extensively across the business. If I give you an example, we've now got a bot that answers IT questions and has reduced materially the questions going into our IT team releasing capacity. We've got an automated update of fact sheets that someone used to work tirelessly literally 24/7 for 450 fact sheets across the business. That's automated as a touch of a button. And as you've seen in the numbers, importantly, because this has to deliver flows and efficiency, we've improved retention materially. So I'm delighted with the investments across the business, and we are working on a fast-paced environment, and we'll continue to need to do that. But we're -- we've got ahead of it, and I'm really pleased with the progress we've made in the last 18 months.

That's great. And so just in terms of the kind of broader context, that says to me that you're looking to open capacity in the existing cost base. Inevitably, there will be areas for investment going forward. But in your mind, are they solely organic client-facing opportunities rather than any need to grow capacity in the business in the near term?

So Andrew, you're right. We've built a really scalable platform now both in the investment management business and in financial planning. Clearly, technology moves on. It's a fast-paced world, but we've done the heavy lifting. And what I'm really looking forward to is seeing that drop through to the bottom line in terms of the further efficiencies. We've already delivered the efficiencies. You've seen that today, but much more to go for. And really the material capacity creation. So our people are doing what they do best now is being out in front of clients and the feedback from them, it's increased engagement. We brought a new investment team into Scotland and their feedback is clear that they're embracing the AI tools and have reduced the paperwork by about 60% already, and they're only just getting used to the tools. So it's real. We've created the capacity and the heavy lifting is done.

Our next question will be coming from Ben Bathurst of RBC Capital.

I have 3 questions, I think, just all in the sort of sphere of cash and capital. Starting just on the cash and looking at Slide 12. we can see obviously the position reduced in the first half. I appreciate from the waterfall that there are some chunky items that may be unlikely to repeat. But I just wondered if you could potentially give some guidance on what we should expect from the 3 buckets, the strategic transformation restructuring, the CapEx and M&A, those 3 particular buckets, what should we expect to happen there in the second half to add that up to a GBP 21 million use of cash in the first half. If you could give the -- obviously, we'd love to hear the individual expected uses of cash in the second half. But if you could just give an overall steer on those 3, that would be useful. And then secondly, just wondering when you may return to a position, if you've got a date in mind, a position of being cash generative on that Slide 12 view. Clearly, there's been a step down in the first half. I'm just wondering, are you expecting by FY '27 to be back in that sort of positive cash generative position again? Or could it be sooner than that or later even? And then on capital, your requirement and internal buffer fell on Slide 13 during the period. I just wondered how often it is that you review that? And if that's something that could be reviewed further downwards either at the full year or at a later date?

So Ben, great questions. Before Katherine picks up the detail, if we take a step back, this business is cash generative. You know that and you've seen it what we've done in the last 18 months, acquisitions, material investments are driving the results that you've seen today. Clearly, this is a year of transformation, and you would expect us to use cash to do that. Unfortunately, these things are not for free. But what we see going forward, and Katherine will come to is the return of proceeds from BMI, the continued generation from the underlying core business and ultimately, the investments were necessary to help this business grow and thrive. But Katherine has all the details at her fingertips. So over to you, Katherine.

Yes. Thanks, Andrea. Thanks for the questions, Ben. So look as Andrea said, this is a fundamentally cash-generative business. I'm really comfortable with the cash and capital positions. We did say that this will be a year that we had elevated levels of investment to transform the business and to reignite growth, and we're really pleased to see the benefits of that coming through in terms of flows, products and services, M&A and then the efficiency actions that we've delivered, which obviously driving ongoing savings. So we will continue to invest in the second half, will be at a lower level. One of the biggest items that we saw come through in the first half was the fit-out cost of the office move, which we had to do. We were required to move out of our previous building. And so there were elevated levels of costs in the first half relating to the fit-out cost. So those -- that's done. We're in the building now. Those costs will not continue. I would say that we've also, in the period, as you mentioned in terms of the reduction in the cash position, we have also returned almost GBP 11 million to shareholders through the dividend and the share buyback that completed in the first half. So in terms of your specific questions on CapEx and restructuring costs, so the first of those 2 buckets, look, I would expect those to continue, but they will be at a much lower rate than the first half. I would say around half of what we saw in the first half coming through in the second half, roughly. And then as we look to M&A, the biggest item that we would expect to come through in the second half is one of the deferred consideration amounts. So you can see in the accounts that that's estimated at GBP 10 million in the second half. So that's just in terms of the H2 buckets. In terms of your second question on cash generation and when will we be cash generative? Well, as we said, we are cash generative already. Really pleased with the fact that we have had that flexibility to be able to invest to transform the business, and you're seeing those benefits come through. And then finally, on the capital position, so you're exactly right, Ben. So we have -- on an annual basis, we review the ICARA position. That's our internal assessment of how much capital we're required to hold. We do that annually. You will have actually seen a similar movement in the first half last year when we reviewed it. So we do that typically in December and then that comes through in the December numbers. So we will continue to review that, reflecting the risks that we see the business being exposed to. Hopefully, those...

I just come back just to the first answer, that's okay. And we've got a really clear answer on the CapEx and M&A buckets for the second half. But I was just wondering on the strategic transformation and restructuring element, the sort of the 5.2 for the first half, can you give us a steer on what you think that aspect might be in the second half or perhaps if I missed it.

No, sure. I mean I was talking about them in totality. So those 2 buckets across CapEx and the -- yes, I would say that I would expect that to be half the levels that we saw in the first half.

[Operator Instructions] We do not appear to have any further audio questions. I turn the call back over to you to take any questions submitted by webcast. Thank you.

Thank you. We have some questions submitted via the webcast. First one is from [ Robert Savage ] from Zeus Capital. You're planning on increasing the number of IFAs served by 20% over the next 3 years. How many IFAs does Brooks Macdonald serve currently? And how has this grown in recent years?

Robert, thanks for the question. So yes, I did set out the target of 20% increase. You hopefully have had a chance to watch the video and see where really our focus is. Clearly, if I give you my thinking and then answer the question directly. So I see a material opportunity for us to serve more IFAs across the U.K. There are 5,000 firms. We serve just over 20% currently. We now have a really quality and capable team that I brought in, in distribution, and we've joined that up with the investment management team. So we've got much more effective support to our clients, our IFA clients and our direct clients to leverage that dual expertise, and we'll increase the number by focusing on nationals and networks, where 40% of the asset sits with just 5% of the firms. We'll also look at new model advisers where there are 1,000 firms, and we only serve 250 of them. And we'll also -- we've upgraded -- we've brought in new leadership into BMS, and that's our investment service proposition. So we see more and more IFA clients considering outsourcing the complexity of the investment management given the increased regulation around it. And there's a real opportunity for us to support more clients there. So 20%, I feel is absolutely a credible number over the next 3 years increase in those numbers of IFAs that we serve. But importantly, it's not about numbers, it's about quality of the relationship and how much we can deliver the full range of the proposition that we have in accumulation and decumulation across Brooks.

We also have a question from Mike Trippitt at Investec. Can you provide some insight on your evaluation of opportunities in the financial planning sector, organic versus inorganic, particularly given the yield expansion you have experienced in financial planning in H1?

So you've seen that we've had really successful acquisitions in the M&A space and financial planning. And we -- Katherine and I continue to look at opportunities across the base in financial planning for the right quality and the right fit. And Katherine can touch on the firm framework that we have around those investments where essentially where I see continued opportunity is that we are now recognized as a home for IFAs in the U.K. We're different to the mass consolidators. We give a future for -- importantly to look after those clients with the 98% retention and what we've done so far, we've delivered material synergies, both in cost and in revenue, and we're on one platform with aligned processes and people and remuneration. It is a scalable business, and we're looking forward to being able to do that. And Katherine will outline the framework -- the detailed framework that we have around these acquisitions.

Yes. Thanks for the question, Mike. So I think just to add to Andrea's comments, so we absolutely want to scale this business, and we want to drive that growth, both organically and through targeted acquisitions. The IFA sector is highly fragmented, and we'll continue to evaluate potential opportunities. But anything that we do needs to be strategically compelling. It needs to be financially attractive, needs to be clearly a high-quality business and most importantly, a good fit culturally. When I think about it financially, impact on earnings is really important. So is it accretive and how quickly? That's something that we're really focused on and then looking at the return on investment relative to the cost of capital. So those are kind of key financial metrics. And then we compare those inorganic opportunities to organic opportunities to invest and the return that we could potentially get internally from investing versus buying something externally. And then the final thing, I think, as we assess these opportunities is the execution risk and how successfully we think we can execute the transaction. So there's various dynamics there. But yes, it's something that we are focused on and we'll continue to look at.

Thank you. I don't think there are any more questions. I will hand over to Andrea for closing comments.

Great. Thanks all. Some great questions. I hope you see that we've achieved a lot in the last 6 months, and we're already into the second half of the year, making great progress. So I really look forward to speaking to you all then, and have a good day.