Strategic Report
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Viability statement
In accordance with the UK Corporate Governance Code, the Board has assessed the Group’s viability over a five-year period which is inclusive of FY25 and aligned with the Group’s strategy, its budgeting and forecasting process and the scenarios set out in the 2024 Internal Capital Adequacy and Risk Assessment (“ICARA”).
The Board has carried out a robust assessment of the principal and emerging risks facing the Group, along with the stress tests and scenarios that would threaten the sustainability of its business model, future performance, solvency or liquidity. This assessment is based on the Group’s Medium-Term Plan (“MTP”), the ICARA and an evaluation of the Group’s emerging and principal risks, as set out in the Risks section on pages 54 to 57 and outlined in the Risk and Compliance Committee report on pages 103 to 105. In assessing the future viability of the overall business, the Board has considered the Group’s current and future strategy. The Board has also considered the business environment in which the Group operates and the potential threats to its business model arising from regulatory, demographic, political and technological changes. Moreover, the Board’s assessment considered the current macroeconomic environment, as well as the impact of volatile markets, inflation and interest rates on the Group’s profitability, regulatory capital and liquidity forecasts. The Board’s assessment of the Group’s capital and liquidity position also considers the implications of meeting the Group’s proposed interim and final dividend pay-outs.
The MTP forms part of the Group’s annual business planning process. The model translates the Group’s current and future strategy into a detailed year-one budget, followed by higher-level forecasts for years two–five. The combination of this detailed budgeting, longer-term forecasting and various stress tests provides a transparent and holistic view of the forward-looking financial prospects of the Group. The Board reviews and challenges the Group’s MTP annually. The MTP covering the five-year period from FY25 to FY29, which underpins the 2024 ICARA, was challenged and approved by the Board in October 2024. In addition to the annual MTP preparation process, a re-forecast is carried out by management and reviewed by the Board on a quarterly basis for the upcoming 18-month period. These reflect updates for prevailing trading conditions and other changes required to the budget assumptions set at the start of the year. As part of the ICARA, the Group models a range of downside scenarios and a severe but plausible stress scenario designed to assess the Group’s ability to withstand a market-wide shock, such as a sharp market decline triggered by a global recession, Group-specific stresses, such as the loss of an investment management team or key introducer, or a combination of both.
The Group modelled a multi-layered scenario involving a significant decline in financial markets over a five-year period (with UK equities modelled to lose 33% of their value with correlated impacts modelled across the Group’s portfolios, with a gradual recovery), combined with the loss of a key investment management team. This scenario would have an adverse impact on the Group’s profitability compared to the MTP base case, reducing its regulatory capital surplus, before putting in place any mitigating management actions. Management identified a number of mitigating actions that could be implemented in the event of such severe stresses. In this scenario, possible mitigating actions were to reduce discretionary compensation and headcount and to impose departmental cost reductions. Although the Group does not fall into a regulatory capital deficit during the stress period, these management actions would bolster profitability and strengthen regulatory resources to ensure a significant capital surplus was maintained against the Group’s minimum capital requirement. If deemed appropriate, further mitigating actions could include the reduction of external dividend payments and a further reduction in costs across the business. The implementation of the above actions depends on the nature and severity of the specific stress events and the time frames over which they occur.
The ICARA scenarios are reviewed throughout the year to ensure they remain relevant and continue to be a suitable tool for developing our controls and mitigating actions. Management also considers a reverse stress case and carries out an assessment of the cost to the Group of a wind-down in the event of a non-recoverable shock to the operating model. Moreover, management has identified a number of additional actions that could be implemented in the event of severe stresses. Taking into consideration the assessment of the above factors, including the results of the latest ICARA, the Group’s risk management framework and the mitigating actions that can be put in place, the Board has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period under assessment. This assessment also supports the Group’s consolidated financial statements being prepared on a going concern basis, as discussed in note 2 of the consolidated financial statements.
Brooks Macdonald Group plc Annual Report and Accounts 2025
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