Notes to the consolidated financial statements For the year ended 30 June 2024
31. Financial risk management continued
b. Market risk Interest rate risk
risk severity is considered minimal due to the inherent government backing. A minimum credit rating requirement for gilts as part of the Group’s strategy has therefore been set at ‘AA’ which aligns to the current credit rating of UK Government bonds.
The Group may elect to invest surplus cash balances in short-term cash deposits with maturity dates not exceeding three months. Consequently, the Group has a limited exposure to interest rate risk due to fluctuations in the prevailing level of market interest rates. A 1% fall in the average monthly interest rate receivable on the Group’s cash and cash equivalents would have the impact of reducing interest receivable, and therefore profit before taxation by £447,000 (FY23: £534,000). An increase of 1% would have an equal and opposite effect.
Assets exposed to credit risk recognised on the Consolidated statement of financial position total £44,732,000 (FY23: £53,355,000), being the Group’s total cash and cash equivalents.
Trade receivables with a carrying amount of £2,899,000 (FY23: £2,820,000) are neither past due nor impaired. Trade receivables have no external credit rating as they relate to individual clients, although the value of investments held in each individual client’s portfolio is always in excess of the total value of the receivable. All trade receivables fall due within one year (FY23: one year). 32. Capital management Capital is defined as the total of share capital, share premium, retained earnings and other reserves of the Company. Total capital at 30 June 2024 was £152,335,000 (FY23: £157,344,000). Regulatory capital is derived from the Group’s Internal Capital Adequacy and Risk Assessment (“ICARA”), which is a requirement of the Investment Firm Prudential Regime (“IFPR”). The ICARA draws on the Group’s risk management process that is embedded within the individual businesses, function heads and executive committees within the Group. The Group’s objectives, when managing capital, are to comply with the capital requirements set by the FCA, to safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders and to maintain a strong capital base to support the development of the business. The Group assesses the adequacy of its own funds on a consolidated and legal entity basis on a frequent basis. This includes continuous monitoring of ‘K-factor’ variables, which captures the variable nature of risk involved in the Group’s business activities. A regulatory capital update is additionally provided to senior management on a monthly basis alongside a rolling 12-month regulatory capital forecast. In addition to this, the Group has implemented a number of ‘Key Risk Indicators’, which act as early warning signs with the aim of notifying senior management if own funds misalign with the Group’s risk appetite and internal thresholds. Capital adequacy and the use of regulatory capital are monitored daily by the Group’s management. The Group’s 2024 ICARA will be approved in December 2025. There have been no capital requirement breaches during the year. Brooks Macdonald Group plc’s IFPR public disclosure is presented on our website at www.brooksmacdonald.com.
Foreign exchange risk
The Group does not have any material exposure to transactional foreign currency risk, and therefore no analysis of foreign exchange risk is provided.
Price risk Price risk is the risk that the fair value of the future cash flows from financial instruments will fluctuate due to changes in market prices (other than those arising from interest rate risk or currency risk). The Group is exposed to price risk through its holdings of equity securities and other financial assets, which are measured at fair value in the Consolidated statement of financial position (Notes 17 and 18). A 1% fall in the value of these financial instruments would have the impact of reducing total comprehensive income by £14,000 (FY23: £13,000). An increase of 1% would have an equal and opposite effect. c. Credit risk The Group may elect to invest surplus cash balances in highly liquid money market instruments with maturity dates not exceeding three months. The difference between the fair value and the net book value of these instruments is not material. To reduce the risk of a counterparty default, the Group deposits the rest of its funds in approved, high-quality banks. As part of the Group’s strict due diligence assessment, there is a requirement for all banking counterparties to have a minimum credit rating of BBB+.
In line with the Group’s corporate treasury policy, during the year ended 30 June 2024, the Group invested a proportion of surplus cash resources into UK Government bonds. The credit
158 Brooks Macdonald Group plc Annual Report and Accounts 2024
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