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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| River And Mercantile Group Plc | LSE:RIV | London | Ordinary Share | GB00BLZH7X42 | ORD GBP0.003 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 49.40 | 50.00 | 51.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMRIV
RNS Number : 8454P
River and Mercantile Group PLC
15 October 2019
15 October 2019
LEI: 2138005C7REHURGWHW31
River and Mercantile Group PLC
Full Year Preliminary Results Announcement
Year ended 30 June 2019 - Unaudited
River and Mercantile Group PLC ("the Group"), the advisory and investment solutions business, today releases its unaudited preliminary results and management report for the year ended 30 June 2019.
This was a strong year in asset growth for the Group, with assets under management increasing by 18% during the period from a combination of healthy net sales and positive investment performance. Growth was delivered substantively in the second half of our financial year and this phasing of asset flows impacted our financial results in the short term. This does however, mean that the Group is well positioned for the new financial year, with strong embedded revenue growth.
Financial Highlights (unaudited)
Hot Features
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-- Statutory net profit after tax was GBP13.0m, compared with GBP15.1m in the prior year;
-- Statutory basic earnings per share were 16.22 pence per share, compared with 18.83 pence per share in
the prior year;
-- Adjusted underlying profit before tax(1) was GBP14.7m, compared with GBP16.1m in the prior year;
-- Adjusted underlying EPS was 13.91 pence per share, compared with 16.06 pence per share in the prior year;
-- Adjusted profit after tax(2) was GBP16.2m, compared with GBP17.6m in the prior year;
-- Adjusted basic earnings per share(3) was 20.26 pence per share, compared with 21.85 pence per share in
the prior year.
Asset Growth
-- Fee earning AUM/NUM increased by 18% year on year, to GBP39.8bn;
-- Gross sales for the year were GBP6.9bn;
-- Net flows for the year were GBP5.4bn;
-- Investment performance increased AUM by GBP0.6bn.
Operating Highlights
-- Net management and advisory fees increased by 2% year on year to GBP65.6m;
-- Performance fees were GBP12.5m, compared with GBP10.6m in the prior year;
-- Adjusted underlying pre tax margin was 22%, compared with 25% in the prior year. The Core business,
before investment in new business opportunities, generated an adjusted underlying pre tax margin of 25%.
Dividends
The Board of Directors have declared a second interim dividend of 5.1 pence per share, of which 1.6 pence is a special dividend and relates to net performance fees. The second interim dividend will be paid on 22 November 2019 to shareholders on the register as at 25 October 2019. The ex-dividend date is 24 October 2019.
The Board of Directors have also proposed a final dividend for the year ended 30 June 2019, subject to approval by shareholders at the Group's AGM on 9 December 2019, of 5.0 pence per share, of which 2.4 pence is a special dividend and relates to net performance fees(4) .
The total dividends paid, declared and proposed in respect of the 2019 financial year are 16.4 pence per share, representing 80% of the adjusted underlying profit after tax and 100% of the net performance fee profit after tax.
Jonathan Dawson, Chairman said:
"Despite the external challenges, at River and Mercantile we have remained steadfast in our focus on putting our clients' interests at the heart of everything that we do. Our investment performance has been strong over the longer term with all of our funds ahead of their respective benchmarks since inception, although long equity funds have had a more challenging period, as value driven investment has been less favoured by the market. At the same time, we have been careful to communicate our economic and market thinking clearly with our clients. In our Solutions and Macro businesses, our focus on the River FOURcast (our proprietary approach to investment thinking) model of investment behaviours has given clients, particularly in Fiduciary Management, direct insight into our thinking and processes by which we seek to achieve their investment objectives.
River and Mercantile is at an exciting point in its growth and we think that there are significant opportunities for us across our business lines in our key markets of the UK, USA, and Australia."
James Barham, Group Chief Executive Officer said:
"The last year has been a period of robust performance for the Group during challenging market and industry conditions. We have delivered excellent asset growth with fee earning AUM/NUM rising by 18% to GBP39.8bn. It is very encouraging to see the net sales ratio return to the level we strive to achieve. The year has seen a record level of gross sales at GBP6.9bn, a year on year increase of 21%. As we have described previously, we want to deliver asset growth in our business by a minimum of 12% per annum. This growth is a combination of net sales and investment performance. Net sales delivered growth of 12% whilst investment performance including rebalance delivered an additional 6%.
The investment environment during the period was, and continues to be, demanding and a number of our investment strategies, whilst outperforming in absolute terms, underperformed against their relative benchmarks as the factors they favour struggled.
Whilst net management and advisory fees rose by 2% to GBP65.6m, adjusted underlying profit before tax was GBP14.7m, a decrease of 9%. This reduction reflects the phasing of asset growth towards the end of our financial year along with the underlying investments and initiatives we are making in our business to drive future growth. The phasing of AUM/NUM flows also delivers a strong in-force revenue position running into the new financial year."
Notes
(1) Adjusted underlying profit comprises net management and advisory fees less associated remuneration, administrative expenses, depreciation and amortisation of software, and finance income and expense.
(2) Adjusted profit comprises adjusted underlying profit, plus performance fees net of associated remuneration and the gain/losses on investment seed positions.
(3) Adjusted basic earnings per share represents adjusted profit after tax divided by the weighted average number of shares outstanding in the period.
(4) The final dividend will be paid on 20 December 2019 to shareholders on the register as at 29 November 2019, subject to approval by shareholders at the Group's AGM on 9 December 2019. The ex-dividend date is 28 November 2019.
The financial information set out in this annual results release does not constitute the Group's statutory accounts for the year ended 30 June 2019 or 2018. Statutory accounts for the year ended 30 June 2018 have been delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006. The financial information for the year ended 30 June 2019 is unaudited. The statutory accounts for the year ended 30 June 2019 will be delivered to the Registrar following the Group's AGM on 9 December 2019. The 2019 Annual Report and Accounts will be published in November 2019 and a copy will be posted on the Group's website.
This RNS has been approved on behalf of the Board.
For further information please contact:
River and Mercantile Group PLC +44 (0) 20 3327 5100
Kevin Hayes, CFO
Forward looking statements
This announcement contains forward looking statements with respect to the financial conditions, results and business of the Group. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report. However, such statements should be treated with caution as they involve risk and uncertainty because they relate to events and depend upon circumstances that may occur in the future.
There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements. The continuing uncertainty in global economic outlook inevitably increases the economic and business risk to which the Group is exposed. By their nature forward looking statements relate to events and circumstances that could occur in the future and therefore involve the risk and uncertainty that the Group's actual results may differ materially from the results expressed or implied in the forward looking statements.
Nothing in this announcement should be construed as a profit forecast.
River and Mercantile Group PLC
Preliminary results (unaudited) and management report 2019
Chairman's Statement
In many respects much of the background picture that I described last year has continued without major change.
First, how the UK will withdraw from the European Union is, at the time of writing, no closer to being answered than a year ago, although we are obviously now very close to the 31 October deadline. Whether Boris Johnson can achieve a breakthrough with Parliament and/or the EU remains to be seen. I am confident, however that River and Mercantile is as well prepared as it can be at present.
Secondly, the global trade environment continues to be under threat from the ongoing US/China trade dispute, as well as the risk of further tariff barriers involving USA/EU trade. This uncertainty is a significant threat to future prosperity of the world. In addition, there are further tensions in the Gulf involving the US, ourselves and Iran, as well as the impact of the continuing proxy war involving Saudi Arabia and Yemeni rebels and ongoing threats to safe navigation in the Gulf.
Despite the external challenges, at River and Mercantile we have remained steadfast in our focus on putting our clients' interests at the heart of everything that we do. Our investment performance has been strong over the longer term with all of our funds ahead of their respective benchmarks since inception, although long equity funds have had a more challenging period as value driven investment has been less favoured by the market. At the same time, we have been careful to communicate our economic and market thinking clearly with our clients. In our Solutions and Macro businesses, our focus on the River FOURcast model of investment behaviours has given clients, particularly in our Fiduciary Management business, direct insight into our thinking and processes by which we seek to achieve their investment objectives.
River and Mercantile is at an exciting point in its growth. We think that there are significant opportunities for us in our pensions business in the UK and, increasingly, the USA and Australia, in our derivatives and our long-only asset management businesses. We believe this has played a significant part in our achieving, this year, gross new sales of GBP6.9bn and growth of 18% in fee earning AUM/NUM.
The majority of the AUM/NUM net growth occurred in the second half of the year and as a result net management and advisory revenue grew by only 2% in the year. We have also seen the full impact of MiFID II on research costs and we have continued to invest in infrastructure and new initiatives; however, margin levels have been broadly maintained.
As a result of the combined effect of the second half phasing of AUM growth and investment initiatives made, the statutory profit before tax and adjusted underlying profits before tax both fell by 9%. We have maintained the policy of returning a high level of adjusted profits to shareholders, with total dividends this year declared and proposed of 16.4 pence or 86% of adjusted profit (2018 18.6 pence, 85%).
As described in James Barham's CEO report, the Group will undertake investments to grow the business organically. We will provide shareholders with specific guidance relating to the financial impact of these investments on the current period's net earnings, which will allow shareholders to evaluate anticipated dividend distributions based on the Group's current dividend policy.
Conduct
Last year, I emphasised the critical importance of creating and sustaining a strong culture based around exemplary standards of behaviour. We set high standards and set the tone from the top, reinforcing our strategy, our actions and our communications. It is, like the old image of painting the Forth railway bridge, a never-ending task: culture does not exist in a vacuum - it requires to be continually learned, relearned, lived and taught. No company is of course immune from mistakes being made, but in a conduct-led culture we expect errors to be admitted up front and problems rectified openly. We have always believed that how a business deals with these challenges speaks volumes about the strength of integrity and values. Only in that way will we meet the expectations of our clients, regulators and shareholders.
We have been making our final preparations for the implementation of the Senior Managers and Certification Regime ("SMCR") on 9 December 2019. The Group's two FCA regulated entities will be in-scope of the SMCR and will be 'core' firms. Our work towards SMCR implementation has included identifying and training our senior managers and certified staff and putting in place the relevant policies, processes, systems and controls designed to facilitate ongoing compliance. As with many regulatory projects the story does not end on the implementation date, we have therefore been very focused on looking ahead to ensure the smooth transition of our business-as-usual practices into the new SMCR environment.
Board and management changes
Over the last couple of years, Mike Faulkner has increasingly focused his efforts on driving forward our investment thinking, developing new investment approaches and the preparation of new investment funds for launch. After careful reflection over the past year, Mike concluded that he would best be able to serve the Group if he could spend the majority of his time focused on the investment parts of our business. As a result, we announced in June that James Barham would be appointed Group Chief Executive Officer on 1 July. James had been the Deputy Group CEO since September 2018. The Board is very pleased with the start that James has made in his new role.
Since then our thinking has evolved further and we have agreed that the investment elements of River and Mercantile should be pulled together under the overall guidance of Mike and we are pleased to announce that Mike will take on the role of Group Chief Investment Officer (Group CIO). The ongoing delivery of market leading investment returns along with the development of our Macro business is central to fulfilling the long-term potential of River and Mercantile.
To ensure that his time is unencumbered, we have agreed with Mike that he will step down as an executive director at the 2019 AGM. This will allow him the time to be fully focused on development of our investment thinking as Group CIO and the management and development of our Macro business. Mike's remuneration will be restructured to be consistent with his new role and will be comparable with the arrangements that other similar portfolio managers and CIOs receive.
In parallel, Jack Berry continues to play a key role in the management of our Solutions business and some of our most important clients. To allow him more time to work on the positioning and future development of our UK Solutions business and to focus on growing the complex client base, especially in light of the retendering opportunities arising from the CMA review of the fiduciary management sector in June 2019, we have agreed that he will also step down from the Board at the 2019 AGM.
There have also been three changes amongst the non-executive members of the Board. Robin Minter-Kemp, previously Remuneration Committee chair, stepped down on 30 June as previously announced. His replacement in that role is Miriam Greenwood, who was appointed to the Board on 28 May 2019. In addition, Jonathan Punter, one of the founder members of Punter Southall Group (PSG) and its representative on the board under the relationship agreement entered into at the time of the IPO, stepped down on 30 June.
I am personally grateful to both Robin and Jonathan for their contributions to the Board since IPO and especially since I was appointed Chairman.
With effect from 1 July, River and Mercantile became subject to the new UK Corporate Governance Code (the '2018 Code'). Under the previous UK Corporate Governance Code (the '2016 Code'), as a small company, River and Mercantile had been exempt from compliance with the requirement that at least half of the Board, excluding the Chairman, should comprise independent non-executive directors. As a result of Mike Faulkner, Jack Berry and Jonathan Punter stepping down from the Board we shall be fully compliant with the 2018 Code in respect of the membership of the Board following the AGM. The Board will then comprise myself as independent Chairman, three independent non-executive directors and two executive directors (CEO and CFO). The significantly smaller size of the Board will enhance our governance focus and improve our effectiveness. The Board and the Board Committees will continue to exercise careful oversight of each of the businesses in the Group, ensuring that all senior executives in the Group get exposure to the Board and Committees in the regular reviews of the performance of their business responsibilities. In addition, the restructured Board will also meet the Hampton-Alexander target that at least 33 per cent of the Board should be female.
As required by the 2018 Code, Miriam Greenwood has been appointed as the Board's designated non-executive director responsible for engagement with our workforce. As Chair of the Remuneration Committee, Miriam has a broad remit for the oversight of employee remuneration and employee matters.
Annual General Meeting
This year's AGM will be held on 9 December 2019.
In addition to the usual business, there are two important items, in particular, on which I wish to comment. First, we have put forward a resolution to give the directors power for the company to buyback shares. This power is widely held by public companies and it had been the intention to incorporate such a power at the time of the IPO. It can be an attractive way to return excess capital to investors. Appropriate use of the power would also be expected to enhance per share growth and improve overall returns to shareholders. We have no immediate intention to use the power but wish to have that ability should the returns from such a buyback be more attractive than other routes such as special dividends. I emphasise that the Board would only initiate buybacks if we considered that the Company had surplus capital which could not be profitably invested in growing the business.
Secondly, following the general meeting earlier this year in which shareholders' approved a resolution to ratify and confirm the payment of certain dividends previously paid, we have put forward a resolution to give the Board approval to undertake a Court approved capital reduction process to reclassify the merger reserve (GBP44m at 30 June 2019) as a distributable reserve.
I would also like to comment on the shareholder feedback we received on the application of the current Remuneration Policy at our 2018 AGM. Whilst there was a majority of votes in favour of the 2018 Remuneration Report, we noted that a number of shareholders had some concerns and were unable to support the 2018 Remuneration Report. We had planned to consult with shareholders fully on a new Remuneration Policy, but following the change in Remuneration Committee Chair and Executive Director role changes, we decided to delay proposing a new Policy until next year. We have naturally listened carefully to comments from investors and proxy agents on the application of the current Policy and have accordingly increased our disclosures relating to performance targets and the scoring of individual senior executives as well as removing the inclusion of a direct share of investment Performance Fees in the remuneration available to senior executives.
Outlook
The business is well positioned to take advantage of some developing themes in our marketplace over the coming year:
-- The retendering window emanating from the CMA review;
-- The growing demand for our derivatives solutions;
-- The strong performance of our Macro strategy and our ability to take advantage of a compressing market;
-- The recognition by investors of "Value" as an investment strategy and our long track record of delivering that
strategy.
The Board therefore looks forward with continued confidence.
Finally, on behalf of the Board, I would like to thank all of our people at River and Mercantile for their continuing hard work, spirit and enthusiasm for our business. The Company is nothing without its people and the Board deeply appreciates everyone's effort to make River and Mercantile a success.
Jonathan Dawson
Chairman of the Board
Chief Executive Officer's Review
It was a great honour to be asked to step up and take over the Chief Executive role from Mike Faulkner earlier this year. We have known each other and worked together in various guises over the last 25 years and whilst we are very similar in terms of our values, beliefs, ambitions and entrepreneurial spirit, we do think in different ways. It is this difference that has been our strength.
As General George Patton once said;
"If everyone is thinking alike, then somebody isn't thinking."
Review of the year
The last year has been a period of robust performance for the Group during challenging market and industry conditions. We have delivered excellent growth with AUM/NUM rising by 18% to GBP39.8bn, which is 6% ahead of analyst expectations at the beginning of the financial year. It is very encouraging to see the net sales ratio return to the level we strive to achieve. This year has seen a record level of gross sales at GBP6.9bn, a year on year increase of 21%. As we have described previously, we want to deliver asset growth in our business by a minimum of 12% per annum.
This growth is made up of a combination of net sales ratio and growth generated through investment performance.
Net sales ratio per annum Investment return generation per annum
http://www.rns-pdf.londonstockexchange.com/rns/8454P_2-2019-10-14.pdf http://www.rns-pdf.londonstockexchange.com/rns/8454P_1-2019-10-14.pdf
Sales less redemptions divided Investment performance plus net
by opening AUM/NUM rebalance divided by opening
AUM/NUM
The investment environment during the period was, and continues to be, demanding and a number of our investment strategies whilst outperforming in absolute terms underperformed against their relative benchmarks as the factors they favour struggled.
Net management and advisory fees including performance fees rose by 4% to GBP78.1m slightly ahead of analysts' average expectations. Adjusted underlying profit before tax was GBP14.7m in line with the average of analysts' expectations at GBP14.7m and adjusted basic earnings per share was 20.3p, a decrease of 7% against the previous year.
A key element of this growth came through from the strong performance fees earned during the year. Equity Solutions provided GBP2m and Solutions provided GBP10.6m, following positive performance. This part of our growth will vary over time and as I discuss later in this report, will be subject to our ability to generate strong investment returns for our clients. This can be expected to wax and wane over time depending on the underlying conditions.
We have seen a volatile market over the last twelve months and in particular, at certain stages during the period, falling equity markets in particular in the final quarter of the last calendar year. We have always believed that our diversified business model, where nearly 50% of our revenues are independent of equity market beta, provides the business and our shareholders greater protection. It was encouraging to see this belief statement proved as equity markets fell. In spite of our lower beta, we are still able to provide strong growth and we continue to work hard with our clients to ensure that we have enduring relationships.
http://www.rns-pdf.londonstockexchange.com/rns/8454P_3-2019-10-14.pdf http://www.rns-pdf.londonstockexchange.com/rns/8454P_4-2019-10-14.pdf
RWAA. Revenue weighted asset allocation. This measures the sensitivity of our revenues to equity market beta.
We continue to monitor attrition rate and whilst the long term levels maintain stable at around 3% we will see this spike from time to time dependent on circumstances. Over the period this was only 1% and reflected strong underlying client relationships.
It was encouraging to see growth across our business in the last year. We have seen a return to growth in our Fiduciary Management division and strong growth in Equities - Institutional and Derivatives and I comment further on our distribution focus later in this report.
We continue to invest in our business - which will be a theme over the coming years - and I have talked in detail later in this report on the nature of our current investments. We will monitor and report on these as they develop and once they have reached profitability we will roll these investments into our core business. In addition we are continuing to invest in our core business and we refer to these investments as initiatives. Initiatives are designed to bolster our existing core businesses and are captured within the core business from a cost and remuneration perspective.
I have shown below metrics on our business split into these two areas; our core business which includes initiatives and those areas in which we are currently investing, which we refer to as investment areas. I have set out in more detail later in this report the specific initiatives we are making in our core business and the investment areas.
The core business adjusted underlying profit is continuing to grow, which in time will feed into a steadily improving reported adjusted underlying operating margin.
GBP'000 Core business and initiatives Investment areas Reported figures
Underlying net management and advisory revenue 65,584 - 65,584
------------------------------ ----------------- -----------------
Remuneration (33,687) (1,718) (35,405)
------------------------------ ----------------- -----------------
Administrative costs (15,488) (159) (15,647)
------------------------------ ----------------- -----------------
Amortisation, depreciation and net finance
income 118 - 118
------------------------------ ----------------- -----------------
Adjusted underlying profit before tax 16,527 (1,877) 14,650
------------------------------ ----------------- -----------------
Adjusted underlying profit margin before tax 25% - 22%
------------------------------ ----------------- -----------------
We are also expanding our capabilities, with a particular focus on distribution. Since the year end, we have recruited David Hanratty to be our Global Head of Distribution. David was previously in a similar role at Pioneer, subsequently bought by Amundi in late 2017. David is highly regarded in the industry and has significant experience in our core and developing markets as well as strong technical knowledge. I am delighted he has joined the business and we will make a range of additional appointments across our distribution capabilities to ensure we are in a strong position to deliver the exciting strategies that we currently manage and are continuing to develop.
We have delivered organic growth in AUM/NUM at a compound rate of 18% per annum since our IPO five years ago and we now want to complement this growth with alternative sources of expansion that will position the business more aggressively in those areas in which we are currently competing, but also in certain areas where we see exciting opportunities.
Overview of the Group
River and Mercantile Group PLC was formed following the merger of River and Mercantile Asset Management LLP and P-Solve Limited in February 2014 and subsequently listed on the London Stock Exchange in June of that year. These antecedent businesses were founded by their respective CEOs, Mike and I, in 2001 and 2006. We both agreed at the time of the merger that it was more appropriate that Mike lead as CEO with myself responsible initially for the Group-wide distribution function and subsequently incorporating the Asset Management elements of our business and then more recently as Deputy Group CEO. As every business should, we have a series of long-term succession plans and these are based on how our business evolves, and how its needs change alongside the development of our people.
It has been clear that the needs of our clients and therefore our business are undergoing some significant change and this means that the needs of our business are better served by a change in leadership that allowed Mike to focus the entirety of his time on the development and management of a range of existing and emerging macro strategies and driving forward our broader investment thinking. Subsequent to this change, Mike and I have concluded that we need to be more harmonised as a Group in the way we approach investment challenges to ensure that our investment thinking is driven forward in a coordinated and cohesive fashion. Mike will therefore become the Group CIO, to ensure that we are maximising our capabilities in this vital area of our business and that our clients' investment needs are foremost in our minds. Mike has written at some length on his new role in the 2019 Annual Report and in particular, the macro strategies and why these are so critical to the longer term development of our business.
Our industry is in the throes of some significant change; some driven by the evolving needs of our clients but also because of commercial imperatives. All industries have to develop; we operate in a living and breathing investment universe and to remain static will lead to a business fast becoming isolated and potentially extinct. Change therefore should be seen as pre-requisite for commercial survival as opposed to a threat that must be resisted. This applies to the existing investment solutions and products that we deliver and manage for our clients as well as how we manage and evolve our own business.
I am not espousing fundamental reinvention of investment beliefs; a fund management company that changes its investment philosophy and process is probably more vulnerable than one that is resistant to any evolution. That said, I have always admired fund managers and fund management companies that learn. The market evolves and therefore an investment process must learn from history.
Writer and philosopher George Santayana stated,
"Those who cannot remember the past are condemned to repeat it"
This, as in many markets, has significant ramifications in our industry. Hugh Sergeant and his investment team have continuously demonstrated this learning characteristic. Although he has always had a committed value style, the application of this has evolved away from the narrow implementation of many of his peers over the years into the pragmatic investment approach that is known as PVT (Potential, Valuation and Timing) and has served him and his clients so well. That said there are always investment cycles and we have been through a period where the factors he favours have struggled; however that does not mean that you change your investment spots and chase the latest investment fad; you remain committed to the core principles of your investment beliefs. As an aside, we do believe that we are moving into a period where the value investor is likely to be better rewarded. It is clear when looking at Hugh's performance as a committed value manager, if investors wish to take advantage of the value opportunity, when looking at the evidence of his returns against his value peer group there is no one better at delivering superior investment returns than Hugh.
We believe that the broader investment market is moving into a different phase and the returns that have been achieved in the past may be more difficult to achieve in the future. We are not suggesting that certain asset classes are doomed to uncertain times; in fact, we believe that the equity market and in particular those stocks with attractive value characteristics, could provide some very attractive returns in the medium term. However, we do believe that with the prevailing economic backdrop we are more likely to be entering a period where returns may well be lower than has been the case in recent history.
We have been through a period where institutional advisors have promulgated a need to reduce risk, this has been driven by the changing circumstances within pension funds and their sponsoring employers. The arguments for reducing risk have been clearly articulated. However, the consequence of reduced risk in many cases is reduced and in some cases no return. I am sure that we all agree that we have to take some risk in our daily lives to exist. I need to go to work to earn money to pay my mortgage etc. However, there is a risk that in leaving the house to go to work I am involved in a terrible accident that reduces or removes my ability to earn money. I clearly still need go to work and therefore I assess the associated risks and act accordingly.
This is the same in investment markets; if I do not take any risk, I will not be able to generate any return and therefore will be unable to meet my liabilities. Whilst this analogy does not apply to those pension funds with strong and dependable sponsors and healthy levels of investment surplus, it does apply to the majority of pension funds and other investors. Our Solutions business has always been the advisor or fiduciary manager that has solved complex client problems. The investment expertise and advice required to solve significantly underfunded positions is different to that required to manage a more solvent position. The development of our Derivatives capability alongside this investment advice has placed us in a unique position to manage risk alongside return and many of our clients have benefited from this approach. The addition of complex Macro solutions further enhances our ability to deliver positive outcomes for all of our clients.
The change that we have made at a leadership level at River and Mercantile is designed to give our business the freedom to meet this change and to develop and manage appropriate solutions that will help our clients manage their investment needs.
We therefore need to embrace change and all this means for our clients and our shareholders. I have always believed that our industry is dominated by two pieces of high ground: one the prevail of the large multi-national fund managers who have been able to utilise their scale and distribution capabilities to dominate markets and to withstand the twin commercial pressures of reduced fees and increased costs. The other area of high ground is dominated by the specialists that have been able to grow and manage fee pressures due to the high quality of the products and solutions that they develop which are very difficult to replicate. The remainder are trapped in the valley between these two opposing forces and as any military person will know, become vulnerable and weak.
We at River and Mercantile have always prided ourselves on our ability to change and evolve to prevailing market conditions. These included the development of the Fiduciary Market in the UK in 2003 which was a direct response to changing governance requirements; the use of Derivatives as a means of managing risk and delivering required return in pension funds in 2005; the evolution of specific investment strategies to meet recovery investment opportunities emanating from the global financial crisis in 2008; and the recognition of changing market conditions and needs leading to the first merger of an asset management and solutions business in 2014. These have all been examples of where our business has recognised the need and changed accordingly.
Developing solutions for a lower returning world is more than just simple investment engineering. It requires not only a fundamental understanding of the holistic needs of our clients, but also crucially an understanding of macro-economic factors and how these can influence investments. We have been working on developing a range of investment strategies designed to deliver significant returns at a time when the need is greatest. An example of this is the Global Macro strategy that we launched in early 2018 and ran with corporate money only as we tested the operational and underlying investment model. This was designed to provide double-digit returns through the cycle and critically provide positive absolute returns during sustained periods of negative equity markets. The early returns have been very encouraging; Mike discusses this in detail in the Global Macro strategy white paper we have recently sent to potential clients, which provides the academic and numeric evidence in support of his investment approach, and more broadly how this influences many of the other new developments on which we are working.
We are continuing to invest in our business and have expanded on this in detail below. We have decided it would be helpful if we described our business in terms of our core business and the investments and initiatives we are making in our business to drive growth over the next three years. We articulated this approach at the time of our interims, and we have continued this approach more explicitly in this report. It is crucial that a business continues to make sensible investments in its people and processes, and responds to the changing business landscape and environment. I do not want River and Mercantile to become a business driven by senseless metrics that do not define how we are currently performing or will fare in the years to come. We have a fantastic opportunity to invest in developing the products and solutions that we deliver to our clients and the people who make this happen. We will also continue to recruit high quality individuals into the business at every opportunity. These investments will help our business flourish, maintain our position on the "high ground" and avoid the dangers lurking in the "valley".
Initiatives and Investments
As I highlighted earlier in my report, we are making a number of "investments" and "initiatives" in our business and will continue to support these until the point at which they become part of our core business or that "Investment" or "Initiative" does not turn into a feasible opportunity and we decide to withdraw support. We have set clear metrics to allow ourselves and the Board to govern the relative success or otherwise.
We are investing in the following specific "Initiatives" within our core business:
1. Macro Strategies
With Mike's guidance, we have developed a range of innovative strategies to meet the emerging needs of our clients such as Global Macro, Emerging Market Absolute Return, and Global Quality. We have launched these strategies and are already taking these to our clients across the business.
2. ILC
We made an investment in the Emerging Market equity team, based in Chicago that joined us from Credit Suisse. The team have a value based investment approach similar to that utilised by the PVT team and a long track record. We are in the process of establishing a range of suitable investment vehicles in the US to meet client requirements.
Separate to this we have made the following "Investments" in our business over the last eighteen months:
1. Australian Distribution
We have been building relationships and clients in Australia for the last few years and recognised that we needed to make an investment and establish a presence in this very vibrant and sophisticated market. The first stage in this investment programme was the recruitment of Tim Horan in 2018. He has made an excellent start in ensuring that River and Mercantile is a recognised feature of the institutional and wholesale markets, and we will continue this investment with additional hires over the coming 12 to 18 months.
2. New York
We were fortunate to be able to recruit a team of high-level executives from Mercer last year and we subsequently opened an office in New York, which will allow the team to spearhead our continued growth into this important market. The early signs are extremely positive, we are seeing the level of engagement with larger multinational pension funds increase significantly and we will continue to support this investment over the coming years.
The entrepreneurial spirit burns fiercely within River and Mercantile and there is a range of other initiatives that are being identified and researched as possible future investments. We will continue to keep you informed of our thinking in this space and when we are at the point of investing further in our development.
These investments will generally involve hiring additional resources and incurring additional remuneration costs. In the Group's Remuneration Policy, approved by shareholders in 2017, provision was made for the temporary increase of the remuneration ratio above 54% of underlying revenue to permit such investments. While historically we have not had to do this, and have been below the 54% remuneration cap, the Remuneration Committee has adjusted this, on a temporary basis, to allow management to be above the 54% cap specifically to fund these investments, if necessary.
Detailed review of 2019
In reviewing the last twelve months, I think that it is important to put this into context of the last twenty four months and since our IPO in June 2014. The headline asset numbers for 2019 look positive; the Group has moved back onto a strong growth path and I was delighted to see that our net sales ratio is again at a level that compares favourably against our peers in the industry. The investment environment was more challenging than we have seen since the Group was formed and conditions for some of our strategies have been less than supportive. However, our long-term investment returns remain strong with all of our investment strategies and products ahead of their respective benchmarks since inception.
The wholesale market in the UK has continued to be difficult and the Investment Association numbers bear this out. Retail sales of Equities over the 12 months to June 2019 were negative by over GBP4bn on a net basis and we were impacted by this trend. We have also seen an unusually narrow market where sales have been channelled through a small number of funds at a restricted number of investment houses and investment platforms. Investment in UK wholesale funds has fallen over the last 12 months and whilst there has been growth in certain global funds these have tended to be those strategies that have focused on the most expensive and fashionable stocks in markets. Our own wholesale business had a more muted period and saw redemptions in our UK strategies consistent with the Investment Association figures. In contrast we have seen strong growth in our global equity strategies from institutional clients in the UK, US and Australia, however this tends to be at a lower margin and this "mix-shift" in margin at a group level has had an impact on our overall financials. Our long-term investment returns are very strong, 100% of our portfolios are ahead of their respective benchmarks since inception, and we expect that we will see a return to growth in our wholesale book as the investment cycle changes. We are committed to this market in the UK and the recruitment of David Hanratty with his experience and expertise and the additional recruitments that will be made to support our existing clients and widen our client base are evidence of this commitment.
Operating businesses
The Group has grown its assets at a compound average growth rate of 18% per annum since its IPO in 2014. The development of four intertwined divisions has continued to be a success and we have continued to see strong growth across the business.
Fiduciary Management
The last few years have been dominated by the CMA review into the industry and this has clearly had a dampening impact on activity levels during the early part of the year. The final order was published on 10 June 2019 although the interim report was circulated earlier in the year. During the course of the CMA investigation, we provided the CMA with our views and we are delighted that there appear to be some sensible decisions regarding clarification and consistency of investment returns and fee structures.
We have continued to see a recovery in activity in this market and there is evidence of a strong return to growth from our business as the market normalises following the review. We expect activity levels to increase as we move into a window during which we expect a significant number of legacy mandates across the market to undertake formal tenders.
Investment returns have continued to be strong during the period and we have rolled out our River FOURcast investment thinking to all of our Solutions clients to ensure a clear understanding of our approach and the investment implications of our macro views.
We were instrumental in developing the fiduciary solution for UK pension funds in 2003 and we continue to be one of the leading players in this growing market. We continue to develop a series of new investment solutions to service both our Fiduciary and advisory clients as their needs evolve and we will continue to invest in this division over the coming years.
Advisory
Our advisory revenues remained broadly flat for the period in the UK as we continued to see a number of our clients, due to changes in their governance structure, decide to retain River and Mercantile, accessing our investment thinking and approach in a Fiduciary manner as opposed to Advisory following a competitive tender. We have always maintained and were pleased to see the CMA concur that, fiduciary and advisory are merely different sides of the same coin. The primary decision a Trustee Board needs to make is to identify the right investment partner with whom they wish to work and the secondary decision is to understand the appropriate governance structure to meet their needs.
We are continuing to see growth emanate from both the UK and US. We have made a significant investment in opening offices in New York following the arrival of two senior executives from Mercer and we are delighted with early developments. The Advisory part of our business has been core since our inception and we will continue to invest in this area both in personnel and by identifying suitable inorganic growth opportunities to complement our activities in this area.
Derivatives
We have seen very strong growth in our Derivatives business since the IPO. We have grown notional assets under management by over 150% in that period. Growth in the financial year ending June 2019 has continued. We are now working with a broad range of clients and consultants and in particular, we have seen a strong growth in mandates from Local Government Pension Schemes ("LGPS") over the last 18 months. Our skills in this area are recognised as being some of the most professional and innovative in the market and we are working hard to develop these further and identify opportunities to both develop solutions and clients that would benefit most from the implementation of this thinking alongside or instead of their existing relationships.
As highlighted above, we have continued to see a strong appetite for structured equity/protection mandates in LGPS. We are beginning to see a strong appetite for Derivative structures in the US and Masroor Ahmad (Head of Derivative Solutions) and his team are working closely with the New York team and engaging with multinational corporations. We also see interesting opportunities in our other markets such as Australia, where we are beginning to see some early signs of interest in Derivative solutions.
We will continue to invest in this business line, which we believe will continue to provide strong growth opportunities as the market increasingly becomes more sophisticated and the use of complex risk management tools becomes more widespread.
Equities
As highlighted earlier in this review, our equities businesses have a clear investment philosophy and process and have consistently applied this in what has been a challenging environment for their favoured factors. This approach has gone through periods when their favoured factors have not supported the investment approach and the last twelve months has been one of those environments. The teams in London led by Hugh Sergeant and in Chicago led by Al Bryant have similar investment processes and the impact of this investment environment has been similar across both teams. We are not short-term investors, we are looking to generate superior returns through the cycle and whilst frustrating in the near term this does provide some fantastic valuation opportunities for the sophisticated investor who has the ability to "look across the valley".
We have continued to invest in the equities franchises and we have identified a number of opportunities to grow these further in the coming twelve months. We have been loath to buy assets for the sake of some short-term asset growth on its own, but we have identified a number of opportunities that also provide additional manufacturing opportunity and/or additional distribution resource.
We have continued to see strong growth in our institutional client base in all markets and in particular the exciting opportunities that we are beginning to see from our decision to open an office in Australia last year.
Macro
We are treating Macro as a new initiative and we believe that in time this will become a separate division in its own right. Once that is the case we will report on this accordingly. The Macro Initiative has evolved over this year and as we highlighted is a result of the emerging needs we have identified in the market and it provides the business with the infrastructure to develop a range of relevant solutions. Mike will cover in the Annual Report in more detail the Macro opportunity and what we mean by Macro. I am delighted with the way the business has reacted to these changes and the large number of exciting products and solutions that are being developed are a testament to the high quality of individuals we have across the business. These strategies are in the process of being taken to our clients and the response appears to be supportive.
Distribution
We have begun a phase of investment in our distribution platform and as highlighted earlier in my report I am delighted that David Hanratty has joined the business to develop further our distribution capabilities across the Group. I have always believed that this development should be a combination of "build, buy and partner". We will build internal distribution capabilities as we find the right individuals and teams and evidence of this is the investment we made last year in Australian distribution. Tim Horan joined the business from WestPac where he had many years of success building out a new business line for the bank and he has made a great start in developing the River and Mercantile franchise in the region since he joined our business. We will continue to invest and support Tim and we hope to make further recruitments over the coming twelve months.
We will look to identify strategic opportunities that assist our development plans and provide significant distribution capabilities in markets where we are underrepresented or where we identify opportunities to diversify. We have also collaborated with some distribution specialists in the US market, which will provide much-needed bandwidth as we develop our own capabilities.
This was a record year of AUM growth for the Group with total sales of GBP6.9bn and net sales of GBP4.1bn. It was encouraging to see the continued penetration into the LGPS market championed by Jason Wood with our structured equity and LDI solutions and the broader growth in our overall Institutional business led by Arabella Townshend.
As we have previously highlighted, we have made a significant commitment and investment in Australia with the establishment of a presence in Sydney and Brisbane following a number of years developing relationships. It has been very rewarding to see the continued growth in this market with a recent AU$390m global equities mandate appointment from a major Superfund.
We are committed to the wholesale market here in the UK and developing relationships over time in these markets in the US and Australia. The UK wholesale market has seen a difficult trading environment and the Investment Association reported that the UK All Companies Sector has been the worst selling sector 8 times in the last 10 years; in addition, UK domiciled funds according to figures from Morningstar Direct have suffered total outflows of GBP30bn since April 2018. Notwithstanding these depressing industry numbers, 100% of our investment strategies available to this market are ahead of their respective benchmarks since inception and continue to be relevant to our client needs in this space. We will continue to work hard to make sure that our strategies are available across all platforms and accessible to the end client.
Summary
This has been a strong year of development for the business. We have continued to deliver growth in our underlying business and whilst there has been a mix-shift in the economics from where this growth has emanated, we believe that this will settle over time.
We continue to invest across our business and are also making specific investments and delivering initiatives in four key parts of our business and I will continue to report on these over the coming years. As we identify additional opportunities to support our future growth, we will add these to this broader list. I am excited by the opportunities that exist for our core business and I have been delighted in the growth that we have been able to deliver. The investment in our core-operating platform has continued and is now in a position to be able to support not just the core business but also the investments that we are making more broadly.
As a business, we have clear set of values; we are passionate about our clients' success, we want to be creative- involving, challenging and convincing others. We want to create an open, candid and constructive working environment, individually demanding of our best, and whilst being commercial in all that we do, remain focused on our people.
I would like to take this opportunity to thank all our employees for their continued support and hard work over the last year and our shareholders who have continued to support our plans to grow and develop the business.
James Barham
Chief Executive Officer
River and Mercantile Group PLC
Financial Review
A strong year of net flows and investment performance, however, the timing of AUM/NUM growth and the full year effect of reduced wholesale AUM has reduced the Group's overall financial results this year.
Financial Highlights (unaudited)
-- Statutory net profit after tax was GBP13.0m, compared with GBP15.1m in the prior year;
-- Statutory basic earnings per share were 16.22 pence per share, compared with 18.83 pence per share in the prior year;
-- Adjusted underlying profit before tax was GBP14.7m, compared with GBP16.1m in the prior year;
-- Adjusted underlying EPS was 13.91 pence per share, compared with 16.06 pence per share in the prior year;
-- Adjusted profit after tax was GBP16.2m, compared with GBP17.6m in the prior year;
-- Adjusted basic earnings per share was 20.26 pence per share, compared with 21.85 pence per share in the prior year.
Asset Growth
-- Fee earning AUM/NUM increased by 18% year on year, to GBP39.8bn; -- Gross sales for the year were GBP6.9bn; -- Net flows for the year were GBP5.4bn; -- Investment performance increased AUM by GBP0.6bn.
Operating Highlights
-- Net management and advisory fees increased by 2% year on year to GBP65.6m; -- Performance fees were GBP12.5m, compared with GBP10.6m in the prior year;
-- Adjusted underlying pre tax margin was 22%, compared with 25% in the prior year. The Core business, before investment in new business opportunities, generated adjusted underlying pre tax margin of 25%.
Key Performance Indicators (KPIs)
The following summarises the Group's KPI's for the year ended 30 June 2019:
Fee earning AUM/NUM
Year 2019 2018 2017 2016 2015
---------- ---------- --------- -------- ---------
GBPm 39,814 33,843 31,049 25,548 21,017
---------- ---------- --------- -------- ---------
Growth in fee
earning AUM/NUM 18% 9% 22% 22% 21%
---------- ---------- --------- -------- ---------
The growth in AUM/NUM is a key indicator of the client engagement process
and is the driver for growth in net management fees. The growth in AUM/NUM
is a function of new mandates (including acquisitions), low attrition
rates, aggregate investment performance and net rebalance.
In FY2019 the growth rate in fee earning AUM/NUM has returned to historical
levels due to sizable mandates wins in Institutional Equites and Derivatives
Solutions. Wholesale flows were lower due to more difficult equity markets.
The business continues to have significant excess AUM/NUM capacity in
existing and new strategies.
Regretted institutional attrition (RIA)
Year 2019 2018 2017 2016 2015
---------- ---------- --------- -------- ---------
Client attrition 1% 8% 3% 4% 1%
---------- ---------- --------- -------- ---------
RIA is calculated as the opening AUM/NUM of lost institutional clients,
divided by total opening AUM/NUM. It excludes pension clients which
have entered the Pension Protection Fund due to sponsor default or pensions
who have moved to buy-in or buy-out, and redemptions arising from fund
benefit payments.
RIA is not directly measured for Equity Solutions - Wholesale as investor
redemption decisions tend to be driven by their asset allocation and
investment performance outcomes.
A low client attrition is a measure of our client engagement process
and results in higher net growth in AUM/NUM and efficiency gains in
the cost of distribution.
In 2019 RIA reflected a continued strong client engagement. In 2018
RIA was impacted by structured equity mandates which matured and were
not replaced.
Net management and advisory fees
Year 2019 2018 2017 2016 2015
---------- ---------- --------- -------- ---------
GBPm 65.6 64.2 55.9 45.7 46.7
---------- ---------- --------- -------- ---------
Growth in net
management and
advisory fees 2% 15% 22% -2% 33%
---------- ---------- --------- -------- ---------
Management and advisory fees represent the underlying revenues generated
by the business. This metric measures the sustainability of the business.
The lower growth in net management fees and advisory fees reflects the
full year effect of negative flows in Equity Solutions - Wholesale and
the timing of AUM/NUM flows and investment performance in the current
year which were stronger in the second half of the year. The average
management fee margin was 16bps, compared with 17bps in 2018 which is
reflected in the mix-shift in AUM/NUM.
Adjusted underlying pre-tax margin
Year 2019 2018 2017 2016 2015
---------- ---------- --------- -------- ---------
Adjusted underlying
pre-tax margin 22% 25% 29% 24% 27%
---------- ---------- --------- -------- ---------
Adjusted underlying pre-tax margin is an indication of the ability to
achieve scale through increased AUM/NUM and revenues, at a lower marginal
increase in related expenses.
Adjusted underlying pre-tax margin reflects an increase in remuneration
expense as the business has continued to invest in new growth opportunities
and the full year effect of research costs in Equities following the
implementation of MiFID II. Net of the effects of investment spending
in new growth opportunities, the core business adjusted underlying pre
tax margin was 25%.
Adjusted underlying profit represents net management and advisory fees
less associated remuneration, administrative expenses, depreciation,
amortisation of software, and finance income and expense.
Percentage of adjusted earnings per share distributed
Year 2019 2018 2017 2016 2015
---------- ---------- --------- -------- ---------
Adjusted underlying
EPS (basic) 13.9p 16.0p 15.9p 10.6p 12.8p
---------- ---------- --------- -------- ---------
Net performance
fee EPS (basic) 6.4p 5.9p 7.0p 1.0p 2.6p
---------- ---------- --------- -------- ---------
Adjusted EPS (basic) 20.3p 21.9p 22.9p 11.6p 15.4p
---------- ---------- --------- -------- ---------
Total dividend
paid or proposed
for the year: 16.4p 18.6p 19.7p 9.5p 13.0p
---------- ---------- --------- -------- ---------
Percentage of
adjusted underlying
profit distributed 80% 80% 80% 80% 80%
---------- ---------- --------- -------- ---------
Percentage of
net performance
fee profit distributed 100% 100% 100% 100% 100%
---------- ---------- --------- -------- ---------
Percentage of
adjusted earnings
per share distributed 81% 85% 86% 82% 83%
---------- ---------- --------- -------- ---------
The Group's dividend policy is to pay at least 60% of the Group's adjusted
underlying profits available for distribution by way of ordinary dividends.
In addition, the Group expects to generate surplus capital over time
primarily from net performance fee earnings. The Group intends to distribute
such available surpluses, after taking into account regulatory capital
requirements at the time and potential strategic opportunities, to shareholders
primarily by way of special dividends.
During the years 2015 to 2019 the Group has paid 80% of adjusted underlying
profits and 100% of net performance fee profit as dividends. The year
on year variation on adjusted earnings being distributed is a result
of the ratio of net performance to adjusted underlying profits.
In FY2019 basic earnings per share is calculated on the basis of weighted
average shares outstanding during the year. On 26(th) June 2019, the
EPSP award vested 2.9m shares. The second interim and proposed final
dividend will be paid on these additional shares. FY2019 adjusted profit
after tax was GBP16.2m. Dividends paid and proposed aggregate GBP13.9m
representing 86% of total adjusted profit.
AUM/NUM and margins
We have continued to grow AUM/NUM through both positive net flows and investment performance. Net management fee margin levels have been broadly maintained across all divisions.
The following table shows the AUM/NUM for the year ended 30 June 2019:
Fiduciary Derivative
Management Solutions
GBPm (AUM) (NUM) Equity Solutions (AUM) Total AUM/NUM
------------ ----------- ---------------------------------- --------------
Wholesale Institutional Total
---------- -------------- ------
Opening fee
earning AUM/NUM 10,642 18,622 1,887 2,692 4,579 33,843
Sales 1,805 3,276 245 1,568 1,813 6,894
Redemptions (616) (1,257) (498) (439) (937) (2,810)
------------ ----------- ---------- -------------- ------ --------------
1,189 2,019 (253) 1,129 876 4,084
Net rebalance 279 1,042 - - - 1,321
Net flow 1,468 3,061 (253) 1,129 876 5,405
Investment performance 754 - (152) (36) (188) 566
------------ ----------- ---------- -------------- ------ --------------
Closing fee
earning
AUM/NUM 12,864 21,683 1,482 3,785 5,267 39,814
------------ ----------- ---------- -------------- ------ --------------
Mandates in - - - - - -
transition
Redemptions
in transition - (664) - - - (664)
Total mandated
AUM/NUM 12,864 21,019 1,482 3,785 5,267 39,150
============ =========== ========== ============== ====== ==============
Opening mandated
AUM/NUM 10,605 18,616 1,887 2,880 4,767 33,988
Increase in
fee earning
assets 20.9% 16.4% (21.5)% 40.6% 15.0% 17.6%
Increase in
mandated assets 21.3% 12.9% (21.5)% 31.4% 10.5% 15.2%
Average fee
earning AUM/NUM 11,326 19,513 1,611 3,281 4,892 35,731
Average margin
2019 (bps) 16-17 6-7 70-71 36-40 47-50 16
Average margin
2018 (bps) 17-18 6-7 70-71 39-40 53-54 17
Medium term
margin guidance
(bps) 14-15 6-7 66-68 36-40 15-16
Net management
fees 2019 GBPm 18.8 13.4 11.3 12.1 23.4 55.5
------------------------ ------------ ----------- ---------- -------------- ------ --------------
This year has seen a record level of gross sales at GBP6.9bn, a year on year increase of 21%. Gross sales included GBP4.4bn of AUM/NUM from new clients and GBP2.5bn from increased allocations and new mandates from existing clients. Net rebalance included GBP1bn relating to increased hedging levels for clients with LDI. Redemptions were GBP2.8bn, including GBP0.6bn of structured equity strategies in Derivative Solutions that reached their contractual maturity, and GBP483m of Fiduciary Management mandates where the schemes went to buy out or buy in. The net outflows in Equity Solutions - Wholesale of GBP253m reflects general negative retail sentiment to equities during the year. For the year, investment performance added GBP0.6bn and while positive in Fiduciary Management, was overall negative in Equity Solution reflecting the equity markets during the year.
GBPm H1 H2 FY 2019 ----------------------------- -------------------- ---------------- -------------- Opening fee-earning AUM/NUM 33,843 34,169 33,843 Net sales 1,280 2,804 4,084 Rebalance and transfers 35 1,286 1,321 Investment performance (989) 1,555 566 Closing fee-earning AUM/NUM 34,169 39,814 39,814
In FY2019 H1 investment performance was negative GBP1.0bn, while FY2019 H2 showed a significant recovery adding GBP1.6bn to client portfolios. As discussed in the Group CEO's statement, a period of economic downturn had been anticipated in FY2019 H1 and therefore we had positioned clients' portfolios more defensively in Fiduciary Management. In FY2019 H2 all divisions were able to take advantage of the more positive markets and recorded significant investment performance gains.
Net sales were GBP4bn for the year with the majority in FY2019 H2.
Regretted institutional attrition (RIA)
Our business model is focused on meeting the clients' investment needs. Our engagement approach results in an alignment between the investment strategy and the clients' desired range of investment outcomes. Our aim through this approach is to achieve higher levels of client satisfaction and therefore lower redemption rates. We measure this through RIA.
Fiduciary Derivative Equity Solutions
GBPm Management Solutions - Institutional Total
------------ ----------- ----------------- -------
Gross outflows 616 1,257 439 2,312
Opening AUM/NUM 10,642 18,622 2,692 31,956
Outflow % 5.8% 6.8% 16.3% 7.2%
RIA 2019 0.6% 1.7% 0.0% 1.1%
RIA 2018 0.2% 14.8% 0.3% 8.1%
RIA 2017 1.1% 3.6% 11.6% 3.0%
In the prior year Derivative Solutions' RIA saw the redemption of a large mandate which reached its contractual maturity date, excluding this redemption the 2018 RIA for Derivatives was 6.6% and 3.4% for the Group. In Equity Solutions - Institutional the increase in redemptions in 2019 reflect reduced allocations to Emerging Market and UK equity strategies as sentiment has continued to be more negative in this space.
Total Revenues
GBP'000 2019 2018 Increase/ (decrease)
------- ------- ---------------------
Net management fees
- Fiduciary Management 18,790 18,400 2%
- Derivatives 13,379 11,777 14%
- Equity Solutions - Wholesale 11,270 14,521 (22)%
- Equity Solutions - Institutional 12,107 9,265 31%
------- ------- ---------------------
Net management fees 55,546 53,963 3%
Advisory fees
- Retainers 5,295 5,443 (3)%
- Project fees 4,743 4,792 (1)%
------- ------- ---------------------
Advisory fees 10,038 10,235 (2%)
Total net management and advisory
fees 65,584 64,198 2%
======= ======= =====================
Performance fees
- Fiduciary Management 10,553 8,167 29%
- Equity Solutions 1,966 2,408 (18)%
------- ------- ---------------------
Total performance fees 12,519 10,575 18%
======= ======= =====================
Total revenue 78,103 74,773 4%
======= ======= =====================
Total revenues increased 4% to GBP78.1m, with 2% growth in net management and advisory fees and 18% increase in performance fees.
In FY2019 the timing of AUM/NUM flows had a significant impact on the level of management fees earned in the year. In FY2019 H1 net AUM/NUM flows and investment performance were GBP326m, compared with FY2019 H2 of GBP5.6bn.
Overall net management fees increased 3% to GBP55.5m, below our medium-term target of at least 12% growth per year, however Derivative Solutions and Equity Solutions - Institutional both grew revenues significantly ahead of this target at 14% and 31%, respectively.
The loss of high margin Equity Solutions - Wholesale AUM resulted in wholesale revenues being down 22%.
In Fiduciary Management revenues grew by 2% largely due to the timing of net flows and investment performance which were biased towards FY2019 H2 resulting in lower revenue generation in the year.
Based on the year end AUM/NUM and average margin, the estimated in-force revenue is estimated to be GBP61m, an increase of 10% over the actual management fee revenue recorded in the year.
Advisory revenues declined in the year by 2% which reflected a lower level of project revenues and a slowdown in new advisory mandate opportunities pending the release of the CMA's findings on fiduciary management and consulting services during the year.
Performance fees increased by 18% compared with the prior year as a result of continued strong investment performance that triggered the crystallisation of previously deferred performance fees in Fiduciary Management. It is anticipated that FY2020 will have significantly lower levels of performance fees in Fiduciary Management. Equity Solutions' performance fees (which are now primarily from the River and Mercantile Micro Cap Investment Company (RMMIC), were GBP2.0m. These were lower than last year largely due to lower investment performance.
Management Fee Margins
The divisional management fee margins have remained consistent with our medium term guidance. Our overall margin decreased by one basis point reflecting the decrease in higher margin Equity Solutions - Wholesale AUM during the year and an increase in NUM from Derivative Solutions. We anticipate that as a result of the mix-shift in our AUM/NUM the overall management fee margin will reduce from 16bps to 15bps for FY2020. In Fiduciary Management we anticipate that as a result of the re-tendering of mandates, post the publication of the CMA findings, the management fees in the industry will reduce and therefore we have reduced our average medium term guidance by 1bps to 14-15bps.
Net management fees
Fiduciary Management
Closing fee Growth in
earning AUM fee earning Average AUM Average margin Growth in
GBPm AUM GBPm (bps) Revenue GBPm revenue YoY
------------- ------------- ------------ --------------- ------------- -------------
12,864 20.9% 11,326 16-17 18.8 2%
------------- ------------- ------------ --------------- ------------- -------------
While Fiduciary AUM grew by 21% through net flows and investment performance overall, the majority of the AUM growth occurred in FY2019 H2 and as a result management fee revenue grew by only 2% in the year. In-force revenues at year end are therefore higher than the actual revenue in the FY2019 which means that we have embedded revenue growth in FY2020 of c10%. New fiduciary management mandate opportunities have been more muted during the year pending the publication of the CMA findings into fiduciary management and investment consulting. However, we anticipate significant new fiduciary management mandate opportunities in FY2020 both from participation in new clients considering fiduciary management and participation in the industry wide re-tendering of existing fiduciary management mandates.
Derivative Solutions
Closing fee Growth in
earning NUM fee earning Average NUM Average margin Growth in
GBPm NUM GBPm (bps) Revenue GBPm revenue YoY
------------- ------------- ------------ --------------- ------------- -------------
21,683 16.4% 19,513 6-7 13.4 14%
------------- ------------- ------------ --------------- ------------- -------------
Derivative Solutions comprises Liability Driven Investment (LDI including gilt collateral management) and Structured Equity products.
Derivatives by type:
GBPm Structured Gilts and
equity LDI Total NUM
----------- ---------- ----------
Opening fee earning NUM 3,776 14,846 18,622
Sales 2,666 610 3,276
Redemptions (610) (647) (1,257)
Net rebalance (31) 1,073 1,042
----------- ---------- ----------
Net flow 2,025 1,036 3,061
----------- ---------- ----------
Closing fee earning NUM 5,801 15,882 21,683
----------- ---------- ----------
Mandates in transition - - -
Redemptions in transition (664) - (664)
----------- ---------- ----------
Total mandated NUM 5,137 15,882 21,019
=========== ========== ==========
LDI relates to the management of interest rate and inflation risk in the underlying pension liabilities. In 2019 we continued to see strong flows from new clients and existing who have increased their level of hedging to respond to market and scheme funding levels.
Derivative Solutions' Structured Equity capabilities provide strategies to shape the return profile of clients' equity portfolios. The continued strength of the equity markets coupled with an increase in the fear of a pullback in equities have led to a number of mandates including a GBP2bn mandate from a local government pension scheme.
As Structured Equity products are usually sold at a lower margin than LDI, the average margins of the Derivative Solutions division will fall over time if structured equity continues to sell strongly, due to mix-shift effects.
Equity Solutions - Wholesale
Closing fee Growth in Growth in
earning AUM fee earning Average Average margin revenue
GBPm AUM AUM GBPm (bps) Revenue GBPm YoY
------------- ------------- ---------- --------------- ------------- ----------
1,482 (21.5)% 1,611 70-71 11.3 (22)%
------------- ------------- ---------- --------------- ------------- ----------
The net outflows in Equity Solutions - Wholesale of GBP253m reflects general negative retail sentiment to equities during the year. Revenue growth in the year was negative due to the full year impact of AUM reduction last year and the impact of weaker AUM growth this year.
Equity Solutions - Institutional
Closing fee Growth in
earning AUM fee earning Average AUM Average margin Growth in
GBPm AUM GBPm (bps) Revenue GBPm revenue YoY
------------- ------------- ------------ --------------- ------------- -------------
3,785 40.6% 3,281 36-40 12.1 31%
------------- ------------- ------------ --------------- ------------- -------------
Equity Solutions - Institutional grew strongly in the year, as demand continued for the Global High Alpha strategy in particular in the UK, US, Australia and New Zealand. We now manage GBP905m of AUM originating from Australia/New Zealand and by establishing our new office in Australia, we expect to expand our business in a market with significant pension assets.
Advisory revenues
Advisory revenues declined in the year by 2% which reflected a lower level of project revenues and a slowdown in new advisory mandate opportunities given the CMA review of fiduciary management and consulting services during the year.
The split between retainers and project fees was:
GBP'000 2019 2018
------- -------
Retainers 5,295 5,443
Project fees 4,743 4,792
------- -------
Total advisory fees 10,038 10,235
======= =======
Performance fee revenue
This year has been another strong year of investment performance across all strategies. Performance fees in Fiduciary Management were GBP10.6m, resulting from the underlying investment performance generated by the investment teams, coupled with the more stable interest rate environment. Equity Solutions performance fees are primarily from the River and Mercantile Microcap Investment Company (RMMIC), fees in the year were GBP2.0m.
In Fiduciary Management, based on the level of previous deferred performance fees, we anticipate a significantly lower level of performance fees in FY 2020.
Administrative expenses
GBP'000 2019 2018
------- -------
Administrative expenses excluding governance
and research costs 13,743 12,800
Governance costs 570 538
External research costs 1,334 736
------- -------
Administrative expenses 15,647 14,074
======= =======
Total net management and advisory fees 65,584 64,198
Administrative expenses as a percentage of net
management and advisory fees 24% 22%
Administrative costs as a percentage of revenue increased by 2% to 24%, of which the most significant increase was the full year effect of external research costs in the Equity Solutions business. In addition, we incurred fund administration costs relating to new segregated mandates, regulatory and compliance costs related to the implementation of SMCR and occupancy expense due to an office move to bring the UK facilities closer.
We anticipate that additional expenses relating to continued investment in the business, in particular costs associated with launching new products and investments in Australia and the US will increase administration expenses in the near term by approximately GBP1.1m.
From 1 July 2019, the change in accounting for leases, which came in to effect 1 January 2019, will bring our lease commitments onto the Group's balance sheet and also change the classification and recognition of costs associated with the Group's leased premises.
While the accounting change will not impact the Group's cash flows, the timing of recognition of the lease costs will be different under the new standards and will increase net expenses by up to GBP0.1m annually in the five years following initial application, decreasing the Group's reported profits. Occupancy charges for leased premises will be recognised through depreciation and interest expense. It is anticipated this initial increase in net costs recognised will trend towards a net decrease in the longer term. Additional detail on the new leases accounting standard is provided in note 1 to the Group financial statements.
Remuneration
GBP'000 2019 2018
------- -------
Fixed remuneration 26,145 22,940
Variable remuneration 15,126 15,806
------- -------
Total remuneration (excluding recruitment fees) 41,271 38,746
Recruitment fees 393 404
------- -------
Total remuneration expense 41,664 39,150
Total revenue (excluding seeding and other income) 78,103 74,773
------- -------
Remuneration ratio
(total remuneration excluding recruitment fees
/total revenue) 53% 52%
======= =======
Remuneration expense includes: fixed remuneration comprising base salaries, drawings, benefits and associated taxes; and variable remuneration comprising performance bonus, profit share paid to the partners of RAMAM, the amortisation of the fair value of performance share awards under non-dilutive share plans and associated taxes. Included in remuneration expenses is the cost of recruiting fees paid to third party consultants.
The Remuneration Policy, approved by shareholders in 2017, limits remuneration to 54% of underlying revenue and 50% of net performance fees. Total remuneration this year reflects remuneration at 54% and 50% compared with last year at 53% and 50%. The increase in the ratio is primarily the full year effect of the investments made in Australia and New York, referred to below.
Core Business and Investments
As discussed in the Group CEO's Report, we have continued to invest in the growth of the business through a series of organic initiatives and investments. Historically these opportunities, including the ILC team, have been funded within the existing remuneration and administration expense base of the Group. These investments represent organic growth primarily in people which will involve remuneration and additional related administration expenses. It is likely that during the initial phase of these investments the contribution to net margin may be negative and therefore will detract from the margin improvement of the overall business. Accordingly, we will disclose the business split between Core and Investments. This allows us to show the progress made in margin expansion of the Core business.
We will provide specific guidance relating to the financial impact of these investments on the current period's net earnings which will allow shareholders to evaluate anticipated dividend distributions based on applying the Group's current dividend policy.
It is anticipated that the investments in New York Solutions and Australia will continue at similar levels in FY2020.
Executive Performance Share Plan (EPSP)
The EPSP was established shortly before the IPO, and Executive Directors were given awards over a maximum of 7.3m shares, which they would be entitled to receive based upon achieving a compound total shareholder return of between 12% and 30% during the period from IPO to June 2018, with a one-year holding period after that date, until June 2019. At June 2018, the end of the measurement period, the compound annual TSR was 19%. This resulted in 57% of the A shares being eligible for award and none of the B Shares. This equates to a total of 2.9m shares, or 3% of current issued share capital.
Statutory and adjusted profits
GBP'000 2019 2018
------- -------
Net management and advisory fees 65,584 64,198
Performance fees 12,519 10,575
Total revenue 78,103 74,773
Administrative expenses 15,647 14,074
Remuneration expenses 41,664 39,150
Other 4,004 3,097
Profit before tax 16,788 18,452
Tax 3,793 3,310
Statutory net profit after tax 12,995 15,142
======= =======
Adjusted profit before tax 20,929 21,824
Adjusted pre-tax margin 27% 29%
Adjusted underlying profit before tax 14,650 16,079
Adjusted underlying pre-tax margin 22% 25%
Net performance fee before tax 6,279 5,745
Net performance pre-tax margin 50% 50%
Adjusted underlying profits after tax 11,143 12,914
Adjusted profit after tax 16,228 17,567
Statutory
Basic EPS 16.22 18.83
Diluted EPS 15.61 18.08
Adjusted
Basic EPS 20.26 21.85
Diluted EPS 19.50 20.98
Adjusted underlying
Basic EPS 13.91 16.06
Diluted EPS 13.39 15.42
Statutory profit after tax and adjusted underlying profit after tax both decreased by GBP2m compared with the prior year, as a result of increased revenue offset by increased administrative expenses and remuneration. These increases were primarily the result of the full year effect of investments made in the business and research costs.
The Directors believe that adjusted profit after tax is a measure of the cash operating profits of the business and gives an indication of the profits available for distribution to shareholders. The definition of adjusted and adjusted underlying profit, alongside a reconciliation to statutory profit can be found in note 14 of the consolidated financial statements.
The Directors believe that the underlying profits, generated from net management and advisory fee income, represent the profit from the ongoing business as they exclude the effect of performance fees which can fluctuate for year to year.
Adjusted underlying pre-tax margin represents adjusted underlying profit before tax, divided by net management and advisory fees.
Capital, liquidity and regulatory capital
The business is strongly cash generative, generating net cash from operations of GBP14.9m. Cash and cash equivalents at year end were GBP24m.
As a Group, incorporating businesses regulated by the FCA, we hold prudent levels of capital resource in order to ensure our financial stability. The Internal Capital Adequacy Assessment Process (ICAAP) is a 'living' process and is treated as a continuous exercise to ensure that we are holding sufficient levels of equity capital for the scale and nature of our operations and risk. During the year we have revised our risk and capital framework, and increased our regulatory capital resources to reflect the expansion and underlying growth in our business.
As at 30 June 2019, adjusting for the effect of the interim and proposed final dividends, the Group holds a regulatory capital surplus of around 21% in excess of our assessed requirement.
Following the adoption of IFRS16 in respect of leases, the Group's regulatory capital surplus is expected to decrease by around GBP0.3m from 1 July 2019.
Employee Benefit Trust
The Group's EBT purchases Group shares in the open market to meet the potential vesting of share awards granted under the Group's PSP and DEP share plans.
During the year, the Group's EBT purchased 0.7m shares relating to the previous years' share awards and transferred 0.2m shares as a result of vested awards. The net cost of these transactions was GBP1.3m and is shown in the statement of changes in equity. As at 30 June 2019, the EBT held 2.4m shares. The weighted average number of shares in issue has reduced as a result of purchases of own shares by the EBT.
As at 30 June 2019, the Group had granted share awards which were either expected to vest, or could possibly vest, over 4.7m shares. During the Group's end of year remuneration process, the Group granted share awards over a further 1.3m shares, based upon an estimated grant price.
Authorised Corporate Director
Group entities act as the investment managers to funds and segregated managed accounts, and River and Mercantile Asset Management LLP (RAMAM) has in the period acted as the Authorised Corporate Director (ACD) of River and Mercantile Funds ICVC.
The Group has now appointed an independent ACD, Equity Trustees Limited, for the River and Mercantile Funds ICVC. This appointment has been approved by the regulator and will take effect later in 2019.
As a result, in future periods the requirement to settle transactions between the investors and the depository of the Fund will transfer to Equity Trustees Limited as the ACD. The Group will no longer be exposed to the short-term liquidity requirements to settle with the depositary of the Fund before receiving payments from the investor and these balances will no longer be held on the Group balance sheet.
Distributable reserves and Dividends
At the 2019 AGM the Board is recommending to shareholders to give the Board approval to undertake a Court approved capital reduction process to reclassify the merger reserve (GBP44m at 30 June 2019) as a distributable reserve.
On 6 April 2019, an interim dividend of 6.3 pence per share was paid, which included a special dividend of 2.0 pence relating to net performance fees. The Directors have declared a second interim dividend of 5.1 pence per share, of which 1.6 pence is a special dividend relating to net performance fees to be paid on 22 November 2019.
In addition, the Directors are proposing to shareholders a final dividend of 5.0 pence per share, of which 2.4 pence per share is a special dividend relating to net performance fees. Total dividends per share paid, declared or proposed for the year ended 30 June 2019 are 16.4 pence per share, representing 80% of the adjusted underlying profit after tax and 100% of the net performance fee profit after tax.
As at 30 June 2019, the Company had GBP10.8m of distributable reserves (2018: GBP11.5m).
River and Mercantile Group PLC
Consolidated income statement (unaudited)
Year ended Year ended
30 June 30 June
2019 2018
Note GBP'000 GBP'000
----------- -----------
Revenue 3
Net management fees 55,546 53,963
Advisory fees 10,038 10,235
Performance fees 12,519 10,575
----------- -----------
Total revenue 78,103 74,773
Administrative expenses 5 15,647 14,074
Depreciation 8,21 199 156
Amortisation 8,9 4,369 4,595
----------- -----------
Total operating expenses 20,215 18,825
Remuneration and benefits
Fixed remuneration and benefits 26,145 22,940
Variable remuneration 15,519 16,210
----------- -----------
Total remuneration and benefits 6 41,664 39,150
EPSP costs/(credit) 6,7 635 (123)
Total remuneration and benefits including
EPSP 42,299 39,027
Total expenses 62,514 57,852
Gain on disposal of fair value investments 20 458
Other gains and losses 10 841 1,063
----------- -----------
Profit before interest and tax 16,450 18,442
Finance income 12 339 50
Finance expense (1) (40)
----------- -----------
Profit before tax 16,788 18,452
Tax charge/(credit) 13
Current tax 4,403 3,896
Deferred tax (610) (586)
Profit for the year attributable
to owners of the parent 12,995 15,142
=========== ===========
Earnings per share: 14
Statutory basic (pence) 16.22 18.83
Statutory diluted (pence) 15.61 18.08
River and Mercantile Group PLC
Consolidated statement of comprehensive income (unaudited)
Year ended Year ended
30 June 30 June
2019 2018
GBP'000 GBP'000
----------- -----------
Profit for the year 12,995 15,142
Items that may be subsequently reclassified
to profit or loss:
Foreign currency translation adjustments (21) 21
Change in value of available-for-sale
investments - 472
Tax on change in value of available-for-sale
investments - (95)
Gain on disposal of available-for-sale
investments - (458)
Tax on gain on disposal of available-for-sale
investments - 92
----------- -----------
Total comprehensive income for the
year attributable to owners of the
parent 12,974 15,174
=========== ===========
The notes to the consolidated financial statements form part of and should be read in conjunction with these financial statements.
River and Mercantile Group PLC
Consolidated statement of financial position (unaudited)
30 June 30 June
2019 2018
Note GBP'000 GBP'000
-------- --------
Assets
Cash and cash equivalents 16 24,046 24,029
Investment management balances 17 22,277 13,116
Investments held at fair value 18 5,387 -
Available-for-sale investments - 5,165
Fee receivables 19 4,412 7,856
Other receivables 20 25,505 19,696
Deferred tax asset 13 1,034 2,443
Property, plant and equipment 21 606 601
Intangible assets 9 30,753 35,025
-------- --------
Total assets 114,020 107,931
Liabilities
Investment management balances 17 22,278 13,147
Current tax liabilities 621 2,054
Trade and other payables 22 23,775 22,373
Provisions 23 - 1,209
Deferred tax liability 13 2,483 3,153
-------- --------
Total liabilities 49,157 41,936
Net assets 64,863 65,995
-------- --------
Equity
Share capital 24 256 246
Share premium 15,136 14,688
Other reserves 25 45,472 49,372
Own shares held by EBT 24 (6,251) (4,981)
Retained earnings 10,250 6,670
-------- --------
Equity attributable to owners
of the parent 64,863 65,995
======== ========
The notes to the consolidated financial statements form part of and should be read in conjunction with these financial statements.
River and Mercantile Group PLC
Consolidated statement of cash flows (unaudited)
Year ended Year ended
30 June 30 June
2019 2018
Note GBP'000 GBP'000
----------- -----------
Cash flow from operating activities
Profit before interest and tax 16,450 18,442
Adjustments for:
Amortisation of intangible assets 9 4,369 4,595
Depreciation of property, plant
and equipment 21 199 156
Share-based payment expense 1,545 2,364
Other gain and losses 10 (841) (1,063)
Gain on disposal of available-for-sale
investments - (458)
Disposal of investments held at
fair value (394) -
----------- -----------
Operating cash flow before movement
in working capital 21,328 24,036
----------- -----------
(Increase)/ decrease in operating
assets (11,478) 41,988
Increase/(decrease) in operating
liabilities 9,724 (43,234)
----------- -----------
Cash generated from operations 19,574 22,790
Tax paid (4,685) (4,953)
----------- -----------
Net cash generated from operating
activities 14,889 17,837
----------- -----------
Cash flow from investing activities
Purchase of intangible assets 9 - (328)
Purchase of property, plant and
equipment 21 (196) (504)
Interest received 50 23
Investment in available-for-sale
investments - (10,043)
Proceeds from disposal of available-for-sale
investments - 5,362
Proceeds from disposal of investments
held at fair value 414 -
Purchase of investments held at
fair value (10) -
Proceeds of disposal in investments 15 -
----------- -----------
Net cash generated from/(used) in
investing activities 273 (5,490)
----------- -----------
Cash flow from financing activities
Interest paid (1) (1)
Dividends paid 15 (13,869) (17,456)
Purchase of own shares 24 (1,694) (1,665)
Share issue 408 -
----------- -----------
Net cash used in financing activities (15,156) (19,122)
----------- -----------
Net increase/(decrease) in cash
and cash equivalents 6 (6,775)
----------- -----------
Cash and cash equivalents at beginning
of year 24,029 30,759
Effects of exchange rate changes
on cash and cash equivalents 11 45
----------- -----------
Cash and cash equivalents at end
of year 16 24,046 24,029
=========== ===========
The notes to the consolidated financial statements form part of and should be read in conjunction with these financial statements.
River and Mercantile Group PLC
Consolidated statement of changes in shareholders' equity (unaudited)
Own shares
Share Share Other held Retained
capital premium reserves by EBT earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- ---------- ------------- ---------- ---------
Balance as at 30 June 2017 246 14,688 49,340 (4,766) 8,859 68,367
Comprehensive income for
the year:
Profit for the year - - - - 15,142 15,142
Other comprehensive income - - 35 - - 35
Deferred tax credit on available-for-sale
investments - - (3) - - (3)
Total comprehensive income
for the year - - 32 - 15,142 15,174
Transactions with owners:
Dividends - - - - (17,456) (17,456)
Share-based payment expense - - - - 2,364 2,364
Deferred tax on share-based
payment expense - - - - (789) (789)
Disposal of shares in respect
of award vesting - - - 1,450 (1,450) -
Purchase of own shares by
EBT - - - (1,665) - (1,665)
--------- --------- ---------- ------------- ---------- ---------
Total transactions with owners: - - - (215) (17,331) (17,546)
Balance as at 30 June 2018 246 14,688 49,372 (4,981) 6,670 65,995
Comprehensive income for
the year:
Profit for the year - - - - 12,995 12,995
Other comprehensive income - - (21) - - (21)
Total comprehensive income
for the year - - (21) - 12,995 12,974
Transactions with owners:
Dividends - - - - (13,869) (13,869)
Share-based payment expense - - - - 1,545 1,545
Deferred tax on share-based
payment expense - - - - (1,350) (1,350)
Realised tax in respect of
award vesting - - - - 1,165 1,165
Share payment in respect
of award vesting - - - - (369) (369)
Disposal of shares in respect
of award vesting - - - 424 (424) -
Purchase of own shares by
EBT - - - (1,694) - (1,694)
Reserves transfer upon transition
to IFRS 9 - - (12) - 12 -
Transfer to retained earnings - - (3,867) - 3,867 -
Shares issued in respect
of award vesting 10 448 - - - 458
Foreign exchange adjustments - - - - 8 8
Total transactions with owners: 10 448 (3,879) (1,270) (9,415) (14,106)
Balance as at 30 June 2019 256 15,136 45,472 (6,251) 10,250 64,863
========= ========= ========== ============= ========== =========
The notes to the consolidated financial statements form part of and should be read in conjunction with these financial statements.
Transfer to retained earnings is in respect of a re-classification of capital contribution reserve which arose from forgiveness of a dividend by the Group's then parent, PSG (GBP3,867,000).
River and Mercantile Group PLC
Notes to the consolidated financial statements (unaudited)
1. Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), International Accounting Standards, International Financial Reporting Interpretation Committee interpretations, and with those parts of the 2006 Act applicable to groups reporting under IFRS as issued by the International Accounting Standards Board and adopted by the European Union (IFRS) that are relevant to the Group's operations and effective for accounting periods beginning on 1 July 2018.
Going concern
The Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future.
Accordingly, the Group and Company financial statements have been prepared on a going concern basis using the historical cost convention, except for the measurement at fair value of certain financial instruments that are held at fair value.
Basis of consolidation
The consolidated financial statements include the Company and the entities it controls (its subsidiaries). Subsidiaries are considered to be controlled where the Group has exposure to variable returns from the subsidiary, the power to affect those variable returns and power over the subsidiary itself. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.
Subsidiaries are consolidated from the date that the Group gains control, and de-consolidated from the date that control is lost.
The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the subsidiaries' identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. The consolidated financial statements are based on the financial statements of the individual companies drawn up using the standard Group accounting policies.
All transactions and balances between entities within the Group have been eliminated in the preparation of the consolidated financial statements.
The Employee Benefit Trust is included in the consolidated financial statements of the Group. The trust purchases shares pursuant to the non-dilutive equity awards granted to employees. These purchases and the operating costs of the trust are funded by the Company. The trust is controlled by independent trustees and its assets are held separately from those of the Group.
The consolidated statement of financial position has been presented on the basis of the liquidity of assets and liabilities.
The Group's relationship with fund entities
The Group entities act as the investment managers to funds and segregated managed accounts, and River and Mercantile Asset Management LLP (RAMAM) is the Authorised Corporate Director (ACD) of River and Mercantile Funds ICVC (collectively 'Investment Management Entities' (IMEs)).
Considering all significant aspects of the Group's relationship with the IMEs, the Directors are of the opinion that although the Group manages the investment resources of the IMEs, the existence of: termination provisions in the Investment Management Agreements (IMAs) which allow for the removal of the Group as the investment manager; the influence exercised by investors in the control of their IME and the arm's length nature of the Group's contracts with the IMEs; and independent Boards of Directors of the IME, the Group does not control the IME and therefore the assets, liabilities and net profit are not consolidated into the Group's financial statements.
Foreign currencies
The majority of revenues, assets, liabilities and funding are denominated in UK Pounds sterling (GBP/GBP), and therefore the presentation currency of the Group is GBP. All entities within the Group have a functional currency of GBP, except for River and Mercantile LLC which is based in the US.
Monetary items which are denominated in foreign currencies are translated at the rates prevailing at the reporting date. All resulting exchange differences are recognised in the income statement. Non-monetary items are measured at the rates prevailing on the date of the transaction and are not subsequently re-translated.
The functional currency of River and Mercantile LLC is US Dollars and is translated into the presentational currency as follows:
-- Assets and liabilities are translated at the closing rate at the date of the respective statement of financial position;
-- Income and expenses are translated at the daily exchange rate for the date on which they are incurred; and
-- All resulting exchange differences are recognised in other comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange differences arising are recognised in other comprehensive income.
Adoption of new standards and interpretations affecting the reported results or the financial position
This is the first set of the Group's financial statements where IFRS 9 and IFRS 15 have been applied. These new standards were adopted from 1 July 2018 and have not had a significant impact on the amounts reported in these financial statements.
IFRS 9 Financial Instruments
IFRS9 has impacted the presentation of the financial statements as described in note 28.
IFRS 15 Revenue from Contracts with Customers
Under IFRS 15, revenue is recognised when a customer obtains control of the goods or services. The Group has adopted IFRS 15, initially applying this standard recognised at the date of initial application (1 July 2018). As a result, the comparative information has not been restated and is reported under the previous standards. Whilst IFRS 15 has introduced a different approach for determining whether, when and how much revenue is recognised, the application of these tests to the Group's contracts has not resulted in a change to the revenue amounts recognised.
The Group recognises revenue under three categories (net management fees, advisory fees and performance fees) which have different features regarding how economic factors affect their amount, timing and uncertainty. These categories are unchanged on adoption of IFRS 15.
Effective for annual periods beginning on or after 1 January 2018, IFRS 15 establishes a single, principles-based revenue recognition model to be applied to all contracts with customers. Revenue recognition is now to be based on the principle of when control of a good or service transfers to a customer. Specifically, IFRS 15 introduces a five-step approach to revenue recognition: (1) identify the contract(s) with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognise revenue when (or as) the entity satisfies a performance obligation.
The Group has considered the terms of its existing IMA's and assessed the timing of management and performance fee recognition. IFRS 15 includes specific requirements in respect of variable fee income such that it is only recognised where the amount of revenue would not be subject to significant future reversals. Management and performance fees are both considered variable revenue, because they are charged against Assets under Management (AUM), which is subject to change. As such, whilst performance obligations are satisfied over time, due to their variable nature, fees are recognised at the end of any given measurement period, subject to the contractual arrangements of existing IMA's, when there is no longer uncertainty with regards to the fees earned.
The Group has not identified any material changes to existing revenue recognition principles, and therefore no adjustments have been made on transition. No judgements or changes to judgements were made as a result of application of this standard. The adoption of IFRS 15 does not have a material impact on the Group's financial statements.
Advisory revenues are recognised upon the satisfaction of performance conditions for any given engagement. This means Advisory revenues are recognised over time. Advisory work conducted is specific to the client and does not have alternative use to the Group. In addition, the Group has an enforceable right to payment for work performed to date on any given project. The Group uses an 'input' method for recognising revenues. There are three types of advisory work conducted by the Group; Consultancy, Projects and Advisory Retainers. All three types of revenue qualify for this treatment.
Consultancy work is accrued based upon the percentage completion of the work as measured by their input into it. For Project fees, they are recognised by assessing the amount of work undertaken in the period, in order arrive at the revenue accrual. Advisory retainers which provide an ongoing level of service throughout the year also pass another test for recognition over time, being that the customer simultaneously receives and consumes the benefits provided by the entity's performance as the entity performs. These are also measured using the input method, with the passage of time being the best measure of performance as permitted by IFRS 15 B19.
This is in line with how revenue has historically been recognised by the Group and there has been no change to the way advisory fees are recognised as a result of IFRS 15 adoption.
Future accounting developments
IFRS 16 Leases (IFRS 16) and IFRIC 23 Uncertainty over Income tax Treatments (IFRIC 23) have been issued but were not required to be adopted by the Group in these financial statements. The expected impact of these standards when they become effective is described below:
IFRS 16 Leases
IFRS16 replaces IAS17 Leases and becomes effective for reporting periods beginning on or after 1 January 2019. It provides a single accounting method for lessees, requiring the recognition of an asset and a lease liability representing the right of use of the underlying asset over the term of a lease.
The Group has opted to apply the modified retrospective approach, where the cumulative effect of adopting IFRS16 will be recognised as an adjustment to the opening balance of retained earnings as at 1 July 2019. This approach accounts for leases as if the new standard had always been applied by the Group. Comparative information will not be restated.
The Group has reviewed its current lease arrangements and assessed the impact on transitioning to IFRS16 to its financial statements. The recognition of a right of use asset and lease liability will increase total asset and total liabilities by GBP3,297,000 and GBP3,682,000 respectively.
The adjustment to opening reserves will be GBP232,000. The lease liability is measured using an appropriate discount rate for the Group from the date of the initial application of the standard. The rental expenses relating to the Group's property portfolio recognised as office facility costs will now be split as the straight-line depreciation cost of the capitalised asset and the unwinding of the lease liability charged to office facilities costs (Note 5) and finance costs respectively. Management estimates the future annual cost of the IFRS 16 depreciation of the ROU and unwind of the lease liability as GBP1,012,000 in 2020, in contrast to the cost under the previous IAS 17 regime of GBP1,022,000.
IFRIC23 Uncertainty over Income Tax Treatments
The interpretation clarifies how to apply the recognition and measurement requirements in IAS 12 Income taxes where there is uncertainty over income tax treatments. The Group does not have any instances where income tax treatment is considered uncertain and so does not expect it to have a material impact on the Group.
2. Significant judgments and estimates
As detailed in note1, these financial statements are prepared in accordance with IFRS. The significant accounting policies of the Group which impact these financial statements are:
-- Impairment of intangible assets, goodwill and investments recorded in previous acquisitions. This involves judgments including business growth and estimates including discount rates, which are described in note 9;
-- Recognition of management and performance fee revenues. This involves estimates of AUM/NUM positions for the purposes of accruing revenue, which are described in note 3;
-- Provisions, which are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Determining whether provisions are required and at what level, requires both judgment and estimates. See note 23;
-- The accounting for share-based remuneration. This involves judgments relating to forfeiture rates and business outcomes and estimates of future share prices for national insurance cost, which are described in note 7;
-- The accounting for the contingent consideration in respect of the acquisition of the Emerging Markets Industrial Lifecycle (ILC) team (note 10). This involvements judgments relating to the likely useful life of intangibles and estimates as to revenue and cost growth over time; and
-- The accounting for UCITS V deferred remuneration, which involves estimates of forfeiture rates.
3. Revenue
Year ended Year ended
30 June 30 June
2019 2018
GBP'000 GBP'000
----------- -----------
Net management fees
- Fiduciary Management 18,790 18,400
- Derivatives 13,379 11,777
- Equity Solutions Wholesale 11,270 14,521
- Equity Solutions Institutional 12,107 9,265
----------- -----------
Net management fees 55,546 53,963
Advisory fees
- Retainers 5,295 5,443
- Project fees 4,743 4,792
----------- -----------
Advisory fees 10,038 10,235
Total net management and advisory fees 65,584 64,198
=========== ===========
Performance fees
- Fiduciary Management 10,553 8,167
- Equity Solutions 1,966 2,408
----------- -----------
Total performance fees 12,519 10,575
=========== ===========
Total revenue 78,103 74,773
=========== ===========
Net management fees
Net management fees represent the fees charged pursuant to an IMA. Net management fees are reported net of rebates to clients and are charged as a percentage of the client's AUM or Notional under Management (NUM). The fees are generally accrued contractually on a daily basis and charged to the client either monthly or quarterly. During the year ended 30 June 2019, rebates totalling GBP2,835,000 (2017: GBP3,176,000) were paid in respect of Equity Solutions and DAA Fund management fees.
Advisory fees
Advisory fees represent fees charged under Investment Advisory Agreements (IAA) and are typically charged on a fixed retainer fee basis or through a fee for the delivery of a defined project. Fees are accrued monthly and charged when the work has been completed.
Performance fees
Performance fees are fees paid under the IMAs for generating excess investment performance either on an absolute basis subject to a high water mark, or relative to a benchmark. Performance fees are calculated as a percentage of the investment performance generated and may be subject to deferral and continued performance objectives in future periods. Performance fees are recognised in income when it is probable that the fee will be realised and there is a low probability of a significant reversal in future periods. This occurs once the end of the performance period has been reached. The client is invoiced for the performance fee at the end of the performance period which is generally annually, either on the anniversary of their IMA or on a calendar year basis.
Contract balances
The timing of client revenue recognition, billings and cash collections results in either trade receivables or accrued income on the Statement of Financial Position. For both Management fees, advisory fees and Performance fees, amounts are billed pursuant to an IMA/IAA with clients, in arrears.
There were GBP38,000 (2018: GBP36,000) contract liabilities as at the year ended 30 June 2019.
4. Divisional and geographical reporting
The business operates through four divisions, however these are not considered to be segments for the purposes of IFRS 8 on the basis that decisions made by the Board are made at an overall group level. The information received by the Board supports this decision making, with income statements, balance sheets, forecasts and budgets presented at a Group level. Despite this, the Directors feel that it is useful to the understanding of the results of operations to include certain information.
The net revenue for the year ended 30 June 2019 and 30 June 2018 together with the year end AUM and NUM, reflect the activities of the respective divisions.
Year ended Year ended
30 June 2019 30 June 2018
-------------------------- --------------------------
Fee earning Fee earning
Net revenue AUM/NUM Net revenue AUM/NUM
GBP'000 GBP'm GBP'000 GBP'm
------------ ------------ ------------ ------------
Net management and advisory
fees
Fiduciary Management division 18,790 12,864 18,400 10,642
Derivative Solutions division 13,379 21,683 11,777 18,622
Equity Solutions division 23,377 5,267 23,786 4,579
Advisory division 10,038 N/A 10,235 N/A
------------ ------------ ------------ ------------
Total 65,584 39,814 64,198 33,843
============ ============ ============ ============
In addition, performance fees of GBP10.5m (2018: GBP8.2 m) were earned by the Fiduciary Management division and GBP2m (2018: GBP2.4m) earned by the Equity Solutions division.
No single client accounts for more than 10% of the revenue of the Group (2018: none).
On a geographic basis the majority of the revenues are earned in the UK. The Group has an advisory, derivatives, fiduciary management and equity solutions business in the US and net revenue earned in the US for the year ended 30 June 2019 was GBP6.1m (2018: GBP5.7m). The AUM/NUM of the US business was GBP918m (2018: GBP903m).
Non-current assets held by the US business include GBP1.5m (2018: GBP1.5m) of goodwill.
5. Administrative expenses
Year ended Year ended
30 June 30 June
2019 2018
GBP'000 GBP'000
----------- -----------
Marketing 883 892
Travel and entertainment 825 662
Office facilities 2,751 2,502
Technology and communications 5,012 4,862
Professional fees 1,576 1,400
Research 1,334 736
Governance expenses 570 538
Fund administration 1,290 902
Other staff costs 543 295
Insurance 555 335
Irrecoverable VAT 93 300
Other costs 215 650
----------- -----------
Total administrative expenses 15,647 14,074
=========== ===========
Administrative expenses include the remuneration of the external auditors for the following services:
Year ended Year ended
30 June 30 June
2019 2018
GBP'000 GBP'000
----------- -----------
Audit of the Company's annual accounts 104 99
Audit of the Company's subsidiaries 99 89
Audit related assurance services 52 49
----------- -----------
255 237
=========== ===========
6. Remuneration and benefits
Fixed remuneration represents contractual base salaries, RAMAM member drawings and employee benefits. The Group operates a defined contribution plan under which the Group pays contributions to a third party.
Variable remuneration relates to discretionary bonuses, variable profit share paid to the members of RAMAM and associated payroll taxes.
Variable remuneration also includes a charge of GBP964,000 (2018: GBP2,320,000) relating to the amortisation of the Group's non-dilutive share awards and credit of GBP132,000 (2018: charge of GBP465,000) of associated social security costs.
Year ended Year ended
30 June 30 June
2019 2018
The average number of employees (including Directors)
employed was:
Advisory division 69 71
Fiduciary Management division 58 56
Derivative Solutions division 28 24
Equity Solutions division 31 23
Distribution 14 12
Corporate 55 31
----------- -----------
Total average headcount 255 217
=========== ===========
Year ended Year ended
30 June 30 June
Note 2019 2018
GBP'000 GBP'000
----------- -----------
The aggregate remuneration of employees (including
Directors) comprised:
Wages and salaries 36,208 32,601
Social security costs 3,420 3,811
Pension costs (defined contribution) 937 826
Share-based payment expense 7 1,099 1,912
----------- -----------
Total remuneration and benefits (excluding
EPSP) 41,664 39,150
=========== ===========
Fixed remuneration 26,145 22,940
Variable remuneration 15,519 16,210
----------- -----------
41,664 39,150
=========== ===========
EPSP costs:
Share-based payment expense 7 452 452
Social security costs 7 183 (575)
----------- -----------
Total EPSP costs 635 (123)
=========== ===========
Directors' remuneration
The aggregate remuneration and fees payable to Executive and Non-Executive Directors for the year ended 30 June 2019 was GBP3,082,000 (2018: GBP4,294,000). Fees payable for the year ended 30 June 2019 to Directors of PSG totalled GBP26,000 (2018: GBP43,000).
The remuneration of the Executive Directors (which includes the highest paid Director) is included in the remuneration report in the Annual Report.
Key management remuneration
Key management includes the Executive and Non-Executive Directors, and Executive Committee members. The remuneration paid or payable to key management for employee services is shown below:
Year ended Year ended
30 June 30 June
2019 2018
GBP'000 GBP'000
----------- -----------
Short-term employee benefits 8,316 8,601
Long-term employee benefits 280 771
Post-employment benefits 101 111
Share-based payment expense 302 2,112
----------- -----------
8,999 11,595
=========== ===========
Details of share awards granted to Executive Directors for future performance periods are included in the remuneration report in the Annual Report.
7. Share-based payments
Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the consolidated income statement over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each year end date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition.
Where the terms and conditions of options are modified before they vest, the change in the fair value of the options, measured immediately before and after the modifications, is recognised in the consolidated income statement over the remaining vesting period.
Executive Performance Share Plan
As reported in the prior year's Annual Report, after completion of the Executive Performance plan share award performance period 57% of the Performance Condition A awards and none of the Performance Condition B awards were eligible for vesting following a one year holding period. The eligible awards received dividends on a reinvestment basis during the holding period. As a result of the completion of the holding period during the year ended 30 June 2019 the award shares vested on 26 June 2019.
The fair value of the Performance Condition A awards was 38p per share. The total fair value of Performance Condition A was GBP1,840,000. The fair value is amortised into EPSP costs over the vesting period and a charge of GBP452,000 was recognised for the year ended 30 June 2019 (2018: GBP452,000), which is treated as a non-cash adjusting item.
The Directors expect that vesting shares will be subject to applicable employer's national insurance at the date of vesting. An accrual for this cost has been calculated based on the current rate of national insurance, the number of the vesting shares and the share price at the reporting date. The movement in the accrual in the year ended 30 June 2019 was a charge of GBP183,000 (2018: credit of GBP575,000) and is included in EPSP costs.
Performance Share Plan
The Group's Performance Share Plan and Deferred Equity Plan (collectively PSP) allows for the grant of: nil cost options, contingent share awards or forfeitable share awards.
The fair value of the awards has been estimated using Black-Scholes modelling.
The grant date has not been confirmed for the 2019 awards. For the purposes of these financial statements the awards made in respect of 2019 have been assessed using the share price as at 30 June 2019, being GBP2.72.
The key features of the awards are:
Financial year of award 2015 2016 2017 2018 2019
-------------------------------- --------- --------- --------- --------- --------
Grant date award value
GBP'000
Scheme 1 - Employees 701 1,971 713 94 131
Scheme 2 - Employees 144 100 - - -
Scheme 3 - Employees - 407 466 1,622 274
Scheme 4 - Employees 225 - - 612 612
Scheme 5 - Employees - - - 155 -
Scheme 6 - Executive Directors - 585 950 3,586 3,166
Number of shares granted
'000
Scheme 1 - Employees 303 892 229 29 41
Scheme 2 - Employees 64 45 - - -
Scheme 3 - Employees - 184 150 514 101
Scheme 4 - Employees 97 - - 196 190
Scheme 5 - Employees - - - 48 -
Scheme 6 - Executive Directors - 265 304 1,114 1,164
Maximum term at grant
date
Scheme 1 - Employees 4 years 5 years 4 years 4 years 3 years
Scheme 2 - Employees 4 years 4 years n/a n/a n/a
Scheme 3 - Employees n/a 4 years 4 years 4 years 3 years
Scheme 4 - Employees 4 years n/a n/a 3 years 3 years
Scheme 5 - Employees n/a n/a n/a 4 years n/a
Scheme 6 - Executive Directors n/a 5 years 4 years 4 years 5 years
Vesting conditions (see
key below)
Scheme 1 - Employees 1, 2 and 1, 2 and 1, 2 and 1, 2 and 1 and 4
3 3 3 3
Scheme 2 - Employees 1 and 2 1 and 2 n/a n/a n/a
Scheme 3 - Employees n/a 1 1 1 1
Scheme 4 - Employees 1 and 4 n/a n/a 1 and 4 1 and 4
Scheme 5 - Employees n/a n/a n/a none n/a Scheme 6 - Executive Directors n/a 1 and 2 1 and 2 1 and 5 1 and 6 1. Remain employed throughout vesting period, subject to malus and good leaver provisions. 2. Achievement of specified total shareholder return target within a range. 3. Straight-line between minimum and maximum divisional AUM/NUM and revenue targets. 4. Achievement of specified revenue targets within a range. 5. Achievement of specified adjusted underlying EPS targets and personal objectives. 6. Achievement of specified adjusted underlying EPS targets and business performance criteria.
The following table sets out the movement in awards recognised in the income statement during the year and the key inputs into the fair values of awards:
'000s
Financial year of award 2015 2016 2017 2018 2018 2018 2019 2019
------------------------------ ------- ---------- ------- ------- ------- ------- ------- -------
Grant date award value
GBP'000 1,070 3,063 2,130 668 1,133 4,268 743 3,440
Grant date share price 2.72
GBP 2.31 2.21 3.12 3.14 3.12 3.22 3.22 est
Number of shares outstanding
at 30 June 2017 464 1,338 683 - - - - -
Number of shares granted
during the year - - - 213 363 1,325 - -
Number of shares forfeited
during the year (222) - - - - - - -
Exercised during the
year (82) (500) - - - - - -
Number of shares outstanding
at 30 June 2018 160 838 683 213 363 1,325 - -
Number of shares granted
during the year - - - - - - 231 1,265
Number of shares forfeited
during the year - - (72) - (7) (13) (9) -
Exercised during the
year (160) (70) (29) (102) (42) - - -
Vesting profile adjustments - - (16) (6) - (43) - -
Number of shares outstanding
at 30 June 2019 - 768 566 105 314 1,269 222 1,265
Fair value assumptions:
Exercise price GBPnil GBPnil GBPnil GBPnil GBPnil GBPnil GBPnil GBPnil
0.94%
Risk free rate 0.94% or 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Share price volatility 26.08% 27.40% 27.90% 28.20% 28.20% 28.80% 28.80% 30.83%
Dividend yield 5% 5% 5% 5% 5% 5% 5% 5%
No. of shares expected
to vest '000 - 387 413 99 301 701 147 696
The volatility for awards granted in the year has been calculated based upon the annualised daily return on the Group's share price from IPO to year end. All awards exercise at the end of the vesting period subject to the approval of the Remuneration Committee. As at the reporting date 504,000 of the awards were exercisable (2018: 311,000).
8. Depreciation and Amortisation
Depreciation charges primarily relate to IT and communications equipment, and leasehold improvements. The property, plant and equipment, and the depreciation accounting policies are described in note 21.
The amortisation charge primarily relates to the IMA intangibles and recognised as part of the acquisition of RAMAM and the ILC team as described in notes 9 and 11. The RAMAM and ILC team IMA intangibles are amortised over their expected useful life of between five and ten years based on an analysis of the respective client channels. The amortisation is not deductible for tax purposes. At the date of the RAMAM acquisition a deferred tax liability was recognised and is being charged to the income statement tax expense in line with the amortisation of the related IMAs. At the date of the acquisition no deferred tax liability was recognised in respect of the ILC team IMAs as the US business has brought-forward tax losses.
9. Intangible assets
Business combinations and goodwill
All business combinations are accounted for using the acquisition method. The cost of a business combination is the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed and equity instruments issued by the acquirer. The fair value of a business combination is calculated at the acquisition date by recognising the acquired entity's identifiable assets, liabilities and contingent liabilities that satisfy the recognition criteria, at their fair values at that date. The acquisition date is the date on which the acquirer effectively obtains control of the acquired entity. The cost of a business combination in excess of fair value of net identifiable assets or liabilities acquired, including intangible assets identified, is recognised as goodwill. Any costs incurred in relation to a business combination are expensed as incurred.
Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the Group's interest in the fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree.
Goodwill is not amortised but is reviewed for impairment annually, or more frequently when there is an indication of impairment. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the Group's cash generating units (CGUs) expected to benefit from the synergies of the combination. Each CGU to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. If the recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying value of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised is not reversed in a subsequent period.
Identifiable intangible assets
Investment management agreements and customer relationships
IMAs and customer relationships acquired in a business combination are recognised separately from goodwill at their fair value at the acquisition date. Customer relationships have an estimated useful life of 20 years and IMAs have estimated useful lives of five to ten years. The identified intangible assets are carried at cost less accumulated amortisation calculated on a straight-line basis.
Impairment of intangible assets, excluding goodwill
At each statement of financial position date or whenever there is an indication that the asset may be impaired, the Group reviews the carrying amounts of its intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the CGU to which the asset belongs. The recoverable amount is the higher of the fair value less costs to sell, and the value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, an impairment loss is recognised as an expense immediately. For assets other than goodwill, where conditions giving rise to impairment subsequently reverse, the effect of the impairment charge is also reversed as a credit to the income statement, net of any depreciation or amortisation that would have been charged since the impairment.
Customer lists Software
Goodwill and IMAs Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------- --------------- ---------- --------
Cost:
At 30 June 2017 15,331 36,510 79 51,920
Additions 328 1,969 - 2,297
Exchange difference (64) 12 5 (47)
-------------- --------------- ---------- --------
At 30 June 2018 15,595 38,491 84 54,170
Exchange difference 47 65 - 112
-------------- --------------- ---------- --------
At 30 June 2019 15,642 38,556 84 54,282
============== =============== ========== ========
Accumulated amortisation and
impairment:
At 30 June 2017 395 14,172 - 14,567
Amortisation charge - 4,520 37 4,547
Exchange difference 23 (2) - 21
-------------- --------------- ---------- --------
At 30 June 2018 418 18,690 37 19,145
Amortisation charge - 4,348 21 4,369
Exchange difference - 15 - 15
-------------- --------------- ---------- --------
At 30 June 2019 418 23,053 58 23,529
============== =============== ========== ========
Net book value:
At 30 June 2018 15,177 19,801 47 35,025
-------------- --------------- ---------- --------
At 30 June 2019 15,224 15,503 26 30,753
============== =============== ========== ========
Impairment review
Goodwill includes GBP13.2m (2018: GBP13.2m) in respect of RAMAM and GBP1.5m (2018: GBP1.5m) in respect of Cassidy Retirement Group Inc. (Cassidy).
The Directors estimated the recoverable amount of the RAMAM goodwill based upon the value in use of the business. The value in use was measured using internal budgets and forecasts to generate a five year view. The key assumptions used were: revenue based on internally approved budget in year one, an 8% revenue growth rate for the next four years; no growth after this point; and a pre-tax discount rate of 12%. Estimates were made concerning remuneration and administrative costs, based upon current levels and expected changes.
Sensitivity analysis was performed on the key inputs of the valuation, being the growth and discount rates and future cash flows. A fall of greater than 10% in projected revenue or a change in the discount rate higher than 39% is required to indicate impairment.
The Directors estimated the recoverable amount of the Cassidy goodwill using a net realisable value. This value was measured using the revenues of the CGU and third party data concerning comparable revenue multiples paid for recent acquisitions of similar businesses.
The key assumptions included in the estimate were: the costs of disposal; and the assumption that the multiples observed in other businesses would be comparable. Sensitivity analysis was performed on the valuation. A reduction in the revenue multiple of greater than 50% would be required to indicate impairment.
10. Other gains and losses
Year ended Year ended
30 June 30 June
2019 2018
GBP'000 GBP'000
----------- -----------
Gain on bargain purchase - 1,043
Loss on disposal of fixed assets (12) (8)
Gain on disposal of subsidiary 15 28
Gain on purchase of UCITS 21 -
Investments held at fair value through profit 441 -
and loss (note 18)
Fair value of contingent consideration 376 -
----------- -----------
Total other gains and losses 841 1,063
----------- -----------
11. Gain on bargain purchase
As reported in the prior year's Annual report the Group became the investment manager of the ILC funds. The contractual agreements entered into between the parties constituted a business combination under IFRS 3.
The business combination resulted in a bargain purchase transaction due to the fair value of assets acquired and liabilities assumed exceeding the fair value of consideration payable. The Group recognised a gain in "other gains and losses" in the consolidated income statement for the year ended 30 June 2018.
Year ended
30 June
2018
GBP'000
-----------
Fair value of contingent consideration on acquisition 819
Upfront consideration payable 107
-----------
Total consideration 926
Fair value of assets acquired and liabilities assumed:
Intangible assets - investment management agreements 1,969
-----------
Total assets and liabilities 1,969
Negative goodwill from bargain purchase (1,043)
-----------
The contingent consideration is calculated based on a percentage of revenue generated by an IMA and measured at fair value at each reporting date. The contingent consideration balance is recognised within "trade and other payables" in the consolidated statement of financial position and changes in fair value are recognised in the income statement.
Total
GBP'000
--------
Contingent consideration:
Balance as at 1 July 2018 819
Paid during the year (50)
Fair value adjustment (376)
Balance as at 30 June 2019 393
========
12. Finance income
Finance income is recognised in the period to which it relates on an accruals basis.
Finance income comprises GBP50,000 of bank interest (2018: GBP23,000), GBP80,000 of interest earned from a loan to Palisades (2018: GBP23,000) and GBP209,000 of foreign exchange gain (2018: GBP4,000).
13. Current and deferred tax
The tax charge consists of current tax and deferred tax. Current tax represents the estimated tax payable on the taxable profits for the period. Taxable profit differs from profit before tax reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements, and is measured using the substantively enacted rates expected to apply when the asset or liability will be realised or settled.
Deferred tax assets and liabilities are not offset unless the Group has legal right to offset which it intends to apply. Deferred tax assets are recognised only to the extent that the Directors consider it probable that they will be recovered.
Deferred tax is recognised in the income statement, except that a charge attributable to an item of income or expense recognised as other comprehensive income or to an item recognised directly in equity is also recognised in other comprehensive income or directly in equity.
The most significant deferred tax items are the deferred tax liability established against the IMA intangible asset arising from the acquisition of RAMAM and the deferred tax asset recognised in respect of the share-based payment expenses. The amortisation of the IMA intangible asset is not tax deductible for corporate tax purposes therefore the deferred tax liability is released into the consolidated income statement to match the amortisation of the IMA intangible. At each reporting date the Group estimates the corporation tax deduction that might be available on the vesting of EPSP shares and the corresponding adjustment to deferred tax is recognised in the income statement and equity.
Year ended Year ended
30 June 30 June
2019 2018
GBP'000 GBP'000
----------- -----------
Current tax:
Current tax on profits for the year 4,365 4,377
Adjustments in respect of prior years 38 (481)
----------- -----------
Total current tax 4,403 3,896
Deferred tax - origination and reversal of timing
differences (610) (586)
----------- -----------
Total tax charge 3,793 3,310
=========== ===========
The total tax charge assessed for the year is higher (2018: lower) than the average standard rate of corporation tax in the UK. The differences are explained below:
Year ended Year ended
30 June 30 June
2019 2018
GBP'000 GBP'000
----------- -----------
Profit before tax 16,788 18,452
Profit before tax multiplied by the average rate
of corporation tax in the UK of 19% (2018: 19%) 3,190 3,506
Effects of:
Expenses not deductible for tax purposes 875 537
Deferred tax on amortisation of RAMAM IMAs (753) (851)
Income not subject to tax (135) (191)
Adjustment in respect of prior years (3) (285)
Other timing differences 619 594
----------- -----------
Total tax charge 3,793 3,310
=========== ===========
The analysis of deferred tax assets and liabilities is as follows:
Year ended Year ended
30 June 30 June
2019 2018
GBP'000 GBP'000
----------- -----------
Deferred tax assets
At beginning of year 2,443 3,421
Charge to the income statement:
- share-based payment expense (59) (189)
Debit to equity :
- share-based payment expense (291) (789)
- recycling of deferred tax on shares vested (1,059) -
----------- -----------
At end of year 1,034 2,443
=========== ===========
Deferred tax liabilities
At beginning of year 3,153 3,969
(Charge)/credit to the income statement:
- amortisation of intangibles (752) (851)
- movement on investments held at fair value 82 -
Credit to equity:
- movement on fair value of available-for-sale
investments - 35
----------- -----------
At end of year 2,483 3,153
=========== ===========
14. Earnings per share
The basic and diluted earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares of the Company in issue during the year.
Vesting EPSP awards (note 7) have a dilutive effect on the equity holders of the Company. Following the end of the holding period 57% of EPSP Performance Condition A shares vested on 26 June 2019 and are recognised as shares in issue - basic. In 2018 2,644,000 shares were considered dilutive as 57% of EPSP Performance Condition A shares were expected to vest.
The dilution effect of the EPSP awards is considered in the calculation of diluted earnings per share.
Additionally, the Group operates a save-as-you-earn scheme for employees. The potential dilutive effect of this scheme is also considered in the calculation of diluted earnings per share.
Year ended Year ended
30 June 30 June
2019 2018
----------- -----------
Profit attributable to owners of
the parent (GBP'000) 12,995 15,142
Weighted average number of shares
in issue ('000) 80,121 80,410
Weighted average number of diluted
shares ('000) 83,244 83,740
Earnings per share:
Earnings per share
Basic (pence) 16.22 18.83
Diluted (pence) 15.61 18.08
Reconciliation between weighted average number of shares in issue
Year ended Year ended
30 June 30 June
2019 2018
'000 '000
----------- -----------
Weighted average number of shares
in issue - basic 80,121 80,410
Dilutive effect of shares granted
under save-as-you-earn 335 686
Dilutive effect of shares granted
under EPSP 2,788 2,644
----------- -----------
Weighted average number of shares
in issue - diluted 83,244 83,740
=========== ===========
The weighted average number of shares in issue has reduced as a result of purchases of own shares by the EBT (note 24). At 30 June 2019, the EBT held 2,354,000 shares (2018: 1,806,000). The weighted average number held by the EBT during the year was 1,761,000 (2018: 1,685,000).
Adjusted profit
Adjusted profit comprises adjusted underlying profit and performance fee profit.
Adjusted underlying profit represents net management and advisory fees less associated remuneration, administrative expenses, depreciation, amortisation of software and finance income and expense.
Performance fee profit represents performance fees, less the associated remuneration costs plus the gain on disposal of investments held at fair value.
Year ended Year ended
30 June 30 June
2019 2018
GBP'000 GBP'000
----------- -----------
Adjusted underlying profit
Net management and advisory fees 65,584 64,198
Administrative expenses (15,647) (14,074)
Underlying remuneration at 54% (2018: 53%) (35,405) (33,862)
Amortisation of software (21) (37)
Depreciation (199) (156)
Net finance income 338 10
----------- -----------
Adjusted underlying profit before tax 14,650 16,079
Taxes (3,507) (3,165)
----------- -----------
Adjusted underlying profit after tax 11,143 12,914
=========== ===========
Adjusted underlying pre-tax margin 22% 25%
Performance fee profit
Performance fees 12,519 10,575
Less remuneration at 50% (6,260) (5,288)
Gain on disposal of investments held at 20 -
fair value
Gain on disposal of available-for-sale
assets - 458
----------- -----------
Performance fee profit before tax 6,279 5,745
Taxes (1,194) (1,092)
----------- -----------
Performance fee profit after tax 5,085 4,653
=========== ===========
Adjusted profit before tax 20,929 21,824
Adjusted profit after tax 16,228 17,567
Reconciliation to statutory profit
Year ended Year ended
30 June 30 June
2019 2018
GBP'000 GBP'000
----------- -----------
Profit before tax 16,788 18,452
Adjustments:
Amortisation of acquired intangible assets
and IMAs 4,347 4,558
Other gains and losses (841) (1,063)
EPSP costs/(credits) 635 (123)
----------- -----------
Adjusted profit before tax 20,929 21,824
=========== ===========
Adjusted earnings per share
Year ended Year ended
30 June 30 June
2019 2018
GBP'000 GBP'000
----------- -----------
Adjusted profit after tax 16,228 17,567
Weighted average shares ('000) 80,121 80,410
Weighted average diluted shares
('000) 83,244 83,740
Adjusted EPS:
Basic (pence) 20.26 21.85
Diluted (pence) 19.50 20.98
Adjusted underlying EPS:
Basic (pence) 13.91 16.06
Diluted (pence) 13.39 15.42
15. Dividends
The Group recognises dividends when an irrevocable commitment to pay them is incurred. In the case of interim dividends, this is generally the payment date. In the case of final dividends, this is the date upon which the dividend is approved by shareholders.
During the year, the following dividends were paid:
Year ended Year ended
30 June 30 June
2019 2018
Ordinary Special Total
(pence) (pence) (pence) GBP'000 GBP'000
--------- --------- --------- ----------- -----------
2017 second
interim 5.3 2.8 8.1 - 6,526
2017 final 3.2 2.8 6.0 - 4,835
2018 first interim 5.4 2.2 7.6 - 6,095
2018 second
interim 4.2 1.3 5.5 4,422 -
2018 final 3.2 2.3 5.5 4,424 -
2019 first interim 4.3 2.0 6.3 5,023 -
----------- -----------
13,869 17,456
=========== ===========
16. Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and demand deposits. At year end all cash balances were held by banks with credit ratings as detailed below.
30 June 30 June
2019 2018
Bank GBP'000 GBP'000 Credit Rating Rating Body
--------- --------- -------------- ------------
Barclays Bank 18,728 16,119 A2/Positive Moody's
Lloyds Bank 5,043 7,583 Aa3 Moody's
First Republic Bank 275 327 A1 Moody's
--------- ---------
Total cash and cash equivalents 24,046 24,029
========= ---------
17. Investment management balances
30 June 30 June
2019 2018
GBP'000 GBP'000
-------- --------
Investment management receivables 22,277 13,116
Investment management payables 22,278 13,147
As ACD of River and Mercantile Funds ICVC (the Fund) the Group is required to settle transactions between investors and the depositary of the Fund. The Group is exposed to the short-term liquidity requirements to settle with the depositary of the Fund before receiving payments from the investor. The credit risk associated with the investment management balances is discussed in note 28.
The investment management balances are initially recognised at fair value, based upon the values given by the administrator of the ICVC of the contractually agreed subscription or redemption values, and are subsequently recognised at amortised cost using the effective interest method. Due to their short-term nature (typically less than a week), amortised cost closely approximates fair value. The Group applies the IFRS 9 three staged model to measuring expected credit losses (ECLs) for Investment management balances at an amount equal to 12 months ECLs. The ECLs on Investment management balances are calculated based on actual historic credit loss experienced over the preceding three to five years on the total balance of non-credit impaired Investment management balances, and also the future likelihood of default. Taking into consideration the Group's historical experience, and their current credit exposures in light of future probabilities of default, the Group does not expect to incur any credit losses and has not recognised any impairment losses in the current year under IFRS 9 (2018: nil).
18. Investments held at fair value
The Group uses capital to invest in its own fund products as seed investments. The investments are recognised as a financial asset in the balance sheet and changes to the fair value are recognised in the income statement. Investments held at fair value relate to seeding in the Global Macro Fund. The fair value of the Group's investment in the Global Macro Fund was derived from the fair value of the underlying investments, some of which are not traded in an active market and therefore the investment is classified as Level 2 under IFRS 13 Fair Value Measurement. The Global Macro Fund is an unlisted equity vehicle based in Ireland.
The introduction of IFRS 9 has resulted in a change in accounting treatment in respect of investments. Investments held at fair value were all previously held as available-for sale ("AFS") assets. All AFS assets had gains or losses recognised through other comprehensive income until realised. In accordance with IFRS 9 all such assets have been reclassified as fair value through profit or loss ("FVTPL"). See note 28 for further disclosures on the reclassification.
The movement in the carrying value of the investments is analysed below:
Investments
Available held at fair
for sale value through
investments profit or
GBP'000 loss GBP'000
------------- ---------------
At 30 June 2017 12 -
Additions 10,043 -
Movement in fair value 472 -
Disposals (5,362) -
------------- ---------------
At 30 June 2018 5,165 -
Reclassified on initial application of IFRS 9 (5,165) 5,165
Additions - 10
Movement in fair value through profit and loss - 441
Foreign exchange movement 165
Disposals - (394)
------------- ---------------
At 30 June 2019 - 5,387
============= ===============
19. Fee receivables
Fee receivables are initially recorded at fair value and subsequently measured at amortised cost using the effective interest method. The Group applies the IFRS 9 simplified approach to measuring expected credit losses (ECLs) for fee receivables at an amount equal to lifetime ECLs. The ECLs on fee receivables are calculated based on actual historic credit loss experienced over the preceding three to five years on the total balance of non-credit impaired fee receivables, and also the future likelihood of default.
The Group considers a fee receivable to be credit impaired when one or more detrimental events have occurred, such as significant financial difficulty of the client or it becoming probable that the client will enter bankruptcy or other financial reorganisation. As the majority of fee receivables are fees deducted from the NAV by fund administrators from the respective funds off which they are calculated the credit risk is considered very low. Taking into consideration the Group's historic experience, and their current credit exposures in light of future probabilities of default, the Group does not expect to incur any credit losses and has not recognised any impairment losses in the current year under IFRS 9 (2018: nil). The Directors are satisfied with the credit quality of counterparties.
30 June 30 June
2019 2018
GBP'000 GBP'000
-------- --------
Fees receivable 4,412 7,856
-------- --------
4,412 7,856
======== ========
As at 30 June 2019 the lifetime expected loss provision for fee receivables is as follows:
GBP'000 Current 30-60 days 61-90 days 91-365 More than Total
past due past due days past 365 days
due past due
Expected loss rate 0% 0% 0% 0% 50%
-------- ----------- ----------- ----------- ---------- ------
Fee receivables
balance 3,544 786 43 39 - 4,412
-------- ----------- ----------- ----------- ---------- ------
Loss provision - - - - - -
-------- ----------- ----------- ----------- ---------- ------
Movements in the impairment allowance for fee receivables are as follows:
30 June 30 June
2019 2018
GBP'000 GBP'000
Opening provision for impairment 38 55
--------- ---------
Increase during the year 7 30
--------- ---------
Receivable written off during the year (45) (47)
--------- ---------
Closing provision for impairment - 38
--------- ---------
The average credit period on fee receivables is 32 days (2018: 37 days).
20. Other receivables
30 June 30 June
2019 2018
GBP'000 GBP'000
-------- --------
Accrued income 18,186 13,620
Prepayments 1,494 1,292
Other debtors 5,825 4,784
-------- --------
25,505 19,696
======== ========
Other debtors include a receivable in respect of the settlement of shares sold to cover Executive Director's employment taxes following the vesting of the EPSP awards of GBP3,693,000 (2018: GBPnil) and a further GBP0.1m relates to relocation expenses. In addition ACD debtor of GBP1,083,000 (2018: GBP1,378,000).
The Group applies the IFRS9 simplified approach to measuring ECLs to other debtors. The Group does not expect to incur any credit losses and has not recognised any impairment losses in the current year under IFRS 9 (2018: nil).
The Group's policy on financial instruments can be found in note 28.
21. Property, plant and equipment
Property, plant and equipment is carried at historical cost less accumulated depreciation. Depreciation charges the cost of the assets to the consolidated income statement over their expected useful lives. Office equipment includes computer equipment which is depreciated over three years, and fixtures, fittings and equipment which is depreciated over seven years. Leasehold improvements are amortised over the remaining term of the leases. The depreciation period and method is reviewed annually.
Leasehold
Office equipment improvements Total
GBP'000 GBP'000 GBP'000
----------------- -------------- --------
Cost:
At 30 June 2017 690 367 1,057
Additions 197 307 504
Disposals (330) (243) (573)
Re-classification 16 (16) -
----------------- -------------- --------
At 30 June 2018 573 415 988
Additions 64 132 196
Disposals (85) - (85)
Exchange difference 5 3 8
----------------- -------------- --------
At 30 June 2019 557 550 1,107
----------------- -------------- --------
Accumulated depreciation:
At 30 June 2017 649 145 794
Disposals (330) (233) (563)
Re-classification 9 (9) -
Depreciation charge 37 119 156
----------------- -------------- --------
At 30 June 2018 365 22 387
Disposals (85) - (85)
Depreciation charge 71 128 199
----------------- -------------- --------
At 30 June 2019 351 150 501
----------------- -------------- --------
Net book value:
At 30 June 2018 208 393 601
----------------- -------------- --------
At 30 June 2019 206 400 606
================= ============== ========
22. Trade and other payables
30 June 30 June
2019 2018
GBP'000 GBP'000
-------- --------
Trade payables 771 978
VAT payable 1,029 861
Remuneration accruals 17,459 13,353
Other accruals and payables 4,478 7,145
Contract liabilities 38 36
-------- --------
23,775 22,373
======== ========
The Group's policy on financial instruments can be found in note 28.
23. Provisions
As reported in the prior year's Annual Report, the Group recognised a liability in respect of a FCA competition matter and operational error, which were both settled during the year.
Total
GBP'000
--------
Balance as at 1 July 2018 1,209
Paid during the year (1,209)
Balance as at 30 June 2019 -
========
24. Share capital
The Company had the following share capital at the reporting dates:
Allotted, called up and fully paid: Ordinary shares Number GBP
of GBP0.003 each
----------- --------
Opening balance at 1 July 2018 82,095,346 246,286
Shares issued in respect of EPSP award vesting 2,956,336 8,869
Shares issued in respect of SAYE award vesting 244,494 733
----------- --------
Balance as at 30 June 2019 85,296,176 255,888
=========== ========
The ordinary shares carry the right to vote and rank pari passu for dividends.
The share premium account arises from the excess paid over the nominal value of the shares issued.
During the year, the Group's EBT purchased Group shares in relation to non-dilutive share awards (note 7). The shares held are measured at cost.
GBP'000
--------
Opening balance at 1 July 2018 4,981
Acquisition of shares by the EBT 1,694
Disposal of shares in respect of award vesting (424)
--------
Balance as at 30 June 2019 6,251
========
25. Other reserves
30 June 30 June
2019 2018
GBP'000 GBP'000
-------- --------
Available-for-sale reserve (including
deferred tax) - 13
Foreign exchange reserve 379 400
Capital redemption reserve 84 84
Merger reserve 44,433 44,433
Capital contribution reserve 576 4,442
-------- --------
45,472 49,372
======== ========
The foreign exchange reserve represents the cumulative foreign exchange differences arising on US Dollar denominated businesses in the Group as well as currency differences on goodwill and fair value adjustments on the acquisition of foreign subsidiaries. On disposal of the US Dollar denominated business, the associated cumulative foreign exchange differences are recycled through the consolidated income statement.
The capital contribution reserve arose from a historical acquisition whereby the Group's then parent, PSG, settled part of the consideration in its own shares GBP576,000. There was a reclassification to retained earnings for a capital contribution reserve item that arose from forgiveness of a dividend by the Group's then parent, PSG (GBP3,867,000).
The merger reserve arose on the acquisition of RAMAM in March 2014.
26. Operating leases
Office facilities are leased under operating leases. The rental cost is charged to the consolidated income statement on a straight-line basis over the lease term. Rent rebates are accounted for over the period of the lease term.
The future aggregate minimum lease payments under all non-cancellable operating leases, net of rent rebates are as follows:
30 June 30 June
2019 2018
GBP'000 GBP'000
-------- --------
No later than one year 1,386 1,268
Later than one year and no later
than five years 2,590 3,099
Later than five years 122 352
-------- --------
4,098 4,719
======== ========
27. Related party transactions
Related parties to the Group are:
-- Key management personnel; and
-- PSG who held 38.1% of the issued share capital of the Group. On 3 July 2019, PSG reduced their holding in the Group to 29.5%.
Significant transactions with PSG
Year ended Year ended
30 June 30 June
2019 2018
GBP'000 GBP'000
----------- -----------
Administrative charges from
PSG:
Office facilities 435 1,010
----------- -----------
Total administrative charges 435 1,010
=========== ===========
During the period, the Company replaced a share certificate relating to PSG's ownership of 31,302,321 shares in the Company. PSG provided the Company with an indemnity in respect of the replacement.
Effective on 28 February 2019 the lease agreement relating to 11 Strand with PSG was surrendered. The Group paid PSG GBP75,000 in respect of dilapidations.
28. Financial instruments
Financial assets and financial liabilities are recognised in the Group's consolidated statement of financial position when the Group becomes party to the contractual provisions of the instrument. Financial assets are de-recognised when the contractual rights to the cash flows from the financial asset expire or when the contractual rights to those assets are transferred. Financial liabilities are de-recognised when the obligation specified in the contract is discharged, cancelled or expires.
The basis of classification for financial assets under IFRS 9 is different from that under IAS 39. Financial assets are classified into one of three categories: amortised cost, fair value through profit or loss ("FVTPL") or fair value through other comprehensive income ("FVOCI"). Management have applied the 'Business Model' and 'Solely Payments of Principal and Interest' tests as prescribed by IFRS 9 to determine the correct classification.
The table below explains the previous measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group's financial assets as at 30 June 2019.
Financial assets held at fair value as at 30 June 2019
Financial assets Classification GBP'000 Classification GBP'000
under IAS 39 under IFRS 9
----------------------- --------- --------------- ---------
Cash and cash equivalents Loans and receivables 24,046 Amortised cost 24,046
Investment management balances Loans and receivables 22,277 Amortised cost 22,277
Fee receivables Loans and receivables 4,412 Amortised cost 4,412
Other receivables Loans and receivables 24,011 Amortised cost 24,011
Total 74,746 74,746
--------- ---------
Fair value assets Available-for-sale 5,387 FVTPL 5,387
Total 5,387 5,387
--------- ---------
Total financial assets 80,133 80,133
========= =========
As permitted under IFRS 9, the Group has chosen not to restate comparatives on adoption and therefore, the above changes have been applied at the date of initial application.
The basis of classification for financial liabilities under IFRS 9 remains unchanged from under IAS 39.
Financial assets at fair value through profit or loss
Financial assets are classified as FVTPL on application of the 'Business Model' and 'Solely Payments of Principal and Interest' test as disclosed above.
Financial assets at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in the income statement.
Trade and other receivables
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less expected credit loss. Interest income is recognised by applying the effective interest rate, except for short term trade and other receivables when the recognition of interest would be immaterial.
The impairment provision on financial assets measured at amortised cost (such as trade and other receivables) has been calculated in accordance with IFRS 9's expected credit loss model, which differs from the incurred loss model previously required by IAS 39.
Cash and cash equivalent balances
Cash and cash equivalents balances comprise cash in hand, cash at agents, demand deposits, and other short-term highly liquid investments that have maturities of three months or less from inception, are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Trade and other payables
Trade and other payables are initially measured at their fair value and are subsequently measured at their amortised cost using the effective interest method. Interest expense is recognised by applying the effective interest rate, except for short term trade and other payables when the recognition of interest would be immaterial.
Categories of financial instruments
Financial instruments held by the Group are categorised under IFRS9 as follows:
30 June 30 June
2019 2018
GBP'000 GBP'000
-------- --------
Financial assets
Cash and cash equivalents 24,046 24,029
Investment management balances 22,277 13,116
Fee receivables 4,412 7,856
Other receivables 24,011 18,404
-------- --------
Total financial assets held at amortised
cost 74,746 63,405
Investments held at fair value through
profit and loss 5,387 5,165
-------- --------
Total Investments held at fair value
through profit and loss 5,387 5,165
Total financial assets 80,133 68,570
======== ========
Other receivables exclude prepayments.
30 June 30 June
2019 2018
GBP'000 GBP'000
-------- --------
Financial liabilities
Investment management balances 22,278 13,147
Trade and other payables 23,737 22,336
-------- --------
Total other liabilities at amortised
cost 46,015 35,483
Total financial liabilities 46,015 35,483
======== ========
Trade and other payables exclude deferred income.
The Directors consider the carrying amounts of the loan and receivables financial assets and financial liabilities carried at amortised cost to be a reasonable approximation to their fair values based upon their nature and the relatively short period of time between the origination of the instruments and their expected realisation.
Fair value of financial assets and liabilities
The following provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, and held as FVTPL and revalued on a recurring basis, grouped into levels 1 to 3:
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. The Group does not hold financial instruments in this category;
Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). The Group's seeding of funds is held within this category; and
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). The Group's contingent consideration of the ILC team is held within this category. This contingent consideration is measured at fair value at the reporting date. Based on a discount rate of 12% and an assumed AUM growth of 10% per annum, the fair value of the contingent consideration payable is GBP393,000 (2018: GBP798,000).
As at 1 July 2018 the available-for-sale investments previous held at fair value through other comprehensive have been reclassified as equity investments classified as FVTPL, following the IFRS 9 transition.
Financial risk management
The risks of the business are measured and monitored in accordance with the Board's risk appetite and policies and procedures covering specific risk areas, such as: credit, market and liquidity risk.
The Group is exposed to credit risk, market risk (including interest rate and foreign currency risks) and liquidity risks from the financial instruments identified above. This note describes the objectives, policies and processes of the Group for managing those risks and the methods used to measure them.
Credit risk management
Credit risk refers to the risk that a counterparty defaults on their contractual obligations resulting in financial loss to the Group. The carrying amount of financial assets at amortised cost recorded in the financial statements represents the Group's maximum exposure to credit risk. The Group holds no collateral as security against any financial asset. Credit risk arises principally from the Group's fee receivables, investment management balances, other receivables and cash balances. The Group manages its credit risk through monitoring the aging of receivables and the credit quality of the counterparties with which it does business.
The aging of outstanding fee receivables at the reporting date is given in note 19. The Group had no single fee receivable balance at year end that is material to the Group (2018: none).
The banks with whom the Group deposits cash and cash equivalent balances are monitored, including their credit ratings (note 16).
The Group bears risk in relation to the investment management balances held in respect of the River and Mercantile Funds ICVC. If any debtor failed to pay, the Group would redeem the underlying fund units in respect of that debtor, however it would be subject to risk that the value of the underlying fund units had fallen. The maximum theoretical risk exposure is the full GBP22.3m (2018: GBP13.1m) value of the receivables multiplied by the percentage decrease in the underlying ICVC position during the period between default and redemption. In order to mitigate the risk of losses arising from late receipt, the Group will seek specific indemnity from counterparties in certain cases. Management monitor the performance and aging of the investment management positions and take recovery action as appropriate.
Market risk - foreign currency risk management
The Group's foreign currency risk arises where adverse movements in foreign exchange rates impact the value of the assets and liabilities held in currencies other than the local entities functional currency. The carrying amount of the Group's foreign currency exposures are shown below in GBP:
30 June 30 June
2019 2018
GBP'000 GBP'000
-------- --------
Fee receivables 25 479
Cash and cash equivalents 249 820
Payables (1,026) (2,973)
Other assets 1,653 1,564
Investments held at fair value 5,261 -
Available for sale assets - 5,046
-------- --------
Total 6,162 4,936
======== ========
A 10% fluctuation in the exchange rate between foreign currencies and UK Pounds sterling on the outstanding foreign currency denominated monetary items at year end balances would result in a gain or loss of GBP616,000 (2018: GBP494,000).
Foreign exchange risk arising from transactions denominated in foreign currencies are monitored and where appropriate the currency required to settle the transaction may be purchased ahead of the settlement date.
Market risk - interest rate risk management
The Group has minimal exposure to interest rate risk. The Group has no external borrowings, cash deposits with banks earn a floating rate of interest and the interest income is not significant in either year.
Liquidity risk management
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. This risk relates to the Group's prudent liquidity risk management and implies maintaining sufficient cash reserves to meet the Group's working capital requirements. Management monitors forecasts of the Group's liquidity and cash and cash equivalents on the basis of expected cash flow.
The Group is cash generative before the payment of dividends and has cash and cash equivalent balances that support the Group's working capital requirements. The fee receivable invoicing cycle is generally quarterly; as a result working capital balances are maintained to meet the ongoing expenses of the business during the quarterly cycles. The Group's capital expenditure requirements have not been significant and have been limited to office and IT equipment.
Prior to significant cash outflows (or entering into commitments which would result in significant cash outflows), including dividends, the Group undertakes liquidity and capital analysis.
The Group has entered into operating leases over its premises. Note 26 discloses the future aggregate minimum lease payments at the Balance Sheet date, net of rebates over the life of the contracts.
At 30 June 2019 the Group had cash and cash equivalents of GBP24.0m (2018: GBP24.0m).
As ACD of River and Mercantile Funds ICVC (the Fund), some of the operating cash balance of RAMAM is held in an ACD operating account into which the management fees from the ICVC are paid on a monthly basis. Of the ACD operating account balance at each year end, the proportion not attributable to client fund transactions can be utilised by RAMAM within a 24 hour notice period and thus the account is considered liquid. At 30 June 2019 GBP1.5m (2018: GBP2.8m) of the cash and cash equivalents balance related to the ACD account.
Liquidity gap analysis
The table below presents the cash flows receivable and payable by the Group under non-derivative financial assets and liabilities by remaining contractual maturities at the reporting date. The amounts disclosed in the table are the contractual, undiscounted cash flows.
The net liquidity positions in the table below relate to cash flows on contractual obligations existing at the reporting date and does not take account of any cash flows generated from profits on normal trading activities.
On demand < 3 months 3-12 months > 12 months
GBP'000 GBP'000 GBP'000 GBP'000
---------- ----------- ------------ ------------
As at 30 June 2019
Assets
Cash and cash equivalents 24,046 - - -
Investment management balances - 22,277 - -
Fee income receivables - 4,412 - -
Other receivables - 19,100 4,855 56
---------- ----------- ------------ ------------
Total financial assets 24,046 45,789 4,855 56
Liabilities
Investment management balances - 22,278 - -
Trade and other payables - 21,218 2,075 444
---------- ----------- ------------ ------------
Total financial liabilities - 43,496 2,075 444
Net liquidity surplus/(deficit) 24,046 2,293 2,780 (388)
========== =========== ============ ============
On demand < 3 months 3-12 months >12 months
GBP'000 GBP'000 GBP'000 GBP'000
---------- ----------- ------------ -----------
As at 30 June 2018
Assets
Cash and cash equivalents 24,030 - - -
Investment management balances - 13,116 - -
Fee income receivables - 7,856 - -
Other receivables - 18,374 30 -
---------- ----------- ------------ -----------
Total financial assets 24,030 39,346 30 -
Liabilities
Investment management balances - 13,147 - -
Trade and other payables - 19,266 80 2,990
Total financial liabilities - 32,413 80 2,990
Net liquidity surplus 24,030 6,933 (50) (2,990)
========== =========== ============ ===========
Capital management
The Group operates its subsidiaries as self-sufficient entities, which are expected to be able to meet their funding requirements without recourse to the parent.
The Group's capital structure consists of equity (share capital and share premium), other reserves and its retained earnings; capital is managed on a consolidated and individual entity basis to ensure that each entity is able to continue as a going concern. Three of the Group's subsidiaries are regulated entities (one in the UK, one in the US and one in both the UK and the US). The Group scrutinises its capital adequacy using the Pillar 2 and ICAAP frameworks which are regulated by the FCA to maintain adequate capital requirements. The Group has complied with its regulatory capital required throughout the period covered by these financial statements.
29. Ultimate controlling party and subsidiary undertakings
The Group became publicly listed on 26 June 2014 and remains publicly listed.
Subsidiary undertakings
The following subsidiaries have been included in the consolidated financial information of the Group:
Proportion
of voting
Country of rights / ordinary
incorporation share capital
Name of registration held % Registered office address Nature of business
-------------------- ---------------- ------------------ -------------------------- ---------------------
River and Mercantile UK 100 30 Coleman St, London, Investment management
Investments Limited EC2R 5AL
(1)
River and Mercantile UK 100 30 Coleman St, London, Holding company
US Holdings Limited EC2R 5AL for the US business
(1)
River and Mercantile US 100 130 Turner St, Waltham, Actuarial and
LLC (1) (2) MA 02453 consulting
River and Mercantile UK 100 30 Coleman St, London, Holding company
Holdings Limited EC2R 5AL
River and Mercantile UK 100 30 Coleman St, London, Investment management
Asset Management EC2R 5AL
LLP (1)
River and Mercantile UK 100 30 Coleman St, London, Dormant service
Group Services EC2R 5AL company
Limited (1) (2)
River and Mercantile UK 100 30 Coleman St, London, Dormant service
Group Trustees EC2R 5AL company
Limited (1) (2)
River and Mercantile UK 0 12 Castle Street, St Employee Benefit
Group Employee Helier, Jersey, JE2 3RT Trust
Benefit Trust
-------------------- ---------------- ------------------ -------------------------- ---------------------
(1) Indirect holding
(2) Exempt from audit requirements
RAMAM has a non-coterminous year end, reporting at 31 March on a standalone basis. This was the existing year end date as at acquisition and no change is expected.
30. Events after the reporting date
Since the end of the financial year, the Directors are not aware of any other matter or circumstance not otherwise dealt with in this report or the financial statements that has significantly or will significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group.
The Board of Directors have declared a second interim dividend of 5.1 pence per share, of which 1.6 pence is a special dividend and relates to net performance fees. The second interim dividend will be paid on 22 November 2019 to shareholders on the register as at 25 October 2019. The ex-dividend date is 24 October 2019.
The Board of Directors have also proposed a final dividend for the year ended 30 June 2019, subject to approval by shareholders at the Group's AGM on 9 December 2019, of 5.0 pence per share, of which 2.4 pence is a special dividend and relates to net performance fees.
River and Mercantile Group PLC
Company statement of financial position (unaudited)
30 June 30 June
2019 2018
Note GBP'000 GBP'000
-------- --------
Assets
Cash and cash equivalents 2 11,104 7,815
Other receivables 3 12,947 11,053
Deferred tax asset 4 736 2,074
Property, plant and equipment 5 314 246
Intangible assets 6 26 47
Investments 7 58,762 57,645
-------- --------
Total assets 83,889 78,880
Liabilities
Payables 8 9,254 7,902
-------- --------
Total liabilities 9,254 7,902
Net assets 74,635 70,978
-------- --------
Equity
Share capital 9 256 246
Share premium 10 15,136 14,688
Other reserves 11 44,517 48,384
Retained earnings 14,726 7,660
-------- --------
Equity attributable to owners 74,635 70,978
======== ========
The Company's profit for the year was GBP15,810,000 (2018: GBP11,990,000).
River and Mercantile Group PLC
Company statement of cash flows (unaudited)
Year ended Year ended
30 June 30 June
2019 2018
GBP'000 GBP'000
----------- -----------
Cash flow from operating activities
Loss before interest, tax and dividends
from subsidiaries (7,409) (9,061)
Adjustments for:
Depreciation of property, plant
and equipment 122 80
Amortisation of intangible assets 21 37
EBT funding 2,079 1,773
Share-based payment expense 429 1,657
Other gains and losses 21 -
----------- -----------
Operating cash flow before movement
in working capital (4,737) (5,514)
Increase in operating assets (5,230) (5,435)
Increase in operating liabilities 649 1,539
----------- -----------
Cash used in operations (9,318) (9,410)
Taxation received/(paid) 1,206 (92)
----------- -----------
Net cash used in operations (8,112) (9,502)
----------- -----------
Cash flow from investing activities
Purchases of property, plant and
equipment (190) (307)
Interest received 36 31
Dividends received from subsidiaries 23,200 21,500
----------- -----------
Net cash generated from investing
activities 23,046 21,224
----------- -----------
Cash flow from financing activities
EBT funding settled (2,200) (1,728)
EBT disposal of shares - 95
Dividends paid (13,869) (17,456)
Repayment of intercompany loan receivables 4,016 -
Share issue 408 -
----------- -----------
Net cash used in financing activities (11,645) (19,089)
----------- -----------
Net increase/( decrease) in cash
and cash equivalents 3,289 (7,367)
----------- -----------
Cash and cash equivalents at beginning
of year 7,815 15,182
Cash and cash equivalents at end
of year 11,104 7,815
=========== ===========
River and Mercantile Group PLC
Company statement of changes in shareholders' equity (unaudited)
Share Share Retained
Capital Premium Other reserves earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- --------------- ---------- ---------
Balance as at 30 June 2017 246 14,688 48,384 11,215 74,533
Comprehensive income for
the year:
Profit for the year - - - 11,990 11,990
--------- --------- --------------- ---------- ---------
Total comprehensive income
for the year - - - 11,990 11,990
Transactions with owners:
Dividends - - - (17,456) (17,456)
Share-based payment expense - - - 2,360 2,360
Disposal of EBT shares - - - 95 95
Deferred tax on share-based
payment expense - - - (544) (544)
Total transactions with
owners: - - - (15,545) (15,545)
Balance as at 30 June 2018 246 14,688 48,384 7,660 70,978
Comprehensive income for
the year:
Profit for the year - - - 15,810 15,810
--------- --------- --------------- ---------- ---------
Total comprehensive income
for the year - - - 15,810 15,810
Transactions with owners:
Dividends - - - (13,869) (13,869)
Share-based payment expense - - - 1,450 1,450
Deferred tax on share-based
payment expense - - - (1,272) (1,272)
Realised tax in respect
of award vesting - - - 1,080 1,080
Transfer to retained earnings - - (3,867) 3,867 -
Share issue in respect of
award vesting 10 448 - - 458
--------- --------- --------------- ---------- ---------
Total transactions with
owners: 10 448 (3,867) (8,744) (12,153)
Balance as at 30 June 2019 256 15,136 44,517 14,726 74,635
========= ========= =============== ========== =========
Transfer to retained earnings is in respect of a re-classification of capital contribution reserve which arose from forgiveness of a dividend by the Group's then parent, PSG (GBP3,867,000).
River and Mercantile Group PLC
Notes to the Company financial statements (unaudited)
1. Basis of preparation
The Company's financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and interpretations, International Financial Reporting Interpretation Committee interpretations, and with those parts of the 2006 Act applicable to companies reporting under IFRS as issued by the International Accounting Standards Board as adopted by the European Union (IFRS) that are relevant to its operations and effective for accounting periods beginning on 1 July 2018.
Principal place of Business
The Company's principle place of business is the same as its registered office.
Result for the year
The profit after tax for the year ended 30 June 2019 was GBP15,811,000 (2018: GBP11,990,000). This includes a charge of GBP2,079,000 relating to funding provided to the Group's EBT (2018: GBP1,773,000).
In accordance with s408 of the Companies Act 2006 a separate income statement has not been presented for the Company. There are no items of comprehensive income other than the result for the year and therefore no statement of comprehensive income has been prepared for the Company.
Foreign currencies
To the extent that the Company undertakes transactions in currencies other than GBP, the transactions are translated into GBP using the exchange rate prevailing at the date of the transaction. Balances denominated in foreign currencies are translated into GBP using the exchange rate prevailing at the balance sheet date. All foreign exchange differences arising from the settlement of transactions or the translation of balances are recognised in operating expenses in the income statement.
Employees
The Company had an average of 49 employees during the year (2018: 34). Total remuneration costs were GBP8,384,000 (2018: GBP10,100,000).
Dividends
See note 15 of the consolidated financial statements.
2. Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and at bank, cash at agents, demand deposits, and other short-term highly liquid investments that have maturities of three months or less from inception, are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Below is a table detailing the credit rating of the banks with which the Company holds its cash, and the balance held at year end.
30 June 30 June
2019 2018
Bank GBP'000 GBP'000 Credit Rating Rating Body
--------- --------- -------------- ------------
Barclays Bank 11,104 7,815 A2/Positive Moody's
3. Other receivables
30 June 30 June
2019 2018
GBP'000 GBP'000
-------- --------
Taxes and social security 202 226
Prepayments and accrued income 779 552
Amounts owed from Group undertakings 8,216 10,223
Other debtors 3,750 52
-------- --------
12,947 11,053
======== ========
Amounts owed from Group undertakings represent balances incurred in the course of trade and are payable on demand.
The Company applies the IFRS 9 simplified approach to measuring ECLs to accrued income and three staged model to measuring ECLS to the remaining other receivables. The Group does not expect to incur any credit losses and has not recognised any impairment losses in the current year under IFRS 9 (2018: nil).
4. Tax
The Company's accounting policy in respect of tax is the same as that of the Group as detailed in note 13 of the consolidated financial statements.
Year ended Year ended
30 June 30 June
2019 2018
GBP'000 GBP'000
----------- -----------
Current tax on profits for the year - 28
Adjustments in respect of prior years (28) 444
----------- -----------
Total current tax (28) 472
Deferred tax on origination and reversal of
timing differences 65 13
----------- -----------
Total tax charge/(credit) 37 485
=========== ===========
The tax assessed for the year is lower (2018: lower) than the average standard rate of corporation tax in the UK. The differences are explained below:
Year ended Year ended
30 June 30 June
2019 2018
GBP'000 GBP'000
----------- -----------
Profit before tax 15,848 12,013
Profit before tax multiplied by the average
rate of corporation tax in the UK of 19% (2018:
19%) 3,011 2,282
Effects of:
Income not assessable to tax (4,408) (4,085)
Group relief 1,331 1,802
Other timing differences 75 42
Adjustment in respect of prior years 28 444
----------- -----------
Total tax credit 37 485
=========== ===========
30 June 30 June
2019 2018
GBP'000 GBP'000
-------- --------
Deferred tax assets:
At beginning of year 2,074 2,629
(Charge)/credit to the income statement - share-based
payment expense (66) (11)
(Charge)/credit to equity - share-based payment
expense (1,272) (544)
-------- --------
At year end 736 2,074
======== ========
5. Property plant and equipment
Property, plant and equipment is carried at historical cost less accumulated depreciation. Depreciation charges the cost of the assets to the consolidated income statement over their expected useful lives.
Office equipment Leasehold improvements Total
GBP'000 GBP'000 GBP'000
----------------- ----------------------- --------
Cost:
At 30 June 2018 73 243 316
Additions 63 127 190
----------------- ----------------------- --------
At 30 June 2019 136 370 506
----------------- ----------------------- --------
Accumulated depreciation:
At 30 June 2018 10 60 70
Depreciation charge 19 103 122
----------------- ----------------------- --------
At 30 June 2019 29 163 192
----------------- ----------------------- --------
Net book value:
At 1 July 2018 63 183 246
----------------- ----------------------- --------
At 30 June 2019 107 207 314
================= ======================= ========
6. Intangible assets
Intangible assets are carried at historical cost less accumulated amortisation and impairment. Amortisation charges the cost of the assets to the consolidated income statement over their expected useful lives.
Software Total
GBP'000 GBP'000
--------- --------
Cost:
At 30 June 2018 84 84
--------- --------
At 30 June 2019 84 84
--------- --------
Accumulated amortisation and impairment:
At 30 June 2018 37 37
Amortisation charge 21 21
--------- --------
At 30 June 2019 58 58
--------- --------
Net book value:
At 1 July 2018 47 47
--------- --------
At 30 June 2019 26 26
========= ========
7. Investments in subsidiaries
30 June 30 June
2019 2018
GBP'000 GBP'000
-------- --------
At start of year 57,645 56,941
Additions - share-based payments in subsidiaries 1,117 704
-------- --------
At end of year 58,762 57,645
======== ========
The Company's investments in subsidiaries are stated at cost less provision for any impairment incurred. The Company has a 100% holding in River and Mercantile Holdings Limited.
8. Payables
30 June 30 June
2019 2018
GBP'000 GBP'000
-------- --------
Taxes and social security - 329
Amounts owed to Group undertakings - 715
Trade payables 563 555
Accruals and deferred income 8,691 6,303
-------- --------
9,254 7,902
======== ========
Amounts owed to Group undertakings represent balances incurred in the course of trade and are payable on demand.
9. Share capital
Full details of the Company's share capital can be found in note 24 of the consolidated financial statements.
10. Share premium
Full details of any movements in share premium can be found in the Company statement of changes in equity.
11. Other reserves
A reconciliation of the movements in reserves can be found in the Company statement of changes in equity. Details on the nature of the other reserves in the Company can be found in note 25 of the consolidated financial statements.
A breakdown of other reserves is detailed below.
30 June 30 June
2019 2018
GBP'000 GBP'000
-------- --------
Merger reserve 44,433 44,433
Capital contribution reserve - 3,867
Capital redemption reserve 84 84
-------- --------
44,517 48,384
======== ========
As at 30 June 2019, the Company had GBP10,800,000 of distributable reserves (2018: GBP11,527,000)
There was a reclassification to retained earnings for a capital contribution reserve item that arose from forgiveness of a dividend by the Group's then parent, PSG (GBP3,867,000).
12. Financial instruments
A discussion of the financial risks and associated financial risk management, which applies to all of the companies in the Group, can be found in note 28 of the consolidated financial statements, along with the Group's accounting policy in respect of financial instruments.
The table below explains the previous measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group's financial assets as at 30 June 2019.
Financial assets held at fair value as at 30 June 2019
Financial assets Classification Classification
under IAS 39 GBP'000 under IFRS 9 GBP'000
----------------------- ---------- --------------- ----------
Cash and cash equivalents Loans and receivables 11,104 Amortised cost 11,104
Other receivables Loans and receivables 12,168 Amortised cost 12,168
---------- ----------
Total 23,272 23,272
---------- ----------
Total financial assets 23,272 23,272
---------- ----------
As permitted under IFRS9, the Group has chosen not to restate comparatives on adoption and therefore, the above changes have been applied at the date of initial application.
The basis of classification for financial liabilities under IFRS 9 remains unchanged from under IAS 39.
The financial assets and liabilities of the Company are categorised under IFRS9 as follows:
30 June 30 June
2019 2018
GBP'000 GBP'000
-------- --------
Financial assets held at amortised cost
Cash and cash equivalents 11,104 7,815
Other receivables 12,168 10,501
-------- --------
Total financial assets held at amortised
cost 23,272 18,316
======== ========
Other receivables exclude prepayments.
30 June 30 June
2019 2018
GBP'000 GBP'000
-------- --------
Financial liabilities held at amortised
cost
Payables 9,254 7,902
-------- --------
Total financial liabilities 9,254 7,902
======== ========
Credit risk management
Credit risk refers to the risk that the counterparty defaults on their contractual obligations resulting in financial loss to the Company. The carrying amount of financial assets at amortised cost recorded in the financial statements represents the Company's maximum exposure to credit risk. The Company held no collateral as security against any financial asset. Credit risk arises principally from the Company's intercompany and cash balances. The Company manages its credit risk through monitoring the credit quality of the counterparties with which cash is held and the Company's subsidiaries resources.
The banks with whom the Company deposits cash and cash equivalent balances are monitored, including their credit ratings (note 2).
Market risk - interest rate risk management
The Company has minimal exposure to interest rate risk. The Company has no external borrowings and cash deposits with banks earn a floating rate of interest. Interest income is not significant in either year.
Liquidity gap analysis
The table below presents the cash flows receivable and payable by the Company under non-derivative financial assets and liabilities by remaining contractual maturities at the balance sheet date. The amounts disclosed in the table are the contractual, undiscounted cash flows.
The net liquidity positions in the table below relate to cash flows on contractual obligations existing at the balance sheet date and does not take account of any cash flows generated from profits on normal trading activities.
On demand < 3 months 3-12 months > 12 months
GBP'000 GBP'000 GBP'000 GBP'000
---------- ----------- ------------ ------------
As at 30 June 2019
Assets
Cash and cash equivalents 11,104 - - -
Other receivables - 6,864 5 5,299
---------- ----------- ------------ ------------
Total financial assets 11,104 6,864 5 5,299
Liabilities
Payables - 8,823 374 57
---------- ----------- ------------ ------------
Total financial liabilities - 8,823 374 57
Net liquidity surplus 11,104 (1,959) (369) 5,242
========== =========== ============ ============
On demand < 3 months 3-12 months > 12 months
GBP'000 GBP'000 GBP'000 GBP'000
---------- ----------- ------------ ------------
As at 30 June 2018
Assets
Cash and cash equivalents 7,815 - - -
Other receivables - 10,501 - -
---------- ----------- ------------ ------------
Total financial assets 7,815 10,501 - -
Liabilities
Payables - 7,521 381 -
---------- ----------- ------------ ------------
Total financial liabilities - 7,521 381 -
Net liquidity surplus 7,815 2,980 (381) -
========== =========== ============ ============
13. Directors' remuneration
Details of the individual Directors' remuneration is shown in the Annual Report.
14. Related parties
The Company entered into the following transactions with related parties:
Related party Type of transaction Transaction Balance
Recharge Value owed/ (owing)
30 30 30 30
June June June June
2019 2018 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000
River and Mercantile Investments
Limited Management recharges 8,063 7,394 - -
(subsidiary undertaking) Intercompany balances - - 2,498 794
River and Mercantile LLC Management recharges 31 175 - -
(subsidiary undertaking) Intercompany balances - - 449 354
River and Mercantile Holdings
Limited Intercompany balances - - 4,829 8,035
(immediate subsidiary
undertaking)
River and Mercantile Asset Management recharges 1,195 861 - -
Management LLP Intercompany balances - - 440 323
subsidiary undertaking)
River and Mercantile Group PLC is the ultimate parent undertaking, River and Mercantile LLC and River and Mercantile Asset Management LLP are fellow subsidiaries and River and Mercantile Holdings Limited is the immediate parent undertaking.
Details of related party transactions with PSG can be found in note 27 of the consolidated financial statements.
15. Other information
The Company has taken the exemption under s408(2) of the Companies Act 2006 to not present their remuneration separately in these financial statements.
A second interim dividend in respect of the year of 5.1 pence per share has been declared, of which 1.6 pence is a special dividend relating to net performance fees. The Directors have proposed a final dividend in respect of the year of 5.0 pence per share, of which 2.4 pence is a special dividend relating to net performance fees.
The Company has not entered into any significant commitments or contingent liabilities after the balance sheet date.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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