Financial results and management report June 2015

RNS Number : 6348A

River and Mercantile Group PLC

30 September 2015

 

30 September 2015

River and Mercantile Group PLC

Year End Results Announcement

Year ended 30 June 2015

 

River and Mercantile Group PLC (the Group), the advisory and investment solutions business, today releases its audited results for the year ended 30 June 2015.

Highlights:

· Mandated AUM/NUM was £21.3bn at 30 June 2015, an increase of 18% over 30 June 2014;

· Net inflows for the year were £2.8bn from new and existing Clients;

· Investment performance increased AUM by £845m due to strong performance in Fiduciary Management;

· Net management and advisory fees were £46.7m for the year ended 30 June 2015, compared with £17.5m for the comparative six month reporting period ended 30 June 20141;

 

· Statutory net profit after tax was £8.3m, compared with a loss of £1.2m in the comparative six month period;

· Statutory basic earnings per share were 10.15 pence, compared with a loss of 2.22 pence in the comparative six month period;

 

· Adjusted underlying pre-tax margin2 was 27%, compared with 22% in the comparative period;

· Adjusted profit after tax3 was £12.7m, compared with £4.3m in the comparative six month period;

· Adjusted basic earnings per share4 was 15.46 pence, compared with 7.74 pence in the comparative six month period;

 

· The Board of Directors have declared a second interim dividend of 4.6 pence per share, of which 1.0 pence is a special dividend and relates to net performance fees. The dividend will be paid on 30 October 2015 to shareholders on the register as at 9 October 2015. The ex-dividend date is 8 October 2015;

· The Board of Directors have proposed a final dividend for the year ended 30 June 2015 of 3.8 pence per share;

 

· The total dividends paid, declared and proposed are 13.0 pence per share, representing 80% of the adjusted underlying profit after tax and 100% of the net performance fee profit after tax.

 

Paul Bradshaw, Non-Executive Chairman said:

"River and Mercantile Group enjoyed a successful first complete year in the public market. We were particularly delighted by the completion of the Royal Mail Pension Plan £700m structured equity mandate which brought together our equity and solutions skills for a winning client proposition. Our position in the more conventional market was reinforced by the successful launch of the River and Mercantile UK Micro Cap Investment Trust, and the investment teams in Fiduciary Management and Equity Solutions continue to deliver outstanding performance.

We are today declaring a second interim dividend and proposing a final dividend for 2015 bringing the total dividends declared and proposed to 13.0 pence per share which represents 80% of the adjusted underlying profit after tax and 100% of the net performance fee profit after tax."

Mike Faulkner, Chief Executive Officer said:

"Overall, the business has experienced good growth during the year, generally consistent with the strategy we set out in last year's report.

The growth in our assets has resulted from our continued focus on delivering effective, outcome-led solutions to our Clients. We remain committed to this focus on delivering outcomes, and this runs through our product range.

We continue to deliver strong investment returns for our clients and the business overall remains well positioned for growth."

Notes

1 The current financial year is the year ended 30 June 2015. The Group changed its year end from 31 December to 30 June, effective from 30 June 2014. Accordingly the comparative period given is the six months ended 30 June 2014.

2 Adjusted underlying pre-tax margin represents net management and advisory fees less the related expense base, excluding the amortisation of intangible assets, Executive Performance Share Plan "EPSP" costs, and IPO and corporate reorganisation costs; divided by net management and advisory fees.

3 Adjusted profit after tax represents statutory profit adjusted to add back the amortisation of intangibles assets, EPSP costs, and the IPO and corporate reorganisation costs, net of applicable taxes. The amortisation of intangibles and the EPSP cost are both non-cash costs, and the IPO and corporate reorganisation costs are considered to be non-recurring. The Directors believe that adjusted profit after tax is a measure of the post-tax cash operating profits of the business and gives an indication of the profits available for distribution to shareholders.

4 Adjusted basic earnings per share represents adjusted profit after tax divided by the weighted average number of shares outstanding in the period.

The financial information set out in this annual results release does not constitute the Group's statutory accounts for 2015 or 2014. Statutory accounts for the year ended 30 June 2015 and the six months ended 30 June 2014 have been reported on by the Independent Auditor.

The Independent Auditor's Reports on the Annual Report and Financial Statements for 2015 and 2014 were 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. Statutory accounts for the six months ended 30 June 2014 have been filed with the Registrar of Companies. The statutory accounts for the year ended 30 June 2015 will be delivered to the Registrar following the Group's annual general meeting.

The 2015 Annual Report and Accounts will be published in October 2015 and a copy will be posted on the Group's website.

Electronic copy

A PDF version of this announcement is available through the link on RNS, and from the Group's website www.riverandmercantile.com.

For further information please contact:

 River & Mercantile Group PLC +44 (0)20 3327 5100

 Kevin Hayes, Chief Financial Officer

Chris Rutt, Deputy Chief Financial Officer and Investor Relations

Forward Looking Statements

This announcement contains forward looking statements with respect to the financial conditions, results and business of the Group. 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

 

Financial results and management report 2015

 

Chairman's statement

A successful first year

River and Mercantile enjoyed a successful first complete year in the public market. Statutory profit after tax and adjusted profit after tax was £8.3m and £12.7m respectively, and we are declaring a second interim dividend of 4.6 pence per share of which 1.0 pence is a special dividend and relates to net performance fees. We are proposing a final dividend for 2015 of 3.8 pence to shareholders, bringing the total dividends paid, declared and proposed to 13.0 pence per share, representing 80% of the adjusted underlying profit after tax and 100% of the net performance fee profit after tax.

The major challenge faced during the year was the closure of the thematic global equity strategy. This was undoubtedly in the long term interests of all our stakeholders, especially our customers, reinforcing our commitment only to offer services which clearly add value. Nevertheless, this decision cost us short-term redemptions and significant closure costs. Our Executive team is strongly incentivised in alignment with shareholder return, and our core values in turn recognise that dependency on customer centricity. Accordingly we were not surprised by the Executives' decision to recommend zero bonuses for themselves to reflect the short term impact of this closure.

Other key metrics in the business were strong. Mandated AUM/NUM increased by 18%. Net flows from clients were £2.8bn, including the £0.8bn negative impact of the thematic global equity strategy closure. Net management and advisory fee revenue this year was 18% higher than last year on a pro-forma basis.

We continue our leadership position as the industry evolves inexorably towards tailored, outcome based solutions. We have enjoyed success in gaining several new clients by bringing together our equity and solutions skills for a winning proposition - a key reason for the merger before the IPO.

We are all very conscious that a client outcome focused strategy - in contrast to the historic product focus - is now on the horizon for many of our much larger competitors. We remain convinced that our outcome orientated business model and management team are well able to continue to respond more quickly and, critically, with a stronger client focus than many of our competitors.

Market turmoil since our year end should be beneficial to our business as more clients seek the deeper risk control inherent in our propositions. This is evidenced by our actual investment performance during the highly volatile conditions in August.

Our position in the more conventional market was reinforced by the successful launch of the UK Micro Cap Investment Trust and the investment teams in Fiduciary Management and Equity Solutions continue to deliver outstanding performance.

The pension world continues to experience seismic shocks in regulation and structure. We welcome, but are not surprised by, the maturity of the UK population recognising long term needs and not using pension assets irresponsibly. It is a time of great uncertainty in the industry, but we stay focused in our belief that client centricity and evolving solutions which meet the client's need are absolutely winning strategies.

I must take the opportunity to thank my Board colleagues, especially the Independent Directors, for their continued wisdom and commitment. I must also express the whole Board's appreciation of Angus Samuels and Mark Johnson for their input as we have transitioned to a public company and who, as previously agreed, will step down at the AGM. We have a great platform and great people and we look forward to many years of growth.

 

Paul Bradshaw

Non-Executive Chairman

Chief Executive's review

 

Last year having just listed, my report focused primarily on our strategy. A year on, with 12 months of financial performance behind us, I would like to look at how we have performed in the context of that strategy, specifically focusing on what worked and what didn't. Next, I want to describe our platform of investment products and services, and the performance achieved. Finally, I will address the question of how we see the business evolving from here.

 

Re-cap on strategy

Last year I set out the following as the key elements to our strategy - the table below is taken as presented in last year's report.

Strong organic growth in Fiduciary and Advisory	We expect continued growth in our Advisory and Fiduciary Management businesses, particularly in the UK defined benefit market. Currently, demand is higher for Fiduciary Management, but changes in market conditions may alter the balance of demand for the two services. Strong near-term growth in Fiduciary Management may dampen growth in Advisory, if current Advisory clients seek to change the basis of their engagement. We would expect the aggregate of Advisory and Fiduciary Management to grow strongly.
Equity mandates to grow - wholesale and institutional	We expect our Equity business to continue its strong growth, through demand from: • The UK wholesale market for specialist products. Our Small Cap and Recovery strategies have performed particularly strongly and experienced significant client growth. However, we also have strength in UK income and broader equity strategies, which offer opportunities for further growth within this market. • Institutions for outcome-led equity strategies. We are working with a number of larger institutions (primarily pension funds) who are interested in outcome-led strategies in general, and composite active equity and derivatives mandates in particular.
Derivatives growth further fuelled through consultant relationships	Our Derivatives business should experience strong indirect growth sourced from our Advisory, Fiduciary Management and Equity lines, where derivatives are a component of the service. In addition, we are expecting accelerated growth if we are successful in developing relationships with consultancies to distribute these services more widely.
New product launch to accelerate growth	We have recently launched a Dynamic Asset Allocation Fund and are aiming to distribute this service through a variety of channels.

 

Our strategy remains the same, and all of the themes and opportunities we had identified remain.

I describe below the performance of the business in the context of this strategy.

 

Advisory and Fiduciary

We have continued to experience organic growth in our Advisory and Fiduciary divisions. The advisory revenue was impacted positively by the work done advising clients around the departure of a well-known external third party asset allocation team in August 2014, but we have also seen good wins in our defined contribution and insurance businesses. We have seen a number of UK DB advisory clients choose to move towards fiduciary, and as a result advisory revenue will slow into next year until that revenue is replaced in the Advisory division.

Fiduciary Management has seen very strong growth during the year, both in terms of flows and investment performance. At the IPO we had identified both as meaningful contributions and it is useful to see this being reflected in our results.

 

Derivative Solutions

We have seen growth in our Derivatives division, and have made significant progress in developing our business in conjunction with consultancies.

During the year, NUM grew from £8.9bn to £11.8bn. Some key highlights are as follows:

· Our Fiduciary Management division increased hedge levels in advance of the significant fall in yields in September 2014, and this led to a meaningful growth in NUM;

· We have seen strong interest and growth in our structured equity business from advisory clients, contributing to growth; and

· We have had success with structured equity with the consulting community. We announced recently the implementation of a structured equity mandate of £700m from Royal Mail Pension Plan, which was advised by a leading consultancy. This is consistent with one of our stated reasons for the merger between P-Solve and RAMAM.

 

The pipeline of interest in our Derivatives division remains strong and we expect continued interest in structured equity, particularly in light of political, economic and market uncertainty.

 

Equity Solutions

We continued to achieve sales into specialist products within our wholesale business, and have recently soft-closed our Smaller Companies fund. We have, like others in the industry, experienced outflows and as a result our wholesale business is behind where we thought it would be at the beginning of the year, although net flows for the year are still positive.

Our institutional equity business has underperformed significantly due to our decision to close the global thematic equity strategy within Equity Solutions. As a result, we lost £0.8bn of AUM. However, due to the engagement process with our clients, many are interested in other services the Group is able to offer.

The area that did not progress as quickly as we had thought was demand for integrated active and structured equity mandates. We believe the logic for these mandates remain, but at the moment clients are more interested in implementing these components separately.

Kevin's report provides more granular detail on the financial performance in each of the divisions.

 

New product development

We launched two new products during the year:

· The River and Mercantile Dynamic Asset Allocation (DAA) Fund. Launched in September 2014 and seeded with Group capital, we have raised assets from institutional clients that have experience of our asset allocation skills as advisory clients. We are marketing the fund to a range of investors, but our expectation is that the fund will need to build a strong 12 month track record to start building more significant assets. So far, the fund is performing well.

· The UK Micro Cap Investment Trust. Launched in December 2014, we successfully raised £50m into this investment trust.

 

In addition, we had been developing a global equity capability, known as Global High Alpha, managed within our Potential, Value and Timing (PVT) equity strategy. Globalising the PVT strategy more broadly has been a key priority for product development during the year, and the DAA fund makes use of this capability. I believe these developments show strong evidence of synergies from the merger in developing new products.

 

Investment platform

We have identified the business as focused on "delivering outcomes", whether that is liability-related, or wealth-related. Our ability to build solutions must be based on the quality of our investment platform, and it is therefore important that this performs well. We are focused on achieving broad-based, strong performance across the whole of our product range. I am pleased to report that this remains the case, as the table below shows clearly.

Investment Performance at 30 June 2015	1 Year (%)		5 Years (% p.a.)		Since Inception (% p.a.)
By Investment Strategy	Abs.	Rel.	Abs.	Rel.	Abs.	Rel.	Launch Date
FIDUCIARY MANAGEMENT
TIGS	13.8%	(1.7%)	11.0%	1.6%	9.9%	2.3%	01-Jan-04
Dynamic Asset Allocation (DAA)	N/a	N/a	N/a	N/a	2.9%	(0.8%)*	02-Sep-14
DERIVATIVE SOLUTIONS
Structured Equity	4.4%	4.2%	10.3%	0.7%	6.4%	1.1%	31-Dec-05
EQUITY SOLUTIONS
World Recovery	1.7%	(7.8%)	N/a	N/a	20.6%	11.4%	04-Mar-13
Global High Alpha	N/a	N/a	N/a	N/a	6.1%	4.8%	12-Dec-14
UK Smaller Companies	12.6%	7.1%	24.1%	10.6%	13.2%	7.3%	30-Nov-06
UK Income	7.1%	4.5%	14.0%	3.2%	15.8%	2.6%	03-Feb-09
UK High Alpha	6.8%	4.2%	16.5%	5.8%	8.3%	3.0%	28-Nov-06
UK Micro Cap Investment Trust	N/a	N/a	N/a	N/a	13.2%	1.7%	02-Dec-14

\* The benchmark is 3m LIBOR plus 4%. Difficult market conditions have been an influence during the year. For example, the FTSE All-Share returned around 0.8% from 2 September 2014 to 30 June 2015, around 2.1% behind the DAA Fund.

It is this commitment to the quality of our platform that led to our decision to close the global thematic equity strategy. We are focused on delivering on the commitments we make and the above performance is strong evidence of the success achieved across our investment teams.

 

Outlook

As I identified above we expect advisory revenue to slow into next year, but pick up thereafter once the revenue lost from clients moving to fiduciary is replaced. Our fiduciary management activities continue to look well placed - with a long strong track record and broad client base - in an increasingly competitive market.

Our Derivatives division looks very well-positioned, particularly in structured equity, and we are expecting strong growth in that division. Structured equity is a compelling alternative to traditional passive management, and the risk management characteristics are attractive to clients that seek risk reduction but without the return reduction effects of moving to bonds. Our ability to evidence a strong track record of adding value to indices over a cycle makes us very unusual, if not unique.

We are very positive about the outlook for Equity Solutions from here following the re-focus on our PVT strategy. The PVT philosophy and process lends itself to the management of a wide range of different mandate types, as can be seen above in the application to regional equity strategies and Global High Alpha. This represents an opportunity for us.

We are hopeful that a full year of track record for DAA will allow us to raise assets more broadly into this strategy, which would be highly accretive for growth in the business.

James describes further in his report our distribution activities to support growth. But in particular, I do believe that one theme is set to emerge more strongly and that is for investors to become more demanding. The search for return has always been there, but it seems clear that offering higher return ways for investors to increase wealth, at what might be considered a reasonable price, will be an increasing trend going forward. This is a natural reaction to the effect of many de-risking strategies that in a low yield environment tend to reduce the return on assets very significantly indeed.

Many clients still desire meaningful return levels and as a result I believe the pendulum will swing back in the coming years to return generation, albeit with more controlled risk than such products may have had in the past. DAA is an example of such a product, and my view is we will see a range of return-seeking strategies emerge. This will be an area of focus for us in developing solutions going forward.

 

 

Summary

Overall, the business has experienced good growth during the year, consistent with the strategy I set out in last year's report. In most areas we delivered as we set out, but the shut-down of the global thematic equity strategy and not making progress on integrated active and structured equity mandates are notable exceptions.

The continued growth in our assets demonstrates our focus on delivering effective, outcome-led solutions to our clients. We have a track record of over 10 years in designing and executing structured equity solutions for clients and the execution of the Royal Mail Pension Plan mandate is an indication of the demand from pensions and institutional clients for structured equity to shape the profile of their investment returns.

The level of net flows during the year is a positive indication that the business has performed well, we continue to deliver sustained investment returns for our clients and the business overall remains strongly positioned for growth.

We remain committed to this focus on delivering outcomes, and this runs through our product range coupled with our solutions approach to developing business. As well as developing the solutions approach into other markets, we expect to develop our business into higher return-seeking mandates as that trend emerges.

Finally, I would like to thank our clients, employees and shareholders for their continued support in our first year as a public company. I would especially like to thank our Board for its support and counsel in what has been a year of transformation for the business. I believe we go into 2016 with a stronger company as a result.

 

Mike Faulkner

Chief Executive Officer

 

Client engagement report

Introduction

We believe that there is a fundamental change taking place in our industry as our clients' needs undergo an ongoing evolution. The change that began in the institutional market is now migrating into the thinking of the retail market and this progressive shift towards "outcome orientated" strategies will force our market to focus on developing solutions that address specific client needs. These needs will incorporate areas such as the requirement for income, the appetite to protect assets from the impact of increasing inflation or protecting wealth in an unstable environment.

This change represents a cultural shift for much of our industry since asset managers have historically focused on single component 'building blocks'. We believe that the Group is strongly positioned to deliver a more holistic solution given our breadth of skills and our historic focus on our clients' needs. We have long demonstrated an ability to engage proactively with clients, build deeper relationships, and understand and serve their requirements more effectively. I report below on developments in our client service and distribution activities.

 

Client Service

The strength of our client relationships is key to our success. To ensure we continue to improve these, we regularly carry out a client satisfaction survey to get feedback on our performance and identify areas for improvement. We were very pleased to see the results of our 2015 survey which were overwhelmingly positive. 86% of our Fiduciary and Advisory clients were "very satisfied" or better giving us an average score of 8.3 out of 10 for overall relationship.

Our clients particularly commented on our responsiveness, our understanding of their needs and our innovative solutions.:

"A first class company providing excellent service."

Paul Rudd, Chairman Express Newspapers Pension Fund.

"A client focused company that is quick to react when the need arises."

Phil Dunford, Dover Harbour Board Pension Scheme

"After previous years of 'passive' advice, reacting to events, with other advisers, P-Solve has stood out as providing: a clearly expressed view and opinion, communicated not just in investment but also economic terms; a strategy and plan to implement; and a feeling of being ahead of the game, not just reacting."

Martyn Harvey, Fujitsu

"Very customer focused at all times."

Graham McNab, Morrison

"As a member-nominated trustee, sometimes the investment side can become hard to understand. The guys from P-Solve are always happy to slow down and explain in a way that we understand. A very trustworthy and professional service."

Adam Collins, FuturePlanner

We believe that these comments reflect the commitment of the Group to its clients, which in turn is the key driver behind the very low attrition rate experienced by the business.

Distribution

Our distribution infrastructure is designed to drive growth in the main areas of the business; Advice led strategies (Fiduciary, Advisory and Insurance), Equity and Multi Asset solutions and Derivatives. We have separate teams that drive distribution in these core markets and have continued to invest in our capabilities. A few years ago we took the decision to explore opportunities in the Australian institutional market and following a period of working in partnership with a local distributor have decided to rely on our own model and as a result we are seeing significant progress in this market.

 

Fiduciary, Advisory and Insurance

There continues to be strong demand for our services in the UK defined benefit, defined contribution and insurance markets across all engagement models. In particular we have seen continued growth in our DC fiduciary model where we are the first provider to deliver a three year track record in this important arena. We are seeing a number of new entrants to this market along with significant press coverage which we believe will fuel demand. We also continue to see growth in DB fiduciary as our client's engagement evolves from a pure advisory solution.

The fiduciary market continues to grow fast, and has great scope for further growth. However competition has increased with the resultant impact on win rates and possible future impact on margins in this area. According to the latest KPMG survey they estimate that fiduciary management has become the engagement model of choice for less than 5% of the market which equates to a little over 300 UK DB schemes out of more than 6,000. This is growth of circa 44% in the number of fully delegated fiduciary management mandates in 2014, but importantly demonstrates the scope for further growth in the coming years.

With our strong 12 year track record in this market, we are well positioned to benefit from this trend. We have seen significant growth in assets and client numbers, with new Fiduciary AUM increasing by over 20% during the year. We continue to review our sales model in this market, but still believe that an engagement based on understanding a client's needs is critical to success. We currently operate in these markets under the P-Solve and Meridian brands.

 

Equity and Multi Asset Solutions

We took the decision to close our global thematic equity strategy during the year and this has naturally had an impact on our sales figures in the institutional market. We have however continued to invest in our highly successful PVT strategy and we have launched a series of new products during the year that will ensure that the strategy is well positioned to take advantage of demand. We launched the Global High Alpha strategy in December 2014 and we anticipate this strategy growing strongly over the coming 12 months as demand increases from our core markets in the UK, US and Australia. We also launched the UK Micro Cap Investment Trust, which takes the River and Mercantile name back into the "closed-end" market for the first time since 1996.

This launch was on the back of our strong reputation investing in smaller companies which also led to the soft close of our very successful UK Smaller Companies strategy. All our Equity Solutions strategies are comfortably ahead of their respective benchmarks since inception.

Our exposure to the intermediated market has continued to grow and gross sales in this market exceeded £500m in the period for the first time in our history. We are continuing to explore how we can apply our broader client engagement model to this market and have a number of new initiatives working in conjunction with our clients that will help develop thinking in this area. The understanding of the role certain strategies play in a client's portfolio is absolutely critical and we believe that this will help the business control attrition rates over the coming years.

We launched the Dynamic Asset Allocation (DAA) fund in September 2014 on the back of very strong returns in our broader asset allocation capabilities. We have raised £62m over the last twelve months and we expect to see increased demand as we achieve a twelve month track record for the fund. There has been an explosion in the number of multi asset funds over the last few years, and investors are faced with a confusing array of often quite complex solutions. Our strategy is clearly defined and simple to understand, based on strong investment process that has delivered consistent performance over more than a decade. We see this as an important area of growth for our business in years to come.

 

Derivative Solutions

Our derivative capabilities encompass both liability hedging (Liability Driven Investment or LDI) and structured equity in which we have an established presence. According to the latest KPMG survey in this area we are one of the five largest providers of LDI services and the third largest in providing segregated services in this market. We have a more dominant position with regard to structured equity and according to the same survey account for nearly 35% of mandates in this market. The Derivatives division have achieved this strong position historically working with the P-Solve client base. We have seen significant demand for our structured equity capabilities and evidence of this was with the recent mandate with the Royal Mail Pension Plan. We were appointed to manage a £700m structured equity mandate where we worked closely with the scheme's advisors and the in-house team led by Ian McKnight. Ian, commenting on our appointment, said "We have been very impressed with R&M's design, execution and client service".

We are working with a broad range of clients and expect to see growth in our Derivatives division as we continue to evolve the nature of solutions we offer in both the institutional and wholesale space.

 

Summary

From a client engagement perspective, the River and Mercantile Group has demonstrated its capability to evolve and innovate, adapting to market changes since the underlying businesses were founded. We have strong brands and franchises, strong and deep client relationships, a broad product offering and talented and committed employees. As a result, we believe the business is positioned to continue to achieve strong growth through serving our clients.

 

James Barham

Global Head of Distribution

 

Financial review

The results this year show the continued strong growth of the business

As outlined by Mike, our growth strategy is based upon a series of related objectives.

Objective: · Delivering on clients' desired outcomes; · Delivering investment outcomes above the clients' stated benchmarks; and · Developing new solutions based on the clients' changing outcomes. This results in: · Growth in AUM/NUM; · Low rates of client attrition and a lower cost of distribution; · Growth in management and advisory fees; and · Growth in performance fees.

Objective: · Gaining operating leverage from the investment platform through utilising available investment capacity and scalable investment processes. This results in: · Increased management fee revenue with lower incremental costs.

Objective: · Managing our expense base, both administration and remuneration as we grow. This results in: · Improved pre-tax margin; and · Increased adjusted profit after tax.

Objective: · Managing our capital base so that a high proportion of adjusted profit after tax can be paid through to our shareholders in the form of dividends. This results in: · Improved shareholder value.

 

The results this year show the continued strong growth of the business through the execution of our strategy. Despite the challenges outlined by Mike with regard to the global thematic equity strategy, we have nonetheless seen positive momentum in all key metrics.

· Growth in total mandated and fee earning AUM/NUM up 18% and 21%, respectively;

· Positive net flows from new and existing clients of £2.8bn in the year, which includes £0.8bn of redemptions from the thematic global equity strategy;

· Investment performance increased AUM by £845m;

· Growth in net management and advisory revenues, up 18% compared to the previous year on a pro-forma basis, despite the loss of revenue from the global thematic equity strategy;

· Maintained stable overall net management fee margins;

· At or above benchmark performance generated performance fees of £5.9m;

· Growth in adjusted underlying pre-tax margin from 22% to 27%, achieved though operating leverage;

· Administrative expenses (excluding governance) increased 14% compared to total management and advisory revenue increasing 18% on a pro-forma basis;

· Growth in adjusted profit after tax to £12.7m;

· Stable capital base with Group consolidated excess regulatory capital of £5.7m after declared and proposed dividends; and

· Total paid, declared and proposed dividends to shareholders of £10.7m representing 80% of the adjusted underlying profit after tax and 100% of the net performance fee profit after tax.

 

 

AUM/NUM

The growth of our net management fee revenue results from the growth of our assets and notional under management and the stability of our management fees charged to clients.

Positive net flows are an indication of both our ability to retain previously mandated assets, and our ability to win new mandates and increase allocation from existing client mandates.

The following table shows the AUM/NUM for the year ended 30 June 2015.

	Assets Under Management (AUM) and Notional Under Management (NUM)
£'m	Fiduciary Management	Derivative Solutions (NUM)	Equity Solutions			Total AUM/NUM
			Wholesale	Institutional	Total
Opening fee earning AUM/NUM	6,080	8,863	846	1,563	2,409	17,352
Sales	1,301	1,670	490	207	697	3,668
Redemptions	(623)	(152)	(312)	(1,014)	(1,326)	(2,101)
Net rebalance	-	1,253	-	-	-	1,253
Net flow	678	2,771	178	(807)	(629)	2,820
Investment performance	643	-	59	143	202	845
Closing fee earning AUM/NUM	7,401	11,634	1,083	899	1,982	21,017
Mandates in transition	163	170	-	-	-	333
Redemptions in transition	(3)	-	-	-	-	(3)
Total Mandated AUM/NUM	7,561	11,804	1,083	899	1,982	21,347
Opening mandated AUM/NUM	6,584	8,975	846	1,688	2,534	18,093
Increase/(decrease) in fee earning AUM/NUM	22%	31%	28%	(42%)	(18%)	21%
Increase/(decrease) in mandated AUM/NUM	15%	32%	28%	(47%)	(22%)	18%

Derivatives by type:

£m		Structured Equity	Gilts and LDI	Total NUM
Opening fee earning AUM/NUM		782	8,081	8,863
Sales		777	893	1,670
Redemptions		-	(152)	(152)
Net rebalance		(20)	1,273	1,253
Net flow		757	2,014	2,771
Closing fee earning AUM/NUM		1,539	10,095	11,634
Mandates in transition		-	170	170
Redemptions in transition		-	-	-
Total mandated AUM/NUM		1,539	10,265	11,804

Fiduciary Management

Sales included 17 new mandate wins during the year and £274m of contributions from Scheme sponsors from existing clients.

Redemptions include £98m of payments to pension beneficiaries, and £197m (6 clients) who transferred to the Pension Protection Fund. In addition four clients having achieved their funding objective, moved to buy in or buy outs or moved to alternative arrangements.

During the year £643m was added through investment performance in the Total Investment Governance Solutions (TIGS) a return of 11% on opening AUM, including liability hedging, which has meant that our clients moved closer to their funding objective this year.

During the year, we engaged an independent third party to survey our clients and formally solicit feedback and gauge our performance as measured by our clients' satisfaction. Advisory and Fiduciary Management clients rated their overall client experience and the outcomes from our fiduciary management offering as overwhelmingly positive. 86% of our Fiduciary and Advisory clients were "very satisfied" or better giving us an average score of 8.3 out of 10 for overall relationship.

 

Multi Asset Solutions

During the year the Multi Asset Solutions team was established and the Dynamic Asset Allocation fund was launched and seeded with £5m of the Group's capital. At year end, £62m of external AUM had been raised. The DAA fund uses the same investment processes as TIGS in Fiduciary Management. Due to the size of the AUM it is presently included under the Fiduciary Management heading.

 

Derivative Solutions

Derivative Solutions comprises the Liability Driven Investing (LDI including Gilt collateral management) and structured equity products.

During the year we onboarded eight new clients into LDI, adding £893m of NUM. In addition, we continued to see strong flows from existing clients who increased their level of hedging to respond to market and scheme funding levels. Redemptions were £152m including £132m of clients that moved to the Pension Protections Fund.

Derivatives' structured equity solutions provides strategies to shape the return profile of clients' equity portfolios. Included in sales is £700m from the Royal Mail Pension Plan structured equity mandate, which is covered in more detail in the Distribution Review. At year end Derivative Solutions have 25 clients using the structured equity products.

 

Equity Solutions

At the beginning of the year the Equity Solutions division comprised the thematic global equity strategy and the Potential Value and Timing (PVT) strategy.

After a prolonged period of underperformance of the thematic global equity strategies we engaged with investors, the majority of whom decided to redeem their investments. This led to the closure of all the funds and the departure of the team. The financial impact of the closure of the thematic global equity division is detailed in the box below.

 

 

Closure of the thematic global equity strategy   As noted in the CEO's review, the closure of the thematic global equity strategy resulted in a net reduction in AUM of £774m (opening AUM was £666m). The revenue earned by the strategy during the year prior to closure was £1.6m. The total cost to close the division was £0.6m and included:   · Fund Administration costs of £64k to close the funds; · £395k was incurred in redundancy costs (recorded in fixed remuneration expense); and · £125k in legal and professional fees.   The net profit associated with the strategy was a loss of £0.7m including closure costs. The departure of the thematic global equity team reduces the run rate costs (mainly in fixed remuneration) by £720k. As the strategy did not represent a separate business line, the results of the strategy have not been disclosed as a discontinued operation.

 

The PVT strategy provides long only equity funds and strategies to institutional and wholesale intermediaries. Institutional clients can access the strategies through funds or segregated mandates. The funds are available to wholesale intermediates who distribute to their retail clients.

PVT strategy sales during the year included £127m into R&M UK Smaller Companies and a segregated mandate win of £100m. Redemptions of £552m were spread across the strategies generally from investors choosing to reduce their risk exposure.

Investment performance across the PVT equity strategies was solid with £145m added from performance in the year. In aggregate there is at least £5bn of additional capacity across the existing Equity Solutions funds and strategies.

Fund AUM as at 30 June 2015		Quartile*
	AUM £m	YTD	Since inception
R&M UK High Alpha Fund	299	1	2
R&M UK Equity Smaller Companies Fund	583	4	1
R&M UK Equity Income Fund	253	2	1
R&M UK Equity Unconstrained Fund	8	2	3
R&M UK Equity Long Term Recovery Fund	125	2	1
R&M World Recovery Fund	195	1	1
Segregated mandates and other	519	N/A	N/A
Total AUM	1,982

 

*Quartile data from the Investment Association as at 30 June 2015

 

 

Revenue and Margins

Management fees are charged generally as a percentage of the AUM/NUM we manage for the clients and are negotiated with clients based on a number of factors including the size of mandate. Net management fees reflect rebates and other payments to external distributors. During the year the average net margins have remained stable. Included in Derivatives Solutions is the NUM from LDI and structured equity. As the level of structured equity increases the average margin may decrease due to the mix change, with structured equity generally at a lower net management fee margin.

 

			Equity Solutions
	Fiduciary Management	Derivative Solutions	Wholesale	Institutional	Total Average
Average fee-earning AUM £m	7,046	9,832	953	1,362	19,193
Average margin 2015 (bps)	18-20	7-8	72-74	48-50	18
Average margin 2014 (bps)	18-20	7-8	82-84	44-46	18

 

 

£'000s	Year ended 30 June 2015	6 months ended 30 June 2014	Pro-forma year ended 30 June 2014 (unaudited)	Increase vs pro-forma 2014
Net management fees
- Fiduciary	13,083	5,560	10,449	25.2%
- Derivatives	7,857	3,400	6,577	19.5%
- Equity Solutions Wholesale	6,935	1,561	4,231	63.9%
- Equity Solutions Institutional	6,809	1,764	7,449	(8.6%)
Advisory fees
- Retainers	4,711	2,363	4,839	(2.6%)
- Project fees	7,259	2,877	6,139	18.2%
Total net management and Advisory fees	46,654	17,525	39,684	17.6%
Performance fees
- Fiduciary	5,263	2,350	6,111	(13.9%)
- Equity Solutions	616	-	8,899	(93.1%)
Total performance fees	5,879	2,350	15,010	(60.8%)

 

Advisory Revenues

The Solutions division earns revenues from clients who engage us on a retained fee basis or from fees based on undertaking specific projects. The increase in advisory fees was driven by an increase in project work for clients, relating to the closure of a third party asset allocation strategy.

 

 

Performance fee revenue

Performance fees are earned in Fiduciary Management and Equity Solutions. TIGS is the investment strategy within Fiduciary Management and performance fees are recorded on the anniversary date of each mandate. In Equity Solutions the majority of performance fees are realised based on a calendar year performance period.

Fiduciary Management

The majority of the performance fees in TIGS are subject to a deferral mechanism whereby performance fees are reported to the client at each anniversary date, and are deferred and can only be realised in full if performance continues above benchmark across the subsequent three years. If the client were to redeem their mandate, any deferred performance fees would be immediately crystallised. In the year ended 30 June 2015, £5.3m of performance fees were earned, £3.2m from previously deferred performance fees and £2.1m from clients with annual high water marks.

At June 2015 the amount of deferred performance fees that could be earned in the year ended 30 June 2016 assuming continued performance in line with benchmark, is £2.2m.

Equity Solutions

In Equity Solutions, performance fees are earned on outperformance relative to a stated benchmark. Performance fees were £0.6m for the year ended 30 June 2015.

From 1 January 2014 a number of clients changed their performance fee structure to a 'cap and roll' structure, whereby performance in the calendar year over a cap is carried forward and is added to the investment performance in the following year. Performance fees can be earned if the performance, including the deferred performance from a previous period, is above the benchmark in the subsequent year.

At 30 June 2015 total performance fee eligible assets were £320m. Of these assets £302m were below their performance benchmark by more than 5% and £18m were within 1% of their performance benchmark. The weighted average rate of performance fees in respect of outperformance on the eligible AUM is 17%.

 

Administrative Expenses

£'000s	Year ended 30 June 2015	6 months ended 30 June 2014	Pro-forma year ended 30 June 2014 (unaudited)	Increase vs pro-forma 2014
Administrative expenses excluding governance	9,113	3,564	7,982	14%
Governance costs	639	159	159
Administrative expenses	9,752	3,723	8,141	20%
Total net management and Advisory fees	46,654	17,525	39,684	18%

 

Administrative expenses have increased by 14% compared to our net management and advisory revenues which have risen by 18% during the year indicating operating leverage from our core business. Administrative expenses include £189k related to the closure of the thematic global equity strategy. In addition, administrative expenses increased due to additional legal and fund administration costs from the establishment of new investment strategies and funds.

The governance costs reflect the costs of operating as a public limited company from the IPO date, 26 June 2014. These costs include legal and advisory costs and increased audit fee.

Remuneration

	Year ended 30 June 2015	6 months ended 30 June 2014
Fixed remuneration	18,440	7,292
Variable remuneration	8,476	3,547
Total remuneration (excluding EPSP)	26,916	10,839
Total revenue (excluding other income)	52,533	19,875
Remuneration ratio (total remuneration excluding EPSP/total revenue)	51%	55%

 

Remuneration expense includes: (a) fixed remuneration comprising: base salaries, drawings, benefits and associated taxes; (b) variable remuneration comprising: performance bonus and profit share paid to the Partners of RAMAM LLP and applicable taxes; and (c) the amortisation of the fair value of performance share awards under the Performance Share Plan.

Fixed remuneration is allocated to net management and advisory fees. Variable remuneration is accrued on net management and advisory fees, and performance fees. In general the accrual rate of variable remuneration is approximately 42% of performance fee revenue.

The business has operating scale and through increased total revenue, the level of total remuneration (excluding EPSP) to total revenues is targeted at between 45-50% to be achieved in the next two years.

 

Statutory and adjusted profits

 

£'000s	Year ended 30 June 2015	6 months ended 30 June 2014
Statutory profit before tax	10,525	(73)
Pre-tax margin	20%	(0.4%)
Adjusted profit before tax	15,895	5,566
Adjusted pre-tax margin	30%	28%
Adjusted underlying profit before tax	12,429	3,916
Adjusted underlying pre-tax margin	27%	22%
Adjusted profit after tax	12,693	4,299

 

Statutory profit before tax is £10.5m, after the charge for the amortisation for intangibles and EPSP costs.

Adjusted profit before tax represents statutory profit adjusted to add back the amortisation of intangible assets, EPSP costs, and the IPO and corporate reorganisation costs. The amortisation of intangibles and the EPSP cost are both non-cash costs, and the IPO and corporate reorganisation costs are considered to be non-recurring.

Adjusted profit after tax represents adjusted profit before tax, less applicable taxes. The Directors believe that adjusted profit after tax is a measure of the post-tax cash operating profits of the business and gives an indication of the profits available for distribution to shareholders.

Adjusted underlying pre-tax margin represents net management and advisory fees less the related expense base, excluding the amortisation of intangible assets, EPSP costs, and IPO and corporate reorganisation costs; divided by net management and advisory fees.

The adjusted underlying pre-tax margin for the year ended 30 June 2015 was 27% (2014: 22%). The increase is the result of increased net management fees and a lower marginal increase in expenses, primarily remuneration. The target in the medium term is to increase the adjusted underlying pre-tax margin to 30%, primarily through increased revenue and a scalable expense base.

 

Capital, liquidity and regulatory capital

The business is strongly cash generative. For the year ended 30 June 2015 we generated cash from operations of £11.6m. Net cash used in investing activities reflects the £5m seeded to the DAA Fund. Net cash used in financing activities represents the £5.7m of dividends paid to shareholders. The cash raised from the IPO has been used in part in seeding the DAA fund, which is currently attracting outside investors. Cash and cash equivalents at year end were £20.2m.

As a business regulated by the UK Financial Conduct Authority, we hold prudent levels of capital resource in order to ensure our financial stability. We undergo a continual Internal Capital Adequacy Assessment Process (ICAAP), to ensure that we are holding sufficient levels of equity capital for the scale and nature of our operations and risk. As at 30 June 2015, adjusting for the effect of the interim and proposed final dividend we have excess qualifying regulatory capital of £5.7m over the minimum required by our ICAAP. We do not anticipate any significant change in our regulatory capital requirements in 2016.

 

Performance share plan

As part of the 2015 remuneration process, awards were made under the Performance Share Plan (PSP) to non-Director employees. The aggregate face value of these grants was approximately £1.1m. The vesting of the awards is linked to achieving specified performance targets over the vesting period. As described in note 6 of the consolidated financial results, remuneration expense includes an amortisation charge for the fair value of these awards. Awards under the PSP are not intended to cause further dilution to shareholders and will therefore be satisfied through share purchases by the Employee Benefit Trust (EBT). Capital has been earmarked for the purchase of the Group's shares by the EBT, which will be treated as treasury stock in shareholders' equity.

 

Earnings per share

Pence per share	Year ended 30 June 2015	6 months ended 30 June 2014
Statutory basic EPS	10.15	(2.22)
Statutory diluted EPS	9.85	(2.22)
Adjusted basic EPS	15.46	7.74
Adjusted diluted EPS	15.00	7.39
Share count normalised adjusted diluted EPS1	15.00	5.08

1 2015 and 2014 figures calculated using the 2015 weighted average diluted share count

The diluted earnings per share calculation includes the dilutive effect of shares that could be issued under the Executive Performance Share Plan as measured at the balance sheet date. These shares would be issued in 2017 (subject to a one year lock-up), if the award conditions are met. The basic earnings per share represents the earnings per share to the existing shareholders that will accrue during the EPSP vesting period on an undiluted basis.

The share count normalised adjusted diluted EPS has been presented to better reflect the growth in adjusted earnings, and to remove the effect of the change in the Group's share capital structure in the prior period.

 

Dividends

On 23 October 2014 the shareholders approved the payment of the 2014 final dividend of 2.3 pence per share (including 1.0 pence of a special dividend relating to net performance fees).

On 27 February 2015, an interim dividend of 4.6 pence per share was declared which included a special dividend of 1.0 pence relating to net performance fees. The Board have declared a second interim dividend of 4.6 pence per share, of which 1.0 pence is a special dividend and relates to net performance fees to be paid on 30 October 2015. In addition the Board are proposing to shareholders a final dividend of 3.8 pence per share. Total dividends per share paid, declared or proposed for the year ended 30 June 2015 are 13.0 pence per share, representing 80% of the adjusted underlying profit after tax and 100% of the net performance fee profit after tax.

 

Kevin Hayes

Chief Financial Officer

Introduction to the consolidated financial results of River and Mercantile Group PLC

 

The consolidated financial results show the results of operations and financial positon for the year ended 30 June 2015. The Group changed its year end from 31 December to 30 June, effective from 30 June 2014. Accordingly the comparative period given is the six months ended 30 June 2014.

The financial information set out below has been extracted from the Annual Report and Accounts of River and Mercantile Group PLC for the year ended 30 June 2015 and is an abridged version of the full financial statements, not all of which are reproduced in this announcement.

River and Mercantile Asset Management LLP was acquired on 27 March 2014 and the comparative period includes the results of operations for the three-month period from the date of the acquisition to 30 June 2014. P-Solve Limited (P-Solve) changed its name to River and Mercantile Group Limited (R&M) on 9 April 2014 and registered as a public limited company on 2 June 2014. On 26 June 2014 the Group was admitted to the London Stock Exchange as a public listed company.

The Financial review gives an explanation of the financial information contained in the consolidated financial results together with information regarding AUM/NUM, revenue margins, non-statutory measures and historical combined financial information which are helpful to the reader to understand the historical performance of the business.

 

Directors responsibilities

The responsibility statement set out below has been reproduced from the Annual Report and Accounts, which will be published in October 2015, and relates to that document and not this announcement.

 

Each of the directors confirms to the best of their knowledge:

· The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group.

 

· The Annual Report and Accounts includes a fair review of the development and performance of the business and the financial position of the group and the parent company, together with a description or the principal risks and uncertainties that they face.

 

 

On behalf of the Board

 

Consolidated income statement

		Note	Year ended 30 June 2015	6 months ended 30 June 2014
			£'000	£'000
Revenue		3
Net management fees			34,586	12,285
Net advisory fees			12,068	5,240
Performance fees			5,879	2,350
Other income			56	287
Total revenue			52,589	20,162
Operating expenses		5
Marketing			574	269
Travel and entertainment			519	242
Office facilities			1,778	772
Technology and communications			2,433	930
Professional fees			1,583	614
Governance expenses			639	159
Fund administration			683	96
Other			1,543	641
			9,752	3,723
Expenses associated with the IPO		11	-	4,045
Expenses associated with corporate reorganisation and integration		11	-	507
			-	4,552
Depreciation		8	91	24
Amortisation		8	4,333	1,087
Total operating expenses			14,176	9,386
Remuneration and benefits
Fixed remuneration and benefits			18,440	7,292
Variable remuneration			8,476	3,547
		6	26,916	10,839
EPSP Costs		7	1,037	-
Total remuneration and benefits			27,953	10,839
Total administrative expenses			42,129	20,225
Profit/(loss) before interest and tax			10,460	(63)
Finance income		12	71	2
Finance expense		12	(6)	(12)
Profit/(loss) before tax			10,525	(73)
Tax charge		13
Current tax			3,193	1,337
Deferred tax			(1,000)	(176)
Profit/(loss) for the period attributable to owners of the parent			8,332	(1,234)
Earnings per share:		14
Basic (pence)			10.15	(2.22)
Diluted (pence)			9.85	(2.22)

 

The notes to the consolidated financial results form part of and should be read in conjunction with these financial results.

 

 

Consolidated statement of comprehensive income

 

			Year ended 30 June 2015	6 months ended 30 June 2014
			£'000	£'000
Profit/(loss) for the period			8,332	(1,234)
Items that may be subsequently reclassified to profit or loss:
Change in value of available-for-sale financial assets			124	-
Foreign currency translation adjustments			86	(13)
Total comprehensive income/(loss) for the period attributable to owners of the parent			8,542	(1,247)

 

 

Items in the consolidated statement of comprehensive income are shown net of applicable taxes.

 

The notes to the consolidated financial results form part of and should be read in conjunction with these financial results.

 

Consolidated statement of financial position

		Note	30 June 2015	30 June 2014
			£'000	£'000
Assets
Cash and cash equivalents			20,227	19,388
Investment management balances			9,104	8,744
Available-for-sale investments			5,155	-
Financial assets at fair value through profit or loss			130	219
Fee receivables			3,126	2,664
Other receivables			10,744	10,022
Deferred tax asset		13	528	95
Property, plant and equipment			208	230
Intangible assets		9	45,853	50,087
Total assets			95,075	91,449
Liabilities
Investment management balances			9,201	9,810
Current tax liabilities		13	1,555	1,337
Trade and other payables			10,291	9,148
Deferred tax liability relating to intangible assets		13	6,174	7,010
Total liabilities			27,221	27,305
Net Assets			67,854	64,144
Equity
Share capital			246	246
Share premium			14,688	14,688
Available-for-sale reserve			124	-
Foreign exchange reserve			(6)	(92)
Merger reserve			44,433	44,433
Capital redemption reserve			84	84
Capital contribution			4,442	4,442
Retained earnings			3,843	343
Equity attributable to owners of the parent			67,854	64,144

 

The notes to the consolidated financial results form part of and should be read in conjunction with these financial results.

 

The financial results were approved by the Board and authorised for issue on 29 September 2015.

 

 

 

Mike Faulkner Kevin Hayes

Chief Executive Chief Financial Officer

 

Consolidated statement of cash flows

			Year ended 30 June 2015	6 months ended 30 June 2014
		Note	£'000	£'000
Cash flow from operating activities
Profit/(loss) before interest and tax			10,460	(63)
Adjustments for:
Amortisation of intangible assets		8	4,333	1,087
Depreciation of property, plant and equipment		8	91	24
Share-based payment expense		7	530	112
Foreign exchange losses/(gains) on operating activities			1	(10)
Operating cash flow before movement in working capital			15,415	1,150
(Increase)/decrease in operating assets			(1,456)	17,168
Increase/(decrease) in operating liabilities			586	(16,882)
Cash generated from operations			14,545	1,436
Tax paid			(2,975)	-
Net cash generated from operations			11,570	1,436
Cash flow from investing activities
Purchases of property, plant and equipment			(81)	(10)
Acquisition of subsidiary, net of cash acquired			-	4,019
Interest received			71	-
Investment in seeded fund			(5,000)	-
Contingent consideration paid on business acquisitions			(51)	(71)
Net cash (used in)/generated from investing activities			(5,061)	3,938
Cash flow from financing activities
Interest (paid)/received			(6)	2
Dividends paid			(5,664)	-
Proceeds on issue of shares			-	14,640
Loan repayments paid to related parties			-	(5,820)
Net cash (used in)/generated from financing activities			(5,670)	8,822
Net increase in cash and cash equivalents
			839	14,196
Cash and cash equivalents at beginning of period			19,388	5,192
Cash and cash equivalents at end of period			20,227	19,388

 

The notes to the consolidated financial results form part of and should be read in conjunction with these financial results.

 

 

 

 

 

 

Consolidated statement of changes in shareholders' equity

	Share Capital	Share premium	Available-for-sale reserve	Foreign exchange reserve	Merger reserve	Capital redemption reserve	Capital contribution	Retained earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance as at 1 January 2014	86	292	-	(79)	-	-	575	1,465	2,339
Comprehensive income for the period:
Loss for the period	-	-	-	-	-	-	-	(1,234)	(1,234)
Other comprehensive income	-	-	-	(13)	-	-	-	-	(13)
Total comprehensive income for the period	-	-	-	(13)	-	-	-	(1,234)	(1,247)
Transactions with owners:
Ordinary shares issued in the period	-	-	-	-	44,433	-	-	-	44,433
Capitalisation of share premium	219	(219)	-	-	-	-	-	-	-
Share-based payment expense	-	-	-	-	-	-	-	112	112
Performance shares converted into deferred shares	(84)	-	-	-	-	-	-	-	(84)
Issue of shares in listing	25	14,975	-	-	-	-	-	-	15,000
Capital contribution from previous parent	-	-	-	-	-	-	3,867	-	3,867
Shares purchased for cancellation	-	-	-	-	-	84	-	-	84
Share issue costs	-	(360)	-	-	-	-	-	-	(360)
Balance as at 30 June 2014	246	14,688	-	(92)	44,433	84	4,442	343	64,144
Comprehensive income for the year:
Profit for the year	-	-	-	-	-	-	-	8,332	8,332
Other comprehensive income	-	-	155	86	-	-	-	-	241
Total comprehensive income for the year	-	-	155	86	-	-	-	8,332	8,573
Transactions with owners:
Dividends	-	-	-	-	-	-	-	(5,664)	(5,664)
Share-based payment expense	-	-	-	-	-	-	-	530	530
Deferred tax credit on share-based payment expense	-	-	-	-	-	-	-	302	302
Deferred tax credit on available-for-sale investments	-	-	(31)	-	-	-	-	-	(31)
Balance as at 30 June 2015	246	14,688	124	(6)	44,433	84	4,442	3,843	67,854

 

The notes to the consolidated financial results form part of and should be read in conjunction with these financial results.

 

 

 

 

 

 

 

 

Notes to the consolidated financial results

1. Basis of preparation

The results are based on the Group financial statements, which have been prepared in accordance with International Financial Reporting Standards ("IFRS") and the International Financial Reporting Interpretations Committee's interpretations as adopted by the European Union, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. This release does not include all of the information required for full annual financial statements. Copies of the 2015 Annual Report and Accounts will be published on the Group's website and will be available upon request.

 

The Group's accounting reference date changed from 31 December to 30 June during 2014, therefore the comparative period is the six months ended 30 June 2014.

 

 

The business is considered as a going concern

The Directors have reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future.

 

In reaching this conclusion the Board has considered budgeted and projected results of the business including a formal five year plan for the Group with several scenarios, projected cash flow and regulatory capital requirements, and the risks that could impact on the Group's liquidity and solvency over the next 12 months. Additionally, the capital adequacy of the Group in base and stress scenarios is tested as part of the ICAAP process.

 

Accordingly, the Group and parent company financial results 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 results include the Company and entities controlled by the Group (its subsidiaries). Subsidiaries are considered to be controlled where the Group has both exposure to variable returns from the subsidiary, and the power to affect those variable returns. 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 results 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 results are based on the financial results of the individual Companies drawn up using the standard Group accounting policies. Accounting policies applied by individual subsidiaries have been revised where necessary to ensure consistency with Group policies for consolidation purposes.

 

River and Mercantile Asset Management LLP (RAMAM) was acquired on 27 March 2014 and is consolidated from that date. See note 10 for further details on the acquisition of RAMAM.

 

All transactions and balances between entities within the Group have been eliminated in the preparation of the consolidated financial results.

 

The consolidated statement of financial position has been presented on the basis of the liquidity of the assets and liabilities presented.

 

The Group's relationship with fund entities

The Group entities act as the investment managers to funds and segregated managed accounts, and 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 IME; 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 results.

 

Foreign currencies

The majority of revenues, assets, liabilities and funding are denominated in UK Pound Sterling (GBP/£), and therefore the functional and presentation currency of the Group is GBP.

 

 

 

Basis of preparation (continued)

 

Monetary items which are denominated in foreign currencies are translated at the rates prevailing at the reporting date.

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 the US based entities 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 balance sheet;

· income and expenses for each period presented are translated at the average exchange rate for that period presented; 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.

 

2. Significant Accounting policies and significant judgments and estimates

As detailed in note 1, these financial results are prepared in accordance with IFRS. The significant accounting policies of the Group which impact these financial results are:

· Accounting for business acquisitions, described in note 10;

· Impairment of intangible assets and goodwill recorded in previous acquisitions, described in note 9;

· Recognition of management and performance fee revenues, described in note 3; and

· The accounting for share-based remuneration, described in note 7.

 

Some of the significant accounting policies require management to make subjective judgements or estimates. The policies which management consider critical because of the level of complexity, judgement or estimation involved in their application and their impact on the financial results are:

· Consideration of whether previously recorded goodwill is impaired, including the goodwill arising from the acquisition of RAMAM;

· The revenue recognition of management and performance fees;

· Share-based payment expense including applicable payroll taxes for awards under performance share plans;

· The determination of the fair value of consideration exchanged in the acquisition of RAMAM; and

· Fair value of the IMAs identifiable intangible asset in the acquisition accounting for RAMAM, including the discount rate used and the period over which the IMA intangible will be amortised.

·

3. RevenueNet management fees

Net management fees represent the fees charged pursuant to an IMA with clients. They are reported net of rebates and commissions paid to third parties and are charged as a percentage of the client's Assets under Management (AUM) or Notional amounts under Management (NUM). The fees are generally accrued on a daily basis and charged to the client either monthly or quarterly. During the year ended 30 June 2015, rebates and commissions totalling £2,011,000 (2014: £598,000) were paid to third parties in respect of management fees.

 

Net advisory fees

Net 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 consulting or advisory project. Advisory revenue is reported net of revenue share arrangements with other advisory partners. During the year ended 30 June 2015, £179,000 (six months ended 30 June 2014: £109,000) was paid to a subsidiary of PSG and £92,000 (2014: £49,000) was paid to a third party, under revenue sharing arrangements. Fees are accrued monthly and charged when the work has been completed.

 

Performance fees

Performance fees are fees paid under the IMAs for generating 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 and may be subject to deferral and continued performance objectives in future periods. Performance fees are recognised in income when the quantum of the fee can be estimated reliably and it is probable that the fee will be realised. This occurs once the end of the performance period has been reached. The client is invoiced for the performance fees at the end of the performance period which is generally annually either on the anniversary of their IMA or on a calendar year basis.

 

Other income

Other income includes the realised gains and fair value movements relating to the ACD balances.

4. Divisional and geographical reporting

The business operates through four divisions, however these are not considered as segments for the purposes of IFRS 8. 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 2015 and six months ended 30 June 2014 together with the period end AUM and NUM, reflect the activities of the respective divisions.

 

The Equity Solutions division represents the RAMAM business which was acquired on 27 March 2014.

 

		Year ended 30 June 2015		6 months ended 30 June 2014
		Net revenue	Mandated AUM/ NUM	Net revenue	Mandated AUM/ NUM
		£'000	£'m	£'000	£'m
Fiduciary Management division		13,083	7,561	5,561	6,584
Derivative Solutions division		7,857	11,804	3,400	8,975
Equity Solutions division		13,744	1,982	3,324	2,534
Advisory division		11,970	N/A	5,240	N/A
Total		46,654	21,347	17,525	18,093

 

Performance fees of £5.2m (June 2014: £2.4m) were earned by the Fiduciary Management division, with the remainder earned by the Equity Solutions division.

 

No single client accounts for more than 10% of the revenue or profits of the Group (June 2014: none).

 

On a geographic basis the majority of the revenues are earned in the UK. The Group has an advisory, derivatives and fiduciary management business in the US and net revenue earned in the US for the year ended 30 June 2015 was £5.4m (June 2014: £2.4m). The AUM/NUM of the US business was £637m (June 2014: £575m).

 

Non-current assets held by the US business include £905,000 (June 2014: £1.4m) of goodwill and property plant and equipment of £44,000 (June 2014: £54,000).

5. Operating expenses

The majority of operating expenses are generally fixed in nature and comprise office facilities, IT and communications costs. Included in operating expenses are the following charges from PSG for administrative and support services:

 

	Year ended 30 June 2015	6 months ended 30 June 2014
	£'000	£'000
Office facilities	505	516
Technology and communications	1,007	342
Professional fees:
Accounting services	255	132
Legal, compliance and regulatory	174	233
Human resources	106	87
Other	90	-
Total	2,137	1,310

 

 

Included in other costs in the consolidated income statement is the cost of insurance of £404,000 (2014: £188,000), staff training and recruiting of £530,000 (2014: £315,000) and irrecoverable VAT of £222,000 (2014: £nil).

 

Operating expenses (continued)

 

Operating expenses also include the remuneration of the external auditors for the following services:

 

	Year ended 30 June 2015	6 months ended 30 June 2014
	£'000	£'000
Audit of the Company's annual accounts	205	39
Audit of the Company's subsidiaries	75	50
Audit related assurance services	9	11
Tax advisory services	-	12
Tax compliance services	34	-
Corporate finance services	-	752
Non-audit related assurance services	-	20
	323	884

 

 

Included in audit of the Company's annual accounts in the year ended 30 June 2015, is £116,000 relating to additional costs associated with the audit of the Group's 2014 financial results.

 

6. Remuneration and benefits

 

Fixed remuneration represents contractual base salaries and partner drawings, which comprise the majority of the expense. The Group operates a defined contribution plan under which the Group pays contributions to a third party.

 

Variable remuneration relates to discretionary bonuses, profit share paid to the Partners of RAMAM and associated taxes.

 

Variable remuneration also includes a charge of £78,000 (June 2014: £16,000) relating to the amortisation of share awards. Included in 2014 is a charge of £96,000 relating to the vesting of performance share awards upon the acquisition of RAMAM, which was a trigger event under the relevant plan.

 

Remuneration and benefits (continued)

	Year ended 30 June 2015	6 months ended 30 June 2014
	No.	No.
The average number of employees (including Directors) employed was:
Advisory division	56	52
Fiduciary Management division	48	41
Derivative Solutions division	18	14
Equity Solutions division	16	12
Distribution	16	12
Corporate	30	30
Total average headcount	184	161

 

	Year ended 30 June 2015	6 months ended 30 June 2014
	£'000	£'000
The aggregate remuneration of employees (including Directors) comprised:
Wages and salaries	24,249	9,672
Social security costs	2,000	815
Pension costs (defined contribution)	588	240
Share-based payment expense (note 7)	79	112
Total remuneration and benefits (excluding EPSP)	26,916	10,839
Fixed remuneration	18,440	7,292
Variable remuneration	8,476	3,547
	26,916	10,839
Share-based payment expense (note 7)	452	-
Social security costs (note 7)	585	-
Total EPSP costs	1,037	-

 

 

Included in wages and salaries is £305,000 (2014: £nil) relating to accruals for as yet untaken holiday entitlements.

 

 

Directors' remuneration

The aggregate remuneration and fees payable to Executive and Non-Executive Directors for the year ended 30 June 2015 and the six months ended 30 June 2014 was £1,452,154 and £912,527 respectively. Fees payable for the year ended 30 June 2015 to Directors of PSG and Pacific Investments totalled £65,000 and £32,500 (June 2014: £774 and £387) respectively.

 

The single figure remuneration of the Executive Directors (which includes the highest paid Director) is as follows:

 

	Year ended 30 June 2015
£	Basesalary	Taxable benefits	Annualbonus	Performance shares award	Pension contribution	Total
Executive Directors
Mike Faulkner	306,800	2,279	-	-	-	309,079
Jack Berry	280,800	2,279	-	-	24,675	307,754
James Barham	250,000	8,042	-	-	7,500	265,542
Kevin Hayes	250,000	2,279	-	-	12,500	264,779

 

	6 months ended 30 June 2014
£	Basesalary	Taxable benefits	Annualbonus	Performance shares award	Pension contribution	Total
Executive Directors
Mike Faulkner	153,400	844	100,000	7,547,016	-	7,801,260
Jack Berry	140,400	960	100,000	5,987,258	14,040	6,242,658
James Barham	43,750	1,493	60,829	-	875	106,947
Kevin Hayes	65,476	480	125,000	-	6,250	197,206
Glyn Jones1	59,800	192	-	5,660,688	4,186	5,724,866

Remuneration and benefits (continued)

 

Key management remuneration

Key management includes the Executive Directors and senior business heads. The remuneration paid or payable to key management for employee services is shown below:

 

	Year ended 30 June 2015	6 months ended 30 June 2014
	£'000	£'000
Wages and salaries	5,453	2,109
Social security costs	911	291
Pension costs	87	42
Share-based payment expense	470	112
	6,921	2,554

 

Included in social security costs is national insurance arising on share awards (note 7).

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.

 

Where performance shares are granted to employees, the fair value of the performance shares over and above the price paid for them by the employees is charged to the consolidated income statement. The charge is spread over the period from their date of grant to the end of the vesting period.

 

The Group has historically operated a share-based remuneration scheme for employees, in which participation was at the discretion of the Directors. Shares granted had performance conditions linked to the growth of the adjusted enterprise value of P-Solve and its subsidiaries over a two to three year period. Each vested performance share was exchanged for shares in Punter Southall Group Limited. The growth of the Company and its subsidiaries and the number of shares to be vested at the valuation date were determined by the Directors of PSG. PSG had the option to acquire the performance shares, if an individual ceased employment before the valuation date.

 

The Performance Share Plan was modified on 20 December 2013 to provide that performance shares could, at the option of PSG, convert either into PSG shares or P-Solve shares and any unconverted performance shares would automatically convert on the occurrence of a corporate transaction. This modification had no effect on the fair value of the performance shares. On 27 March 2014 upon the completion of the acquisition of RAMAM all performance shares were converted, at an equivalent fair value, into P-Solve B ordinary shares and ultimately, as a result of the corporate reorganisation, the deferred shares were cancelled and the B ordinary shares were converted into ordinary shares in the Group. At that date the remaining unamortised fair value of all performances shares of £96,000 was charged to remuneration expense.

 

 

Executive Performance Share Plan

Prior to Group's admission to the London Stock Exchange ("Admission") on 26 June 2014, the Board of Directors established the Executive Performance Share Plan (EPSP) to grant the Executive Directors performance shares. At the date of admission two classes of performance shares were awarded: Performance Condition A Awards and Performance Condition B Awards. The maximum aggregate number of Performance Condition A Awards and Performance Condition B Awards which may be issued under the EPSP was limited to 10% of the issued ordinary share capital of the Company on Admission. The Company granted 4,843,626 performance shares under Performance Condition A Awards and 2,462,860 performance shares under Performance Condition B Awards. These all remain outstanding as at 30 June 2015.

 

The vesting of Performance Condition A Awards is conditional upon achieving a total shareholder return of at least 12% compounded over the four-year performance period ending 30 June 2018. Vesting starts at 12% compound annual total shareholder return and 100% vests at 24% compound annual total shareholder return over the four-year period. Vesting will be pro-rated on a straight-line basis between 12% and 24%.

Share-based payments (continued)

 

The vesting of Performance Condition B Awards is conditional on achieving a total shareholder return of at least 25% compounded over the four-year performance period ending 30 June 2018. Vesting starts at 25% compound annual total shareholder return and 100% vests at 30% compound annual total shareholder return over the four-year period. Vesting will be pro-rated on a straight-line basis between 25% and 30%.

 

Performance Condition A and B Awards are not eligible for dividends during the vesting period.

 

Any shares which vest are subject to a holding period of 12 months following the vesting date. Shares which do not vest will be forfeited. The vesting is also subject to the participant's continued employment by the Group during the vesting and holding period or, if employment ceases, being classified as a good leaver at the discretion of the Remuneration Committee. As at 30 June 2015, no shares had been granted, forfeited, exercised, expired or vested under either the A or B Awards (June 2014: none).

 

The fair value of the Performance shares was determined by an independent valuation undertaken by EY LLP on behalf of the Remuneration Committee of the Board. This fair value was based on a Monte Carlo simulation of possible outcomes based on the returns and volatility characteristics of comparable publicly listed investment management businesses in the FTSE.

 

The key assumptions used in the valuation were: a mean expected total shareholder return (TSR) growth rate in line with the risk free rate (1.72%), a TSR volatility derived from the TSR volatilities of listed comparable companies of 30%, and a dividend yield of 4.5%.

 

The fair value of the Performance A shares is 38 pence per share and the fair value of the Performance B shares is 17 pence per share. The total fair value of Performance Condition A and B Awards is estimated at £1.84m and £0.42m respectively. The fair value is amortised into share-based remuneration expense over the vesting period and a charge of £452,000 was recognised for the year ended 30 June 2015 (June 2014: £nil), which is treated as a non-cash adjusting item. The weighted average contractual remaining life of the A and B awards as at 30 June 2015 is 2 years.

 

The Directors expect that any shares that vest will be subject to applicable employer taxes at the date of vesting and at the end of the holding period. An accrual for this cost has been calculated based on the current rate of national insurance, the number of the shares that the directors expect to vest and the share price at the reporting date. The movement in the accrual in the year ended 30 June 2015 was £585,000 (June 2014: nil) and was included in the share-based remuneration expense. This figure assumes that 100% of the awards will vest, which is an estimate subject to uncertainty, whereby less than 100% could vest. This is the first time that the estimate has been made and whilst the next financial year will give a clearer picture of the TSR likely to be achieved, it will still remain an estimate. The estimate is directly linked to the charge recognised, so a 10% reduction in the number of shares expected to vest would reduce the charge in the year by £59,000.

 

Performance Share Plan

The Performance Share Plan (PSP) was also established prior to Admission. The Plan allows for the grant of: Nil Cost Options, Contingent Share Awards or Forfeitable Share Awards. The Board of Directors have stated an intention that grants of performance shares under the PSP would not be dilutive on shareholders.

 

The Directors have granted awards to staff in respect of the year ended 30 June 2015. The awards total £1,070,000 and will be converted into a number of shares subject to award, based upon the share price following the announcement of the Group's results for the year. It is the intention of the Directors that these shares are not dilutive, as the shares will be purchase by the Employee Benefit Trust.

 

The awards vest at 30 June 2017 or 30 June 2018, depending on the award. These awards are in respect of employee services during the year ended 30 June 2015 and in future periods. Therefore the fair value of the awards is recognised in part in the year ended 30 June 2015.

 

The awards contain a combination of performance measures, including: continued employment; future sales targets; Group total shareholder return; and divisional revenue and AUM.

 

The fair value of the awards has been estimated using a combination of Monte Carlo simulation and Black-Scholes modelling. For the purposes of these financial results the figures have been estimated using the share price as at 13 August 2015, being the date on which the Remuneration Committee approved the awards. Any significant adjustments resulting from the actual issue price will be accounted for in the Group's 2016 results.

 

 

Share-based payments (continued)

 

The key inputs used in determining the fair value of the PSP are:

 

		Share plan 1	Share plan 2	Share plan 3
Grant date award value £		619,735	375,000	47,665
Grant date share price £		2.22	2.22	2.22
Estimated no of shares to be granted		279,160	168,919	21,471
Exercise price		£nil	£nil	£nil
Risk free rate		0.94%	0.94%	0.94%
Share price volatility		26.08%	26.08%	26.08%
Dividend yield		5%	5%	5%
Key terms:
Vesting period		01/07/14 - 30/06/17	01/07/14 - 30/06/18	01/07/14 - 30/06/17
Weighted average remaining contractual life		2 years	3 years	2 years
12% compounded TSR Hurdle over vesting period		Yes	Yes	No
Continued employment required (subject to good leaver provisions)		Yes	Yes	Yes
Other key terms		Achievement of specified divisional AUM and revenue targets within a range	None	None
Vesting profile per individual		Straight-line between minimum and maximum divisional AUM and revenue targets	All or nothing	All or nothing
Grant date fair value per share (pence)		60.69	204.69	51.71
No of shares expected to vest		178,662	168,919	21,471

 

 

Additionally, one employee was given share awards on commencing employment equalling the cash value and vesting terms of an award given by their previous employer. This award vests in stages between 11 December 2015 and 31 March 2018. The total number of shares granted totals 13,466 and the only condition is for the employee to remain employed at the vesting dates. The fair value per share has been calculated as 204.69p and the full number of shares is expected to vest. The weighted average remaining contractual life is 2 years.

 

The charge recognised in respect of PSP awards in the year ended 30 June 2015 is £78,000 (2014: £nil). Additionally, an accrual of £45,000 (2014: £nil) for national insurance on vesting has been established.

 

As at the reporting date, none of shares were exercisable (2014: none).

 

 

8. Depreciation and Amortisation

Depreciation charges primarily relate to IT and communications equipment.

 

The amortisation charge relates to the IMAs recorded in the acquisition of RAMAM and described in note 9. The RAMAM IMA intangibles are amortised over their expected useful life of between five to ten years based on an analysis of the respective client channels. The amortisation is not deductible for tax purposes. At the date of the acquisition a deferred tax liability was recognised and is being charged to taxes in line with the amortisation of the related RAMAM IMAs (notes 13 and 9).

 

9. Intangible assetsGoodwill

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 unit 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 non-current 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 non-current and 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. 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets (continued)

 

 

	Goodwill	Customer lists and IMAs	Total
	£'000	£'000	£'000
Cost:
At 1 January 2014	1,893	381	2,274
Additions from business combinations	13,224	36,129	49,353
Exchange difference	(15)	-	(15)
At 30 June 2014	15,102	36,510	51,612
Exchange difference	99	-	99
At 30 June 2015	15,201	36,510	51,711
Accumulated amortisation and impairment:
At 1 January 2014	(395)	(43)	(438)
Amortisation charge	-	(1,087)	(1,087)
At 30 June 2014	(395)	(1,130)	(1,525)
Amortisation charge	-	(4,333)	(4,333)
At 30 June 2015	(395)	(5,463)	(5,858)
Net book value:
At 30 June 2014	14,707	35,380	50,087
At 30 June 2015	14,806	31,047	45,853

 

Goodwill includes the goodwill arising on the acquisition of RAMAM and Cassidy Retirement Group Inc., which are considered significant. Included in the year end balance is £13.2m (2014: £13.2m) in respect of RAMAM and £1.2m (2014: £1.2m) in respect of Cassidy.

 

The Directors estimated the recoverable amount of the Cassidy and RAMAM goodwill based upon the value in use of the respective businesses. The value in use was measured using internal budgets and forecasts covering a period of 5 years, with a nil growth rate assumption for perpetuity cash flows and a discount rate of up to 20%.

 

The key assumptions included in the estimate are revenue and AUM, and expenses including compensation. These were determined using a combination of bottom-up review of current levels of revenue and cost, known changes, contractual provisions and sales plans.

 

The remaining goodwill is not considered significant in the context of the total goodwill held by the group.

 

Sensitivity analysis was performed on the key inputs, including growth and discount rates. No reasonable movement in key inputs was found that indicated impairment.

 

10. Business combinations

 

Contingent consideration payable for business combinations

On acquisition date, the key estimate in determining the fair value of the contingent consideration is the Directors' best estimate of expected profit levels of the acquired businesses. These inputs are not based on observable market data and as such are classified as Level 3 inputs under IFRS 13 Fair Value Measurement. These estimates are reassessed at each reporting date and adjustments are made to the fair value of the contingent consideration where necessary. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised either in profit or loss or as a change to other comprehensive income if required by IAS 39.

 

If contingent consideration is payable after more than one year from the year end date the expected amounts of contingent consideration are discounted using discount rates that reflect the current market assessment of the time value of money and the risks specific to the acquired business.

 

 

Business combinations (continued)

 

River and Mercantile Asset Management LLP (RAMAM)

On 27 March 2014, the Group completed the acquisition of RAMAM (an equity asset management business) in order to combine RAMAM's equity management with the Group's asset allocation and derivative management capabilities to offer outcome-focused mandates for both the wholesale and institutional markets. 100% of the membership interests of RAMAM were transferred to the Company in return for a 31% shareholding in the capital of the Company. In aggregate, a total of 7,636,191 new ordinary shares were issued at nominal value to RAMAM members. At the date of the acquisition the shares in P-Solve Limited did not have a readily determined market value. The fair value of the shares was determined using assumptions and judgements regarding the value of the combined Group after the acquisition.

 

The fair value of the shares in P-Solve transferred as consideration for the acquisition was determined using inputs which are not based on observable market data and as such are classified as Level 3 inputs under IFRS 13 Fair Value Measurement. The key estimate in determining the fair value of the consideration transferred is the Directors' best estimate of the value of the combined business based on the projected earnings and valuation multiples observable in the public markets. The value calculated was discounted to reflect the private company status of the combined business at the time. The net value of the Group was determined to be £141.6m, representing a fair value of the consideration transferred for the purchase as £44.4m. The consideration for the acquisition was a non-cash item.

 

A merger reserve was established of £44.4m that represents the difference between the nominal value and the fair value of the new shares issued by the Company to the members of RAMAM as consideration for the acquisition of RAMAM, in accordance with Section 612 of the Companies Act 2006.

 

The identifiable assets include the fair value of the IMAs acquired. The expected future cash flows are based on assumptions and estimates including the level of future sales, redemptions, and investment performance. Costs associated with the IMAs are also estimated. The after tax net cash flows were discounted to the current period using a discount rate that reflects the risk associated with the net cash flows. The resulting intangible asset will be amortised over the useful life of the contracts ranging from five to ten years, depending on the nature of the distribution channel. The amortisable values of the IMAs were calculated using forecast cash flows into perpetuity with a pre-tax discount rate of 11.25% and a medium-term net growth rate of 5-7% for Institutional mandates and 2% for Wholesale. The amortisation will not be deductible for corporate tax purposes and therefore a deferred tax liability has been raised on the value of the intangible assets.

 

There were no acquisitions made during the year ended 30 June 2015.

 

11. Expenses associated with the IPO and corporate reorganisation and integration

In the six months ended 30 June 2014 the Group incurred £4.0m of professional and commission fees in relation to its listing on the London Stock Exchange and a further £0.5m costs in relation to its corporate reorganisation and integration of RAMAM following its acquisition (note 10).

 

These costs are one-off in nature and do not reflect the underlying performance of the business and therefore have been presented separately in the consolidated income statement.

 

12. Finance income and finance expense

Finance income and expense is recognised in the period to which they relate on an accruals basis.

 

Finance income comprises £21,000 of bank interest (June 2014: £2,000 from deposits with PSG) and £50,000 of foreign exchange gain (2014: none). Finance expense includes £3,000 (June 2014: £12,000) relating to the unwinding of discounts on contingent consideration from previous acquisitions and £3,000 (June 2014: £nil) of other finance expense.

 

 

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 net profit 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 results, and is measured using the substantively enacted rates expected to apply when the asset or liability will be realised.

 

Deferred tax assets and liabilities are not offset unless the Group has legal right of 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.

 

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 EPSP share-based payment expense. 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 30 June 2015	6 months ended 30 June 2014
	£'000	£'000
Current tax	3,193	1,337
Deferred tax	(1,000)	(176)
Total tax charge	2,193	1,161

 

 

The tax assessed for the year is £9,000 (June 2014: £1,161,000) higher than the average standard rate of corporation tax in the UK. The differences are explained below:

 

	Year ended 30 June 2015	6 months ended 30 June 2014
	£'000	£'000
Profit/(loss) before tax	10,525	(73)
Profit/(loss) before tax multiplied by the average rate of corporation tax in the UK of 20.75% (2014: 22%)	2,184	(16)
Effects of:
Transfer pricing adjustments	-	51
Expenses not deductible for tax purposes	1,028	1,351
Deferred tax on amortisation of RAMAM IMAs	(867)	(216)
Income not subject to tax	(70)	-
Adjustment in respect of prior years	40	(19)
Other timing differences	(122)	10
Total tax charge	2,193	1,161

 

 

Effective from 1 April 2014, the applicable UK corporation tax rate was reduced from 23% to 21%. Effective from 1 April 2015, the UK corporation tax rate was reduced to 20%.

 

 

 

Current and deferred tax (continued)

 

The analysis of deferred tax assets and liabilities is as follows:

 

	Year ended 30 June 2015	6 months ended 30 June 2014
	£'000	£'000
Deferred tax liabilities
At beginning of period	7,010	-
Acquisition of RAMAM (note 10)	-	7,226
Credit to the income statement - amortisation movement	(867)	(216)
Debit to equity - fair value movements on available for sale assets	31	-
At end of period	6,174	7,010
Deferred tax assets
At beginning of period	95	135
(Charge)/credit to the income statement:
- accelerated capital allowances	(3)	(4)
- deductible temporary differences	(28)	(36)
- share-based payment expense	162	-
Credit to equity - share-based payment expense	302	-
At end of period	528	95

 

 

There were no unrecognised deferred tax assets at the reporting date (2014: none).

 

14. Earnings per share

The basic and diluted earnings per share are calculated by dividing the profit attributable to equity holders of the parent by the weighted average number of ordinary shares of the parent in issue during the period.

 

To the extent that any of the EPSP performance shares (note 7) vest they will have a dilutive effect on the equity holders of the Company. The potential dilution effect of the EPSP performance shares will be considered in the calculation of diluted earnings per share.

 

The compound return to shareholders is based on share price and dividends received by shareholders from the date of grant until the reporting date and will be compared against the respective performance criteria of the performance shares to determine if the shares are dilutive as of the reporting date. No consideration is given to future performance.

 

Based on the Group's share price at 30 June 2015 and dividends paid, 46% of the EPSP performance shares would have met the vesting criteria and were therefore considered dilutive for purposes of calculating diluted earnings per share. In the six months ended 30 June 2014, the effect of the EPSP shares would have been anti-dilutive and therefore was not included.

 

 

		Year ended 30 June 2015	6 months ended 30 June 2014
Profit/(loss) attributable to owners of the parent (£'000)		8,332	(1,234)
Weighted average number of shares in issue ('000)		82,095	55,560
Weighted average number of diluted shares ('000)		84,592	58,157
Earnings per share:
Earnings per share
Basic (pence)		10.15	(2.22)
Diluted (pence)		9.85	(2.22)

 

 

 

 

 

Earnings per share (continued)

 

 

Adjusted profit after tax

Adjusted profit after tax represents profit after tax, adjusted to add back the amortisation of intangible assets, share-based remuneration relating to EPSP, and IPO costs, all net of tax. For the six months ended 30 June 2014, the four days of share-based remuneration relating to EPSP was not included.

 

		Year ended 30 June 2015	6 months ended 30 June 2014
		£'000	£'000
Profit/(loss) before tax		10,525	(73)
Adjustments:
Amortisation of intangible assets		4,333	1,087
Share-based remuneration including payroll taxes relating to EPSP awards only		1,037	-
Expenses associated with the IPO		-	4,045
Expenses associated with the corporate reorganisation and integration		-	507
Adjusted profit before tax		15,895	5,566
Adjusted tax charge		(3,202)	(1,267)
Adjusted profit after tax		12,693	4,299

 

 

Adjusted earnings per share

		Year ended 30 June 2015	6 months ended 30 June 2014
		£'000	£'000
Adjusted profit after tax		12,693	4,299
Weighted average shares		82,095	55,560
Weighted average diluted shares		84,592	58,157
Adjusted EPS:
Basic (pence)		15.46	7.74
Diluted (pence)		15.00	7.39

 

 

Earnings per share (continued)

 

Adjusted underlying profit

 

Adjusted underlying profit represents net management and advisory fees less the related expense base, excluding the amortisation of intangible assets, share-based payments and costs associated with the IPO and restructuring.

 

		Year ended 30 June 2015	6 months ended 30 June 2014
		'000	'000
Performance fees		5,879	2,350
Associated remuneration expense at 42%		(2,469)	(987)
Net performance fee profit before tax		3,410	1,363
Adjusted profit before tax		15,895	5,566
Less:
Net performance fee profit before tax		(3,410)	(1,363)
Other income		(56)	(287)
Adjusted underlying profit before tax		12,429	3,916
Adjusted underlying tax charge		(2,482)	(904)
Adjusted underlying profit after tax		9,947	3,012
Adjusted underlying pre-tax margin		27%	22%

 

 

 

 

Reconciliation between weighted average shares in issue

		Year ended 30 June 2015	6 months ended 30 June 2014
		'000	'000
Weighted average number of shares in issue - basic		82,095	55,560
Timing effect of performance share conversion to ordinary shares		-	2,597
Dilutive effect of shares granted under EPSP		2,496	-
Weighted average number of shares in issue - diluted		84,591	58,157

 

 

As at 30 June 2015, there were no shares which were anti-dilutive during the year ended 30 June 2015 but which may be dilutive in future periods (2014: 7,306,486).

 

This information is provided by RNS

The company news service from the London Stock Exchange