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    RIV   GB00BLZH7X42

RIVER AND MERCANTILE GROUP PLC

(RIV)
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River and Mercantile : Interim results to 31 December 2020

05/09/2021 | 07:08pm EDT

17 March 2021

LEI: 2138005C7REHURGWHW31

River and Mercantile Group PLC

Interim Results for the Six Months Ended 31 December 2020

River and Mercantile Group PLC today publishes its interim results for the six months ended 31 December 2020.

James Barham, Group Chief Executive commented:

"This has been a very busy period for the Group. Not only have we addressed the significant disruption caused by the pandemic, but we have also successfully launched a number of new initiatives across the business; from our Global Responsible Equity Strategy, to the positive start by our European Equity Fund, and, more recently, the hiring of our new Infrastructure team. Each of these initiatives is a response to strong client interest and need in these asset classes. There is also a strong sustainability and ESG theme within them, reflecting a growing requirement from clients that investment strategies should mirror wider social demands whilst continuing to achieve good returns.

In addition, we believe we have made the right investments in people to enable River and Mercantile to take advantage of the attractive growth opportunities that we have identified, to continue to deliver strong investment returns for our growing client base, and to provide longer-term value to shareholders.

Following a period of substantial investment, we are now redoubling our focus on improving our profitability through a series of cost cutting exercises to ensure that we return our core underlying margin to previous levels."

Operational Highlights

  • 93% of investment strategies by AUM beat their respective benchmarks over the period;
  • The Group has £2.2 billion of new mandates with IMAs under negotiation, the majority of which are Fiduciary Management;
  • Average Fiduciary Management client term weighted by AUM of 8.1 years and 72% of assets managed for over five years;
  • Derivatives business shows healthy growth with 2.5% increase, £0.6 billion, of net flows;
  • US Solutions Business now profitable;
  • New Wholesale team has driven a return to net inflows in Q2;
  • Global Responsible Equity Strategy developed and now being marketed;
  • European Equity Fund launched and performing well;
  • New Infrastructure business established and team hired, first fund to be launched in 2021;
  • Group Head of ESG hired.

Financial Highlights

  • Fee earning AUM1 increased by 3.4% to £45.7 billion (June 2020: £44.2 billion);
  • Net AUM flows of +£0.1 billion, investment performance of +£1.4 billion;
  • Underlying revenue2 fell by 3.0% to £34.2 million (six months to 31 December 2019: £35.2 million);
  • No material performance fees for the period (six months to 31 December 2019: £1.1 million), although UK Micro Cap Investment Company performance fee earned of £1.2 million will fall in H2 results;
  • Adjusted underlying profit before tax3 of £6.2 million (six months ended December 2019: £7.3 million);
  • Statutory profit before tax of £4.6 million (six months ended December 2019: £5.7 million);
  • Adjusted underlying basic EPS4 of 5.56 pence (six months ended December 2019: 6.52 pence);
  • Basic EPS of 3.94 pence (six months ended December 2019: 4.86 pence);
  • The Board of Directors has declared a first interim dividend of 3.89 pence per share (prior year first interim ordinary dividend of 3.89 pence and a 0.5 pence special dividend).

Notes:

  1. Assets Under Management (AUM) represents amounts on which management fees and performance fees are charged across all asset classes managed by the Group. In relation to Derivatives, AUM represents the aggregate billing notional of the derivative contracts on which management fees are charged.
  2. Underlying revenue is total revenue less performance fees.
  3. Adjusted underlying profit before tax is a measure of the underlying performance of the Group and is determined by adjusting statutory profit before tax for the impact of performance fees and associated remuneration, amortisation and impairment of intangible assets (excluding software), other unrealised gains and losses and dilutive share awards.
  4. Adjusted underlying basic EPS is the adjusted underlying profit after tax divided by the weighted average number of shares outstanding in the period.

This RNS has been approved on behalf of the Board.

Forward Looking Statements

This announcement contains certain forward-looking statements with respect to the financial condition, results of operations and businesses of River and Mercantile Group PLC. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report. However, such statements should be treated with caution as they involve risk and uncertainty because they relate to events and depend upon circumstances that may occur in the future.

There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements.

Nothing in this announcement should be construed as a profit forecast.

For further information please contact:

Montfort Communications

Gay Collins, e: gaycollins@montfort.london

t: +44(0)7798 626 282

Nick Bastin, e: bastin@montfort.london

t: +44(0)7931 500 066

Group Chief Executive's Statement

Introduction

The six month period to 31 December 2020 continued to be demanding, with uncertainty and disruption caused by the pandemic which, despite our diversified business model, impacted our shorter-term financial results. There is a significant amount of positive work being undertaken across the business that will impact in our second half. I am grateful to all our employees for their success in maintaining a full service to all our clients whilst working from home and delivering excellent investment performance during the period.

Significant Developments

This has been a very busy period for the Group and we have successfully launched a number of new initiatives and there are a number of positive developments:

  • The Group has £2.2 billion of new mandates with investment agreements currently in negotiation. The majority of these are for Fiduciary Management and will flow into "in transition" once documents are signed;
  • Following a period of investment, our US Solutions business is now profitable;
  • Our Global Responsible Equity Strategy, which builds on an existing investment strategy in our Fiduciary business, where we currently manage in excess of £4 billion of equities, has been developed into a product that we are successfully presenting to our wider wholesale and institutional clients;
  • Our European Equity Fund has made a good start both in performance and funds raised;
  • We have opened our newly established Infrastructure business and we will be launching our first infrastructure fund during 2021.

Each of these developments is a response to strong client interest and need in these asset classes. There is also a strong ESG theme within them reflecting a growing requirement from clients that investment strategies should mirror wider social demand for responsible investment strategies whilst continuing to achieve good returns and is in line with our sustainability theme. Our appointment of our Group Head of ESG underscores our long term commitment to responsible investing.

Distribution

The strengthening of our sales capability is largely complete. This investment has focussed on our Fiduciary and importantly our Wholesale business where we have under-performed in recent years. This investment is beginning to deliver results and it was encouraging to see a return to positive net flows over the second quarter in this key market. In addition, the gross pipeline of prospective mandates in our Fiduciary business following our refocus on distribution has recovered strongly having tapered off during the early stages of the pandemic and is now larger than at any point in our history.

Costs

The initial focus on our strategy has been to target distribution and we are now turning our focus to our profit margin. We are developing a series of cost cutting exercises to ensure that we return our core underlying margin to previous levels and we will update the market in due course. In addition, we continue to work on our longer-term detailed plans and associated timing to re-engineer the Group's operational infrastructure to allow us to cut operating costs materially and improve processes. Getting this right is key to delivering on our potential to improve the Group's financial performance while providing us with the capacity to scale up our activities.

Investment Performance

Over 71 per cent of investment strategies by number and over 93 per cent by assets under management have beaten their respective benchmarks during the period and in most cases by significantly more than

5 per cent. This has led to the crystallisation of a performance fee from the River & Mercantile UK Micro Cap Investment Company of approximately £1.2 million which will fall into H2's results. We have previously stated that given the economic and in particular the interest rate backdrop and the impact these have on clients' specific liability-based benchmarks, the potential to generate Fiduciary performance fees this year would be at lower levels than in FY2019. However, should our strong performance against benchmark continue for the balance of the financial year, we expect to crystallise some performance fees from our Fiduciary business at a higher level than in FY2020.

Our Strategy

As set out in our Annual Report last year we have continued to progress our five-year strategy, "Investing for Profitable Growth". As highlighted above, the investment in our distribution platform is largely complete and the deepening and broadening of our investment capabilities is underway. To help broaden understanding of our strategy we are focussing our business around two key activities;

Investment Solutions

- This will cover all our Fiduciary, Advisory and Derivatives activities;

Asset Management

- This encompasses all our Equity, Liquid Alternatives and

Infrastructure activities.

These activities increasingly have sustainability as a core element of our proposition. Investment Solutions is well positioned to take advantage of the significant opportunities in the Fiduciary market as I have highlighted in the development of our pipeline of prospective mandates. In addition, we see Asset Management having significant growth opportunities and our range of strategies have significant excess capacity. We will provide detailed financial reporting on these two businesses separately in our full year results later this year.

Financial Performance

During the period, Group assets under management grew by 3.4 per cent to £45.7 billion. Despite this, total underlying revenues fell by 3.0 per cent against the comparable period last year and adjusted underlying profit before tax decreased by 15.0 per cent to £6.2 million (H1 FY2020: £7.3 million). There were a number of institutional accounts that we had previously advised the market were being redeemed which took effect during this reporting period; therefore, the redemption figure looks higher than we would expect in normal circumstances. We have generated modest client inflows despite the challenging market conditions, however, as I highlighted earlier there are a large number of accounts where we are in the process of negotiating IMA's and these will contribute to anticipated stronger AUM growth in the second half of our financial year.

Dividends

Considering the robust capital position of the Group and the Board's expectation of improved financial performance in the medium term, it has decided to maintain the first ordinary interim dividend at 3.89 pence per share, the same level as last year. This represents 70 per cent of adjusted underling earnings for the six months ended 31 December 2020. The Group's capital allocation policy is to maintain a minimum distribution of 60 per cent of adjusted underlying profit as dividend whilst, in practice, it has distributed 80 per cent for the full financial year.

Outlook

I am encouraged by the impact the investment in distribution is having on our business. We are focussed on returning the Group's underlying profit margin back to historic levels. We believe we have made the right investments in people to enable River and Mercantile to take advantage of the attractive growth opportunities that we have identified, to continue to deliver strong investment returns for our growing client base, and to provide longer-term value to shareholders.

As the CMA retender process must complete by June 2021 and given the strength of our pipeline we are confident that in the short to medium term there should be significant opportunity to grow Investment

Solutions as a result of pent-up activity since the CMA review began in 2017. Asset Management is ideally positioned to enhance its capabilities in a market place that is increasingly in demand.

River and Mercantile has developed an exciting range of products and solutions in markets where there is substantive and growing demand and the early signs are very positive.

The Board however is very conscious of the continuing weak share price: we are determined to address this with urgency to deliver value for shareholders.

James Barham

Group Chief Executive

This is an excerpt of the original content. To continue reading it, access the original document here.

Disclaimer

River and Mercantile Group plc published this content on 09 May 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 09 May 2021 23:07:06 UTC.


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