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G R O U P
G R O U P
Client
focused
Outcome
orientated
Annual Report
and Accounts 2017
River and Mercantile is a client-focused,
outcome-orientated advisory and investment
solutions business with a broad range of
services, from consulting activities including
advisory to fully delegated fiduciary and asset
management, incorporating equities,
derivatives and multi-asset solutions.
River and Mercantile (‘the Group’)
services a client base in the UK
comprising institutional pension
schemes, wholesale financial
intermediaries, insurance companies,
state funds and charitable institutions;
along with institutional clients in Europe,
the US, Australia and New Zealand.
River and Mercantile is focused on
creating investment solutions for its
clients across its core markets:
– UK DB pension schemes;
– UK DC pension schemes;
– Insurance;
– Wholesale financial intermediaries;
– US pensions (DB and DC); and
– Strategic relationships.
Forward-looking statements
This Annual Report 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 Annual Report
should be construed as a profit forecast.
STRATEGIC REPORT
Investment performance
01 2017 Highlights
02 Chairman’s statement
03
04 Business model
06 The divisions
08 Chief Executive’s review
14 Case study
16 Financial review
26 Risk management
32 Viability statement
34 Corporate responsibility
GOVERNANCE
FINANCIALS
36 Board of Directors
38 Corporate governance report
40
Investment Committee report
41 Client Engagement Committee
42 Audit and Risk Committee report
44 Remuneration Committee report
58 2018–2020 Directors’ remuneration policy proposal
71 Directors’ report
73 Directors’ responsibilities
74
Independent auditor’s report to the members
of River and Mercantile Group PLC
78 Consolidated income statement
78 Consolidated statement of comprehensive income
79 Consolidated statement of financial position
80 Consolidated statement of cash flows
81 Consolidated statement of changes in
shareholders’ equity
82 Notes to the consolidated financial statements
102 Company statement of financial position
103 Company statement of cash flows
104 Company statement of changes in
shareholders’ equity
105 Notes to the Company financial statements
110 Glossary
111 Shareholder information and advisors
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
2017 HIGHLIGHTS
01
Strong AUM/NUM growth driving
underlying profitability with investment
performance driving performance fees
STATUTORY
PROFIT AFTER TAX
REGRETTED
INSTITUTIONAL ATTRITION2
128%
130%
EARNINGS
PER SHARE
£13.4M
16.45P
19.7P
£31.0BN
TOTAL DIVIDEND
FOR THE YEAR1
FEE EARNING
AUM/NUM
13 consecutive quarters
of positive net flows
107%
22%
NET MANAGEMENT
AND ADVISORY FEES
3%
£55.9M
£12.5M
29%
ADJUSTED UNDERLYING
PRE-TAX MARGIN3
PERFORMANCE
FEES
up 5% from 24%
5%
22%
722%
Including 6.0 pence proposed final dividend.
1
2 Regretted institutional attrition is the opening AUM/NUM of lost institutional clients, divided by total opening
AUM/NUM. It excludes pension clients which have entered the PPF due to sponsor default or have moved to buy-in
or buy-out, and redemptions arising due to normal operational cash outflows, e.g. to fund benefit payments.
It is not measured for Equity Solutions – Wholesale.
3 Adjusted underlying pre-tax margin represents net management and advisory fees less associated remuneration,
recurring administrative expenses (excluding IT transition costs), depreciation, and finance income and expense;
divided by net management and advisory fees.
River and Mercantile Group PLC Annual Report and Accounts 2017
02
Dear Shareholder,
I am pleased to report that despite
a period of unprecedented global
change and uncertainty, the year
ended 30 June 2017 has been a
successful one for the Group,
with our strongest set of results
to date.
CHAIRMAN’S STATEMENT
A year of strong
growth in many areas
Peter Warry
Acting Chairman
We have seen strong positive flows in all
divisions, continuing our track record of 13
consecutive quarters of positive net flows.
This, combined with strong investment
performance has led to a significant
increase in AUM/NUM and similarly high
levels of growth in net management fees.
In June, we welcomed the Emerging
Markets ILC team from Credit Suisse in
the US. They bring important additional
capability to the Group which we hope
will further enhance our performance and
we look forward to working together.
The Group prides itself on its outcome-
oriented approach, where we concern
ourselves primarily with the needs of
our clients and how single products or
combinations of products can help solve
these needs. We aim to ensure that our
clients understand the role that our solutions
play in their broader objectives. This not
only continues to benefit our clients, but
also contributes to our low levels of attrition
alongside our positive client feedback.
This low attrition, combined with
the diversified nature of the divisions
within the Group, gives rise to a
more stable revenue base over time
compared to many in our industry.
From a regulatory perspective, the rate of
change in our market has been fierce, with no
sign of it slowing in the coming months. The
landscape is being shaped by MiFID II and the
Senior Managers and Certification Regime
amongst others, not to mention the FCA’s
Asset Management Market Study, which
reported in June and has been followed by a
reference to the Competition and Markets
Authority. We welcome the FCA’s findings,
and the remedies aimed at improving
transparency and outcomes for investors.
2017 has seen our highest level of
performance fees since our IPO in
2014. We had given guidance that our
Fiduciary Management performance
fees would be depressed in times of
falling interest rates as seen in 2015 and
2016, and it is pleasing to see that they
have risen once the rate headwinds have
eased. Our view that rates will remain
low for longer remains unchanged.
This year has also seen us continue to
use our scalable operating platform to
grow our profit margins, which combined
with a continuation of our high dividend
payout ratios has led to increased
dividends. In addition to the 5.6p already
paid, I am pleased to announce that we
are declaring a second interim dividend
of 8.1p and proposing a final dividend
of 6.0p, both dividends containing 2.8p
which relates to net performance fees.
These will be paid to shareholders on
3 November and 15 December 2017
respectively and take total dividends
proposed and declared for 2017 to 19.7p,
which is 86% of adjusted profit after tax.
June 2017 marked three years since
our IPO and admission to the premium
section of the London Stock Exchange.
We feel that our revenue growth, margin
expansion and dividend levels are important
proof-points against the statements we
made at the IPO three years ago and we
now turn our attention to continuing the
strong results for the next three years.
I write this report as Acting Chairman,
following the sad death of Paul Bradshaw
earlier this year. He was an asset to the
business and is sorely missed. I would,
however, like to take this opportunity to
welcome Jonathan Dawson, our incoming
Chairman who will pick up the baton
from 1 October. He brings a wealth of
experience to the role which I am confident
will prove invaluable to the Group as it
navigates its next three years as a PLC.
Peter Warry
Acting Chairman, January – September 2017
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
INVESTMENT
PERFORMANCE
03
Our products aim to add meaningful value for clients, in a way
that makes a significant difference to their circumstances. All of
our solutions are ahead of benchmark since inception.
Annualised Investment Performance
AUM £bn
By Investment Strategy
Jun-17
Estimated
Capacity
£bn
1 Year (%)
3 Years (% p.a.)
5 Years (% p.a.)
Since Inception (% p.a.)
Abs.
Rel.
Abs.
Rel.
Abs.
Rel.
Abs.
Rel.
Date
TIGS
PIL Stable Growth Fund
Inflation Plus Fund
Fiduciary DC*
Fiduciary Insurance
Dynamic Asset Allocation Fund
US Fiduciary
Total Solutions
Structured Equity
LDI
Total Derivatives
UK Income
UK Smaller Companies
UK Long Term Recovery
World Recovery
World Recovery Focus
UK High Alpha
UK Core Segregated
UK Dynamic Equity
UK Equity Micro Cap Investment
Company
Global High Alpha*
Segregated Mandates
Total Equity Solutions
9.4
0.2
0.1
0.1
0.6
10.5
3.6
13.2
16.9
0.3
0.8
0.2
0.3
0.1
0.3
0.2
0.2
0.1
0.1
1.1
3.6
Total AUM
31.0
* Composite performance.
30
10
n/a
40
>20
>30
>50
1.5
0.8
0.3
1.0
1.0
1.0
0.5
2.0
0.1
7.0
n/a
15.2
>100
14.1%
13.8%
12.5%
12.5%
n/a
11.1%
n/a
11.3%
10.4%
9.0%
6.1%
n/a
10.7%
n/a
14.5%
7.7%
8.0%
9.1%
n/a
n/a
n/a
2.5%
4.2%
6.0%
4.4%
n/a
n/a
n/a
12.4%
8.6%
8.0%
9.5%
n/a
n/a
n/a
4.4%
5.1%
5.6%
4.2%
n/a
n/a
n/a
10.7%
9.0%
7.2%
9.5%
n/a
6.3%
n/a
2.7%
Jan-04
5.2% Dec-08
4.2% Mar-04
Oct-11
4.2%
Apr-16
n/a
5.8%
Sep-14
n/a
10.6%
n/a
(6.3%)
n/a
6.4%
n/a
(0.3%)
n/a
7.7%
n/a
(1.9%)
n/a
6.8%
n/a
0.6% Dec-05
Dec-05
n/a
19.6%
37.3%
33.2%
38.2%
51.5%
29.1%
21.9%
25.5%
65.2%
35.7%
n/a
1.5%
5.5%
15.1%
16.0%
32.7%
11.0%
3.8%
7.4%
33.4%
13.5%
n/a
8.2%
14.2%
8.9%
13.2%
6.4%
9.6%
8.1%
10.4%
n/a
n/a
n/a
0.8%
5.1%
1.5%
(1.7%)
1.6%
2.2%
0.7%
3.0%
n/a
n/a
n/a
13.6%
25.5%
20.6%
n/a
21.2%
17.0%
11.8%
16.7%
n/a
n/a
n/a
3.0%
11.5%
10.0%
n/a
10.6%
6.4%
1.3%
6.1%
n/a
n/a
n/a
14.0%
13.4%
14.5%
19.1%
18.8%
8.8%
9.7%
7.8%
1.7% Feb-09
6.6% Nov-06
6.1%
Jul-08
6.5% Mar-13
Feb-12
9.1%
2.6% Nov-06
1.7% Nov-10
2.1% Mar-07
28.8% 15.7%
5.1%
19.5%
Dec-14
Dec-14
n/a
n/a
We have delivered strong and consistent long-term investment returns for our clients across our business and we believe we are in the rare
minority of investment businesses where 100% of our current investment products and solutions have delivered positive relative performance
against their respective benchmark since inception.
This was recognised by FundCalibre who recently undertook a survey in the equity markets and analysed all fund managers that had more than
five eligible funds where each fund had at least a five-year track record. Equity Solutions came top in this survey, which is a testament to the
strength of our underlying investment processes and the skill and dedication of our portfolio managers.
In a world that is increasingly bifurcating between passive and active investment management we have clearly demonstrated our ability to
deliver to our clients very strong positive relative and absolute outperformance across the entire range of asset management strategies and
it is this along with excellence in client service recognised in our client satisfaction survey, that distinguishes our business amongst other asset
managers.
River and Mercantile Group PLC Annual Report and Accounts 2017
04
BUSINESS MODEL
Overall approach to what we do
How we are structured
The core ethos of the Group
is to be aligned with our clients’
desired outcomes.
Our purpose is simple – to identify
our clients’ actual financial problems
and needs, and solve them as
effectively as possible. This involves
us doing two things well:
1
Understanding our clients in great
depth – in order that we can define the
need in the right level of detail that
we can solve it fully. This involves us
understanding clearly the environment
within which they operate. For example,
how defined benefit funding works, or the
influence of Solvency II on insurance clients,
are important to understand if we are to
appreciate properly the investment needs.
2
Developing and maintaining very
strong investment skills – that can be
deployed in various ways to solve these
investment challenges.
River and Mercantile Group PLC Annual Report and Accounts 2017
The Group is structured into four
divisions under two banners:
Solutions
led by Jack Berry
Fiduciary
Management
Asset
Management
led by James Barham
Advisory
Derivative
Solutions
Equity
Solutions
All of the divisions operate as part of a single business
and are complementary in nature, allowing for the
distribution of multiple advisory and investment
solutions to clients. Each division has different and
complementary capabilities which can be applied
singly or in combination to deliver a client outcome.
The outcomes for the business
Our approach leads to long-term relationships with clients,
who have an expectation and understanding of how we will
engage with them to meet their outcomes. Our advisory
and fiduciary relationships result in us being closely involved
with the investment process of our clients, which in turn
gives us a greater insight into their needs.
The outcome this delivers for our business is a stable and
recurring revenue base which expands with an increasing
level of services and range of activities with each client
engagement.
This is reflected in our growth in AUM/NUM, low attrition
rates, and high client satisfaction.
2017 REGRETTED
INSTITUTIONAL ATTRITION
CLIENT SATISFACTION
SURVEY OVERALL SCORE
3%
8.3/10
Strategic report
Governance
Financials
05
How we generate revenue
The results for
The Group generates revenue in
four main ways:
Management fees
In the Fiduciary Management, Derivative Solutions and
Equities Solutions divisions, fees are generally charged
based upon levels of Assets under Management or Notional
under Management in Derivatives (‘AUM’ and ‘NUM’
respectively). These fees are expressed as basis points
(‘bps’) charged on the levels of AUM and NUM. Fees vary
between products and clients, depending on factors such
as client type, mandate size, and product type. This means
that they can vary as the mix of products changes.
Performance fees
Some Equities and Fiduciary mandates include performance
fees, which are earned for investment performance above
a specific benchmark. These benchmarks are carefully
tailored to client outcomes, to ensure that the Group’s
reward is closely linked to the interests of our clients. In
other divisions, the client objectives are generally not linked
to absolute investment outperformance and therefore
performance fees are not used.
Advisory retainers
Advisory retainers are earned where clients engage us to
provide pre-agreed levels of service over time, generally a
year. They are often recurring over a number of years.
Advisory projects
Where clients engage us for specific ad-hoc advisory
engagements, we categorise the income as project revenue.
Many of our advisory project clients are also retainer or
fiduciary clients, or clients of other divisions.
Principal risks
The Group’s principal risks can be found on page 28.
The most significant this year have been identified as:
– The risk of loss resulting from inadequate or failed
processes, people, systems and controls (including from
outsource providers) or from external events leading to
financial loss, forgone revenue, fines and reputation
damage.
– The risk of critical systems or connectivity failures
leading to an inability of the Group to operate for a
period of time. This could lead to trading losses, as well
as client losses and reputational damage.
– Significant withdrawals of AUM and/or NUM at short
notice and loss of advisory mandates could have an
impact on management fees and advisory fees.
Shareholders
We believe that delivery against our
strategy will lead to:
– Strong underlying revenue growth per annum
from organic sources over an increasing range of
investment solutions
– Continued growth in adjusted underlying profit
margin to above 30%
– Continuing growth in underlying dividends, with
additional returns from performance fees
Other Stakeholders
– Our focus on long-term client relationships creates a
stable business which allows us to reward our employees
and provide strong career development. As a sustainable
and profitable business we are able to contribute to the
broader community.
River and Mercantile Group PLC Annual Report and Accounts 2017
06
THE DIVISIONS
The Group is organised into four divisions. All of the divisions operate as part of a single
business and are complementary in nature, allowing for the distribution of multiple advisory
and investment solutions to clients. Each division has different capabilities which can be
applied singly or in combination to deliver a client outcome.
Divison
What we do
What differentiates us
Strategy highlights
Fiduciary
Management
£10.5bn
AUM
Fiduciary Management involves the delegation by clients of a
range of services to the Group, within an agreed governance
framework. These include asset allocation, hedging, and
manager selection.
Our clients are predominantly DB pension schemes through the
Total Investment Governance Solution (TIGS) product, but also
now encompass DC and Insurance clients.
– One of the longest track records in providing fiduciary management
Our strategy falls into three areas:
to UK DB pension schemes dating back to 2004 and DC schemes
– Investment: Continue to invest in our macro-economic process to ensure
continuing ability to generate strong risk-adjusted returns
– Proposition: Key to our strategy is flexibility, whereby size doesn’t constrain or limit
our clients’ access to our best ideas and innovative thinking. We continue to
innovate the delivery of the fiduciary proposition to meet evolving client needs in a
flexible manner
– Distribution:
1. Continue to strengthen relationships with third party intermediaries to
support their engagement with prospects;
2. Articulate directly to market our views on the need (and how and when) to
generate return in maturing DB plans
Advisory
180 clients >£25bn
AUA
The Advisory division provides investment, actuarial and
transaction advice to UK DB pension schemes, UK DC pension
schemes, US pension schemes and insurance firms.
Advice is given either on a retainer basis, or through
ad-hoc projects.
– As an investment specialist, we develop a strong partnership with our
– Flexibility is core to the Advisory division offering clients a tailored service designed
clients and their key stakeholders through the delivery of focused
specially around their needs, preferences and governance requirements
– The division expects to deepen its client base within its core practice areas,
particular DB pension schemes where today the emphasis on investment return is
critical. We believe now more than ever there is a need amongst most UK DB plans
for strong returns into the future driven by a genuine understanding of macro-
economic fundamentals
– The division continues to explore other institutional segments suited to its
specialist approach, both within the UK and overseas markets
since 2011
– A robust and repeatable macro-economic led investment process
which has demonstrated skill in proactively rotating asset class exposure
and taking opportunities to generate very strong returns and strong
risk management
– A strong focus in our consulting approach on client needs (as evidenced
by our client satisfaction scores)
– A clear eye on capacity to ensure all clients can benefit from niche
opportunities, often overlooked by the broader market, to deliver
– Ability to leverage the Group’s derivatives capability to provide truly
integrated, bespoke risk management solutions irrespective of client
strong performance
size or type
– A performance fee structure linked to a transparent scheme liability
benchmark, giving strong alignment of interests
investment advice
– Very strong focus in our consulting approach on client needs
(as evidenced by client satisfaction scores)
– Direct trading expertise offering deeper insights to macro and derivative
markets ensuring proactive advice for clients
– All clients have access to our best ideas and latest thinking, irrespective
of their size or approach to engagement – using the same underlying
macro-economic led investment process which drives our Fiduciary
Management proposition
– We don’t believe in the industry’s ‘set and forget’ approach, rather
we adapt our advice to clients to get them to their end goal with
greater certainty
Derivative
Solutions
£16.9bn
NUM
Equity
Solutions
£3.6bn
AUM
River and Mercantile Group PLC Annual Report and Accounts 2017
River and Mercantile Derivatives offers fully tailored segregated
derivative solutions. The segregated approach gives full access
to a range of derivative strategies.
Our approach allows clients to access:
– LDI
– Synthetic Equity and protection strategies
– Currency hedging
We believe this approach should be accessible to all pension
schemes irrespective of size.
River and Mercantile Equity Solutions is a long-only active
equity manager providing a range of equity products and
solutions across the following markets:
– UK Equities (PVT Team)
– Global Equities (PVT Team)
– Emerging Market Equities (ILC Team)
These investment strategies are offered on a segregated and
pooled basis to retail intermediaries on a wholesale basis in the
UK, and to institutional clients in the UK, Europe, US, Australia
and New Zealand.
– We do not offer pooled funds – we believe passionately that a
segregated approach provides the best result for clients
Our strategy includes working with pension schemes that have been underserviced
in derivatives management:
– We will work with clients of any size – our average client size is
– Small private sector pension schemes – sub £500m pension schemes who tend to
significantly smaller than our competitors
be limited to pooled funds
– Equity derivative specialist – we have always provided equity derivative
– Improve access for Local Government Pension Schemes (LGPS) who have
strategies as a core offering and have a long performance track record
struggled historically to implement derivatives
– Systems – we have a dedicated system development team which means
Our small scheme strategy involves:
we can easily systemise what we do to the benefit of our clients
– LGPS – we believe we are the first derivatives manager to have
segregated local government pension scheme derivatives documentation
– Innovating the approach to segregated LDI to make it feel as easy as a pooled fund
– Educating consultants on the benefit to their clients of a segregated approach
with an aim to become known as the champion of small schemes
Our LGPS strategy involves:
– Building a documentation suite to allow LGPS to implement derivatives
– Meeting with LGPS representatives to educate and inform them of the benefits
of derivatives
– We believe a specialist investment business, with high levels of
ownership and aligned interests represents the best investment
environment leading to superior performance for clients
– We will continue to emphasise client engagement, where we spend a great deal of
time with our clients understanding their needs and ensuring that the investment
products that are developed meet these specific requirements
– We look to consistently exploit proven factors to generate strong
absolute and relative investment returns with an approach which is
– We will look to grow in our core UK markets, but also expect to build upon the
success of recent mandate wins in the US and Australasian markets to drive growth
systematic, repeatable and scalable
overseas and provide distribution diversification
– Our multi-factor approaches and understanding of investment cycles
have enabled us to generate strong returns in the past and position us
well to continue to deliver for our clients in the future
– We will continue to broaden our product set to respond to high conviction
investment opportunities and sustainable client needs
– We will invest upfront in our people and investment infrastructure to ensure that
– We have exceptional fund managers and analysts with significant insight
we have the right mix of experience, skills and investment tools to ensure that we
can continue to deliver strong investment returns
and experience, and outstanding track records and decision making
processes that are based off a flat and fully accountable structure where
high conviction investments are put into client portfolios
Strategic report
Governance
Financials
07
Divison
What we do
What differentiates us
Strategy highlights
Fiduciary
Management
£10.5bn
AUM
Fiduciary Management involves the delegation by clients of a
range of services to the Group, within an agreed governance
framework. These include asset allocation, hedging, and
manager selection.
Our clients are predominantly DB pension schemes through the
Total Investment Governance Solution (TIGS) product, but also
now encompass DC and Insurance clients.
Advisory
180 clients £25bn
AUA
The Advisory division provides investment, actuarial and
transaction advice to UK DB pension schemes, UK DC pension
schemes, US pension schemes and insurance firms.
Advice is given either on a retainer basis, or through
ad-hoc projects.
River and Mercantile Derivatives offers fully tailored segregated
derivative solutions. The segregated approach gives full access
to a range of derivative strategies.
Our approach allows clients to access:
– LDI
– Synthetic Equity and protection strategies
– Currency hedging
We believe this approach should be accessible to all pension
schemes irrespective of size.
Derivative
Solutions
£16.9bn
NUM
Equity
Solutions
£3.6bn
AUM
– One of the longest track records in providing fiduciary management
to UK DB pension schemes dating back to 2004 and DC schemes
since 2011
– A robust and repeatable macro-economic led investment process
which has demonstrated skill in proactively rotating asset class exposure
and taking opportunities to generate very strong returns and strong
risk management
– A strong focus in our consulting approach on client needs (as evidenced
by our client satisfaction scores)
– A clear eye on capacity to ensure all clients can benefit from niche
opportunities, often overlooked by the broader market, to deliver
strong performance
– Ability to leverage the Group’s derivatives capability to provide truly
integrated, bespoke risk management solutions irrespective of client
size or type
– A performance fee structure linked to a transparent scheme liability
benchmark, giving strong alignment of interests
– As an investment specialist, we develop a strong partnership with our
clients and their key stakeholders through the delivery of focused
investment advice
– Very strong focus in our consulting approach on client needs
(as evidenced by client satisfaction scores)
– Direct trading expertise offering deeper insights to macro and derivative
markets ensuring proactive advice for clients
– All clients have access to our best ideas and latest thinking, irrespective
of their size or approach to engagement – using the same underlying
macro-economic led investment process which drives our Fiduciary
Management proposition
– We don’t believe in the industry’s ‘set and forget’ approach, rather
we adapt our advice to clients to get them to their end goal with
greater certainty
– We do not offer pooled funds – we believe passionately that a
segregated approach provides the best result for clients
– We will work with clients of any size – our average client size is
significantly smaller than our competitors
– Equity derivative specialist – we have always provided equity derivative
strategies as a core offering and have a long performance track record
– Systems – we have a dedicated system development team which means
we can easily systemise what we do to the benefit of our clients
– LGPS – we believe we are the first derivatives manager to have
segregated local government pension scheme derivatives documentation
River and Mercantile Equity Solutions is a long-only active
equity manager providing a range of equity products and
solutions across the following markets:
– UK Equities (PVT Team)
– Global Equities (PVT Team)
– Emerging Market Equities (ILC Team)
These investment strategies are offered on a segregated and
pooled basis to retail intermediaries on a wholesale basis in the
UK, and to institutional clients in the UK, Europe, US, Australia
and New Zealand.
– We believe a specialist investment business, with high levels of
ownership and aligned interests represents the best investment
environment leading to superior performance for clients
– We look to consistently exploit proven factors to generate strong
absolute and relative investment returns with an approach which is
systematic, repeatable and scalable
– Our multi-factor approaches and understanding of investment cycles
have enabled us to generate strong returns in the past and position us
well to continue to deliver for our clients in the future
– We have exceptional fund managers and analysts with significant insight
and experience, and outstanding track records and decision making
processes that are based off a flat and fully accountable structure where
high conviction investments are put into client portfolios
Our strategy falls into three areas:
– Investment: Continue to invest in our macro-economic process to ensure
continuing ability to generate strong risk-adjusted returns
– Proposition: Key to our strategy is flexibility, whereby size doesn’t constrain or limit
our clients’ access to our best ideas and innovative thinking. We continue to
innovate the delivery of the fiduciary proposition to meet evolving client needs in a
flexible manner
– Distribution:
1. Continue to strengthen relationships with third party intermediaries to
support their engagement with prospects;
2. Articulate directly to market our views on the need (and how and when) to
generate return in maturing DB plans
– Flexibility is core to the Advisory division offering clients a tailored service designed
specially around their needs, preferences and governance requirements
– The division expects to deepen its client base within its core practice areas,
particular DB pension schemes where today the emphasis on investment return is
critical. We believe now more than ever there is a need amongst most UK DB plans
for strong returns into the future driven by a genuine understanding of macro-
economic fundamentals
– The division continues to explore other institutional segments suited to its
specialist approach, both within the UK and overseas markets
Our strategy includes working with pension schemes that have been underserviced
in derivatives management:
– Small private sector pension schemes – sub £500m pension schemes who tend to
be limited to pooled funds
– Improve access for Local Government Pension Schemes (LGPS) who have
struggled historically to implement derivatives
Our small scheme strategy involves:
– Innovating the approach to segregated LDI to make it feel as easy as a pooled fund
– Educating consultants on the benefit to their clients of a segregated approach
with an aim to become known as the champion of small schemes
Our LGPS strategy involves:
– Building a documentation suite to allow LGPS to implement derivatives
– Meeting with LGPS representatives to educate and inform them of the benefits
of derivatives
– We will continue to emphasise client engagement, where we spend a great deal of
time with our clients understanding their needs and ensuring that the investment
products that are developed meet these specific requirements
– We will look to grow in our core UK markets, but also expect to build upon the
success of recent mandate wins in the US and Australasian markets to drive growth
overseas and provide distribution diversification
– We will continue to broaden our product set to respond to high conviction
investment opportunities and sustainable client needs
– We will invest upfront in our people and investment infrastructure to ensure that
we have the right mix of experience, skills and investment tools to ensure that we
can continue to deliver strong investment returns
River and Mercantile Group PLC Annual Report and Accounts 2017
08
CHIEF EXECUTIVE’S
REVIEW
Mike Faulkner
Chief Executive Officer
This Report marks three years
since we brought River and
Mercantile to the public markets.
While a single year can be a short
period of time over which to
evaluate a strategy, three years
can give a much greater
perspective. I therefore want to
focus my statement on this by:
– Re-visiting what we are trying to do as
a firm;
– Looking at how we have performed in
the last three years including returns to
shareholders, particularly in light of our
stated aims set out in my 2014 statement;
and
– Describing our future strategy.
What we are trying to do as a Group
Our purpose is simple – to identify our
clients’ actual financial problems and needs,
and solve them as effectively as possible.
The Group’s outcome-orientated approach,
which focuses on tailoring solutions using
our various skillsets in order to achieve
client outcomes, has conduct at its core.
This involves us doing two things well:
– Understanding our clients in great
depth – in order that we can define their
need in the right level of detail so that we
can solve it fully. This involves us
understanding clearly the environment
within which they operate. For example,
how defined benefit funding works, or the
influence of Solvency II on insurance
clients, are important to understand if we
are to appreciate properly the investment
need; and
– Developing and maintaining very
strong investment skills – that can be
deployed in various ways to solve these
investment problems.
Obviously, these are supported by
infrastructure and a broader control
environment, but these two activities
really define the essence of who we are.
Our contention is that this is good for
clients, shareholders and employees
simultaneously. It makes it more likely
that clients will have their needs met and
therefore that we will add value for them.
Firstly, because our clients are experiencing
value, they are more likely to remain with
the firm, which in turn produces high
quality earnings for shareholders. Secondly,
because we operate in a wide range of
environments, we get to work on a wide
variety of interesting and challenging
problems, which improves staff retention
and is better in the long-run for clients.
This simultaneous win for our three
key stakeholder groups is critical
to our model and is the reason we
don’t deviate from the idea.
Critically, we do tend to stick to problems
that are relatively hard to solve, and that
therefore require a relatively high level
of intellectual content. There are two
reasons for this. First, culturally we prefer
the challenge of things that are hard to
do. Second, it tends to mean we will be
less subject to competitive pressures
than if we were offering something that
is inherently commodity-like in nature.
This approach to working with clients
has also driven the initiatives on which
we are focusing in the coming years.
TARGET UNDERLYING REVENUE GROWTH
TARGET MEDIUM TERM UNDERLYING MARGIN
12% P.A.
30-35%
£170M
Based on existing products
REVENUE AT CAPACITY
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
09
How we performed over the last three years
The table below shows some key metrics illustrating how the business has performed in the last three years.
Growth in Fee-earning AUM/NUM
Growth in net management and advisory fees
Adjusted underlying pre-tax margin
Regretted institutional attrition
2014
n/a
n/a
22%
3%
2015
21%
33%
27%
1%
2016
22%
–2%*
24%
4%
2017
22%
22%
29%
3%
CAGR
21%
12%
* 2016 revenues were impacted by the closure of the global thematic equity team and the disposal of part of the US business, Palisades.
The table shows a number of important
elements. We have succeeded in growing net
management and advisory fees at around
12% per annum. This is around the minimum
level of medium-term growth we tend to
expect across the business, and is lower
because we have had to close two activities
during the three-year period that were
revenue generative (our global thematic
equities business and our US pensions
transaction business, Palisades).
Prospectively, we expect our growth rate
to be in excess of this level.
Our adjusted underlying profit margin has
widened from 22% to 29%. On the basis of
revenue growth, this implies our underlying
profit growth is 86% over the three-year
period, or 23% per annum.
has outpaced revenue, partly because we
have seen a small amount of margin
contraction (mainly a mix-of-business effect),
but mostly because advisory fees have been
relatively flat over the three-year period.
Our regretted institutional attrition rate has
been relatively low during the period, and is a
function of our client outcome-led approach
to engaging, as I described earlier. As a
result, our AUM/NUM growth has been
strong. This, coupled with investment
performance, has led AUM/NUM growth in
the three years to be 21% per annum. This
But how does this growth achieved compare
with our strategy? In our 2014 Report, I made
a series of statements about our strategic
intent. The table below lists them, what
happened, and identifies whether we
achieved the objective or not.
Statement
Outcome
Strong organic growth in Fiduciary Management
Advisory also to grow
Equity mandates to grow through wholesale…
…and outcome-led institutional
Derivative growth further fuelled through consultant
relationships
New product launch to accelerate growth
Organic growth achieved in Fiduciary Management
AUM of 20% pa over the three years
Advisory revenue 1% p.a. down over the three years,
but slightly up excluding the effect of Palisades
(which was closed)
Wholesale equity growth of 29% p.a. over the
three years
Global high alpha was developed as a result of a client-
led outcome and has been a great success
Additional derivative assets through intermediary-led
relationships of £3.2bn, representing 20% of current
NUM
– DAA fund – £141m
– UK Micro Cap – £100m (capacity)
– UK Dynamic Fund – £200m
– Global High Alpha – £600m
Total new product assets–>£1bn
Evaluation
Strong perform
Under perform
Strong perform
Strong perform
Strong perform
Strong perform
The table shows that we have performed strongly on five measures, and underperformed on one. In general, assuming we all accept that
strategies are rarely delivered perfectly (or else they are unlikely to be sufficiently ambitious!) the business has performed well – we have grown
significantly and done it consistently with our intent.
River and Mercantile Group PLC Annual Report and Accounts 2017
10
CHIEF EXECUTIVE’S REVIEW
Continued
Underlying this is our investment platform,
which has delivered strong performance
across all of our service offerings. I believe it
is rare for any investment firm to have this
consistency across product offerings, and
that is testament to both the quality of our
people and the focus of the business on those
things we are confident we can do well.
The table on page 3 shows the investment
performance we have achieved across our
various strategies and the key thing I would
draw out from this analysis is this is not a
statement of the percentage of strategies
outperforming – such an objective can be
achieved by everything outperforming by
0.1% per annum, which is of relatively little
value to a client. Rather, our strategies aim
to add meaningful value for clients, in a
way that makes a significant difference to
their circumstances. All of our solutions are
ahead of their benchmark since inception.
It is this consistency that led to FundCalibre
ranking our Equity Solutions division top for
relative outperformance across our range of
products over a five-year period. The award
was well deserved as it reflects the strength
of the PVT investment process, and this
consistency is reflected across the whole firm.
Returns to shareholders over recent years
Notwithstanding that markets can, from
time to time, value different things other
than financials, our returns to shareholders
have to date been relatively strong, both in
absolute terms and compared to our sector.
In truth though, we do not pay substantial
attention to the performance of our sector.
Rather, we are focused on the delivery of
strong absolute economic returns to
shareholders.
Nonetheless, I think that in one respect
we need to communicate our story better.
As I showed earlier, our attrition rate is
very low compared to peers within our
industry (a number of our competitors
have stopped disclosing the components
of client flows, showing only net flows).
Group share price and TSR performance
Our client base is very diversified, as is our
revenue exposure by asset class, which we
are disclosing regularly in our Revenue-
weighted asset attribution (RWAA).
Our RWAA is shown in the Financial Review
on page 20. The point we are making in
disclosing this information on attrition
and diversification is that the quality of
our revenue is very strong and stable,
much more so than most traditional asset
management firms (that is not a criticism
of those firms – just an observation of the
difference between our business models).
I am not yet convinced that these factors
are reflected in our valuation, so we will
continue to communicate this differentiation
to investors.
%
250
200
150
100
50
Jun 14
Jun 15
Jun 16
Jun 17
R&M Share price
R&M Total shareholder return
MSCI UK Financials share price
MSCI UK Financials total shareholder return
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
11
Our strategy for the next three to five years
During the last three years, we have
significantly developed the depth of
our resources and our effectiveness in
operating in different distribution channels.
Immediately following the IPO, there were
channels we aspired to access – specifically
the consultant channel. These have
been established and we have effective
client relationships in these areas. This
gives us strategic options that we did
not have three years ago and therefore
it is right that we refresh our strategy.
I am a great believer in the idea that
strategy is ‘the evolution of a central
idea through changing circumstances’.
Our central idea is this concept of
understanding client needs, and solving
them well, where we are focused on solving
difficult problems. I believe this strength
is a competitive advantage in our industry
and we work hard for it to remain so.
For the next three to five years, the emphasis
in selecting ‘difficult’ problems will be
towards the generation of return, rather than
other types of difficulty. Markets seek what
they don’t have, and markets value growth
most highly in those that have it when growth
is more generally not present. Similarly, one
of the challenges in our industry is that the
price of risk management in a wide range of
investment products has been very low levels
of return. I addressed this in my statement last
year, and it remains central to our strategy.
I believe investors will observe, progressively,
that if the price of risk management is
no return, then that price is too high and
they will look for alternative solutions.
Therefore, the selection of strategies
we offer to meet particular needs will
tend to have the characteristics of being
significant-return focused, and delivering
this return in a way that is consistent
with a particular desirable outcome. The
strategies and their desired outcomes,
will be dependent on the channel desiring
them. We currently operate in seven
channels as shown in the table below.
Channel
UK long-term savings
US pensions
UK institutional
Wholesale
US institutional
Insurance
Asia Pacific Institutional
Current strategies represented
– Fiduciary management
– Advice (investment)
– Fiduciary management
– Advice (actuarial/investment)
– Pension risk transfer
– Structured equity
– LDI
– High alpha (Global and UK)
– Recovery
– Small cap equities
– Value equities
– Income/dynamic equities
– Value equities
– Derivatives
– Fiduciary management
– Advice
– Global high alpha
We believe there is opportunity to widen the range of strategies offered through each channel,
as well as adding to the channels.
River and Mercantile Group PLC Annual Report and Accounts 2017
12
CHIEF EXECUTIVE’S REVIEW
Continued
Area/fund
Fiduciary Management including DAA Fund
Derivatives – LDI
Derivatives – Structured equity
Equities
Total
Current AUM
£bn
Estimated
capacity
£bn
Revenue at
estimated
capacity1
£m
10.5
13.2
3.6
3.6
40
>30
>20
15
65-75
20-25
10-15
75-85
170-200
1 Revenue is estimated by taking margin ranges multiplied by estimated capacity.
Importantly, we have significant capacity to
grow. Shown in the table to our right is our
remaining capacity to take on assets in our
existing asset management strategies, along
with estimated total management fees when
capacity is reached (ignoring performance
fees and new products). This shows clearly
that we still have very significant room to
grow our business through the above
channels.
The above tables identify our specific
focus to grow the current business, and
that we have very significant capacity to
grow the business if we are successful.
Given we have developed the number
of channels through which we operate,
and have significant remaining capacity
to support growth in these channels,
it makes sense to refresh our strategic
objectives for the next three to five years.
I therefore codify these growth
objectives into the following measurable
statements, against which I will report
on progress in subsequent statements:
– We intend to grow our net management
and advisory revenue, organically, at a
minimum of 12% per annum;
– We may make acquisitions to grow
faster, but only if it takes us faster in the
above direction and in a way consistent
with our central idea;
– We will aim to increase returns to
shareholders through performance
fees;
– We will aim to grow the smaller
channels faster, in order to be
significantly more diversified by
channel in the next three to five years;
– We will launch Global Macro,
International (ex US) equity and
international (ex US) smaller companies
products, along with other products, to
support this growth strategy;
– We will aim to focus growth by channel,
in the first instance, on those products
and services identified in the above
table; and
– We will continue to grow our underlying
operating margins to >30% over the
medium term, by growing remuneration
and admin expenses at a lower rate
than net management and advisory
fees.
With this in mind, I would re-emphasise
our central idea – I would expect us in the
coming years to launch products that are
not on the above list, that emerge as a
result of client need-led demand. We will
certainly add investment capability we
do not currently already have in-house,
should the right individual or team become
available. For example, we would very
much like to add capabilities in credit
and private markets, should the right
opportunities come along. If they do not,
we will not add them for the sake of it.
Summary
We remain true to our central idea of
understanding our clients’ problems and
needs, and using our investment skills to
solve them. This principle has allowed us
to grow strongly in the three years since
IPO, in a way that has been consistent
with the strategy we set out at the time.
As a business we are now far stronger in
every way – depth of people, scale and skills,
and breadth of clients – and as a result we
have refreshed our strategy to reflect this.
Our ambition for growth continues, but we
will remain focused on our central idea, just
applied to a broader range of markets, and
with an emphasis on delivering returns.
Finally, on behalf of everyone
in the Company, I would like to
thank all of you for your continued
support – we are grateful for it.
Mike Faulkner
Chief Executive Officer
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
We remain true to
our central idea of
understanding our
clients’ problems
and needs, and
using our investment
skills to solve them
Our ambition for
growth continues,
but we will remain
focused on our
central idea, just
applied to a
broader range of
markets, and with
an emphasis on
delivering returns
13
As a business we
are now far
stronger in every
way – depth of
people, scale and
skills, and breadth
of clients
River and Mercantile Group PLC Annual Report and Accounts 2017
14
CASE STUDY
Focused on
clients’ outcomes
The Group’s subsidiary P-Solve launched its US business in
2008, offering investment advisory, actuarial advisory and
fiduciary management services. It won its first corporate
defined benefit fiduciary management client in November
2008, at the height of the global financial crisis. This client,
Altra Industrial Motion, a publicly-listed multinational
manufacturer, hired P-Solve to help it ‘exit the pension
business’ within a reasonable timeframe.
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
15
P-Solve LLC was initially hired only for
DB fiduciary management, however
the relationship eventually expanded to
include DC investment advisory, actuarial
advisory services and ultimately the
termination of the defined benefit pension
plan in 2017. P-Solve LLC has also helped
Altra with its DC plans in the UK.
Over the years, P-Solve LLC has:
– Managed Altra’s pension investment risk,
generating returns consistent with the
stated objectives;
– Designed and executed multiple liability
risk-transfers, reducing the size of the
plan;
– Advised Altra to accelerate contributions
based on Altra’s corporate finance
position and strategic objectives;
– Consulted on the retirement plans of
potential acquisitions;
– Reduced fees and improved the investment
options for DC plan participants.
Altra decided to terminate the US defined
benefit plan after successfully reaching
full funding in 2014. Plan assets have been
managed since then to closely match plan
liabilities, taking into consideration many
factors related to the details of terminating
a pension plan. P-Solve LLC’s combination
of investment and actuarial services and
the tight coordination of these teams, helps
ensure a smooth plan termination that
meets the objectives of the plan sponsor.
Altra has served as a reference for P-Solve
LLC over the years and has shared their
success story with peers at other plan
sponsors. The business will continue to
advise on the defined contribution plans
once the DB plan is terminated and would
likely serve again as the DB advisor to Altra
were it to acquire a business that has one.
While from a business standpoint it is
disappointing to lose a client like the Altra
DB plan, it can be seen as nothing other
than the culmination of a successful client
engagement process. Our clients invest
with well-defined goals. When a goal is
ultimately achieved, it may mean that the
relationship ends, but that is a successful
outcome. Successful outcomes like this will
lead to more clients who have similar goals
in the future. The US market has thousands
of legacy corporate DB plans like Altra’s with
trillions of dollars in assets. Most of these
plans will be terminated in 20 years’ time,
but there is a lot of business to win in this
market and P-Solve LLC’s business model
that tightly integrates actuarial services
with fiduciary management is well-suited to
deliver successful outcomes in this market.
River and Mercantile Group PLC Annual Report and Accounts 2017
16
FINANCIAL REVIEW
Strong improvements
across the business
Kevin Hayes
Chief Financial Officer
– Fee earning AUM/NUM increased by 22%
Key performance indicators
– Positive net flows in every quarter since IPO –
total net flows for the year of £3.8bn
– Positive investment performance of £1.7bn
– Regretted institutional attrition of 3%
– Net management and advisory fees up 22%
– Growth in adjusted underlying margin to 29%
– Adjusted EPS growth of 97%, dividend
growth of 107%
– Total shareholder return since IPO of 26.1%
River and Mercantile Group PLC Annual Report and Accounts 2017
1 Growth in fee earning AUM/NUM
Fee earning AUM/NUM
2017
2016
2015
2014
£31,049m
£25,548m
£21,017m
£17,352m
22% 22% 21% 7%
The growth in AUM/NUM is a key indicator of the client engagement
process and is the driver for growth in net management fees. The growth
in AUM/NUM is a function of new mandates, low attrition rates,
aggregate investment performance and net rebalance.
Previously, the Group reported growth in mandated AUM/NUM as its
KPI. This has been changed to fee earning AUM/NUM as a more objective
measure. The KPI results on the basis of mandated AUM/NUM were 29%,
18%, 17% and 22% for the years 2014-2017 respectively.
4 Adjusted underlying pre-tax
margin
Adjusted underlying pre-tax margin¹
2017
2016
2015
2014
29% 24% 27% 22%
The strong revenue growth in the year combined with the scalable
operating platform, has led to further growth towards management’s
stated target of underlying margins in excess of 30%.
Adjusted underlying pre-tax margin is an indication of the ability to
achieve scale through increased AUM/NUM and revenues, at a lower
marginal increase in related expenses.
1 See glossary on page 110.
Strategic report
Governance
Financials
17
2 Client attrition
3 Growth in net management and
advisory fees
Regretted institutional attrition (RIA)
Net management and advisory fees
2017
2016
2015
2014
2017
2016
2015
2014
£55.9m
£45.7m
£46.7m
£35.1m
3% 4% 1% 3%
22% -2% 33% 31%
The Group’s regretted institutional attrition varies from year to year
but continues to be exceptionally low when compared to traditional
asset managers.
RIA is the opening AUM/NUM of lost institutional clients, divided by total
opening AUM/NUM. It excludes pension clients which have entered the
Pension Protection Fund due to sponsor default or pensions who have
moved to buy-in or buy-out, and redemptions arising fund benefit payments.
RIA is not directly measured for Equity Solutions – Wholesale as investor
redemption decisions tend to be driven by their asset allocation and
investment performance outcomes.
Low client attrition is a direct result of our client engagement process.
5 Percentage of adjusted earnings
per share distributed
Dividends per share
2017
2016
2015
86% 82% 83%
Interim dividend paid:
Declared second interim dividend:
Proposed final dividend:
Total dividend for the year:
19.7 pence
9.5 pence
13.0 pence
5.6p
8.1p
6.0p
19.7p
The Group’s dividend policy is to pay at least 60% of the Group’s adjusted
underlying profits available for distribution by way of ordinary dividends.
In addition, the Group expects to generate surplus capital over time,
primarily from net performance fee earnings. The Group intends to
distribute such available surpluses, after taking into account regulatory
capital requirements at the time and potential strategic opportunities, to
shareholders primarily by way of special dividends.
Following impacts in the prior year from the closure of the global
thematic equity team in 2015 and the disposal of the Group’s Palisades
business in the US in 2016, this year has seen strong growth in this KPI.
Management and Advisory fees represent the underlying revenues
generated by the business. This metric measures the sustainability of
the business.
River and Mercantile Group PLC Annual Report and Accounts 2017
18
FINANCIAL REVIEW
Continued
AUM/NUM and margins
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 fee margins charged to clients.
Positive net flows are an indication of both our ability to retain previously won assets; and our ability to win new mandates and increase
allocations from existing client mandates.
The following table shows the AUM/NUM for the year ended 30 June 2017.
Assets Under Management (AUM) and Notional Under Management (NUM)
£m
Opening fee earning AUM/NUM
Sales
Redemptions
Net rebalance
Net flow
Investment performance
Closing fee earning AUM/NUM
Mandates in transition
Redemptions in transition
Total mandated AUM/NUM
Opening mandated AUM/NUM
Increase/(decrease) in fee earning assets
Increase/(decrease) in mandated assets
Average fee earning AUM/NUM
Average margin 2017 (bps)
Average margin 2016 (bps)
Medium term margin guidance (bps)
Net management fees 2017 £m
Fiduciary
Management
9,287
969
(650)
319
–
319
922
Derivative
Solutions
(NUM)
13,903
2,800
(1,443)
1,357
1,628
2,985
–
Equity Solutions
Wholesale
Institutional
Total
1,171
666
(407)
259
–
259
391
1,187
656
(413)
243
–
243
382
2,358
1,322
(820)
502
–
502
773
Total AUM/
NUM
25,548
5,091
(2,913)
2,178
1,628
3,806
1,695
10,528
16,888
1,821
1,812
3,633
31,049
–
(2)
–
(572)
10,526
9,238
13%
14%
10,236
17-18
17-18
16-17
17.7
16,316
13,483
21%
21%
15,735
6-7
7-8
6-7
10.9
–
–
1,821
1,171
56%
56%
1,502
71-72
73-74
66-68
10.7
–
–
1,812
1,187
53%
53%
1,470
41-42
47-48
39-40
6.1
–
–
3,633
2,358
54%
54%
2,972
56-57
61-62
n/a
16.8
–
(574)
30,475
25,079
22%
22%
28,943
16
16
n/a
45.4
Total sales for the year increased by 16% to £5.1bn. Of these sales,
£1.7bn were from new client mandates and £3.4bn were increased
allocations and new mandates from existing clients. The ability to
grow through our existing clients is an indication of positive client
satisfaction through delivering against outcomes and gives the
business an overall lower cost of client engagement.
RIA is not directly measured for Equity Solutions – Wholesale as
investor redemption decisions tend to be driven by their asset
allocation and investment performance outcomes. We closely
monitor these outcomes in particular investment performance
against benchmarks to determine whether the causes for wholesale
attrition are negative client outcomes.
£m
Gross outflows
Opening AUM/NUM
Outflow %
RIA 2017
RIA 2016
Fiduciary
Management
Derivative
Solutions
650
9,287
7%
1.1%
3.5%
1,443
13,903
10%
3.6%
4.2%
Equity
Solutions –
Institutional
413
1,187
35%
11.6%
0.5%
Total
2,506
24,377
10%
3.0%
3.5%
This year saw an increase in Equity Solutions – Institutional as the
result of a single mandate which was redeemed following a change in
investment allocation decision. The overall level remains low,
emphasising the stability of the Group’s client base.
Investment performance added £1.7bn to AUM. Within Fiduciary
Management, 33% of the performance was generated from the
bond-based matching fund and 67% from the risk assets.
Overall margins have remained stable reflecting slight reductions in
individual businesses, offset by an increase in higher margin
strategies. Our medium-term management fee margin guidance
reflects increasing client mandate sizes and anticipated mix effects.
Regretted institutional attrition (RIA)
Our business model is focused on clients’ needs and desired
investment outcomes, rather than a product-led approach to
engagement. This approach results in higher client satisfaction
and therefore low redemption rates. We measure this by RIA.
RIA is the opening AUM/NUM of lost institutional clients, divided
by total opening AUM/NUM. It excludes pension clients which have
entered the Pension Protection Fund due to the sponsors default or
pensions who have moved to buy-in or buy-out, and redemptions
arising for operational cash flows such as fund benefit payments.
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
19
Revenue
£’000
Net management fees
– Fiduciary Management
– Derivatives
– Equity Solutions Wholesale
– Equity Solutions Institutional
Net management fees
Advisory fees
– Retainers
– Project fees
Advisory fees
Total net management and
advisory fees
Performance fees
– Fiduciary Management
– Equity Solutions
Total performance fees
Total revenue
2017
2016
Increase/
(decrease)
17,677
10,883
10,668
6,143
45,371
5,697
4,825
10,522
13,871
9,481
8,750
4,662
36,764
6,019
2,886
8,905
27%
15%
22%
32%
23%
(5%)
67%
18%
55,893
45,669
22%
6,585
5,964
12,549
68,442
1,227
299
1,526
47,195
437%
1,895%
722%
45%
Net management fees
Management fees are generally charged 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.
This year, we have seen strong growth in net management fees, with
an increase of 23%. This is an excellent result, reflecting the strong
growth in AUM/NUM at stable management fee margins.
Fiduciary Management
Closing fee
earning AUM
£m
Growth in fee
earning AUM
Average AUM
£m
Average
margin (bps)
Revenue
£m
Growth in
revenue YoY
10,528
13%
10,236
17-18
17.7
27%
Fiduciary Management has once again enjoyed a successful year,
with particularly strong investment performance in the early part of
the year, which follows its success last year during the market reaction
to Brexit. While the resulting growth in AUM in June last year had
minimal impact on revenue in 2016, it had a full year impact this year.
Multi-Asset Solutions
During the year, the Dynamic Asset Allocation (DAA) Fund has
continued to attract investors and at year-end its AUM was £141m
(2016: £64m). As the fund has a three-year track record and has
reached a sustainable level of AUM, the Group redeemed its £5m seed
capital position, realising a gain of £0.8m. The DAA Fund uses the
same investment processes as TIGS in Fiduciary Management. Its
launch and seeding in 2015 was a strategic priority to give access to
the TIGS investment strategy in daily dealing fund format to a
broader range of investors, both wholesale and institutional.
Derivative Solutions
Closing fee
earning AUM
£m
Growth in fee
earning AUM
Average AUM
£m
Average
margin (bps)
Revenue
£m
Growth in
revenue YoY
16,888
21%
15,735
6-7
10.9
15%
Derivative Solutions comprises Liability Driven Investing (LDI)
including gilt collateral management) and structured equity products.
Derivatives by type:
£m
Opening fee earning NUM
Sales
Redemptions
Net rebalance
Net flow
Structured
equity
2,737
1,374
(511)
43
Gilts and LDI
Total NUM
11,166
1,426
(932)
1,585
13,903
2,800
(1,443)
1,628
906
2,079
2,985
Closing fee earning NUM
3,643
13,245
16,888
Mandates in transition
Redemptions in transition
–
(572)
–
–
–
(572)
Total mandated NUM
3,071
13,245
16,316
Derivatives’ structured equity capabilities provide strategies to shape
the return profile of clients’ equity portfolios.
The majority of structured equity redemptions during the year –
and in transition at the year-end – relate to clients repositioning
their exposures, due to equity market performance or changes in
the underlying asset portfolios.
LDI relates to the management of interest rate and inflation risk in the
underlying pension liabilities. We continued to see strong flows from
existing clients who increased their level of hedging to respond to
market and scheme funding levels. These hedges generally increase in
value as interest rates fall, helping to defend clients from increases in
their liabilities.
As structured equity products are usually sold at a lower margin than
LDI, the average margins of the Derivative Solutions division will fall
over time if structured equity continues to sell strongly, due to
mix-shift effects.
Equity Solutions – Wholesale and Institutional
Closing fee
earning AUM
£m
Growth in fee
earning AUM
Average AUM
£m
Average
margin (bps)
Revenue
£m
Growth in
revenue YoY
3,633
54%
2,972
56-57
16.8
25%
The Equity Solutions division provides long-only equity funds and
strategies to institutional clients and wholesale intermediaries.
Institutional clients can access the strategies through funds or
segregated mandates. The funds are available to wholesale
intermediaries who distribute to their retail clients.
2017 has been a strong year for the Equity Solutions division and its
PVT (Potential, Valuation and Timing) investment team with strong
sales and investment performance driving AUM above £3.6bn.
River and Mercantile Group PLC Annual Report and Accounts 2017
20
FINANCIAL REVIEW
Continued
The successful globalisation of the PVT
process has continued, with mandate wins in
the UK, US, Australia and New Zealand.
Other significant wins include the £200m
mandate from Alliance Trust.
In an environment of increasing client focus
on value-for-money, demonstrating strong
and sustained investment performance is key
to demonstrating positive client outcomes.
Across the entire Equity Solutions fund range
the inception-to-date investment
performance is above benchmark. This was
recently recognised when the division was
named as the top performing manager in the
FundCalibre Fund Management Equity Index
2017, with 5 year average outperformance of
greater than 50% above the comparable peer
group. The performance of the individual
funds can be seen on page 3.
With the exception of the UK Smaller
Companies Fund and the UK Micro Cap
Investment Company all strategies have
significant additional capacity. The pipeline
remains strong from institutional clients.
Retail markets have been buoyant during the
year, with strong wholesale flows, however
we remain cautious on the outlook for equity
markets in 2018.
In June 2017, we signed a heads of terms and
sub-IAA with Credit Suisse Asset
Management (CSAM) whereby an emerging
market equity investment team (the ILC
team), who managed $352m of assets,
transferred to the Group. These strategies
are being managed under an investment
advisory agreement with CSAM until the
Luxembourg registered UCITS funds are
transferred to the Group, which is anticipated
to occur in the first half of the 2018 financial
year. The addition of the ILC team, who have
a similar life cycle investment philosophy to
the PVT Team, expands our equity solutions
expertise into emerging market equities.
The assets will be shown in AUM once the
underlying funds are transferred to the
Group under an IMA.
Advisory revenues
The Solutions division earns revenues from
clients who engage us on a retained fee basis
or from specific projects. This year has seen
an 18% increase in advisory revenues driven
by increased project fees.
Part of this is due to the market environment,
with events like Brexit and other change
generating more project work over the year.
The strong equity market returns (and
improving funding levels) resulted in more
client activity, particularly in introducing
more downside protection to equity
mandates and other de-risking strategies.
The split between retainers and project fees was:
£’000
Retainers
Project fees
Total advisory fees
Revenue-weighted asset attribution
The revenues of traditional asset management
firms have a high correlation to equity
markets. However, the relative diversification
of the Group’s revenue streams compared to
many of our peers mean they display greater
stability and resilience to negative equity
market movements.
Revenue-weighted asset attribution (RWAA)
classifies our management and advisory
revenues by the respective driver of the
revenue. Management fees from Equity
Solutions and Fiduciary Management that
relate to equity allocations are classified as
having an equity market driver. Likewise, the
components of Fiduciary Management that
relate to bond and interest rate allocations
are classified as having an interest rate driver.
Advisory revenues are not market sensitive
and therefore are classified as being
‘independent’. In Derivative Solutions, while
the underlying revenue is generated on
hedging strategies in interest rates, inflation
and equities, the revenue is not linked to the
mark-to-market valuation but to the
contractual notional amount of the
derivative instrument. As a result, these
revenues are also considered independent or
cash-like in their characteristics.
RWAA – June 2017
6%
35%
37%
7%
15%
Equities – Non-discretionary
Equities – Discretionary
Interest rates
Independent
Other
37%
7%
15%
35%
6%
River and Mercantile Group PLC Annual Report and Accounts 2017
2017
5,697
4,825
10,522
2016
6,019
2,886
8,905
We believe this shows that the Group is well
diversified in its revenue base, with over 50%
of revenue derived from sources which will
not decrease as a direct result of an equity
market downturn. This is not to say that a
prolonged downturn would not have an
impact on our business over time, but our
revenues should show lower volatility than
other traditional asset managers.
Within Equity Solutions, while the
underlying revenue is related to equity
market performance we have a range of
strategies that play to different parts of
the equity market cycle which forms part
of our investment philosophy and process.
The income strategies play to the stability
of large cap quality companies; the smaller
company and micro-cap strategies play
to growth cycle; the recovery funds,
both UK and World, play to a recovery
cycle after a market correction; and the
globalisation of the PVT process and
the addition of the emerging market
team allows us to offer strategies linked
to different geographic regions.
RWAA measures a differentiating attribute
of our business which is a source of
competitive advantage. The cross-cycle
stability of our revenue base and therefore
our net economics allows us to take a longer
term view in hiring, retaining and developing
our staff. This gives us a consistency of client
engagement and allows us to build long-term
trusted relationships with our clients so that
we understand their expected outcomes.
Strategic report
Governance
Financials
21
Performance fee revenue
This year has seen a significant increase in
performance fees as a result of the strong
underlying performance generated by the
investment teams, coupled with the more
stable interest rate environment in the case
of Fiduciary Management.
Fiduciary Management
Investment performance in TIGS (the main
investment strategy within Fiduciary
Management) above a benchmark generates
performance fees for some clients. During
the year, TIGS generated 14% performance
including liability hedging.
As we have previously guided, in a stable
to rising interest rate environment we
would expect to earn higher performance
fees from Fiduciary Management. During
the year interest rates were more stable.
This rate environment combined with the
investment performance from assets in
the risk portfolios generated investment
performance of £0.9bn for clients which
resulted in gross performance fees of £6.6m.
The majority of the performance fees in TIGS
are subject to a deferral mechanism whereby
performance fees are recorded one third in
the year the investment performance occurs,
and two thirds deferred and spread over two
further years. If the performance hurdle is
exceeded on an annual basis, the next third
of the deferred fees becomes payable in each
of the subsequent years. Underperformance
in the deferral period is required to be made
up in subsequent periods before
performance fees can be earned. In the event
that the client redeems its investment,
deferred fees become immediately payable.
Performance fees are recorded on the
anniversary dates of each mandate, which
fall throughout the year.
In the year ended 30 June 2017, of the £6.6m
of performance fees earned, £0.2m were
from previously deferred performance fees.
In the last two years, TIGS has strongly
outperformed its performance hurdles.
As a result there are a number of clients who,
if performance continues, will crystallise
performance fees where previously they
did not.
The table below shows the level of
performance fees the Group would
crystallise at different outperformance
levels. It is based upon the following
assumptions:
1. Outperformance is consistent each year;
2. The current performance fee eligible
AUM is as at 30 June 2017 without change
over the period; and
3. The 30 June 2017 performance level is the
starting point.
Outperformance each year
June 2017
June 2018
June 2019
June 2020
Actual fees £m
Estimated TIGS performance fees £m
0%
2%
4%
Equity Solutions
In Equity Solutions, performance fees are
earned on outperformance relative to a stated
benchmark. The majority of performance
fees are realised based on a calendar year
performance period, with the exception of the
River and Mercantile UK Microcap Investment
Company Limited (‘RMMIC’). The RMMIC is
structured as a closed-ended vehicle. If the net
asset value rises above a prescribed value, the
independent board of Directors of the RMMIC
will consider a redemption of shares and
return of capital to investors. At this point,
the Group will crystallise a performance fee.
6.6
6.6
6.6
7
11
13
14
24
32
4
17
30
Performance fees were £6.0m for the year
ended 30 June 2017, including £4.9m from
the RMMIC.
At 30 June 2017, total performance fee
eligible assets (excluding RMMIC) were
£358m. Of these assets, £302m were
above their benchmark by less than 5%
and £56m were above their benchmark
by more than 5%. The weighted average
rate of performance fees in respect of
outperformance on the eligible AUM is 16%.
River and Mercantile Group PLC Annual Report and Accounts 2017
22
FINANCIAL REVIEW
Continued
Administrative expenses
£’000
Administrative expenses excluding governance
Governance costs
Non-recurring IT project costs
Administrative expenses
Total net management and advisory fees
Recurring admin expenses vs net management and advisory fees
2017
10,007
413
1,142
11,562
55,893
18.6%
2016
9,084
706
–
9,790
45,669
21.4%
While administrative expenses grew at a
lower rate than underlying revenues, which is
evidence of the scalable operating platform
within the business, total administrative
expenses did increase. This increase related
to market data costs as we expanded our
coverage of global market indices to support
the growth in the geographical spread of
Group offerings, as well as previously guided
IT cost increases and a half-year impact of
rent increases.
Governance costs fell as a result of the
reduction in the number of Non-Executive
Directors during the year, plus certain project
costs in 2016 which were not incurred in 2017.
As previously indicated, the Group has
invested in technology in the year, with the
move away from PSG for IT infrastructure
provision to a new third party provider
and the refresh of our hardware and
communication links to make the business
more resilient. The migration has been
completed on budget of £1.1m, and
has delivered increases in performance
and resilience of Group IT systems.
Management recognise the importance of
cost efficiency, and remain committed to
continuing growth in pre-tax margins as
outlined in Mike’s CEO Report.
However, in 2018 we anticipate that
administrative expense to underlying
revenue will be in the range of 20–21%,
driven by the following areas of increased
spend: occupancy; IT and legal costs relating
to investment in the funds platform including
the Global Macro fund; regulatory compliance;
and the new ILC team based in Chicago.
In 2016 we increased our footprint in our
office on Coleman Street and in the next year
we will be adding additional space to provide
for expansion. The lease on our Strand office
will end in December 2021 and we have taken
the opportunity to align all leases to the
same end date. In 2018 we will have a
full-year impact of the rent review on the
Strand and increases in business rates.
We will incur the cost increase of the new
IT infrastructure of £0.3-£0.4m per annum,
consistent with our statements in the
prior year. In 2017 we incurred additional
legal expenses to establish an Irish UCITS
umbrella fund for the launch of the Global
Macro Fund. In 2018 we will transition
from the Credit Suisse Luxembourg UCITS
platform to a new platform provider for
the ILC Team. In addition we intend to
establish a Delaware LLC and Collective
Investment Trust in the US to launch
Equity Solutions strategies for the PVT
and ILC teams. The expansion of our funds
platform will allow us to attract a broader
investor base both in the US and Europe.
In 2017 we incurred additional legal costs
relating to a number of regulatory and
compliance initiatives as a result of changes
in the UCITS remuneration regime, market
abuse and competition regulations and
started the work on the implementation
of MiFID II. We anticipate that will incur
additional legal costs ahead of the
implementation in the first half of FY 2018.
River and Mercantile Group PLC Annual Report and Accounts 2017
ADJUSTED UNDERLYING
PRE-TAX MARGIN
29%
Up 5% from prior year
Strategic report
Governance
Financials
23
Remuneration
£’000
Fixed remuneration
Variable remuneration
Total remuneration (excluding EPSP costs)
Total revenue (excluding other income)
Remuneration ratio (total remuneration excluding
EPSP/total revenue)
2017
2016
20,114
15,201
35,315
68,442
18,423
7,111
25,534
47,195
52%
54%
Remuneration expense includes: fixed
remuneration comprising base salaries,
drawings, benefits and associated taxes;
and variable remuneration comprising
performance bonus, profit share
paid to the partners of RAMAM LLP,
the amortisation of the fair value of
performance share awards under non-
dilutive share plans and associated taxes.
Fixed remuneration is allocated to net
management and advisory fees. Variable
remuneration is accrued on net management
and advisory fees, and performance fees.
We had previously stated that we expected
the accrual rate of remuneration to be around
54% on net management and advisory fees
and 50% on performance fees for the year.
However, the strong growth in revenue
during the year has allowed us to reduce
the accrual rate on net management and
advisory fees to 52%, earlier than expected.
It is management’s intention to reduce this
ratio over the medium term, although the
level in any given year may be affected by
the level of investment in new teams.
To the extent that the Group generates
significant performance fees, the Directors
will look to lower the remuneration ratio
associated with them.
Executive Performance Share Plan (EPSP)
The EPSP was established at the IPO and
Executive Directors were given awards over
a maximum total of 7.3m shares, which they
would be entitled to receive based upon
achieving a compound total shareholder
return of between 12% and 30% during the
period from IPO to 30 June 2018, with a
one-year holding period after vesting until
30 June 2019.
The EPSP costs in the income statement
comprise the IFRS 2 accounting charge for
the scheme and the accrued payroll tax costs
related to the awards. The IFRS 2 charge is
£452k per annum irrespective of the
expected or actual outcome of the scheme.
The payroll tax costs vary as a function of the
number of shares expected to vest and the
expected share price on vesting.
Based upon the TSR as at 30 June 2017,
which was 26%, 5.4m shares would vest.
However, as the performance period ends on
30 June 2018, the Directors believe that a
reasonable estimate of the number of shares
which will vest is 4.8m, representing a TSR of
24%. This generates a charge for the year for
National Insurance of £1.1m.
Whilst the actual timing of dividends impacts
the result, assuming a dividend yield of 5%
per annum, full vesting would occur at a
share price of approximately £4.30. At a
payroll tax rate of 14.3%, this would generate
a payroll tax cost of £4.5m and a corporate
tax deduction of £6.0m.
River and Mercantile Group PLC Annual Report and Accounts 2017
24
FINANCIAL REVIEW
Continued
2017
2016
2015
16,389
24%
23,427
34%
16,360
29%
18,589
7,236
15%
11,849
25%
11,084
24%
9,536
10,525
20%
15,895
30%
12,429
27%
12,693
Capital, liquidity and regulatory capital
The business is strongly cash generative,
generating net cash from operations of
£24m. Cash and cash equivalents at year
end were £31m.
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 an ongoing
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 2017, adjusting for the effect of
the interim and proposed final dividends and
EBT purchases in respect of PSP awards, we
have excess qualifying regulatory capital
of £8m.
Statutory and adjusted profits
£’000
Statutory profit before tax
Statutory pre-tax margin
Adjusted profit before tax
Adjusted pre-tax margin
Adjusted underlying profit before tax
Adjusted underlying pre-tax margin
Adjusted profit after tax
Adjusted underlying profit represents
net management and advisory fees
less associated remuneration, recurring
administrative expenses (excluding
IT transition costs), depreciation,
and finance income and expense.
Adjusted profit comprises adjusted
underlying profit, plus performance fees net
of associated remuneration and the gain on
disposal of the DAA Fund seed position.
The Directors believe that adjusted profit is a
measure of the cash operating profits of the
business and gives an indication of the profits
available for distribution to shareholders.
Adjusted underlying pre-tax margin
represents adjusted underlying profit before
tax, divided by net management and
advisory fees.
Management have previously stated an
objective to grow the adjusted underlying
pre-tax margin to above 30% in the medium
term. In the prior year, the Group’s margin
fell as the result of several structural changes
made by management including the closure of
the global thematic equity strategy with the
loss of £0.8bn of AUM, plus a fall in project
revenue and other advisory business changes.
ADJUSTED PROFIT BEFORE TAX
£23.4M
Up 98%
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
25
FCA competition investigation
The Group’s subsidiary RAMAM is co-
operating with an investigation by the FCA
under its concurrent competition powers
(note 24). The matter does not affect any
clients of the Group or the NAV of any fund
or segregated mandate. The Group has
not been notified of the outcome of this
investigation however, in the event of a
financial impact, the Directors do not
expect the net outcome to be material to
the financial statements.
Dividends
On 31 March 2017, an interim dividend of
5.6p per share was paid which included
a special dividend of 1.4p relating to net
performance fees. The Directors have
declared a second interim dividend of
8.1p per share, of which 2.8p is a special
dividend relating to net performance
fees to be paid on 3 November 2017. In
addition the Directors are proposing to
shareholders a final dividend of 6.0p per
share, of which 2.8p per share is a special
dividend relating to net performance fees.
Total dividends per share paid, declared or
proposed for the year ended 30 June 2017
are 19.7p per share, representing 80% of
the adjusted underlying profit after tax and
100% of the net performance fee profit
after tax. This is an increase in dividends
of 107% compared to the prior year.
Kevin Hayes
Chief Financial Officer
Employee Benefit Trust
The Group’s EBT purchases Group shares in
the open market to meet the potential vesting
of share awards granted under the Group’s
PSP and DEP share plans, as the Board has
stated that grants under these plans will not
be dilutive to shareholders.
During the year, the Group’s EBT purchased
1.3m shares relating to the previous years’
share awards, with a de minimis number being
sold as a result of award vestings. The net cost
of these transactions was £3.5m and is shown
in the statement of changes in equity. As at
30 June 2017, the EBT held 1.9m shares, which
broadly corresponds to the number of shares
subject to award up to 30 June 2017. The
weighted average number of shares in issue
has reduced as a result of purchases of own
shares by the EBT. The EBT has waived the
right to dividends on the shares which it holds.
As at 30 June, the Group had granted share
awards which were either expected to vest,
or could possibly vest, over 0.6m shares.
During the Group’s end of year remuneration
process, the Group granted share awards
over a further 1.0m shares, based upon an
estimated grant price. All such share awards
are not intended to be dilutive.
Regulatory matters
MiFID II
The changes following from MiFID II and
MiFIR (together ‘MiFID II’) come into effect
in January 2018. In broad terms, MiFID II will
significantly impact how trading activities
are carried on, associated transparency, and
also how firms are required to organise and
conduct their regulated activities. For the
Group, two of the main areas in which MiFID
II has an impact relate to enhanced
transaction reporting and the charging of
research to investors.
The Group’s plans to implement enhanced
transaction reporting are in place and there is
no anticipated increase in administrative
costs as a result of this change.
Access to third party research is a critical
component in our investment process and is
additive to our internal research and
screening processes in stock selection and
portfolio construction. Third party research
provides an important verification process in
the development of our investment themes
on individual companies and has supported
the significant outperformance across our
whole range of equity investment strategies.
Historically, the cost of third party research
in Equity Solutions has been charged to clients
within the expenses of the funds or mandates.
We have reviewed the FCA position papers
with regards to research costs and note the
approach taken by our industry peers. We are
consulting with our clients to determine how
they wish to engage with us with regards to
research costs. Once this consultation is
complete we will provide an update as to our
agreed final position.
CMA review of advisory and investment
management
As part of the Financial Conduct Authority
(FCA) Asset Management Market Study the
FCA has made a referral to the Competition
and Markets Authority (CMA) to carry out
a market investigation into the supply
and acquisition of investment consultancy
services and fiduciary management services
to and by institutional investors and
employers in the UK.
The CMA has contacted P-Solve Investments
Limited and requested information and
documents with regards to its investment
consulting and fiduciary management
business. We are cooperating with these
information requests. The review is at an
early stage and it is not clear what the
outcomes will be.
River and Mercantile Group PLC Annual Report and Accounts 2017
26
RISK MANAGEMENT
Key developments
The Group’s 2017 financial year has seen
the continuation of the geopolitical risks
that have been a feature of the financial
landscape for some time now. The election
of a weakened government at home,
combined with the ‘knowledge’ that Brexit
will go ahead in some form or fashion
as yet uncertain, has nevertheless seen
the UK markets continue on in the now
familiar pattern of steadily rising markets
against a backdrop of macro uncertainty.
The regulator’s gaze was turned fully to the
asset management sector in the period in
the form of the FCA’s Asset Management
Market Study and the publication of the
interim and final reports, the latter right at
the end of the financial year. The market
investigation reference to the Competition
and Markets Authority brings what could be
a further eighteen months of uncertainty for
those, like the Group, involved in investment
consultancy. It is clear that there is further
work to be done on many of the study’s
proposed remedies but equally clear that
change is coming to investor disclosure
and communication, including with respect
to fees and also to fund governance in
terms of formalising considerations
of investor value for money and the
requirement for independent governance
on fund boards. The range of prospective
change is reasonably well signposted and
together with the application of the Senior
Managers and Certification Regime, now
likely sometime in the second half of 2018,
can be addressed on a planned basis.
The pace of regulatory change has continued
and the Group has been required to respond
accordingly. The final position on the
implementation of MiFID II is now known,
with relevant requirements in force from
January 2018. The changes to market
infrastructure and processes which MiFID II
introduces mean that there will be changes
to systems and controls across the Group
including new methods of trading and trade
reporting, as well as potential changes to
the way in which the Group engages with
providers of investment research. Other
MiFID II changes will impact the way in which
the Group works with platform distributors
of its investment products and similarly in
the way in which those platforms interact
with underlying clients. The implementation
of the Market Abuse Regulation led to
a wholesale review of the way in which
the Group interacts with the market and
compliance policies and procedures across
the Group generally have been recast with a
risk focus in mind. Resources in the second
line of defence have been enhanced to give
effect to those changes. The introduction
of the 4th Money Laundering Directive has
required a review of client due diligence
procedures and the introduction of the
General Data Protection Regulation (GDPR)
in May 2018 will introduce additional
requirements not only in respect of data
protection generally but also in respect
of data protection in the context of anti-
money laundering and terrorist financing.
Cyber risk and risk relating to information
security have both been and continue to
be areas of focus and attention within the
Group and at the regulator. The Group was
able to avoid being impacted by any of the
major cyber attacks in the news, but we are
aware that such attacks are now part of the
everyday operational risk which the Group
faces. While a robust IT infrastructure is
key, the role of Group staff as gatekeepers
of that infrastructure is critical to the
protection of the Group from these risks.
Staff training and awareness of the risks and
how to spot them is an important part of
the Group’s layered response to managing
cyber and information security risk.
Approach to risk management
The Group’s primary focus is on delivering
strong outcomes for clients. Risk
management in the Group has a focus on
this objective, which we consider to be
strongly aligned to the outcomes expected
by our other constituents: our shareholders;
employees; regulators and the broader
community. The principal risks which the
Group faces are risks relating broadly to this
client engagement point, and business risks
relating to trading, systems and people.
This outcome-orientated approach to
risk management is applied throughout
the Group, from the governance
approach instilled by the Board and
carried through to our employees via the
output from the Board’s committees and
those operated at subsidiary level.
The key Board committees in the risk
framework are as set out below:
Board of Directors
Overall responsibility for maintaining risk management and internal control systems.
Audit and Risk Committee
Responsible for providing
oversight and advice to the
Board in relation to current and
potential risk exposures and
future risk strategy.
Investment Committee
Considers potential events and
trends which could materially
impact performance and strategy.
Remuneration Committee
Assists the Board in
determining its responsibilities
in relation to remuneration
consideration of risk awareness,
management and
accountability for risk.
Client Engagement
Committee
Ensures the business culture
of client-led, outcome-
orientated solutions is upheld
across the Group.
Executive Committee and senior management
Responsible for setting and monitoring the Group’s risk profile.
Corporate and functional departments
Detailed risk assessment and management at all department levels.
Employees
Responsible for identifying client outcomes and executing against them.
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There are two other Board committees
which cover investment risk (the Investment
Committee) and client engagement (the
Client Engagement Committee). The former
provides a governance framework to oversee
and support the investment process and
considers a broad range of investment
themes, including emerging economic and
political considerations, monitors the
performance of investment products to
ensure conformity with expected outcomes
and monitors investment risk within the
Group in order to ensure that aggregated
investment positions are appropriate. The
Client Engagement Committee provides a
means for direct Board oversight of the client
engagement process. The committee views
the quality and content of engagement with
the Group from the perspective of clients
who use or receive the Group’s products and
services. The committee therefore considers
engagement through a client lens and
considers whether the needs of clients as
recipients of products and services have been
appropriately identified and considered
across the Group and how in turn that client
experience can be used to shape solutions
accordingly. Both committees report to the
Board (usually by way of written report) at
each Board meeting.
Three lines of defence
The Group uses a ‘three lines of defence’
approach to risk management. This
helps to embed a culture of compliance
and conduct within the divisions and
operational staff themselves.
1st line – this comprises the Chief Executive,
business management and staff, and the
divisional COOs, who ensure that day-to-
day activities are managed in accordance
with internal policies and the Group’s risk
appetite. Additionally, the divisional COOs
attend Audit and Risk Committee meetings.
The Group has compliance policies and
procedures in place and all employees receive
ongoing training to instil a risk and compliance
awareness and client-orientated culture.
2nd line – this comprises the Risk,
Compliance and Legal functions, who are
responsible for identifying, assessing,
evaluating, monitoring and reporting on
compliance and risk related issues faced
by the Group. The Risk and Compliance
functions report to the CFO, however
with an independent line to the Audit
and Risk Committee. Business risks
are discussed at Risk Management
Committee meetings. For the most part
this involves regulatory intelligence and
forward-looking risk management.
Processes include assessing the impact to
the Group of specific issues, determining
their expected likelihood and consequences,
and developing and implementing
prioritisation and management strategies.
In a coordinated and collaborative approach,
the Compliance, Risk and Legal functions
also monitor and provide assurance
as to the adequacy and effectiveness
of the Group’s internal controls.
The Group continues to operate three
separate regulated entities, P-Solve
Investments Limited, P-Solve LLC and River
and Mercantile Asset Management LLP, each
of which has its own compliance officer.
3rd line – this comprises internal audit to
provide assurance over the effectiveness
of processes and controls in the Group.
The Group does not have a dedicated
internal audit function, instead using
outside third party professionals for specific
engagements during the year reporting
directly to the Audit and Risk Committee.
More information
Further details on the risk management
policy including key functions and terms
of reference, can be found on the Group’s
website www.riverandmercantile.com
Sean Breslin
Head of Legal, Risk and Compliance
River and Mercantile Group PLC Annual Report and Accounts 2017
28
RISK MANAGEMENT
Continued
Principal risks and uncertainties
The Directors have carried out a robust
assessment of the principal risks facing the
Group, including those that would threaten
its business model, future performance,
solvency or liquidity. The following table
summarises the principal risks and
uncertainties considered most relevant to
our business. See note 26 to the consolidated
financial statements for further information
on financial risks.
The Group’s outcome-orientated approach,
which focuses on tailoring solutions using the
Group’s various skillsets in order to achieve
client outcomes, has conduct at its core.
Therefore, in assessing the Group’s risks, the
Directors have considered the FCA’s 11
principles for businesses.
Management’s view on the change in level of
risk is that in general, the pace and extent of
ongoing regulatory change has led to an
increase in regulatory-related risks.
Additionally, the risk of cyber-attack
represents a growing threat globally and
therefore to the Group.
Highlighted cells are those which the group
considers to be the most significant in
threatening the Group’s business model,
future performance, solvency or liquidity.
FCA Principle
Integrity
A firm must conduct its
business with integrity
Definition
Risk and outcome
Mitigations
With the diverse offering that
the Group provides, conflicts
of interest could arise if not
properly managed,
undermining the Group’s
ability to deliver the best
outcomes for clients.
Reputational damage could
lead to a loss of clients,
reduction in AUM and/or
NUM and a reduction in the
profitability of the Group.
As an investment manager
and advisor, the Group is at
risk of perceived or actual
conflicts of interest. These
could lead to direct financial
loss, a loss of clients, failure
to win new business and
reputational issues.
The loss of, or inability to
train or recruit, key personnel
could have a material adverse
effect on the Group’s
business.
The client engagement process necessitates identifying actual or
potential conflicts of interest between the Group and the client.
Conflicts should be avoided or managed and mitigated in a manner
which prevents the risk of damage to client interests. Conflicts which
can be effectively managed can be understood and discussed with the
client and mitigating measures introduced where appropriate. The
Group pays due regard to the interest of its clients and puts treating
them fairly central and foremost.
The Group maintains and operates polices and, organisational and
administrative arrangements to identify, monitor, manage, prevent
and resolve any material conflicts of interest giving rise to a risk of
damage to its clients.
Our ethos is centred on delivering against the outcomes of our
constituents. This fosters a culture of integrity and conduct that is
based on engagement with our clients, shareholders, regulators,
employees and the broader community. Our reputation is based on the
quality of this engagement process.
The client engagement process is driven by the client, which includes
the basis of engagement. Across our business we see different levels,
from those who wish not to see our investment management offerings
in any form, to those who expect to be involved in product
development from early stages. By ensuring the engagement is on the
client’s terms, client interests are promoted and the risk of damage to
clients and potential conflicts are limited.
Policies, procedures and ongoing training covering product and
services, Know Your Customer, anti-money laundering, Treating
Customers Fairly and other areas of compliance.
We have formal processes of training and accreditation to advance and
motivate our employees in order to support the continuity of our client
engagement business model.
Our remuneration structures are designed to motivate and support
the development of our employees and provide incentives linked to
their individual, divisional and Group performance.
Succession plans identify employees with the potential to fill key
business leadership positions.
Conflicts of interest
A firm must manage conflicts
of interest fairly, both
between itself and its
customers and between a
customer and another client.
Skill, care and diligence
A firm must conduct its
business with due skill, care
and diligence.
River and Mercantile Group PLC Annual Report and Accounts 2017
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FCA Principle
Definition
Risk and outcome
Mitigations
Management and control
Market conduct
A firm must take reasonable
care to organise and control
its affairs responsibly and
effectively, with adequate
risk management systems.
A firm must observe proper
standards of market conduct.
The risk of loss resulting from
inadequate or failed
processes, people, systems
and controls (including from
outsource providers) or from
external events leading to
financial loss, forgone revenue,
fines and reputation damage.
The risk of critical systems or
connectivity failures leading
to an inability of the Group to
operate for a period of time.
This could lead to trading
losses, as well as client losses
and reputational damage.
The risk of loss resulting
specifically from cyber
attack, either to gain control
of Group systems, or have
Group employees make
erroneous transactions.
Effective group oversight and governance through Board of Directors
and Board Committees.
Experienced and knowledgeable employees with appropriate
segregation of roles and responsibilities.
Documentation, policies and procedures govern workflows, internal
control procedures and escalation protocols to achieve predictable
outcomes.
Workflows, internal control processes and escalation protocols
designed to achieve predictable outcomes.
Insurance covering errors and omission mitigating significant financial
loss.
Business continuity management programme for the continuity of
critical business functions and services.
Where the Group outsources operational activities, it chooses parties
of an appropriate nature and scale to provide robust controls, and
maintains appropriate management and oversight.
The Group’s Compliance and Risk Management functions operate
alongside the business and provide guidance and oversight of process
and control procedures designed to ensure compliance with
governance and regulatory requirements. Measures include a clear,
consistent view on risk and risk appetite, proactive and effective
monitoring to minimise unexpected incidents and a comprehensive
compliance monitoring programme.
The Group seeks to develop IT infrastructure diversity, for example in
having redundant connections to key data centres.
The Group maintains business resilience measures and disaster
recovery capabilities which include remote working facilities.
The Group maintains physical preventions (IT hardware and software)
to minimise the risk of successful cyber attack. Systems are subject to
periodic penetration testing and staff are trained and regularly
reminded to remain vigilant to the risk of attack and how to respond.
River and Mercantile Group PLC Annual Report and Accounts 2017
30
RISK MANAGEMENT
Continued
FCA Principle
Definition
Risk and outcome
Mitigations
Financial prudence
A firm must maintain
adequate financial resources.
Relations with regulators
A firm must deal with its
regulators in an open and
cooperative way, and must
appropriately disclose to the
regulator anything relating
to the firm of which that
regulator would reasonably
expect notice.
Significant withdrawals of
AUM and/or NUM at short
notice and loss of advisory
mandates could have an
impact on management fees
and advisory fees.
Sustained underperformance
across a range of the Group’s
products and strategies, or
poor general performance in
markets could result in
reduced management fee
and performance fee income.
A breach of regulatory
requirements could result in
fines and sanctions which
could diminish the Group’s
reputation with clients and
the market generally.
Regulatory changes as a
consequence of Brexit may
lead to increased levels of
regulatory capital or costs
of compliance.
The client engagement process gives the Group an opportunity to
maintain a relationship across market cycles both in advisory and
investment management. The engagement process allows us to
understand the risk appetite of the client and operate pro-actively to
respond to a client’s changing outcomes.
Our focus on client outcomes aligns us with our clients and results in a
business with low attrition rates. This creates a sustainable business
which is therefore less subject to cyclical effects. This allows us to
grow, attract and retain our client and investment talent.
A sustained reduction in AUM and/or NUM as a result of adverse
market movements could result in a corresponding reduction in
management and performance fee revenue. This may be partly offset
by an increase in our advisory revenues as clients re-evaluate their
investment and hedging strategies. In the short to medium term we
can adjust our cost base, particularly remuneration which is variable
with our overall economics.
As a regulated entity, the Group and some of its subsidiaries are
required to hold appropriate levels of capital and liquidity in order to
ensure their sustainability. Systems and controls and the process for
assessing the adequacy of financial resources and associated risks
(ICAAP) are documented in the Group’s ICAAP review document,
which examines downside events including revenue declines and the
costs of an orderly cessation of the Group; and if appropriate the
Group holds additional capital as a result of these tests.
Regulatory changes are monitored by the Group’s Compliance and
Legal functions and an active dialogue is maintained both with our
clients and with regulatory bodies so that we can understand and
adapt business model and strategy accordingly.
Finance and Compliance functions operate processes and controls to
ensure the timely and accurate submission of information to the FCA.
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FCA Principle
Definition
Risk and outcome
Mitigations
Customer’s interests
Communications with clients
Customers: relationships of
trust
Client’s assets
A firm must pay due regard to
the interests of its customers
and treat them fairly.
A firm must pay due regard
to the information needs of
its clients, and communicate
information to them in a way
which is clear, fair and not
misleading.
A firm must take reasonable
care to ensure the suitability
of its advice and
discretionary decisions for
any customer who is entitled
to rely upon its judgment.
A firm must arrange
adequate protection for
clients’ assets when it is
responsible for them.
There are a number of risks
arising from when we first
engage with clients to
understand their desired
outcomes, and ultimately
execute on a strategy in
order to achieve those
outcomes:
The client’s investment
strategy does not meet the
client’s desired outcomes.
This could lead to a loss
of clients, failure to win
new business and
reputational issues.
The investment performance
is not in line with client
expectations or investment
advice is poor. This could lead
to a loss of clients, failure to
win new business and
reputational issues.
Failure to execute the
investment strategy in
accordance with the stated
investment mandate, for
reasons including errors and
misconduct. This includes
managing the liquidity of
underlying investments to
match IMA redemption
requirements. This could
lead to direct financial loss,
a loss of clients, failure to
win new business and
reputational issues.
The client engagement process is based on engagement with
regulatory approved investment professionals and advisors who
develop with the client their desired client outcomes.
Suitability is assessed by experienced and approved personnel who
work closely with clients to understand their needs and desired
outcomes to develop tailored solutions.
We have a long track record of investment performance which allows
us to model for the client’s historical and hypothetical performance
scenarios under different market conditions which informs our clients
of the range of possible outcomes that they could expect relative to
their objectives.
A regular governance process with clients provides for regular
interaction to identify changes in the client’s desired outcomes and
solicits feedback on the actual outcomes experienced by the client.
The Group’s Investment Committee oversees the Group’s investment
views and there is a committee structure in place to support the
provision of consistent investment views across the Group.
Investment opinions are subject to considerable evaluation and
discussion prior to implementation or presentation to clients as
appropriate to their form of engagement with the Group.
Investment strategies are designed and back tested, and stressed
against different historical market events to identify to the client a
range of possible outcomes. Investment performance is understood to
vary within a range of outcomes and this helps clients understand the
characteristics of different strategy options.
The governance process with the client provides a regular interaction
to report to the client their investment performance against the
specified client outcomes. This allows the business to check the
appropriateness of the strategy design with clients.
The Group fosters a culture that supports a business model,
behaviours and practices that have the fair treatment of clients at its
core. This requires an open and honest dialogue regarding investment
performance relative to the stated outcomes.
The investment management process is documented within the
investment mandates, including risk limits and concentration limits.
Investment guidelines and restriction metrics are monitored against
mandate parameters to maintain compliance. Variance triggers and
thresholds are in place, and breaches are promptly escalated.
Underlying liquidity within funds is monitored, and adjusted as market
conditions dictate.
Compliance and Risk Management, which operate alongside the
business but have independent reporting lines, act as a second line of
defence in respect of the investment management process.
A culture of client engagement, based on conduct and fairness, fosters
an open and honest dialogue regarding investment performance
relative to the stated outcomes.
River and Mercantile Group PLC Annual Report and Accounts 2017
32
VIABILITY STATEMENT
The Directors have assessed the viability
of the Group over the next three years
and confirm that they have a reasonable
expectation that the Group will continue
in operation and meet its liabilities as
they fall due.
The Directors reviewed the viability assessment period of
three years, and have confirmed that it remains appropriate
as it most closely corresponds to the planning horizons used
within the Group.
In order to assess viability over the chosen timeframe, a team
was appointed alongside the ICAAP process. This team reported
to the CFO and the Audit and Risk Committee, and included
the divisional COOs, the Group head of Compliance, Legal and
Risk, and senior representatives from the Finance function.
This team considered the principal risks that could threaten the
Group’s business model, profitability, solvency and regulatory
capital adequacy. As the business is strongly cash generative,
those which would threaten viability were those which would
reduce revenues, or lead to cost increases, thereby eroding
regulatory capital and solvency over time. These could be
the result of market events and macroeconomic shocks leading
to possible investment losses and outflows, operational issues
or regulatory changes leading to cost increases, or
reputational damage.
Three scenarios were chosen to simulate severe yet
plausible outcomes:
1. A market downturn, followed by a recovery. The downturn was
assumed to follow the Prudential Regulatory Authorities base
stress scenario, which involves an equity market shock,
followed by a recovery.
2. A more prolonged downturn, with stagnant recovery over
the viability assessment period. This is consistent with stress
scenarios the Group uses for certain client portfolio models
and provides a different stress to the first case, as it tests the
resilience of the business over a longer period due to the lack
of recovery.
3. Regulatory change leading to additional costs within the
business as a result of structural changes required to the Group.
The scenarios were evaluated using the Group’s 2017/18 budget
and three-year financial projections as a starting point, with the
impact of the changes on revenues and costs modelled on top.
As the Group has FCA regulated subsidiaries, the assessments
were made at both a Group and subsidiary level as appropriate.
The impact of market moves on asset values and investment
performance was modelled by investment teams within the
business, and the second order impacts on flows were assessed by
the divisional COOs and Group Finance with input from business
heads and distribution team members. The impact of cost
increases was assessed based upon known costings at current
operational levels and the levels of additional resource required.
River and Mercantile Group PLC Annual Report and Accounts 2017
The Group’s balance sheet, cash and regulatory capital positions
in each scenario were modelled by Finance by applying known
historic behaviours (such as invoicing timing and frequency,
average debtor payment days) adjusted for any expected impact
on these assumptions arising from the stress scenarios.
The lowest profit, regulatory capital and cash position arose
in scenario two, however in each scenario the Group remained
profitable, albeit at reduced levels. As a result, this meant that
the regulatory capital and cash balances were not eroded and
the business remained viable.
The resilience of the business to these different scenarios
resulted from:
– The relative diversification of revenue sources between
different asset classes, notional amounts and advisory revenues
– this is illustrated further in the Group’s RWAA on page 20
– The generally institutional nature of many of the Group’s
clients, leading to less short-term negative impact on flows
following market events. This is reflected in the Group’s
regretted institutional attrition, which is measured on page 18
– The remuneration policy of the Group and the underlying
divisions generally being expressed as a percentage of revenue,
meaning revenue reductions are partially cushioned by falling
variable remuneration levels (up to a point).
– The current strong starting profit levels, combined with a
dividend policy which pays dividends based upon actual profits,
as opposed to a progressive dividend. Whilst strong dividend
returns to shareholders are important to the Directors, this
approach gives the Group more flexibility to respond to the
most severe stresses.
The nature of the viability testing is that the scenarios chosen
should be severe. Where appropriate, the Group has controls
and processes in place to reduce the chances of negative
events occurring, and mitigate their impact if they do. The most
significant change during the year has been the adoption of new,
more resilient IT infrastructure, which offers multiple redundancies
and data backup techniques to allow near-seamless transition to a
backup environment in case of a primary IT failure.
As part of this year’s assessment, certain additional actions were
identified to respond to severe events. This included formalisation
of the process to assess and respond to stress events, with
financial triggers identified which would lead to specific actions
including managing media, and engaging with regulators, the
market and other stakeholders depending on the magnitude of
the event.
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River and Mercantile Group PLC Annual Report and Accounts 2017
34
CORPORATE RESPONSIBILITY
People
Our people and their development and
advancement, are critical to the success of
our client-led business. Our business model
is based on client engagement. The skills
required by our people are a balance of
interpersonal and analytical – to listen,
understand and act.
As a business we are subject to competitive
pressures and this includes the competition
for talent. In order to remain competitive
we have a talent management philosophy
that is linked to attracting, advancing
and retaining talented people.
We measure regretted staff turnover as
a metric for our success in retaining and
rewarding our talent. Regretted staff
turnover is measured as the number of
staff leaving the firm voluntarily during
the year who were graded as performing
as expected or better in their previous
performance review, as a proportion
of the average heads during the year.
For 2017 this number was 7%.
Our talent management philosophy is
based on:
Integrity: We understand that any sense of
us operating without integrity will destroy
our business; clients don’t want to engage
with people they can’t trust.
Authenticity: One of the important
things that already differentiates us is our
authenticity. Many of our new employees
have commented on how genuine they find
our people. We encourage a sense that people
are straight and clear about what they believe.
Respect: We expect people to be candid
with others, this must be done with respect.
Our people think about how they frame their
views in a way that is respectful to other
team members.
Community: Internally, our people are
helpful in supporting the good of the
organisation and externally, we encourage
people to do things that have genuine benefit
for others; we aim to make a difference
through the things we do, including
charitable work and contributions.
Diversity: We value a work force that is
diverse. Our recruitment and talent
management is based on merit and
performance. However, we recognise that
diversity at senior management and Board
level could be improved, and gender diversity
is reported to the Remuneration Committee
at each meeting. Of the 224 Directors and
employees at period end: one of eight
Directors; four of 25 senior managers; and
57 of 191 remaining staff were female.
Work/life balance and support
We offer supportive and flexible working
arrangements for our employees.
We encourage a balanced approach
to working and offer flexible working
arrangements to all employees. We have
been encouraged to see the uptake of
shared parental leave and offer equal
potential leave pay, irrespective of gender.
Values
Values describe the behaviours that the business considers to be critical to success. Behaviour consistent with the values should be rewarded.
Passionate about client success We expect our people to be passionate about client success. We care about our clients. We gauge this by
whether clients believe our commitment.
Creative – involving, challenging
and convincing others
Creativity is critical to our client proposition. We aim to keep reinventing ourselves to achieve our business
objectives of growth and to avoid becoming commoditised. This is best achieved by bringing together
diverse people to debate issues. We therefore seek to hire and advance people who are creative, who involve
others to get higher quality input and are comfortable challenging. In debate, we do not recognise hierarchy,
only the quality of the argument.
Open, candid and constructive We expect our people to be open with information and their views. We expect people to be candid,
particularly in the management of others and want all interaction to be constructive.
Demanding of our best
We aim to stretch ourselves and each other, to be the best we can. We are demanding of our people and we
are committed to helping them achieve excellence.
Commercial in all that we do
We expect people to express constructively their disappointment for anything that is mediocre, be it client
work, performance or internal processes.
Commerciality means more than just profitability. We aim to engage in client relationships in a way that
works for both the client and our business. Ultimately, commerciality is about how we balance risk and cost
against potential reward.
River and Mercantile Group PLC Annual Report and Accounts 2017
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Recruitment
Our policies instil in our hiring managers our
commitment to fair and equitable treatment
of all employees and applicants in the
recruitment process.
Advancement
All employees have an equal opportunity
for advancement, including training and
development. The group operates an
internal grading system which measures
development in the organisation,
supported by a promotion panel process.
Investing
The Group considers issues of stewardship
and responsible investing when making
investment decisions.
The Group directly invests in global
equities in its Equity Solutions division.
The investment decisions of the
division are informed by the division’s
voting and engagement policy, and
UK stewardship code statement, both
of which can be found on the Group’s
website (www.riverandmercantile.com).
The division recognises that its responsibilities
as an asset manager extend to having a clear
commitment to engagement and long-term
active ownership and has worked with a
number of clients and other organisations to
better understand best practice and how the
division can actively contribute and meet its
responsibilities in an accountable and
conscientious manner.
The Group is conscious that owning a
company’s shares on behalf of clients confers
certain rights and responsibilities. At the
same time, environmental, social and
governance (ESG) issues, and the
management thereof, are integral to the
sustainability of a business. For this reason,
Equity Solutions considers both ESG issues
and stewardship including management
attitudes to shareholders when analysing
and reviewing a company.
Given that significant issues play out over
the medium to longer term and that clients
are invested for the longer term, these
issues are considered on a case by case basis
using a number of principles including:
– Accountability of management
– Independence of Directors
– Appropriate board appointments and
committee structures
– Remuneration philosophy
– Environmental, social and governance
Environmental Matters: Greenhouse gases
We have offices in London, Boston
and Chicago. Our UK client base is
predominantly in and around London and
in the north of England. Our US client base
is predominantly in Boston and New York.
We estimate that 85% of our employees
utilise public transport on a daily basis to
commute to work. Approximately 10% of
our employees cycle to work daily and we
have facilities in our office to encourage this
activity, including a ‘cycle to work’ scheme.
Our offices have video conference
facilities which are used extensively
for client meetings to reduce travel for
us and our clients. We use standard
technology systems so that documents
can be transmitted electronically.
Our travel reimbursement policy encourages
staff to use public transport, where
available, when attending client meetings.
We are conscious of our impact on the
environment and have recycling programmes
for paper and plastics and encourage
conservation of water and other resources.
In selecting suppliers we consider their
environmental policies as a factor in
selection. The largest suppliers in the period
have been professional service firms.
Carbon Neutral
In the prior year, the Group was certified
carbon neutral, based upon a calculated
emissions figure of 903 tonnes of CO2,
including all travel and commuting. The
Group has re-estimated its emissions this
year as 892 tonnes on the same basis.
The Group is committed to minimising its
impact on the environment and as such fully
offsets its emissions in recognised offset
schemes, combining green energy funding
and forestry protection and renewal.
The Directors are therefore pleased to
announce that the Group has once again
been certified carbon neutral.
Modern Slavery
Whilst the Group is not subject to the
requirements of the Modern Slavery Act, we
take our responsibility to ensure that modern
slavery and human trafficking is not taking
place in our business or supply chain
seriously. We have therefore published a
modern slavery statement on our website
since 2015. We have surveyed our largest
suppliers during the year to confirm their
adherence to the Modern Slavery Act.
By order of the Board
Peter Warry
Acting Chairman
29 September 2017
River and Mercantile Group PLC Annual Report and Accounts 2017
36
BOARD OF DIRECTORS
Peter Warry
Acting Chairman (from 13 January 2017 till
30 September 2017) and Senior Independent
Non-Executive Director
Background and experience
Chairman of The Royal Mint, Peter has also
served as Chairman of BSS Group plc, Victrex
plc and Kier Group plc and has held many
board-level roles. A former special advisor
to the Prime Minister’s Policy Unit, he is
an industrial professor at the University of
Warwick. An engineering and economics
graduate and honorary fellow of Merton
College, Oxford, Peter is also a fellow of
the Royal Academy of Engineering.
Committee membership
– Audit and Risk Committee
– Remuneration Committee
– Nominations Committee
– Investment Committee (Chair)
Mike Faulkner
Chief Executive Officer
Background and experience
Mike founded P-Solve in 2001 to offer
pro-active and strategic advice to pension
scheme trustees and corporate clients.
P-Solve became one of the first investment
consultants in the UK to offer Fiduciary
Management to pension schemes.
He has 25 years of consulting and asset
management experience, including senior
roles with what is now Willis Towers
Watson Ltd and Gensec International.
Ranked top of Financial News’s annual
survey of Europe’s most influential asset
managers in 2011, he has a mathematics
degree from Imperial College, London.
James Barham
Head of Asset Management and Head of
Global Distribution
Background and experience
James founded River and Mercantile
Asset Management (RAMAM) in 2006
with the backing of Pacific Investments
Management Ltd and was its Chief
Executive Officer. He was previously part
of the team which floated Liontrust Asset
Management plc, where he founded the
institutional business. This followed senior
roles with Shandwick Consultants and
James Capel Investment Management and
as Marketing Director for Intermediate
Capital Group plc. James served in the
Royal Welch Fusiliers after Sandhurst.
Angela Crawford-Ingle
Independent Non-Executive Director
Robin Minter-Kemp
Independent Non-Executive Director
Jonathan Punter
Non-Executive Director
Background and experience
Angela is a chartered accountant with
extensive audit experience of multinational
and listed companies. As a partner at
PricewaterhouseCoopers, she specialised
in financial services for 20 years –
leading the Insurance and Investment
Management Division. Retiring in 2008,
she is a partner in Ambre Partners, advising
entrepreneurial companies. Angela is a
Non-Executive Director of Beazley plc
and Swinton Group Limited where she
chairs the Audit and Risk Committees.
Committee membership
– Audit and Risk Committee (Chair)
– Client Engagement Committee (Chair)
– Nominations Committee
Background and experience
Robin has more than 25 years’ experience
in the fund management industry, holding
senior positions with Henderson Investors
and HSBC Asset Management before
joining Cazenove Fund Management in
2001. Over the next 13 years, he was
instrumental in developing Cazenove’s
specialised investment business, building
external funds under management from
£300m to £6.5bn ahead of the business’s
acquisition by Schroders plc in July 2013.
Committee membership
– Audit and Risk Committee
– Remuneration Committee (Chair)
– Nominations Committee
River and Mercantile Group PLC Annual Report and Accounts 2017
Background and experience
Jonathan founded Punter Southall Group
Ltd with Stuart Southall in 1988 and is the
group’s Chief Executive. He has more than 30
years’ experience in the actuarial profession,
with particular expertise in UK pensions and
investment strategy. He is a specialist on
the issues surrounding pensions in mergers,
buy-outs and due diligence deals. A qualified
actuary with a mathematics degree from
Bristol University, he began his career with
Duncan C Fraser, where he was a partner.
Strategic report
Governance
Financials
37
Jack Berry
Head of Solutions
Kevin Hayes
Chief Financial Officer
Background and experience
Jack established P-Solve’s advice capabilities
enabling pension schemes to use derivatives
in liability-driven investments to hedge their
principal risks. With more than 25 years’
experience, he is a key point-of-call for
trustees and sponsors. Jack began his career
at Ernst & Young LLP and then Standard
Chartered Bank plc, before running his own
corporate finance business in Zimbabwe.
He has an accountancy degree from the
University of South Africa with a London
Business School masters in finance and
is a qualified chartered accountant.
Background and experience
Kevin is a proven FTSE 100 CFO with over
25 years’ experience leading global financial
institutions. Previously at Man Group plc,
he was Finance Director and Company
Secretary. This followed senior roles with
Lehman Brothers Holdings, including
International CFO, Head of Productivity and
Process and Capital Markets CFO. He started
his career with Ernst and Young LLP and was
a financial services partner in New York.
River and Mercantile Group PLC Annual Report and Accounts 2017
38
CORPORATE
GOVERNANCE REPORT
Peter Warry
Acting Chairman
Compliance with the Code
The Board is committed to the principles
of corporate governance contained in the
UK Corporate Governance Code (the Code),
issued by the Financial Reporting Council in
April 2016. This section of the annual report
describes how the Company has applied
the Main Principles set out in the Code.
The UK Corporate Governance
Code is available from the Financial
Reporting Council’s website at https://
www.frc.org.uk/directors/corporate-
governance-and-stewardship.
The Board considers that the Company
and the Group has complied with the
Code, except where compliance has been
affected by the death of Paul Bradshaw
on 12 January 2017. Where this has been
the case, it has been explained below and
identified as such with an asterisk (*).
Board composition
Following the death of Paul Bradshaw,
Peter Warry was appointed as the
Acting Chairman of the Company.
From the period 1 July 2016 to
12 January 2017:
Excluding the Chairman, the Board consists
of eight members: four Executive Directors,
and four Non-Executive Directors – three
of whom are regarded as independent.
From the period 12 January 2017 to
30 June 2017:
Excluding the Acting Chairman, the Board
consists of seven members: four Executive
Directors, and three Non-Executive Directors
– two of whom are regarded as independent.
As the Company is a smaller company, as
defined in the Code, it is in compliance with
the Code requirement to have at least two
independent Non-Executive Directors.
The Chairman holds meetings with the
Non-Executive Directors without the
Executive Directors present.
Jonathan Punter is not considered to be
independent by virtue of his shareholding
and directorship in PSG, a controlling (38.1%)
shareholder of the Company. However,
the Board considers that appropriate
independent challenge is provided by
the Independent Directors on the Board
and feels that the experience provided
by Jonathan is valuable to the Group.
operational and compliance controls, and
for reviewing the overall effectiveness of
systems in place), and for the approval of
any changes to the capital, corporate and/
or management structure of the Group.
Certain matters are specifically reserved
for the Board including, for example:
approval of the annual operating and
capital expenditure budgets and any
material changes to them, approval of
major capital projects and appointments
to and removals from the Board, following
recommendations by the Nomination
Committee. To achieve its objectives, the
Board may delegate certain of its duties
and functions to various Board committees
or sub-committees, the Chief Executive
Officer and executive management.
The Board has formally defined and
documented, by way of terms of reference,
the duties and responsibilities delegated
to the Board committees and these are
available on the Group’s website.
Roles and responsibilities
The Board is responsible for leading and
controlling the Group and has overall
authority for the management and conduct
of the Group’s business and the Group’s
strategy and development. The Board is also
responsible for ensuring the maintenance
of a sound system of internal control and
risk management (including financial,
*Following the death of Paul Bradshaw
in January 2017, Peter Warry, the Senior
Independent Director, was appointed by the
Board as Acting Chairman. No interim Senior
Independent Director has been appointed
following Peter Warry’s appointment as
Acting Chairman. The Board considers this to
be an interim position and following the year-
end, the Board has recruited a new Chairman.
Board and Committee member attendance for the period ended 30 June 2017
Director
Board
quarterly
Board ad-hoc Audit and Risk Remuneration
Nomination
Investment
Client
Engagement
Paul Bradshaw*
2 of 2*
3 of 3*
4 of 4*
James Barham
Jack Berry
Angela Crawford-
Ingle
Mike Faulkner
Kevin Hayes
Robin Minter-Kemp
Jonathan Punter
Peter Warry
4 of 4
2 of 4
4 of 4
4 of 4
4 of 4
4 of 4
3 of 4
4 of 4
4 of 6
5 of 6
5 of 6
3 of 6
6 of 6
5 of 6
5 of 6
6 of 6
5 of 5
1 of 1
4 of 4
5 of 5
7 of 7
1 of 1
5 of 5
7 of 7
1 of 1
4 of 4
1 of 1
0 of 1
1 of 1
In circumstances where Board
members cannot attend
Board meetings, generally as a
result of client commitments,
adequate notice has been given
and alternative arrangements
have been made to solicit the
member’s views and opinions.
Where ad-hoc Board meetings
have been held for a specific
purpose to discuss matters at
short notice, all Board members
are sent papers and given the
opportunity to comment by
telephone or email if they are
unable to attend at short notice.
* Paul Bradshaw passed away on 12 January 2017, having attended all meetings prior to this date.
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
39
Performance Evaluation
All Executive Directors have received regular
feedback regarding their performance.
At year end a process was undertaken
to evaluate the Executive Directors
individually and as a group against their
individual and collective objectives.
Details of their individual and collective
performance are summarised in the
Remuneration Committee Report.
The performance of the Non-Executive
Directors during the year ended 30 June
2017 has been reviewed against external
benchmarks and in all cases was approved
as being continuously effective.
*Following the death of Paul Bradshaw,
the Independent Non-Executive Directors
excluding Peter Warry, have assessed
the performance of the Acting Chairman
during the year ended 30 June 2017 and
having taken account of the views of the
Executive Directors his performance is
deemed to be effective and appropriate.
An internal Board and Committee evaluation
process was coordinated by the Company
Secretary during the year ended 30 June
2017 and sought individual Directors’
assessments of the Board’s effectiveness
including strategy development, the decision
making process, Board relationships,
information flows and the operation of the
Board Committees. The review concluded
that the overall Board and Committees
were operating effectively and to a high
standard of governance. Feedback was also
given that the appointment of an internal
candidate to the role of Company Secretary
has greatly enhanced the effectiveness
and efficiency of the Board process.
Copies of the Executive Directors’ service
contracts and letters of appointment of
the Non-Executive Directors are available
for inspection at the Company’s registered
office 11 Strand, London, WC2N 5HR
during normal business hours (Saturdays,
Sundays and public holidays excepted).
Committees
The Board has established Nomination,
Remuneration, Investment and Audit
and Risk Committees, with formally
delegated duties and responsibilities,
and written terms of reference.
During the year, the Board
established a Client Engagement
Committee, with formally delegated
duties and responsibilities, and
written terms of reference.
Copies of these terms of reference, along
with further governance information
covering conflicts of interest, whistle-
blowing policy, securities dealing code,
amendment to the Company’s articles
of association and change of control
can be found on the Group’s website:
www.riverandmercantile.com
Views of shareholders
The Board actively solicits the views of
shareholders through face-to-face meetings
with major shareholders, investor road
shows and ad-hoc contact. The views of
shareholders are reported back to the Board,
with investor relations forming a standing
agenda item at Board meetings. Additionally,
feedback is received via the Group’s brokers.
Relationship Agreement
PSG currently holds 38.1% of the issued
share capital of the Company. By virtue of
the size of its shareholding in the Company,
PSG is a controlling shareholder for the
purposes of the Listing Rules and was
required to enter into an agreement with
the Company to ensure compliance with
the independence provisions set out in the
Listing Rules (Relationship Agreement).
The Relationship Agreement regulates
the ongoing relationship between the
Company and PSG. Subject to PSG holding in
aggregate 10% or more of the Group’s issued
share capital, PSG are able to nominate
a Non-Executive Director to the Board.
Jonathan Punter is a Director
of the Company.
The Relationship Agreement enables
the Company to carry on its business
independently of PSG and its respective
Group undertakings and ensure that all
agreements and transactions between
the Company on the one hand, and
PSG and/or any of its respective Group
undertakings and/or persons acting in
concert with it or its Group undertakings
on the other hand, will be at arm’s length
and on a normal commercial basis.
The Transitional Services Agreement that
the Company entered into with PSG on
27 March 2014 terminated on 30 June 2017.
The Company has complied with the
independence provisions in the Relationship
Agreement. So far as the Company is aware,
the independence provisions included in the
Relationship Agreement have been complied
with by PSG and its associates; and the
procurement obligation included in the
Relationship Agreement has been complied
with by PSG.
Power of Directors in respect of
share capital
The Directors may exercise all the powers of
the Company (including, subject to obtaining
the required authority from the shareholders
in general meeting, the power to authorise
the issue of new shares and the purchase of
the Company’s shares). Since its shares were
listed on the London Stock Exchange on
26 June 2014, the Directors have not
exercised any of the powers to issue or
purchase shares in the Company.
Peter Warry
Acting Chairman
River and Mercantile Group PLC Annual Report and Accounts 2017
40
INVESTMENT
COMMITTEE
Peter Warry
Chair, Investment Committee
The Group Investment Committee
has continued to ensure that the
solutions being implemented by
the different business areas are
consistent with clients’ requirement
and Group-wide investment risks
are well managed.
The Committee’s role in New Product
Development also allows it to fully assess
the investment implications of new products
and solutions that the business is looking to
implement. As an investment business, we
understand how crucial it is to get this step
right such that solutions make sense from
both an investment and client perspective.
Through the constant improvements in
expertise, we have continued to improve
the Group-wide investment risk analysis.
This includes assessing both the effect of
a range of market events on our clients’
portfolios alongside a fuller understanding
of how diversified the business lines
are to some of these key shocks.
We have continued
to improve the
Group-wide
investment risk
analysis
There is already a considerable amount of
detailed analysis conducted across each
of our business lines consistent with our
clients’ investment horizons. The Committee
has therefore commissioned research
topics on much longer term themes that
will affect both investment markets and
the business. I have found the ensuing
debates to be particularly informative.
Over the next year we will continue to evolve
the role of the Committee as the business
landscape changes more quickly than ever
before. In particular, key developments
will include the impact of the FCA Asset
Management Market Study and the
implementation of MiFID II where we will
look to demonstrate that our governance
processes are robust, efficient and add to the
proper functioning of each business line.
Peter Warry
Chair, Investment Committee
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
CLIENT ENGAGEMENT
COMMITTEE REPORT
41
The driving concept for the firm
is to understand our clients’
problems and needs and to use
the broad base of investment skills
available within the firm to
provide an appropriate solution.
Angela Crawford-Ingle
Chair, Client Engagement Committee
Consequently, the Client Engagement
Committee was formed during the year with
the express remit to provide the scrutiny
and governance from a client perspective
and this meet all aspect of the business.
The Committee’s primary aim is to ensure
the business culture of client-led, outcome-
orientated solutions is upheld across the
Group. Therefore, the Committee’s
objectives are to ensure:
– Client needs have been identified across
the different client types;
– Products and services are designed to
deliver outcomes to meet these needs in
whole or in part, both at outset and on an
ongoing basis; and
– Services are identified as suitable for each
client’s needs at the point of delivery and
communicated with clarity in a way that is
clear, fair and not misleading.
The preliminary meeting focused
on establishing the basic operating
principles of the committee and
supporting matters such as:
– Client related principles and values across
the Group;
– Client confidentiality and controls
between divisions; and
– Consideration of the Group’s 2017 client
satisfaction survey.
Angela Crawford-Ingle
Chair, Client Engagement Committee
To ensure the
business culture of
client-led, outcome-
orientated solutions
is upheld
River and Mercantile Group PLC Annual Report and Accounts 2017
42
AUDIT AND RISK
COMMITTEE REPORT
Angela Crawford-Ingle
Chair, Audit and Risk Committee
As mentioned in the Chairman’s report,
the pace of regulatory change has
continued to demand focus and vigilance
from the Committee which, in addition
to a standing agenda item covering a
forward-looking assessment of regulatory
change impacting the Group, has focused
during the period on the specific impact
of MiFID II, the Senior Managers’ and
Certification Regime, the FCA’s Asset
Management Market Study and the
remedies proposed in the FCA’s final report.
While certain specific outcomes from the
FCA’s report and the final requirements
for Senior Managers are subject to further
consultations ahead of finalisation, the
direction of travel is now relatively clear, so
work on those matters will continue in the
current period. For MiFID II the timeline
and final requirements are known and the
remaining challenge for the calendar year is
to implement all remaining enhancements to
policies, procedures, systems and controls.
Requirements in respect of transaction
reporting, best execution and research and
inducements are the MiFID II items which
have required particular focus; finalising
requirements in respect of new products and
services and the interaction with investment
platforms through which Group products are
distributed remains to be completed but the
bulk of the work has already been done in the
review of those processes during the financial
year just ended and with the formalisation
of the new products committee which has
operated during the year just ended.
Continuing to enhance the risk-based
compliance oversight for the Group has
been a keen area of focus and the new team
is making significant strides to improve
processes and controls across the Group.
Particular improvements have been made
in the quality of management information
to inform the Committee’s risk-based
analysis of the Group’s overall compliance.
Conflicts of interest have continued to be a
key theme for the Committee. The Group
engaged with the FCA on this topic as part
of the Asset Management Market Study
and as there is now a Competition and
Markets Authority enquiry into investment
consulting the topic will remain very much
at the forefront of the regulators’ minds in
the context of the Group’s business, as it is
for the Group as a critical consideration as
part of client engagement. I am delighted
that the Client Engagement Committee
is now up and running and will facilitate
more informed exchanges between
the business and the Committee on
client engagement issues generally. The
Committee oversaw a revision to the Group’s
policy on conflicts during the period and
a further revision will be made ahead of
implementation of MiFID II in January 2018.
Cyber-related risks have been a focus for
all and are expected to continue to be so
as part of the business as usual landscape
going forward. Accordingly the Committee
has asked the business to review current
arrangements. Staff training is a core
component of the Group’s cyber readiness,
since it is often the case that malware is
invited in rather than forcing entry. The
Committee has sponsored an overall
increase in awareness about cyber-related
issues generally and cyber and associated
data protection issues will remain a key
area of focus for the Committee going
forward. The advent of the General Data
Protection Regulation in the Spring of
2018 will be another area of focus.
As reported a year ago, the Group has
transitioned its IT infrastructure away
from PSG to an independent outsourced
provider. The planned implementation
and transition went smoothly and the
service is now operational. The Committee
continues to monitor this and all significant
outsourced services to ensure that
they meet the standards required.
Meeting attendance
The Committee met five times. The
divisional COOs have continued their regular
attendance of parts of the meetings to
answer questions and brief the Committee
on areas of significance to their divisions,
which has facilitated the quality of
understanding and speed of response.
Additionally, the Head of Legal, Compliance
and Risk has attended all meetings since
his joining the Group and his input into
the meetings and his impact in reinforcing
the Group’s culture has been positive.
Review of effectiveness of risk
management and internal control
The Committee considered the effectiveness
of risk management and internal control
throughout its agenda during the year, which
included review of key risk indicator reporting
I am pleased to present the report
of the Audit and Risk Committee
and I would like to thank all the
members of the Board and
management for their cooperation
and assistance during the year.
Continuing to
enhance the risk-
based compliance
oversight for the
Group has been a
keen area of focus
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
43
from the divisions, a specific review of Finance
controls and processes, coupled with the
ongoing work from third party internal audit
around regulatory compliance and the use of
Derivatives. The Group also commenced the
process to gain ISAE 3402 controls certification
for its Advisory, Fiduciary Management and
Derivative Solutions divisions.
The main features of the Group’s internal
control and risk management systems are
set out in the risk management section on
page 26.
Financial reporting
As with any year, a key matter for the
Committee was ensuring that the Group’s
financial reporting was reliable and appropriate
and that the UK Code requirements of fairness,
balance and understandability were met.
In order to achieve this, the Committee
considered reports from management and
BDO LLP – the external auditor – relating to
the annual and interim reports, and trading
updates. The Committee also considered
reports on accounting technical matters and
the financial reporting process, including the
review and approval of the timetable and
deliverables for the annual and interim reports.
The reports from BDO LLP included updates
on audit plans, fees, audit quality, auditor
independence and any internal control
matters which required improvement.
Where such improvements were noted,
management responses were elicited,
and delivery of changes monitored.
Significant issues
The Committee has considered a number of
significant financial issues and judgements
during the year which impact this annual
report, including:
Accounting for employee and Director
share schemes
The Group has a number of share schemes,
including the EPSP for Directors, and PSP
and DEP for all staff. The EPSP awards
a variable number of shares based upon
achievement of certain TSR objectives
between 27 June 2014 and 30 June 2018. In
the prior year, 43% of the awarded shares
were expected to vest. However as a result
of changes in the Group’s share price during
the year, and management’s expectation
in respect of future periods, the current
estimate is that 66% of shares will vest.
This results in an increase in the charge
to the income statement as a result of
National Insurance accruals. The Committee
considered reports from management on
the accounting treatment and nature of the
objectives under the plans. It also considered
reports from management covering the
Group’s share price performance both
up to and since the reporting date, as
well as analyst forecasts and estimates,
and the level of share trading and the
make-up of the Group’s share register.
Viability statement
This is the second year of viability statement
reporting, and the Group has increased
the level of disclosure in relation to the
statement in this year’s Annual Report. It
relies upon an assessment of the Group’s
ability to continue in operation and
meet its liabilities as they fall due. This
assessment is predominantly a financial
one, with links to the key risks which the
Group faces. As a result, the Committee
has played a role in its review and challenge
– both of the assessment itself and of
work undertaken as part of the ICAAP
process which informs the assessment.
Revenue recognition
Incorrect recognition of revenue is a risk
in any business. The Group’s contracts
are generally similar to each other in
nature and do not contain complex terms
or arrangements which would increase
the scope for fraud and error. The
Committee reviews both the accounting
policies surrounding revenue recognition
and reports from management on
the controls and processes in place to
ensure accurate reporting of revenue.
Impairment of investments and intangibles
The Group has goodwill and intangibles
on consolidation, and the Company holds
investments in subsidiaries on a solus basis.
The Committee reviews periodic reports
from management as to indications of
impairment and the results of impairment
testing, to ensure that management’s
assertions as to the recoverability of
carrying values are supportable.
Completeness of cost and contingent
liabilities and provisions
Cost completeness is a key risk in all
businesses. The Committee has reviewed
significant business matters and areas subject
to estimation during the year, to ensure the
inclusion of related costs in the correct
accounting period as well as the need for any
additional cost recognition or disclosure.
In relation to the disclosure of RAMAM’s
co-operation with an FCA investigation, the
Committee oversaw the internal investigation
carried out by a third party at the request of
the Group and reviewed correspondence with
the FCA and the Group’s legal advisers. It also
considered accounting papers addressing the
details of the matter and the requirements of
IAS 37 – Provisions, contingent liabilities and
contingent assets.
The Committee considers that the Group has
adopted appropriate accounting policies and
made appropriate estimates and judgements.
The external audit process
The re-appointment of BDO LLP was
approved by shareholders at the 2016 AGM,
with 100% of votes cast being in favour of
the motion. The Committee has reviewed
and approved BDO’s engagement letter
and are satisfied as to the adequacy of the
scope of the audit. The Committee also
reviewed and approved BDO’s remuneration
and their effectiveness, and details of
the non-audit services they provided.
The non-audit services comprise preparation
of the Group’s 2016 tax computations. The
Committee considered this to be in the
Group’s interest as the BDO tax team have
significant historic knowledge of the tax
matters relevant to the Group. The fees
are de-minimus in value in comparison
to the audit fee and are undertaken by a
separate team within BDO who are subject
to information barriers to safeguard their
independence. As a result, the Committee
were satisfied that such non-audit services
did not compromise BDO’s independence
as auditors. Details of the fees paid to BDO
during the year can be found on page 84.
The Committee has considered the
implementation of European Audit reforms.
BDO was appointed on IPO in 2014 and
therefore a re-tender will be carried out
during the year ended 30 June 2024 at
the latest. The Committee continues to
monitor the provision of external audit
services and will tender for other providers
earlier than 2024 if appropriate. The
Committee has considered the FRC’s Ethical
Standard with regards to the provision of
non-audit services and has concluded as
a result, that despite the knowledge and
safeguards in place, future tax computations
will be performed by a third party.
Internal audit
The Group does not have a dedicated
internal audit function, but appointed third
parties to carry out the checks described
above under ‘Review of effectiveness of
risk management and internal control’. The
Committee continues to consider the issue
and currently believe that based upon the
size and complexity of the organisation,
the appropriate approach is to rely upon
the work performed by the Group’s Risk
and Compliance functions, as well as
engaging third parties to perform specific
engagements on areas of risk which have
been identified. During the year, these
included the continuation of regulatory
compliance, assessing controls and
conduct across parts of the organisation.
Annual Report
The Committee has reviewed the content of
the Annual Report and financial statements
and advised the Board that, taken as a
whole, it is fair, balanced and understandable
and provides the information necessary
for shareholders to assess the Company’s
performance, business model and strategy.
Angela Crawford-Ingle
Chair, Audit and Risk Committee
River and Mercantile Group PLC Annual Report and Accounts 2017
44
REMUNERATION
COMMITTEE REPORT
Robin Minter-Kemp
Chair, Remuneration Committee
On behalf of the Remuneration
Committee (the Committee),
I am pleased to present the
Remuneration Committee report
setting out how the current
remuneration policy has been
implemented for the year ended
30 June 2017.
The details of the proposed new
Directors’ remuneration policy,
subject to a binding vote of
shareholders, is included from
page 58. If approved this policy
will be effective from 1 July 2017
for the next three years.
OVERALL REMUNERATION RATIO
52%
Lowest since IPO
Remuneration
is a measurable
outcome for our
staff and our
Executive Directors
and therefore in a
competitive world
it is one of the key
measures for their
individual success.
Shareholder engagement on the 2016 report
Last year’s Remuneration Committee
Report received negative feedback from
IVIS and was graded ‘Red’. The IVIS
comments have been reviewed by the
Remuneration Committee, in particular
their comments regarding improving
the rationale for determining Executive
Director discretionary bonuses and the
re-measurement of performance conditions
in the grant of Performance Share Plan
(PSP) awards to two Executive Directors.
While the report received approval by 85%
of the shareholder vote the Committee
has reviewed the matter closely.
During 2017 the Committee has refined
the Executive Directors’ performance
objectives and aligned the metrics more
closely to the key performance indicators
of the Group. We believe that this more
directly relates the performance outcomes
for shareholders with the performance
objectives and remuneration outcomes
for the Executive Directors. We have also
reviewed the non-financial measures and
more clearly defined the more subjective
areas in the delivery of the Group’s strategy.
The annual performance objectives and
the expected outcomes are described in
more detail on Page 48. An evaluation
of each of the Executive Director’s
performance against these performance
objectives is contained on page 49.
We have also reviewed the feedback we
received with regard to the re-measurement
of the PSP awards which were made to
Jack Berry and Mike Faulkner last year.
The performance target was based on
achieving a TSR hurdle after three years,
but gave two further years in which to reach
the Total Shareholder Return (TSR) hurdle
if not achieved at the first measurement.
The Committee has reconsidered the
performance hurdles for these awards and
has decided to modify the awards to remove
the additional two year vesting window.
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
45
Implementation of UCITS V deferrals
During the year the Committee
considered the implementation of UCITS
V remuneration provisions with regard
to those Executive Directors involved
in activities involving UCITS products.
UCITS V requires that a proportion of
some Executive Directors’ remuneration
is deferred into units of UCITS funds and
subject to a malus adjustment provision.
The Committee concluded that due to their
involvement in UCITS products, Kevin Hayes
and James Barham would be subject to
UCITS V deferrals. The UCITS V regulatory
requirements were not envisaged when the
current Remuneration Policy was approved
in 2014, which provides only for awards
under the PSP and does not provide for
deferrals per se. The new remuneration
policy allows amounts to be deferred into
units of UCITS funds and applies to this year
on a backward-looking basis. If the policy is
not approved, these awards will be paid in the
form of PSPs in line with the current policy.
Our remuneration philosophy
Our business strategy is based on
consistently achieving our client’s
expected outcomes. We believe that this
philosophy drives long-term value for
our clients, our business and ultimately
our shareholder owners. Our business
is by its nature a people business which
involves the professional interaction
between our people and our clients.
The daily intellectual engagement we
present to our employees continues to be
the strongest motivator for our people.
This is supported through training,
advancement and remuneration. While
the focus of this report is on remuneration
we consider this as only one part of the
way in which we motivate and reward our
staff, including our Executive Directors.
Remuneration is a measurable outcome for
our staff and our Executive Directors and
therefore in a competitive world it is one of
the key measures for their individual success.
The chart below illustrates how the
Group’s adjusted revenue and expenses
are distributed to stakeholders, including
staff and Executive Directors.
Remuneration is our most significant
expense and the variable components of
remuneration – being discretionary – give
rise to the need to have a clear governance
process in order to set the expectations
for both our staff and our shareholders.
This governance process operates through
giving our staff and Executive Directors
clear expectations regarding their
performance and the metrics for success.
We have likewise given clear guidance
to our shareholders regarding the
remuneration ratio of the Group. Through
this metric, together with the Board’s
clear statements regarding the Group’s
distribution policy, we ensure that returns
to shareholders remain unchanged.
The Group has historically given guidance to
shareholders as to the ratio of remuneration
to revenue. We feel that this has proven
a strong governance control to deliver
appropriate levels of remuneration.
Last year, we indicated that based upon the
growth of the business and opportunities to
invest, the remuneration ratio would be held
at 54% of net management and advisory
fees and 50% of net performance fees, but
with the aim that remuneration ratio would
decrease in the medium term. This year the
ratio of remuneration to revenue overall is
52% which is the lowest ratio since the IPO.
The reduction in the ratio reflects the fact
that in 2017 we had significant revenue
growth, including the highest ever
performance fees. We believe that this ratio
is appropriate for this year and therefore
additional returns in the form of dividends
will accrue to shareholders. It may be the
case that in future periods this ratio will be
at the high end of the guided range in order
to allow us to invest in additional personnel
or investment teams to grow the business.
2017
17%
23%
5%
4%
5%
4%
42%
■ Employee remuneration (excl. tax)
■ Dividends
■ Operating expenses incl. depreciation
■ Executive Director remuneration
■ Retained and other
■ Taxes
■ Corporation tax
■ Payroll tax
42%
23%
17%
5%
4%
4%
5%
2016
21%
16%
5%
5%
3%
4%
46%
■ Employee remuneration (excl. tax)
■ Dividends
■ Operating expenses incl. depreciation
■ Executive Director remuneration
■ Retained and other
■ Taxes
■ Corporation tax
■ Payroll tax
46%
16%
21%
3%
4%
5%
5%
River and Mercantile Group PLC Annual Report and Accounts 2017
46
REMUNERATION COMMITTEE REPORT
Continued
Summary of remuneration and shareholder distributions
£m
Total remuneration (including EPSP costs)
Adjusted profit before tax
Distributions to shareholders in respect of the year (pence per share)
Year ended
30 June
2017
Year ended
30 June
2016
36.9
23.4
19.7
25.8
11.8
9.5
Change
43%
98%
107%
Review of the current year financial and
non-financial performance
The Committee has reviewed the Group’s
key performance indicators and other
metrics in assessing the performance of the
Executive Directors against their specific
performance objectives for 2017.
Business outcomes 2017
Client outcomes as measured by net
flows and investment performance:
– Fee earning AUM/NUM increased by 22%
to £31bn
– Net inflows were £3.8bn in the year, with
net sales of £2.2bn and positive
rebalancing flows in Derivative Solutions
of £1.6bn
– Australian business AUM grew to £121m
– Positive investment performance in all
divisions added £1.7bn
– Significantly above benchmark
performance across all strategies
demonstrating consistent active
investment management
– The Group has continued to deliver
positive net flows in each of the quarters
in 2017 resulting in 13 quarters of net
positive flows since IPO
– Regretted Institutional Attrition rate
of 3%
– Addition of the Credit Suisse ILC team to
increase the breadth of investment
capacity to emerging markets
– Growth in Equity Solutions Global High
Alpha strategies to create additional
capacity for the PVT team
– Growth in the Dynamic Asset Allocation
Fund to above £140m
Client engagement outcomes as measured
by external parties:
– RAMAM awarded the FundCalibre Fund
Shareholder outcomes as measured by
the market
– Improved analyst research coverage and
Management Equity Index 2017
– Derivatives Solutions awarded LDI
Manager of the Year 2017
shareholder engagement
– Dividends declared and proposed of
19.7 pence per share
– Solutions’ client satisfaction score of 8.3
– Total shareholder return for the year
out of 10
ended 30 June 2017 of 26%
The Committee’s considered view is
that the business has significantly
outperformed against the targets set
by the Board in the 2017 budget and
strategic plan and has created more scale
to support future growth in the business.
Shareholder outcomes as measured by our
financial performance
– Net management and advisory fees
increased by 22%
– Management fee margins maintained
within target ranges
– Advisory fees growth of 18%
– Performance fees for the 12 months
ended 30 June 2017 were £12.5m
– Underlying remuneration ratio decreased
to 52%
– Administrative expenses 21% of
management and advisory revenues
– IT infrastructure migration and
improvements completed on budget and
will facilitate scalability and growth
– Head count increases to support
continued growth in consultancy and
investment research
– Adjusted underlying pre-tax margin
increased to 29%
– Statutory earnings per share increased to
16.45 pence
– Adjusted earnings per share increased to
22.9 pence
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
47
Summary of current remuneration policy
Executive Directors’ remuneration is determined in accordance with the remuneration policy adopted at the Group’s AGM held on
23 October 2014. The full Remuneration Policy can be found on the Group’s website www.riverandmercantile.com
Executive Director remuneration comprises base salary, pension and other benefits, cash and performance share plan variable remuneration.
The chart below shows the maximum and relative split of fixed elements of remuneration, annual cash bonus award and PSP under the
current policy. The chart was calculated based upon the contractual agreements with the Executive Directors and excludes grants made at
the IPO under the EPSP.
Mike
Faulkner
Jack
Berry
James
Barham
Kevin
Hayes
£306,800
£306,800
£306,800
£1,227,200
£280,800
£280,800
£280,800
£1,123,200
£250,000
£250,000
£250,000
£1,000,000
£250,000
£250,000
£250,000
£1,000,000
£0
£500,000
£1,000,000
£1,500,000
£2,000,000
■ Base salary (excluding pension and taxable benefits)
■ Discretionary cash bonus ( <1yr) Desired performance
■ Discretionary cash bonus ( <1yr) Above expectation
■ PSP ( >1yr) Defined performance criteria
14.3%
14.3%
14.3%
57.1%
£
Mike Faulkner
Jack Berry
James Barham
Kevin Hayes
Base
salary
306,800
280,800
250,000
250,000
Taxable
benefits
2,821
2,821
3,961
2,821
Pension
Minimum
Maximum
–
28,080
7,500
25,000
309,621 2,150,421
311,701 1,996,501
261,461 1,761,461
277,821 1,777,821
Executive Director pay decisions for 2017
Considering the Committee’s assessment of the overall performance achieved in 2017 and improvements in the business we are mindful of
the weighted financial factors that made up the Executive Directors performance objectives. These objectives are individually described with
outcomes including the rationale for the respective awards.
The overall 2017 remuneration outcomes for each Executive Director are summarised below together with comparable figures for 2016.
£
Mike Faulkner
Jack Berry
James Barham
Kevin Hayes
£
Mike Faulkner
Jack Berry
James Barham
Kevin Hayes
Base salary
306,800
280,800
250,000
250,000
Base salary
306,800
280,800
250,000
250,000
Taxable
benefits1
2,821
2,821
3,961
2,821
Taxable
benefits1
2,676
2,676
8,929
8,926
1 Taxable benefits consist of life assurance, critical illness cover and private medical insurance.
2 Annual bonus is gross cash paid or payable in respect of the financial year.
3 Bonus includes deferred cash awards pursuant to UCITS V, subject to shareholder approval at the Group’s 2017 AGM.
4 Performance shares award is the face value of awards granted.
5 Pension contribution includes cash allowances and contributions made to self-invested personal pensions.
Year-ended 30 June 2017
Annual
bonus2
Performance
shares award4
613,600
504,000
500,0003
500,0003
584,000
–
251,0003
245,0003
Pension
contribution5
Total
– 1,507,221
815,701
7,500 1,012,461
25,000 1,022,821
28,080
Year–ended 30 June 2016
Annual
bonus2
Performance
shares award4
Pension
contribution5
–
–
300,000
310,000
385,000
200,000
–
–
–
28,080
7,500
25,000
Total
694,476
511,556
566,429
593,926
River and Mercantile Group PLC Annual Report and Accounts 2017
48
REMUNERATION COMMITTEE REPORT
Continued
Single figure remuneration
The following table gives the single figure remuneration of Executive Directors for 2017 and 2016 which includes the current year cash bonus
and any previously granted deferred awards which vested in the respective year:
£
Mike Faulkner
Jack Berry
James Barham
Kevin Hayes
£
Mike Faulkner
Jack Berry
James Barham
Kevin Hayes
Base salary
306,800
280,800
250,000
250,000
Base salary
306,800
280,800
250,000
250,000
Taxable
benefits1
2,821
2,821
3,961
2,821
Taxable
benefits1
2,676
2,676
8,929
8,926
Year-ended 30 June 2017
Annual
bonus2
613,600
504,000
500,0003
500,0003
Performance
shares award4
–
–
–
–
Pension
contribution5
–
28,080
7,500
25,000
Total
923,221
815,701
761,461
777,821
Year–ended 30 June 2016
Annual
bonus2
Performance
shares award4
Pension
contribution5
–
–
300,000
310,000
–
–
–
–
–
28,080
7,500
25,000
Total
309,476
311,556
566,429
593,926
1 Taxable benefits consist of life assurance, critical illness cover and private medical insurance.
2 Annual bonus is gross cash paid or payable in respect of the financial year.
3 Annual bonus includes deferred cash awards pursuant to UCITS V, subject to shareholder approval at the Group’s 2017 AGM.
4 Performance shares award is the value of awards vesting during the year, including any dividends earned.
5 Pension contribution includes cash allowances and contributions made to self-invested personal pensions.
Annual cash bonus
Each Executive Director was assessed against a number of financial and non-financial metrics on a consistent basis in order to determine their
performance against the targets in the current policy and their resulting remuneration outcomes:
– ‘Desired performance’: would produce a variable remuneration outcome of 100% of base salary
– ‘Above expectation’: would produce a variable remuneration outcome of 200% of base salary
The metrics used to evaluate the Executive Director performance were grouped into four areas:
Group-wide objectives
Financial growth metrics
AUM/NUM growth
Net management and advisory fee growth
Investment performance and performance fees
Net flows
Underlying profit margin
Earnings per share
Other metrics
Talent development
Client engagement
Governance
Sales production
Budgeted sales flows
In-force revenue growth
Regretted Institutional Attrition rate
Mandate pipeline
Investment Performance
Delivery of above benchmark performance
Aggregate investment performance
Performance fees
Individual objectives
Expansion of geographic presence
Delivery of strategic projects including investment capacity
generation
Delivery of a scalable infrastructure
Improved shareholder engagement
Audited
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
49
Group-wide objectives
This category included financial metrics measuring revenue growth, net AUM/NUM flows, underlying profit margin, earnings per share, and
investment performance. This category also included non-financial measures including staff retention and development, client satisfaction and
governance metrics. The Group objectives were measured for the Group overall and the Executive Directors are accountable and evaluated as a
team with regard to meeting these objectives. Given the spread of responsibilities amongst the Executive Directors each has a direct influence
over these Group outcomes.
Sales production
This area measured the specific sales performance of the relevant Executive Director within their business area. It captured both the aggregate
sales and redemptions in absolute terms and also the regretted institutional attrition. Management fee revenue growth is measured both in
terms of the absolute revenue earned in the year as well as on an in-force basis in order to reflect the differing product margins within the Group.
Investment performance
This measured the specific contribution of the CEO to the investment process, as reflected in AUM/NUM growth through performance, and the
level of performance fees. Across the Group’s range of strategies the delivery of investment outperformance against the stated benchmark is
evaluated, together with the growth and management of the available investment management capacity.
Individual performance against objectives
This measured the success of the individual in achieving their personal objectives set at the start of the year as measured by the Committee.
Whilst not all individuals were measured against all three headings, all were measured consistently against the Group category, which included
components of sales and investment performance for the business overall.
The allocation and weighting of criteria between individual Executive Directors depended on the nature of their specific role and their ability to
influence the outcomes and is weighed according to the following table.
Mike Faulkner
Jack Berry
James Barham
Kevin Hayes
Group
70%
50%
50%
80%
Sales
–
35%
35%
–
Investment
performance
Personal
objectives
20%
–
–
–
10%
15%
15%
20%
Total
100%
100%
100%
100%
Evaluation of Executive Director performance
The Committee has evaluated the Group performance in terms of the 2017 budget and strategic plan and concluded that on balance the 2017
performance resulted in an evaluation of above expectation.
Group metrics score
Above
expectation
22%
22%
7%
4%
3%
29%
16.5p
Expected
performance
AUM
growth
Net
management
and advisory
fee growth
Investment
performance
Net flows
Regretted
institutional
attrition rate
Underlying
profit
margin
EPS
Other
‘Other’ includes metrics for staff retention and development, client satisfaction and governance metrics.
Individual performance
Mike Faulkner, CEO
Mike Faulkner’s role as CEO of the Group means that he is directly responsible to the Board for the execution of the budget and strategy of the
Group. In addition Mike has a significant involvement in the investment management processes, including thought leadership with regard to
asset allocation and the development of new investment philosophies and processes. The Group results for 2017 have been exceptional. In
addition Mike has personally excelled against his individual and collective objectives. These include areas such as client engagement, investment
performance, distribution expansion and product development.
– Investment Performance was positive across all divisions and added £1.7bn to AUM
– Effective client engagement leading to significant mandate wins in structured equity
– Significant progress made on the investment philosophy and process underlying the launch of a new global macro strategy
River and Mercantile Group PLC Annual Report and Accounts 2017
50
REMUNERATION COMMITTEE REPORT
Continued
Jack Berry, Head of Solutions
Jack Berry has made strong progress in the Solutions division during 2017:
– Significant growth in advisory fees during the year
– Delivery on high client satisfaction levels across the entire Solutions division
– Strong performance and execution
– Effective management of profit margin targets
– Delivering on targets regarding regretted intuitional attrition in fiduciary management
The business suffered to an extent during the year due to sales being lower than expected as a result of lumpiness in mandate wins which is a
factor in the fiduciary management business. This was partly offset through strong sales in implemented derivative solutions, albeit at a lower
margin. As a result, Jack Berry’s remuneration reflects this outcome.
James Barham, Global Head of Distribution and Head of Asset Management
James has delivered substantial added value for the business during 2017, in a wide range of areas:
– Exceeding sales targets within the asset management business
– Delivering on targets regarding regretted intuitional attrition
– Continued development of our client base within Australasia, supporting our stated aim of diversifying the business
– Continued development of our UK institutional derivatives and equities businesses, which has included the opening of new markets
– The emergence of institutional business from the US market
He has also succeeded in creating significantly greater depth in our distribution team, with additional resource being added in both institutional
and wholesale teams.
Kevin Hayes, CFO
Kevin Hayes has also achieved significant progress in the business this year, including:
– Effective management of cost base and profit margin during the year
– Delivery of strengthened corporate processes across the business for the management of risk
– Strengthened the alignment and talent in the Corporate functions to deliver the Group’s strategic plan
– Agreement of the transition of the Emerging Market ILC team from Credit Suisse to the business, adding additional asset management
capability
– Significant improvements in corporate communication, analyst coverage and investor relations to support shareholder interaction
Overall Executive Director performance evaluation
The outcome of the assessment of each individual was:
Mike Faulkner
Jack Berry
James Barham
Kevin Hayes
1 = Weak, 2 = Slightly below, 3 = Desired performance, 4 = Above expectation
Group
4
4
4
4
Sales
N/A
3
4
N/A
Investment
performance
Personal
objectives
4
N/A
N/A
N/A
4
4
4
4
Overall
4
3-4
4
4
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
51
Based upon the Group’s Executive Directors’ remuneration policy, this gives the following cash bonus outcomes (subject to UCITS V deferrals):
Executive performance assessment result
100% base bonus
200% base bonus
2017 cash bonus £
Mike
Faulkner
Jack
Berry
James
Barham
Kevin
Hayes
■ Desired performance
■ Above expectation
613,600
504,000
500,000
500,000
Performance share awards
Under the terms of the remuneration policy, Executive Directors are eligible for PSP awards of up to 400% of base salary each year, subject to
performance criteria.
Given the very strong performance of the Group in the year, as noted in the highlights above, the Committee has chosen to make PSP awards
to the Executive Directors in order to produce an overall remuneration package which the Committee believes reflects a fair reward for their
overall performance in the year:
£
Mike Faulkner
James Barham
Kevin Hayes
1 Base salary, plus cash bonus.
2 Subject to UCITS deferral rules below.
Desired total
reward
Current
reward1
PSP award
1,504,000
1,001,000
995,000
920,400
584,000
750,000 251,0002
750,000 245,0002
Jack Berry has not been granted a PSP award, as the Committee believe that his overall reward is already at an appropriate level.
The Committee has determined that, to align with the Group’s shareholder outcomes, the Executive Directors PSP awards will only vest in
full if the Group’s shares deliver a compound annual TSR of at least 12% per annum between 1 July 2017 and 30 June 2020. No PSP will vest
if the TSR for that period is less than 8%, and the PSP will vest pro-rata if the TSR is between 8-12%.
UCITS V deferrals
As noted above, the current Executive Director remuneration policy did not envisage the implementation of deferrals under UCITS V. Based
upon an assessment of the time spent by Kevin Hayes and James Barham, who have a role relating to UCITS V, plus an analysis to assess the split
of remuneration between UCITS and non-UCITS business, the UCITS V regulation requires a proportion of the cash and awards detailed above
to be in the form of a holding in the UCITS funds. Vesting of the UCITS V deferral will not be subject to a TSR target but will be subject to a malus
adjustment provision. The table below reflects the proposed UCITS V deferrals which, in line with the new policy will be subject to a binding vote
of shareholders at the AGM. In the event that the new policy is not approved by shareholders, the amounts will be paid in cash and PSP shares in
accordance with the current remuneration policy.
£
Mike Faulkner
Jack Berry
James Barham
Kevin Hayes
Audited
Annual bonus
PSP awards
Annual cash
bonus
UCITS up-
front cash
Six months
instruments
PSP
3 years
deferred cash
3 years and
six months
deferred
instruments
Total variable
remuneration
613,600
504,000
452,000
462,000
–
–
24,000
19,000
–
–
24,000
19,000
584,000
–
179,000
187,000
–
–
36,000
29,000
– 1,197,600
504,000
–
751,000
36,000
745,000
29,000
River and Mercantile Group PLC Annual Report and Accounts 2017
52
REMUNERATION COMMITTEE REPORT
Continued
Review of the Chief Executive Officer’s compensation
The CEO’s cash bonus has increased from £Nil in the prior year, to £613,600 in the current year. The total variable compensation of the Group
has increased by 114% from £7.1m to £15.2m in the same period.
Year
2014 (six months)
2015
2016
2017
Chief
Executive
Officer’s
single figure
remuneration
£
7,801,2603
309,079
309,476
923,221
Annual
bonus payout
against
maximum
%
100%
0%
21%2
83%2
Long-term
incentive
vesting rate
against
maximum
opportunity
%
100%
N/A1
N/A1
N/A1
1 No shares vested during 2015, 2016 or 2017.
2
3
Includes share awards, not included in single figure remuneration as unvested at year-end.
2014 remuneration includes £7.5m of previously issued shares in the pre IPO Group which converted into shares at the IPO.
Fixed base remuneration and benefits
The direction of travel within the financial services industry continues to influence remuneration approaches towards increasing base pay at the
expense of variable compensation, as companies look to achieve similar total compensation using lower salary multiples. We believe this
increasingly common practice of increasing fixed costs is to the detriment of achieving the mutual goals of our shareholders and staff. We
remain committed to being able to pay upper quartile rewards (compared to our relevant industry peers) should we continue to achieve upper
quartile performance as a business while maintaining flexibility of cost base. Therefore, whilst we have proposed the first increases in base
salaries for Executive Directors in three years, these are in line with the levels received by all staff over the last three years and reflect the growth
in the business and the scope of Executive Directors’ roles during that period. The Committee has benchmarked comparable roles and fixed
remuneration levels for the Executive Directors.
As a result, the Committee has granted increases of 10% to Mike Faulkner, James Barham and Kevin Hayes, effective 1 July 2017. This increase
reflects the growth of the Group and increase in scope of their respective roles during the three year period, and is consistent with the weighted
average increase in other employee salaries of 13% during the same period.
Chief Executive Officer
The Group’s CEO, Mike Faulkner is heavily involved in setting the investment direction of the firm. He is a member of the Investment Committee
and generates investment ideas which can produce a significant component of the Fiduciary Management division’s performance AUM growth
and ultimately Group performance fees. He is actively involved in the development of new product lines for the Group which drive growth in
returns to shareholders, such as the global macro hedge fund.
Chief Financial Officer
The Group’s CFO, Kevin Hayes has responsibility for a broad part of the business, encompassing many of the areas which would often fall under
a COO, such as IT, legal, risk and compliance.
Head of Solutions
The Group’s Head of Solutions, Jack Berry has responsibility for the largest part of the Group’s business in headcount terms, encompassing the
Fiduciary and Advisory divisions, in the UK and US. The Committee determined that Jack Berry’s salary was at an appropriate level and so no
increase has been made.
Global Head of Distribution and Head of Asset Management
The Group’s Global Head of Distribution, James Barham is also the Head of the Asset Management business, encompassing Equity Solutions
and Derivative Solutions. James has been personally responsible for some of the Group’s largest mandates and directly responsible for the
growth of the business in the UK, US and Australasia.
Executive Director
Mike Faulkner
Jack Berry
James Barham
Kevin Hayes
Current salary
£
New salary
£
Increase
%
306,800
280,800
250,000
250,000
337,480
280,800
275,000
275,000
10
–
10
10
The proposed new salaries will be implemented effective 1 July 2017.
Benefits provided to Directors are comparable to benefits provided to other employees of the Group.
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
53
Pension contributions
Jack Berry and Kevin Hayes receive a cash allowance equivalent to 10% of base salary per annum.
James Barham participates in the River and Mercantile Group pension scheme. James makes a contribution of 3% of base salary, which the
Group matches.
Mike Faulkner does not receive either a cash allowance or pension contribution.
Implementation: Outlook for 2017/18
In line with the new proposed remuneration policy, the Committee will be evaluating Executive Directors on a combination of individual and
Group-wide performance objectives, with financial performance measures the key factors. These will include Group KPIs, specific divisional
performance and EPS growth. Consideration of culture and conduct will be included to reward high quality conduct which is consistent with
the Group’s culture.
Under the proposed new policy, The Committee will assess each individual Executive Director’s contribution to the Group’s performance fees
and will be reporting how that was measured and judged in arriving at the proposed remuneration levels.
Consistent with the strategy articulated in the CEO Report the Remuneration Committee will evaluate the Executive Directors against the
performance objectives, including the following:
Financial Metrics:
– Growth in net management and advisory revenue, organically, at a minimum of 12% per annum
– Growth in underlying pre-tax margins towards 30-35% over the medium term, by growing remuneration and admin expenses at a lower
rate than net management and advisory fees
– Growth in earnings per share
– Explore acquisition opportunities to increase investment capacity and geographic reach consistent with the Group’s investment
solutions strategy
Distribution Objectives:
– Sales growth
– In-force revenue growth and mandate pipeline
– Regretted Institutional Attrition rate
– Diversification of distribution channels
– Increased penetration of existing distribution channels, including Australia and US
Investment Performance Objectives:
– New product launches to broaden investment solutions and increase investment capacity:
– Global Macro
– International (ex US) equity
– International (ex US) smaller companies products
– Above benchmark investment performance
– Aggregate performance fees to increase shareholder returns
Individual Objectives:
– Talent development
– Client engagement
– Governance, culture and conduct
River and Mercantile Group PLC Annual Report and Accounts 2017
54
REMUNERATION COMMITTEE REPORT
Continued
Individual performance against objectives
The Committee will measure the success of the individual in achieving their personal objectives set at the start of the year.
Whilst not all individuals will be measured against all three headings, all will be measured against the Group category, which includes
components of sales and investment performance for the business overall.
The allocation and weighting of criteria between individual Executive Directors depends on the nature of their specific role and their ability to
influence the outcomes and will be weighed according to the following table:
Mike Faulkner
Jack Berry
James Barham
Kevin Hayes
Group
Distribution
Individual
objectives
70%
50%
50%
80%
–
35%
35%
–
30%
15%
15%
20%
Total
100%
100%
100%
100%
Executive Performance Share Plan (EPSP)
The Group adopted the Executive Performance Share Plan on 2 June 2014. The EPSP has been approved by the Remuneration Committee and
was unanimously approved by all the Directors of the Board.
The Directors consider that the performance conditions represent a significant challenge for executive and senior management to attain, and
that these conditions can only be achieved through the successful, long-term execution of the growth strategy of the Group. The successful
implementation of this growth strategy is measured on an absolute basis by the returns experienced by shareholders measured by both the
increase in the value of their shareholdings in the Company and the cash returned to them in the form of dividends and other distributions,
including share buybacks.
Vesting begins at a compound annual TSR hurdle of 12%, up to 30%. Below this hurdle, no performance shares vest. Above this hurdle, the
Executives start to share, with the shareholders, in the excess returns generated. Above the higher hurdle the excess returns go to the
shareholders (including the Executive Directors as shareholders in the vested Performance shares).
The Board considers that the performance criteria therefore directly align the reward for performance of the Executives with the investment
performance directly experienced by shareholders. A total of 903,048 Performance A shares were not allocated. The Directors do not intend any
additional grants to be awarded under the EPSP. During the year ended 30 June 2017 there have been no changes in the Executive Performance
Share Plan. The tables below shows the EPSP awards granted and their valuation:
Years ended 30 June 2017
and 30 June 2016
Opening
shares
Closing
shares
820,954
820,954
1,395,621
1,395,621
1,231,430 1,231,430
1,395,621
1,395,621
4,843,626
4,843,626
Opening
shares
Closing
shares
1,231,430 1,231,430
1,231,430 1,231,430
2,462,860 2,462,860
7,306,486
7,306,486
No. Performance A shares
Mike Faulkner
Jack Berry
James Barham
Kevin Hayes
No. Performance B shares
Mike Faulkner
James Barham
Total EPSP Shares
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
Executive Performance Share Plan
Performance A shares
Fair value/Grant date share price
Mike Faulkner
Jack Berry
James Barham
Kevin Hayes
Performance B shares
Fair value/Grant date share price
Mike Faulkner
James Barham
55
Value at grant
date fair
value
Value at grant
date share
price
£ 0.38
£1.83
£311,962 £1,502,345
£530,335 £2,553,986
£467,943 £2,253,516
£530,335 £2,553,986
£1,840,575 £8,863,833
£0.17
£1.83
£209,343 £2,253,516
£209,343 £2,253,516
£418,686 £4,507,032
The fair values of the performance shares at grant date were calculated by Ernst & Young LLP.
The EPSP plan is structured to align vesting to the total shareholder return (TSR) received by shareholders during the vesting period. The table
below illustrates several TSR scenarios, how the vesting value attributable to Executive Directors compares to shareholder return (share price
appreciation from IPO price plus distributions). It assumes a dividend yield of 5% and is for illustrative purposes only.
TSR
12%
24%1
30%2
1
2
24% TSR leads to vesting of all A awards
30% TSR leads to vesting of all A and B awards
Shareholder
value creation
£m
EPSP value at vest
£m
% of shareholder value creation
A shares
B shares
Total
A shares
B shares
211
286
330
–
18
22
–
–
11
–
18
33
0%
6%
7%
0%
0%
3%
Total
0%
6%
10%
Share performance
The graph below shows the performance of the Company’s shares since IPO, compared to the UK financial sector as measured by the MSCI UK
financials index. In the year under review, the shares delivered a TSR of 85%, significantly outperforming the sector average of 42%.
Group share price and TSR performance
%
250
200
150
100
50
Jun 14
Jun 15
Jun 16
Jun 17
R&M Share price
R&M Total shareholder return
MSCI UK Financials share price
MSCI UK Financials total shareholder return
River and Mercantile Group PLC Annual Report and Accounts 2017
REMUNERATION COMMITTEE REPORT
Continued
56
Summary of remuneration and distributions
£m
Total remuneration
EPSP expense
Distributions to shareholders in respect of period
Distributions to shareholders recorded in period
Year ended
30 June
2017
Year ended
30 June
2016
35.3
1.6
15.9
9.3
25.5
0.3
7.8
9.9
Movement
38%
433%
104%
-6%
Non-Executive Director remuneration
The table below shows the total remuneration of the Non-Executive Directors paid during the years ended 30 June 2017 and 30 June 2016.
Jonathan Punter’s fees were paid directly to PSG.
Chairman and Non-Executive Directors
£
Paul Bradshaw (passed away 12 January 2017)
Angela Crawford-Ingle
Robin Minter-Kemp
Jonathan Punter
Peter Warry
£
Paul Bradshaw
Angela Crawford-Ingle
Mark Johnson (resigned 11 December 2015)3
Robin Minter-Kemp
Jonathan Punter
Angus Samuels (resigned 11 December 2015)3
Peter Warry
1 Non-executive additional fees include fees for Board Committee positions.
2 Additional base fees for acting Chairman from 13 January 2017.
3 Remuneration to the date of resignation.
Year-ended 30 June 2017
Base fees
64,167
42,500
42,500
42,500
73,9492
Additional
fees1
–
8,000
8,000
–
9,614
Year-ended 30 June 2016
Base fees
70,000
32,500
15,587
32,500
32,500
16,250
32,500
Additional
fees1
–
7,500
–
7,500
–
–
27,500
Non-Executive Director fee review
The Non-Executive Directors’ fees were reviewed in 2016, and were increased based upon fees for comparable listed companies and following
consultation with major shareholders. No fee review has been conducted in the current year.
Audited
River and Mercantile Group PLC Annual Report and Accounts 2017
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Governance
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57
Personal shareholding policy
The Company does not have a specific current policy with regards to minimum share holdings by Executive or Non-Executive Directors.
The table below shows the shareholding of the Executive and Non-Executive Directors as 7 September 2017, 30 June 2017 and 30 June 2016:
Shareholding
Mike Faulkner
Jack Berry
James Barham
Kevin Hayes
Angela Crawford-Ingle
Robin Minter-Kemp
Jonathan Punter1
Peter Warry
7 September and 30 June 2017
30 June 2016
Number of
ordinary
shares
Percentage of
issued share
capital
Number of
ordinary
shares
Percentage of
issued share
capital
3,706,823
2,210,619
1,095,843
252,865
13,661
25,269
–
13,661
4.52% 3,706,823
2.69% 2,210,619
1.33% 1,095,843
0.31% 252,865
13,661
0.02%
25,269
0.03%
–
0.00%
13,661
0.02%
4.52%
2.69%
1.33%
0.31%
0.02%
0.03%
0.00%
0.02%
1
Jonathan Punter holds a 7.4% interest in PSG. PSG has a 38% interest in the Company.
External advisers
The Committee received advice from McLagan International Inc. on market conditions and competitive rates of pay. The cost of this advice was
£6,250.
Statement of voting at 2016 general meeting
Resolution
To approve the Directors’ report on remuneration for the year ended
30 June 2016 as set out in the Annual Report and Accounts 2016.
Compliance and risk management in remuneration
The Chairman of the Committee also serves on the Audit and Risk Committee.
Votes cast
Votes for
Votes against
Votes
withheld
71,538,913
85.24%
14.76%
0%
The Group’s remuneration policies and practices take account of applicable law and regulations, corporate governance standards, best practice
and guidance issued by regulators and by representative shareholder bodies.
Accordingly, the Group’s Deferred Equity Plan provides that, at the discretion of the Committee, deferred awards may be reduced or lapsed in
the event of a material misstatement of the Group’s financial results or misconduct by an individual.
Approved and signed on behalf of the Board.
Robin Minter-Kemp
Chairman, Remuneration Committee
Audited
River and Mercantile Group PLC Annual Report and Accounts 2017
58
2018-2020 DIRECTORS’
REMUNERATION POLICY PROPOSAL
Executive summary
The Remuneration Committee (the ‘Committee’) of the Board is pleased to propose to shareholders the Directors’ remuneration policy effective
for the next three years starting from the year ended 30 June 2018. The proposed policy is subject to a binding vote by shareholders at the
forthcoming Annual General Meeting of the Group on 8 December 2018.
The Committee developed the proposed policy, seeking independent advice during the process from Willis Towers Watson. The Committee has
also engaged with our significant shareholders during the design phase of the policy and their feedback has been incorporated into the proposed
policy. We have also engaged with the independent governance organisations who will publish their reports to the market in due course.
The proposed remuneration policy for executive directors has four elements as follows: Base salary and benefits; Annual cash bonus; Long Term
Incentive Award; and Performance Fee Bonus.
The Group provides a broader range of services than a conventional fund manager, and due to this significant difference the peer company
comparison than might apply is of limited use. In setting the policy the Committee has therefore considered the needs of the business and the
objectives of customers and shareholders from first principles. The policy therefore also reflects the complexity of the business including the
wide range of activities undertaken as well as the role of individual directors in delivering shareholder value and customer outcomes.
In some aspects the policy is intentionally bespoke, for example the LTIP design includes a pre-grant performance consideration and the actual
vesting conditions that are intended to apply will be set only as and when the needs of the business are clear at around the time of grant in order
to reflect the fast expanding and changing profile of the Group’s activities, in addition an EPS growth condition will also apply.
Regarding the Performance Fee Bonus, this applies only when outperformance has triggered the payment of a fee to the Group and this is an
important indicator of meeting customer needs and delivery of shareholder value. The committee believes that there should be a strong
alignment of interest between Executive Directors that contribute directly to the delivery of performance that earns performance fees for the
Group and the net performance fees available to shareholders through the Group’s dividend policy.
We believe that the new policy represents the appropriate remuneration regime for both the Group and the Executive Directors, recognising the
culture of the business, the current position of the Group and its strategic directions. The remuneration outcomes proposed represent a fair
balance between the interests of shareholders, clients, Executive Directors and employees.
The proposed policy has the full support of the Independent Directors, who have indicated that they will vote in favour of the new policy, and we
encourage our shareholders to likewise vote to approve the new policy.
Remuneration objectives
The first objective of the Committee in establishing the new remuneration policy is to ensure the alignment of the interests of the Executive
Directors with the outcomes expected by our clients. As a client outcome led business, and consistent with the expectations of our regulators,
this alignment of outcomes is critical. We consider that if clients are well served, the expected outcomes for shareholders are likewise well
served.
The second objective is to ensure that the remuneration outcomes are aligned to the interests of shareholders in the annual implementation of
the policy.
In implementing the current policy, in cases where the actions of the Executive Directors have demonstrated a clear alignment with the best
interests of clients but have nevertheless resulted in a negative outcome for shareholders, the impact on shareholders has been reflected in
Executive Directors’ remuneration. The clearest demonstration of this was in 2015 where, in the interests of clients, the Group returned to
clients the assets managed by the global thematic team and closed the division. The consequence of this action was a reduction in revenues and
net income for shareholders, therefore the Executive Directors were paid no variable remuneration or performance shares in that year.
Our business model and what differentiates us
In developing the Committee’s proposed remuneration policy, we recognise that the Group has a differentiated business model from its peers
and also is at an earlier stage in its development than its public peers. Over the last three years, the Group has transitioned from a merged
private company to a premium listed PLC, while simultaneously continuing the growth path that shareholders expect.
The Group has a total of just over 200 employees and we are therefore smaller than the majority of our public asset management peers.
Accordingly our Executive Directors and the CEO in particular, are directly engaged in the day-to-day client engagement and investment
management decision processes. Our remuneration policy reflects this dynamic.
The Committee is mindful of the need to implement a remuneration policy appropriate to attract and retain individuals who are confident in
their ability to add value in a market against a wide range of both listed and unlisted competitors; many of which are at similar stages of their
development but are not listed companies. This is particularly true for those who have a strong investment skillset such as Mike Faulkner, or
individuals who operate as head of a business unit but who are not Executive Directors.
While we are mindful of the approaches taken by our asset management peers, we believe that our proposed remuneration policy is aligned to
the specific requirements in our business and is reflective of the stage of our development. Therefore our approach to remuneration will be
differentiated based on the facts and circumstances of our particular business.
River and Mercantile Group PLC Annual Report and Accounts 2017
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Governance
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59
Our stakeholders
In a similar manner we have been mindful of the guidance given by governance advisory bodies and have sought to understand their views.
We recognise that there is a desire for consistency across the financial services industry with regards to remuneration policies. Where we
consider that the Group’s specific circumstances differ significantly from our peers we have departed from the more standard approach in order
to align Executive Directors’ remuneration both with the outcomes expected from our clients, and with those of our shareholders, in order to
incentivise outstanding performance outcomes.
Accordingly we have formally incorporated into the new remuneration policy a remuneration cap on total pay expense to all staff and partners
including Executive Directors in any year and an aggregate cap on each element of Executive Remuneration. Again, we believe this is an
important differentiator in our policy, and helps provide comfort regarding the overall balance between the remuneration to employees and
Executive Directors for their demonstrated performance and shareholder return for capital.
Our key remuneration outcomes
We are now three years on from the IPO and the Committee has undertaken a full review of Executive Director remuneration in light of the
progress made by the Group and the strategic objectives the Board has for the Group over the next three years. Elements of this strategy relate
to both organic growth and acquisitive growth and this has been taken into account in setting the Group’s proposed remuneration policy,
particularly with regard to long-term incentives.
The Committee defined the following key outcomes that are required from the proposed remuneration policy:
– Strong alignment between remuneration outcomes and the delivery of client desired outcomes.
– A transparent approach to sharing the economics of the Group between employees including the Executive Directors, and shareholders.
– Ensuring that higher levels of remuneration are only delivered for exceptional long-term growth and performance.
– A clear understanding of expectations with regard to performance outcomes and measurement that translates the Group’s strategy into
financial and non-financial outcomes that measure progress in the current period, medium and long term.
– A clear understanding by our employees and the Executive Directors of their remuneration outcomes, including their expectations regarding
the components of remuneration and how this is linked to their individual, divisional and the Group’s performance.
– An alignment to effective risk management and personal and collective conduct through malus adjustments and retention periods, including
compliance with the FCA’s Remuneration Codes and UCITS V, where applicable.
The Committee has considered the environmental, social and governance implications of the remuneration policy and is satisfied that there is
no element which would incentivise inappropriate conduct or behaviour.
Changes from the current remuneration policy
In summary the main changes from the current remuneration policy are:
– The Group’s total remuneration and profit share each year will be formally capped at a maximum of 54% of net management and advisory
fees, plus 50% of performance fees.
– An increase in maximum annual cash bonus opportunity from 200% to 300% of salary to reward exceptional performance, subject at all
times to a requirement to make at least a 50% of awards as long-term incentive plan (LTIP) awards with forward-looking financial
performance targets.
– Changing the performance metrics for LTIP awards from total shareholder return to financial metrics linked to the growth of the underlying
business economics, for example adjusted underlying EPS.
– Grants awarded to Executive Directors in 2014 under the Executive Performance Share Plan (EPSP) will continue in accordance with the
performance terms of the EPSP and are due to end in 2018. A new EPSP will not be established for Executive Directors. Long term incentive
awards made to Executive Directors will be made under the existing plans (subject to shareholder approval for the participation of Executive
Director in the Deferred Equity Plan).
– We believe that good client investment outcomes are a key driver of client satisfaction and shareholder value creation, both in maintaining
and growing existing client relationships and attracting new clients. We are therefore proposing that Executive Directors that have
contributed to the generation of investment performance will be eligible to receive remuneration which more explicitly relates to the
generation of performance fees. The total performance fee remuneration that can be awarded to the Executive Directors will be subject
to a cap of £8m along with the percentage cap above. In addition individual limits on the amount and the percentage of performance fee
remuneration will be applied to each Executive Director. Awards will be subject to significant levels of deferral into shares and/or fund units.
With regards to the maximum annual cash bonus opportunity, the previous remuneration policy provided that Executive Directors were eligible
to receive up to 200% of their base salary as a discretionary cash bonus based on the progress achieved against ‘desired outcomes’. The maximum
cash bonus opportunity has been increased to 300% of base salary in the new policy to reflect the concept of ‘exceptional outperformance’.
The Committee’s evaluation of expected performance aligns to the successful delivery of the Board’s annual budget across all KPIs as well as
other specific objectives and equates to a level of 100% of fixed base salary. Above expectation performance aligns to outperformance against
the Board’s budget and equates to a level of 200% of fixed base salary. The Committee’s expectation in that an award of above 200% of fixed
base salary is, by its nature, rare and would only be awarded by the Committee for exceptional outperformance both in achieving sustainable
and accelerated outcomes in the current period aligned to the early achievement of objectives in the Board’s three year strategic plan.
River and Mercantile Group PLC Annual Report and Accounts 2017
2018-2020 DIRECTORS’ REMUNERATION POLICY PROPOSAL
Continued
60
In the year ended 2017 based on the clear demonstration of actual outcomes above the desired level the Executive Directors were awarded a
cash variable remuneration at the 200% level. The financial year ended 2017 is the only year since the IPO that any of the Executive Directors
have received an award at this level. In 2015 all the Executive Directors voluntarily elected no cash bonus remuneration and in 2016 only two
Executives Directors were awarded cash bonuses which were set at the 120% and 124% level. The manner in which cash bonuses have
historically been awarded gives a strong indication of our alignment to our shareholder’s interests and evidences the Committee’s commitment
to appropriate pay.
In deciding not to repeat the EPSP in the new remuneration policy, and to introduce performance fee remuneration for Executive Directors, the
Committee reviewed the overall economics of the two remuneration approaches to ensure that the maximum award levels produced similar
financial outcomes for our shareholders. For the full vesting of both the EPSP A and B shares a Total Shareholder Return of 30% compounded
over 4 years is required. Including dividends this would require that the share price at vesting is approximately £4.30 per share. This equates to
an award value to the Executive Directors, as a group, of £31m, equivalent to £8m per year over the 4-year performance period. Accordingly we
set the maximum that the Executive Directors, as a group, could be awarded from Performance fee remuneration at the same level to maintain
the same financial outcome for shareholders.
Proposed remuneration policy
In summary the following are the key outcomes of the proposed remuneration policy:
– Shareholder outcomes
To maintain a balance of outcomes between shareholders and employees, including the Executive Directors, the Group’s total remuneration
each year will be capped at the maximum aggregate of 54% of net management and advisory fees, plus 50% of performance fees. In the
event that an acquisition is undertaken by the Group the Committee has discretion to make adjustments on a temporary basis to the
remuneration ratio in order to facilitate integration.
– Fixed remuneration and benefits
Executive Director base salaries are to be reviewed annually by the Committee and set at a suitably competitive level. The maximum annual
increase in base salary of each Executive Director is capped at the weighted average employee salary increase in that year, except in the case
of a change in role.
– Variable remuneration
All Executive Directors will be eligible for annual variable remuneration comprising:
(a) up to a maximum of 300% of fixed base salary in cash in order to reward exceptional performance,
plus
(b) up to a maximum of 400% of fixed base salary in the form of long-term incentive awards under the Group’s existing deferral plans.
The total annual variable remuneration of Executive Directors will be subject to at least 50% deferral into long-term incentive awards with
performance metrics linked to shareholder outcomes.
Long-term incentive awards will be in the form of the Group’s shares or, where regulation requires (i.e. UCITS V) or where the Committee
considers it appropriate, deferred into other instruments. Long-term incentive awards made to Executive Directors will be made under the
existing plans (subject to shareholder approval for the participation of Executive Directors in the Deferred Equity Plan). Long-term incentive
awards in the Group’s shares may proportionally vest based upon a combination of metrics including adjusted underlying EPS growth
measured over the three-year vesting period. The Committee will determine when performance conditions shall be applied to long-term
incentive awards. Performance conditions may not be applied when the award is a deferral of variable remuneration under the UCITS V or a
deferral of a cash bonus. Awards can be made under the deferral arrangements relating to the deferral of bonuses that are yet to be paid as
well as for bonuses for the previous financial year which have been withheld in accordance with UCITS V. Vested awards will be subject to a
two-year post-vesting hold period and malus adjustments.
– Performance Fee Remuneration
The maximum level of total remuneration and profit share applicable to performance fees will be capped at 50% of performance fees in a
year. Executive Directors will, as described above, be eligible to share more explicitly in the remuneration relating to performance fees
subject to satisfaction of all appropriate good conduct criteria. This will be achieved through the introduction of the Performance Fee
Remuneration for Executive Directors whereby Executive Directors that have contributed to the generation of investment performance can
be allocated Performance Fee Remuneration. The remuneration will be subject to a cap on the amount and the percentage which varies by
individual Executive Director.
Up to 40% of any Performance Fee Remuneration can be paid in cash in the year the performance fees are earned by the Group. A minimum of
60% of the Performance Fee Remuneration will be subject to deferral into the Group’s shares and/or fund units which will vest over three years
and will be subject to a malus provision.
River and Mercantile Group PLC Annual Report and Accounts 2017
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Governance
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61
Policy illustration
The following chart illustrates the application of the remuneration components under the new policy reflecting the maximum possible
remuneration based on performance outcomes:
Total
Remuneration
(£000’s)
£8,000
£7,000
£6,000
£5,000
£4,000
£3,000
£2,000
£1,000
£0
39%
26%
18%
13%
4%
50%
25%
25%
100%
18%
12%
34%
26%
10%
19%
12%
34%
26%
9%
19%
12%
34%
26%
9%
49%
24%
27%
100%
49%
25%
26%
100%
49%
24%
27%
100%
Min.
Norm.
Max.
Min.
Norm.
Max.
Min.
Norm.
Max.
Min.
Norm.
Max.
MIKE FAULKNER
JACK BERRY
JAMES BARHAM
KEVIN HAYES
Performance
fee bonus
– Deferred3
Performance
fee bonus
– Cash3
LTIA3
Cash bonus2
–
–
–
–
Base1
340
–
–
675
337
340
3,000
2,000
1,350
1,012
–
–
–
–
340
312
–
–
562
281
312
600
400
1,124
843
312
–
–
–
–
287
–
–
550
275
287
600
400
1,100
825
287
–
–
–
–
306
–
–
550
275
306
600
400
1,100
825
306
1 Base includes salary, fees, benefits and pension & performance measures relating to a one year period.
2 Performance measures relating to a one year period.
3 Long Term Incentive Awards. Performance measures relating to greater than one year period.
As noted earlier the increase in the maximum possible remuneration includes both the effect of increasing the maximum cash bonus award to
300% of salary and the addition of Performance Fee Remuneration to replace the maximum remuneration under the EPSP which is not being
replaced in the proposed policy.
The maximum remuneration outcomes for Mike Faulkner, the Group’s CEO have increased from both the change in cash bonus from 200% to
300%, and the inclusion of Performance Fee Remuneration. Given the specific nature of our client engagement processes and the size of our
business, a significant part of Mike’s responsibilities include being directly involved in the generation of performance fees through investment
ideas, strategy generation, development and sales. The Committee therefore considers it appropriate that were these investments decisions
and strategies to result in significant performance fees to the Group, Mike (and the other Executive Directors where they have also contributed)
can be awarded remuneration specifically associated with this activity. The maximum level of performance fee remuneration represents
exceptional performance which will be directly linked to the Group receiving significant performance fees in that year.
River and Mercantile Group PLC Annual Report and Accounts 2017
2018-2020 DIRECTORS’ REMUNERATION POLICY PROPOSAL
Continued
62
The maximum level of total performance fee remuneration that can be awarded to employees and partners, including the Executive Directors is
capped under the proposed policy at 50% in any year. This provides clear alignment with shareholders as historically the net performance fee
income (performance fees less performance fee related remuneration and taxes) have been fully distributed to shareholders each year.
In addition, any Performance Fee Remuneration awarded to the Executive Directors will be subject to at least 60% deferral in the Group’s shares
or managed funds, vesting over a 3 year period and will be subject to a malus provision.
Remuneration policy
This table sets out the components of the proposed remuneration policy for Executive Directors. The proposed policy will be effective for the
2017/2018 financial year.
Component
Purpose
Application to Executive Directors
Group
remuneration
capping
To ensure that overall remuneration reflects an
appropriate sharing of reward between all employees
including Executive Directors and shareholders
Fixed pay
Base salary
To help recruit and
retain talent
Benefits, pension,
save-as-you-earn
To help recruit and retain
talent and promote health
and wellbeing
A key part of the remuneration policy, a cap on the overall
remuneration ratio in line with current levels gives shareholders
comfort that they will enjoy at least the same share of the profits
of the business as they do currently.
The Group’s overall remuneration and profit share expense,
reflecting fixed and variable elements for all staff and partners,
shall be capped at an aggregate of:
– 54% of net management and advisory fees, plus
– 50% of performance fees
In the event that an acquisition is undertaken by the Group the
Committee has discretion to make adjustments on a temporary
basis to the remuneration ratio in order to facilitate integration.
These are the maximums, and the Committee expects the
business to operate below them in a typical year.
Base salaries represent fixed contractual payments. To maintain
financial flexibility in our overall economics, salaries are set at a
suitably competitive level based on peer group analysis.
Like other employees, Executive Directors’ salaries are reviewed
annually; however they will not be increased by more than the
weighted average increase in employee salaries over the period
since the last change in Executive Director salary, except to reflect
changes in role.
Executive Directors have access to the same benefits as all Group
employees, including save-as-you-earn, defined contribution
pensions (or cash in lieu of pension) with a Group contribution of
up to 10%, and health and other insurances.
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Purpose
Application to Executive Directors
63
Variable pay
To provide motivation and
reward to individuals for
achievement of objectives
aligned with the Group’s
strategy. These objectives
may be in-year, or longer
in duration.
Cash Variable
Remuneration
Variable pay shall be in two forms, the details of which are below:
1. Cash Variable Remuneration – up to 300% base salary, plus
2. Long Term Incentive Awards – up to 400% base salary
In setting the overall remuneration for the year, the ratio of Long
Term Incentive Awards to Cash Variable Remuneration shall be
at least 1:1.
Executive Directors will be eligible for maximum Cash Variable
Remuneration which is capped at a multiple of 300% of base salary.
The Cash Variable Remuneration will be assessed by the
Committee and will be linked to stated performance objectives
aligned to the annual delivery of the Group’s strategy. These will
be a combination of individual and Group-wide performance
objectives, with financial performance measures the key factors.
These will include: Group KPIs; specific divisional performance;
and Adjusted underlying EPS. These measures will determine the
outcomes ranging from minimum to exceptional.
Consideration of culture and conduct will also be included to reward
high quality conduct which is consistent with the Group’s culture.
The Committee’s evaluation of expected performance aligns to
the successful delivery of the Board’s annual budget across all
KPIs as well as other specific objectives and equates to a level of
100% of fixed base salary. Above expectation performance aligns
to outperformance against the Board’s budget and equates to a
level of 200% of fixed base salary. The Committee’s expectation
in that an award of above 200% of fixed base salary is, by its
nature, rare and would only be awarded by the Committee for
exceptional outperformance both in achieving sustainable and
accelerated outcomes in the current period aligned to the early
achievement of objectives in the Board’s three year strategic plan.
By mandating a ratio of Long Term Incentive Awards to Cash
Variable Remuneration of at least 1:1, at least 50% of the
Executive Directors remuneration each year will be in the form of
a Long Term Incentive award structure which has more onerous
performance conditions than a simple deferral.
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Component
Purpose
Application to Executive Directors
Variable pay
(continued)
Long Term Incentive
Awards
To incentivise delivery of
long-term performance and
strategic objectives
Executive Directors can be awarded Long Term Incentive Awards
which are capped at a maximum of 400% of base salary.
Typical annual grants will be between 100% and 200% of base
salary. Awards above 200% and up to 400% of base salary can
be awarded subject to pre-grant performance conditions,
measured as part of the year-end appraisal process along with
Cash Variable Remuneration.
Awards shall be made in Group shares or fund units, or a
combination of the two. The Committee will decide the most
appropriate mix each year depending on the desired outcomes
for the business.
The performance conditions will be measured over a three-year
period, chosen to align with the typical strategic timeline of the
Group. Following vesting, the awards shall be subject to a further
two year holding period.
Vesting will be based on maintaining a minimum level of
aggregate Group performance, as measured by adjusted
underlying EPS growth. This measure is chosen as it represents
the core business and is not subject to volatility resulting from
performance fees. These same awards may contain additional
criteria requiring the achievement of specific performance targets
aligned to the long-term strategic objectives set by the Board.
The specific vesting criteria which will be set by the Committee
will be clear, measurable and objective and will be included in the
annual report on remuneration in the year they are set. Progress
against them will be reported in each annual report on
remuneration during the vesting period.
A maximum of 75% of base salary will vest for threshold performance.
Awards will be subject to requirements of continued employment
throughout the vesting period, but not the holding period.
Deferrals shall be subject to malus during the vesting period and
holding period, as detailed below.
Executives shall be entitled to dividends or income distributions
during the holding period.
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Component
Purpose
Application to Executive Directors
Performance Fee
Remuneration
To reward specific exceptional
returns to shareholders
resulting from performance
fees
Subject at all times to the Group remuneration cap detailed
above, the Executive Directors can participate in the performance
fee remuneration pool. Participation will be qualified based on
objectives relating to: the direct contribution to investment idea
generation and innovation, direct portfolio management, risk,
capacity and execution management and the development of net
new performance fee business. The award is subject to a limit on
the percentage of performance fees and the total amount
Executive Directors can receive each year:
Malus and clawback
To ensure that variable
remuneration reflects
longer-term risk outcomes
Personal shareholding
To align Executive Directors
with shareholders
Individual
Max. % of
performance
fees
Max. £
amount
per annum
Mike Faulkner
20%
10%
Other Executive
Directors,
individually
£5m
£1m
Basis for performance evaluation
Specific objectives
relating to: the direct
contribution to
investment idea
generation and
innovation, direct
portfolio management,
risk, capacity and
execution management
and the development of
net new performance fee
business
Up to 40% of the Performance Fee Remuneration can be paid in
cash in the year the performance fees are earned by the Group.
A minimum of 60% of the Performance Fee Remuneration will be
deferred in a combination of Group shares and/or fund units for a
period of three years, subject to malus which includes significant
deviations from client mandate expectations, failures in risk
management and conduct issues. Recipients will be entitled to
dividends or income distributions on a reinvestment basis.
Malus will apply to all awards during the performance assessment
and award setting process, and both the vesting and holding
periods. This allows the Committee at its sole discretion to reduce
the levels of award due to the individual to reflect risk outcomes
including: deviations from client mandate expectations, failures
in risk management and conduct issues, personal misconduct,
professional conduct failings in a regulatory context, or risk
management failings with regard to clients; material
mis-statement of financial results; and significant downturn in
Group or relevant divisional results.
Clawback will apply to cash variable remuneration and
performance fee remuneration for a period of 12 months in case
of material financial mis-statement or serious personal
misconduct by the individual.
Executive Directors are required to acquire and retain Group
shares equivalent to at least 200% of base salary. The Directors
shall have five years from taking office to acquire the shares.
Shares which have vested under remuneration plans but which
are subject to holding periods shall count for the purpose of
determining this test.
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Total remuneration cap
A key governance metric to demonstrate the alignment between our employees and Executive Directors and our shareholders is the proposed
cap on total remuneration as a percentage of both management and advisory fees and performance fees. The cap will be set in the new policy
and therefore any motion to exceed the cap will require shareholder approval as a binding vote.
The following table illustrates the previous actual remuneration ratios for net management and advisory revenues and performance fee
revenues. We propose to set the ratio in the policy at: 54% of net management and advisory fees plus 50% of the performance fees.
Net management fee and advisory fees
Remuneration ratio
Performance fees
Remuneration ratio
Total revenue
Total remuneration ratio
1 Remuneration was set at an overall level in 2014.
2014 (6m)
2015
2016
2017
17,525
n/a1
2,350
n/a1
20,162
54%
46,654
52%
5,879
42%
52,533
51%
45,669
54%
1,526
50%
47,195
54%
55,893
52%
12,549
50%
68,442
52%
Maximum
Policy Level
54%
50%
The Board’s stated strategy is to improve the overall margin of the business through revenue growth. This will be achieved over time by the
reduction in the remuneration and the administrative expenses ratios to revenue. Over the last three years the remuneration ratio has been
reduced and we expect this to be maintained over the next 3 years in the range of 50-54% for net management and advisory fees and 50% of
performance fees. In setting the ratio at the 54%/50% ratio the Committee recognises that there may be a need for temporary flexibility, for
example in order to recruit new investment or consultant teams. Likewise, as stated earlier, the expectation is that in years of significant
performance fees the performance fee ratio will be below 50%.
The net management fees and performance fees are defined in our financial statements and subject to audit. Remuneration expense is defined
as fixed based salaries, partner drawings, benefits, cash variable remuneration and profit share and the amortisation of performance share and
fund awards, recruiting incentives, and payroll taxes. The financial statement effect of the EPSP, including payroll taxes are excluded from the
definition of remuneration expense for the purposes of applying the remuneration cap. Remuneration expense is defined in our financial
statements and is subject to annual audit.
Executive Performance Share Plan (EPSP)
As a newly listed company, the remuneration policy set in 2014 included the grant of the Executive Performance Share Plans (EPSP) to
incentivise the Executive Directors to deliver growth in the client business and to maximise the return to shareholders as measured in terms of
share price performance and dividends. The EPSP was designed to provide a reward to the Executive Directors only in the situation where the
actual total shareholder return was above 12% compounded over four years. Full vesting of the EPSP was based on achieving actual total
shareholder returns of 24% for the A shares and 30% for the B shares, respectively compounded over the four-year period from the IPO date.
As these hurdles were considered appropriately challenging the EPSP was treated as dilutive to shareholders.
The Committee also confirms that as the EPSP was issued prior to the IPO it is not included in the calculation of potentially dilutive awards as set
out in ABI guidance.
The performance measurement period for the EPSP will end on 30 June 2018. The Committee is proposing to shareholders that this plan will not
be repeated, however that the current outstanding awards will continue in accordance with the plan documentation.
Performance fee remuneration
We believe that good client investment outcomes are a key driver to client satisfaction and shareholder value creation, both in maintaining and
growing existing client relationships and attracting new clients. As an investment management business our ability to innovate and develop
investment intellectual capital in order to achieve long-run investment outperformance is an essential element of our continued success.
Linked to investment outperformance generated for clients is the ability of the Group to generate performance fees. The Executive Directors, in
particular Mike Faulkner, have significant input into the generation of performance fees through investment ideas, strategy generation,
development and sales. The Committee proposes that within the overall performance fee remuneration, it is appropriate therefore for the
Executive Directors to be eligible for remuneration to reflect their role during the year in generating such fees.
We believe that this directly aligns the Executive Directors including Mike Faulkner as an investment focused CEO, with the interests of
shareholders in delivering shareholder returns.
For shareholders a significant proportion of net performance fees (performance fees less performance fee remuneration and taxes) are returned
to shareholders. To date 100% of the net performance fee profits have been returned to shareholders as dividends. As the performance fee
remuneration is capped at 50% of performance fees the direct financial outcome to shareholders will be unchanged.
Annually, specific objectives can be established, where relevant, for Executive Directors by the Committee with the assistance from the Board’s
other subcommittees: the Global Investment Committee, the Client Engagement Committee and the Audit and Risk Committee. These
objectives could relate to the development of a new investment philosophy and process, research and risk management strategies or execution,
capacity and distribution strategies.
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With regards to the Executive Directors the award of performance fee remuneration is subject to a cap of both the amount and the percentage
of total performance fees. We believe that this is an important governance limitation.
Individual
Mike Faulkner
Other Executive Directors,
individually
Max. % of performance fees Max. £ amount
Basis for evaluation
20%
10%
£5m
£1m
Specific objectives relating to: the direct contribution to investment
idea generation and innovation, direct portfolio management, risk,
capacity and execution management and the development of net
new performance fee business
In our client engagement we are clear as to how this outperformance will be measured and delivered, including clear risk parameters which are
monitored independently from those managing the assets. Our approach to client engagement and conduct mitigates the conflicts of interest
that can arise in generating performance fees and in particular situations where remuneration is directly linked to underlying investment
performance.
In order to ensure longer-term alignment and adherence to UCITS V where applicable, 60% of performance fee remuneration each year will be
deferred into the Group’s shares and/or fund units for a period of 3 years, subject to malus.
In the determination of vesting and the operation of malus provisions the Committee will be keenly focused on monitoring conduct, not only
with regard to our clients but also with regard to our participation in the broader financial markets. The Committee’s consideration of malus will
include: deviations from client mandate expectations, failure in risk and conduct, personal misconduct, professional conduct failings in a
regulatory context, or risk management failings with regard to clients, the Group, as well as dealings in the broader financial markets.
In years in which performance fees are significant and the awards to relevant employees and the Executive Directors are at the respective cap it
is the Board’s expectation that the remuneration accrual rate applied to performance fees will be reduced below 50%, thereby increasing the
distributions to shareholders.
Measuring performance
The Committee defined the following key outcomes that are required from the proposed remuneration policy:
– Ensuring that higher levels of remuneration are only delivered for exceptional long-term growth and performance;
– A clear understanding of expectations with regards to performance outcomes and measurement that translates the Group’s strategy into
financial and non-financial outcomes that measure progress in the current period, medium and long term; and
– A clear understanding by our employees and the Executive Directors of their remuneration outcomes, including their expectations regarding
the components of remuneration and how this is linked to their individual and divisional performance and the Group’s performance.
Prior to the start of the financial year the Board undertakes a strategic review of the business and reviews submissions from each business area
regarding their strategic ambitions for the forthcoming year and their trajectory towards a three-year strategic plan. These plans form the basis
of the Group’s annual budget and three-year strategic plan. The budget is set on the basis of stretch objectives so that it is sufficiently
challenging for the Executive Directors and Senior Management. The annual budget sets the baseline of the key performance indicators, both
financial and non-financial.
Variable Cash Remuneration
These budget key performance indicators form the basis for the performance hurdles for the Executive Directors’ Variable Cash Awards which
will be set by the Committee annually. The Committee views that the achievement of the annual budget represents the level of ‘expected’
performance. For each KPI the Board sets a range which gives a clear indication of ‘above expectation’ and ‘exceptional’ performance.
In evaluating the Executive Directors there is an element of their performance that is the result of their collective activity and therefore at the
Group level the achievement of net management fee and advisory revenues and underlying pre-tax margin are elements that we hold the
Executive Directors responsible for as a collective team. Individual divisional objectives, for example sales targets, regretted attrition and
non-financial metrics such as the measurement of client satisfaction, and the development and training of staff are more aligned to the
individual Executive Directors. The various metrics are therefore weighed by the Committee for each Executive Director.
In order to exclude the effect of performance fees, which could give rise to performance fee remuneration, Variable Cash Remuneration
performance objectives will be based on the underlying management and advisory earnings metrics. These will include metrics linked to
revenues, AUM, and adjusted underlying margins.
While other financial metrics may also be used, the primary linkage to shareholder returns is the delivery of revenue and the control of both
remuneration and administrative expenses. Other non-financial metrics may also be used including those which measure client satisfaction,
and staff development and succession.
Strategically the business has grown organically over the last three years. Over the next three-year period adjusted underlying EPS will be used
as a performance metric to reflect the potential use of the capital base for the purposes of an acquisition. The Committee considers this a more
appropriate metric than those based on return on equity.
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In terms of Variable Cash Remuneration the following are used by the Committee to determine each Executive’s performance and Variable
Cash Remuneration:
Expected performance aligns to the successful delivery of the Board’s annual budget across all KPIs and equates to a level of 100% of fixed
base salary.
‘Above expectation’ performance aligns to outperformance against the Board’s budget and equates to a level of 200% of fixed base salary.
The Committee’s expectation in that an award of above 200% of fixed base salary is, by its nature, rare and would only be awarded by the
Committee for exceptional outperformance both in achieving sustainable and accelerated outcomes in the current period aligned to the early
achievement of objectives in the Board’s three year strategic plan.
The Committee will receive quarterly reporting to provide ongoing feedback on progress with a final determination by the Committee at the
end of the year.
The Committee will retrospectively disclose the financial targets and the evaluation of actual performance against those targets for each
Executive Director. Detailed commentary will be given on the Committee’s assessment of performance achieved against the non-financial
objectives. Specific targets will not be disclosed in detail in advance for reasons of commercial sensitivity, but some high level disclosure of the
types of objectives will be given. In the Chief Executive’s review (page 8) the strategy of the Group for the next 3 years has been outlined,
including specific growth metrics to be achieved. These strategic objectives will form the basis for the targets for 2017/2018 and will reviewed
and updated as required in our reporting to shareholders in the interim and annual reports.
Long Term Incentive Awards
By mandating a ratio of Long Term Incentive Awards to Cash Variable Remuneration of at least 1:1, at least 50% of the Executive Directors’
remuneration will be deferred each year in a Long Term Incentive Award structure which has more onerous performance conditions than a
simple deferral.
Executive Directors can be awarded grants under the Group’s Deferred Equity Plan which provides for awards of shares, fund units or other
securities. Typical annual grants will be 100 – 200% of fixed base salary, but up to 400% can be awarded subject to pre-grant performance
conditions, measured as part of the year-end appraisal process along with Variable Cash Remuneration.
Long Term Incentive Awards vest over a period of three years to align to the Group’s strategic planning horizon. The performance conditions will
be the financial and non-financial KPI growth metrics rather than performance metrics to be achieved in a single year.
Awards can be made in Group shares or fund units, or a combination of the two. The Committee will decide the most appropriate mix each year
depending on the desired performance outcomes for the business.
Vesting will be based on maintaining a minimum level of aggregate Group performance, as measured by adjusted underlying EPS (Earnings Per
Share) growth. These same awards may contain additional criteria requiring the achievement of specific performance targets aligned to the
long-term strategic objectives set by the Board as part of its strategic planning process.
The specific vesting criteria which are set by the Committee will be clear, measurable and objective and will be included in the annual report on
remuneration in the year they are set. Progress against them will be reported in each annual report on remuneration during the vesting period.
Risk and conduct
The Committee takes risk and conduct issues very seriously, and has incorporated this into the policy to ensure that appropriate remuneration is
paid to individuals who exhibit the Group’s values, resulting in positive risk and conduct outcomes. Individuals who are directly accountable for
risk and conduct issues which arise should have reductions in their remuneration. As a result, all variable remuneration awards are subject to
malus, which allows the Committee to:
– Cancel any award before or during the vesting or hold period;
– Reduce the amount of any award before it is made;
– Reduce the amount of any award during the vesting period;
– Reduce the amount of any award during the holding or deferral period; and
– Impose further conditions on any award in certain circumstances including where there has been misconduct, exposure to risks, breach of
policy or where the Committee is reasonably of the opinion that the actions of the individual has or is likely to cause injury to the business.
Additionally, the Committee will not only measure the absolute achievement of objectives, but will also apply judgment as to the manner in
which the objectives were achieved.
Finally, the up-front cash elements of variable remuneration, being the cash annual bonus and the performance fee bonus shall be subject to
a 12 month clawback provision, in case of material mis-statement of financial results or serious personal misconduct by the individual.
Remuneration of new Executive Directors
Upon appointment of new Executive Directors, the Committee aims to pay such Directors appropriate levels of remuneration to achieve the
objectives of retention and motivation, in line with the policy detailed above.
Base salaries will typically be set at similar levels to those already in place, although they may be set lower to reflect experience, in which
case they may rise more quickly over time. Benefits and bonuses will be applied in a consistent manner with the policy as it applies to other
Executive Directors.
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New Executive Directors will be given objectives for the remainder of the year in which they are appointed, and will be appraised on their
performance and be eligible for variable remuneration in a similar way as existing Executive Directors.
The Group may pay reasonable legal costs for a new Executive Director to obtain independent legal advice in relation to their appointment.
Where a new Executive Director forfeits remuneration as a result of leaving their previous role, the Committee may make one-off awards on
their appointment in order to mitigate their loss. In all cases any buy-out awards will be granted on a like-for-like basis, taking into account the
nature, time horizon and performance requirements of the forfeited remuneration and will be subject to malus at least as onerous as the awards
being replaced.
Non-Executive remuneration
The Group periodically reviews the fees payable to Non-Executive Directors in respect of their roles on the Board and as committee chairs.
This review includes the use of benchmarking data to determine appropriate fee levels. The Committee will makes changes to remuneration
as appropriate, with the last change being an increase, which was effective from 1 July 2016. The Non-Executive Directors will be entitled to
additional fees in exceptional circumstances if determined appropriate by the Chairman in consultation with the CEO.
Directors’ service contracts, letters of appointment and termination arrangements
All Executive Directors have service agreements under which, other than by termination in accordance with the terms of these agreements,
employment continues indefinitely.
There are no special provisions for notice or compensation in the event of a change of control of the Group. It is the Group’s policy that the
Group may terminate the Executive Directors’ service agreements by giving no less than 12 months’ notice.
As an alternative, for Executive Directors the Group may at its discretion pay in lieu of that notice. Payment in lieu of notice may be made in
equal monthly instalments from the date of termination to the end of any unexpired notice period. Payment in lieu of notice in instalments may
also be subject to mitigation and reduced taking into account earnings from alternative employment.
For Executive Directors, payment in lieu of notice comprises 100% of the annual salary at the date of termination and the annual cost to the
Group of providing pension and all other benefits. In limited circumstances, in addition to making a full payment in lieu of notice, the Group may
permit an Executive Director to stay employed after the announcement of his or her departure for a limited period to ensure an effective
hand-over and/or allow time for a successor to be appointed.
The Group may, depending on the circumstances of the termination, determine that it will not pay the Executive Director in lieu of notice and
may instead terminate an Executive Director’s contract in breach and make a damages payment, taking into account as appropriate the
Director’s ability to mitigate his or her loss. The Group may also pay an amount considered to be reasonable by the Committee in respect of fees
for legal and tax advice and outplacement support for the departing Executive Director.
On cessation of employment, save as otherwise provided for under the rules of the Group’s share plans, Executive Directors’ entitlements to any
unvested awards lapse automatically. In the case of injury, disability, ill-health or redundancy (as determined by the Committee), change of
control, or any other reason that the Committee so decides in its absolute discretion, awards may continue, or vest early.
Awards that are subject to performance conditions not linked to continued employment will stay in force as if the participant had not ceased
employment and shall vest on the original vesting date. Awards that are not subject to a performance condition will be released as soon as
practicable following cessation of employment.
The number of shares that are released shall be pro-rated for the period of the participant’s service in the restricted period (although the
Committee may in its absolute discretion waive or vary the pro-rating).
In determining whether and how to exercise its discretion under the Group’s share plans, the Committee will have regard to all relevant
circumstances distinguishing between different types of leaver, the circumstances at the time the award was originally made, the Executive
Director’s performance and the circumstances in which the Executive Director left employment.
On cessation of employment, Executive Directors, having been notified of participation in an annual incentive plan for the relevant financial year
may, at the Committee’s discretion, retain entitlement to a pro-rata annual incentive for their period of service in the financial year prior to their
leaving date. Such pay-out will normally be calculated in good faith on the same terms and paid at the same time as for continuing Executive
Directors.
Eligibility for allowances and benefits including retirement benefits normally ceases on retirement or on the termination of employment for any
other reason.
The rules of the Group’s share plans make provision for the treatment of awards in respect of corporate activity, including a change of control of
the Group. The Committee would act in accordance with the terms of the awards in these circumstances, which includes terms as to the
assessment of performance conditions and time apportionment.
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Details of each individual Executive Director’s service agreement are outlined in the table below. Employment agreements for other employees
are determined in accordance with local labour law and market practice.
Executive Directors
Title
Appointment Date
Resignation Date
James Barham
Global Head of Distribution
27th March 2014
Jack Berry
Kevin Hayes
Global Head of Solutions
27th March 2014
Chief Financial Officer
15th April 2014
Mike Faulkner
Chief Executive Officer
27th March 2014
Non-Executive Directors
Title
Appointment Date
Resignation Date
Effective Date of Current
Service Agreement
Notice Period
Initial Term
6th April 2014
12 months
27th March 2014
12 months
27th March 2014
12 months
27th March 2014
12 months
Rolling
Rolling
Rolling
Rolling
Effective Date of Current
Service Agreement
Notice Period
Initial Term
Paul Bradshaw
Angela Crawford-Ingle
Robin Minter-Kemp
Jonathan Punter
Peter Warry
27th March 2014
12th January 2017 27th March 2014
3 months
29th May 2014
12th May 2014
26th June 2014
1st June 2014
29th May 2014
3 months
12th May 2014
3 months
26th June 2014
3 months
1st June 2014
3 months
3 years
3 years
3 years
3 years
3 years
Compliance with regulation and legislation
The regulatory and legislative environment is changing rapidly, with implications for remuneration approaches. Whilst all steps are taken at the
time of drafting a policy to ensure it is compliant with both the letter and spirit of current requirements, this can change over a three-year cycle.
An example of this is the implementation of UCITS V in the current year, which introduces requirements to make deferrals into UCITS fund units,
not currently permitted in the Group’s current policy.
To avoid these issues in future, the Committee may vary the method and approach to Executive Remuneration in this policy, in order to ensure
regulatory and legislative compliance.
Statement of consideration of employment conditions elsewhere in the Group
The Group’s head of HR is present at all Committee meetings and provides the Committee with reporting on proposed salary levels and variable
remuneration awards during the annual remuneration process, and periodically on request. The Committee approves the overall variable
remuneration spend each year and performs a detailed review of the remuneration of senior employees outside of the Executive Directors.
This information helps the Committee reach a conclusion on the remuneration policy which they believe is appropriate in light of employee
remuneration, and represents a consistent approach throughout the Group.
The Group does not specifically invite employees to comment on the Directors’ remuneration policy, but any comments made by employees are
taken into account. Several employees from Finance, HR and legal were involved in the consideration of this proposed remuneration policy.
Approved and signed on behalf of the Remuneration Committee.
Robin Minter-Kemp
Chairman, Remuneration Committee
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DIRECTORS’ REPORT
71
The Directors present their report incorporating the Corporate Governance statement on pages 38-39, together with the audited consolidated
financial statements of River and Mercantile Group PLC (the Company) and its subsidiaries (collectively, the Group) for the year ended 30 June 2017.
The Company is incorporated in England and Wales under registered number 04035248 and with its registered office at 11 Strand, London,
WC2N 5HR.
Directors
The current Directors are listed with their biographies on pages 36 and 37. The names of those Directors along with names of the persons who,
at any time during the financial year were Directors, and the date of their appointment to the Board of Directors is set out below.
Director
James Barham
Jack Berry
Paul Bradshaw
Angela Crawford-Ingle
Mike Faulkner
Kevin Hayes
Robin Minter-Kemp
Jonathan Punter
Peter Warry
Date of appointment
27 March 2014
30 June 2009
27 March 2014*
29 May 2014
30 June 2009
15 April 2014
12 May 2014
30 June 2009
01 June 2014
* Paul Bradshaw passed away on 12 January 2017.
Each of the Directors will stand for re-election on an annual basis.
Management report
For the purposes of Disclosure and
Transparency Rule 4.1.8, this Directors’
report combined with the strategic report
comprises the management report.
Conflicts of interest
The Companies Act 2006 (the Act) imposes a
duty on Directors to avoid a situation in
which they have or could have a conflict of
interest or possible conflict with the interests
of the Company.
The Company has adopted a policy relating
to the handling by the Company of matters
that represent conflicts of interest or
possible conflicts of interest involving the
Directors. The Board will review regularly all
such matters and the Company’s handling of
such matters, save that only Directors not
involved in the conflict or potential conflict
may participate in any discussions or
authorisation process.
Dividends
The Directors have proposed a final
dividend of 6.0p per ordinary share of which
2.8p is a special dividend relating to net
performance fees (2016: 2.5p). Payment
of this dividend is subject to approval
by shareholders at the Company’s 2017
Annual General Meeting (AGM) and, if
approved, will be paid on 15 December
2017 to shareholders on the register at the
close of business on 24 November 2017.
Capital structure and related matters
The capital structure of the Company is
detailed on page 94 of this Report and this
information is, accordingly, incorporated into
this report by reference.
There have been no changes in the capital
structure during the year.
The Company is subject to the UK City Code
on Takeovers and Mergers.
Each ordinary share in the capital of the
Company ranks equally in all respects. No
shareholder holds shares carrying special
rights relating to the control of the Company.
However, the Company has entered into
a relationship agreement with Punter
Southall Group Limited in connection
with the exercise of their rights as major
shareholders in the Company and their
right to appoint a Director to the Board.
These agreements are further detailed in
the Corporate Governance Report in the
Relationship Agreement section on page 39.
Auditor
BDO LLP, the external auditor of the
Company, has advised of its willingness to
continue in office and a resolution to
reappoint it will be proposed at the
forthcoming AGM.
River and Mercantile Group PLC Annual Report and Accounts 2017
72
DIRECTORS’ REPORT
Continued
Substantial shareholdings
As at 7 September 2017, the Company had received the notifications of control of 3% or more
over the Company’s total voting rights and capital in issue as set out below:
Punter Southall Group Limited
Pacific Investments (Sir John Beckwith)
Aberdeen Standard Investments
Aviva Investors
Unicorn Asset Management
Mike Faulkner
Legal & General Investment Management
No. of
ordinary
shares
% of total
issued share
capital
31,302,321
6,103,656
5,469,988
5,189,949
5,085,771
3,706,823
3,244,611
38.13
7.43
6.66
6.32
6.20
4.52
3.95
Direct/
indirect
Direct
Indirect
Direct
Direct
Direct
Indirect
Direct
Audit information
So far as the Directors are aware, there
is no relevant audit information of which
the auditor is unaware. The Directors have
taken all reasonable steps to ascertain any
relevant audit information and ensure the
auditor is aware of such information.
Disclosure of information under Listing
Rule 9.8.4R
The sections which apply to the Group are:
4 – Details of long-term incentive schemes,
which can be found in the Directors’
remuneration report from page 44.
Internal control and risk management
systems
Details of the main internal controls and
risk management systems in relation to the
financial reporting process can be found in
the risk management section on page 26.
Directors’ indemnities
The Company’s articles of association
permit the provision of indemnities to the
Directors. In accordance with the articles of
association, qualifying third party indemnity
provisions (as defined in the Companies
Act 2006) are in force for the benefit of
Directors and former Directors who held
office during the year to 30 June 2017 and
up to the signing of the Annual Report. In
addition, during the year the Company has
maintained liability insurance for Directors.
10,11,14 – Details of a contract of
significance with a controlling shareholder,
details for a contract for provision of services
from a controlling shareholder, compliance
with the independence provisions under LR
9.2.2AR. Information on the relationship
agreement with PSG can be found in the
corporate governance report on page 38.
12 – Arrangements under which a
shareholder has agreed to waive dividends.
The Group’s EBT has agreed to waive
current and future dividends on the shares
it holds pursuant to non-dilutive share
awards made to employees of the Group.
The other sections are not applicable to the
Group.
Approval of annual report
The corporate governance report, the
strategic report and the Directors’
report were approved by the Board on
29 September 2017.
The Directors consider that the annual
report and accounts, taken as a whole
is fair, balanced and understandable,
and provides the information necessary
to assess the Group’s performance,
business model and strategy.
Going concern
The Directors have concluded that
there is a reasonable expectation that
the Group has adequate resources to
continue in operational existence for the
foreseeable future, and have accordingly
prepared the Group and parent financial
statements on a going concern basis.
Please refer to the viability statement
on page 32 for further details.
Events after the reporting period
The Directors are not aware of any
events after the reporting period which
are not reflected in these financial
statements but which would have
a material impact upon them.
Financial instruments
Details of the financial instruments used
by the Group and the risks associated
with them (including the financial risk
management objectives and policies,
and exposure to price, credit and liquidity
risk) are set out on pages 96-99 and this
information is, accordingly, incorporated
into this report by reference.
Future developments
Details on the likely future developments
for the Group can be found in the
Chief Executive’s review on page 8.
Greenhouse gas emissions
Details on the greenhouse gas emissions
of the Group can be found on page 35.
Annual General Meeting
The AGM will be held at the Group’s
registered offices, 11 Strand, London
WC2N 5HR on 8 December 2017, starting
at 2pm. The Notice of Meeting convening
the AGM is contained in a separate
circular to be sent to shareholders.
The Notice of Meeting also includes a
commentary on the business of the AGM.
This strategic report has been approved
and signed on behalf of the Board.
Peter Warry
Acting Chairman
29 September 2017
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
DIRECTORS’
RESPONSIBILITIES
73
Directors’ responsibilities pursuant
to DTR4
The Directors confirm 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 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 of the
principal risks and uncertainties that
they face.
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Company’s
transactions and disclose with reasonable
accuracy at any time the financial position
of the Company and enable them to ensure
that the financial statements comply with
the Companies Act 2006 and, as regards
the group financial statements, Article
4 of the IAS Regulation. They are also
responsible for safeguarding the assets
of the company and hence for taking
reasonable steps for the prevention and
detection of fraud and other irregularities.
Website publication
The Directors are responsible for ensuring
the annual report and the financial
statements are made available on a website.
Financial statements are published on
the Company’s website in accordance
with legislation in the United Kingdom
governing the preparation and dissemination
of financial statements, which may vary
from legislation in other jurisdictions.
The maintenance and integrity of the
Company’s website is the responsibility of
the Directors. The Directors’ responsibility
also extends to the ongoing integrity of the
financial statements contained therein.
The Directors are responsible for preparing
the annual report and the financial
statements in accordance with applicable law
and regulations.
Company law requires the Directors to
prepare financial statements for each
financial year. Under that law the Directors
are required to prepare the group financial
statements and have elected to prepare
the Company financial statements in
accordance with International Financial
Reporting Standards (IFRSs) as adopted by
the European Union. Under company law
the Directors must not approve the financial
statements unless they are satisfied that
they give a true and fair view of the state of
affairs of the group and company and of the
profit or loss for the group for that period.
In preparing these financial statements,
the Directors are required to:
– select suitable accounting policies and
then apply them consistently;
– make judgements and accounting
estimates that are reasonable and
prudent;
– state whether they have been prepared in
accordance with IFRSs as adopted by the
European Union, subject to any material
departures disclosed and explained in the
financial statements;
– prepare the financial statements on the
going concern basis unless it is
inappropriate to presume that the
Company will continue in business; and
– prepare a Director’s report, a strategic
report and Director’s remuneration report
which comply with the requirements of
the Companies Act 2006.
River and Mercantile Group PLC Annual Report and Accounts 2017
74
INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF RIVER AND MERCANTILE GROUP PLC
– whether the Directors’ statement relating
to going concern required under the
Listing Rules in accordance with Listing
Rule 9.8.6R(3) is materially inconsistent
with our knowledge obtained in the audit;
or
– the Directors’ explanation set out on page
32 in the annual report as to how they
have assessed the prospects of the Group,
over what period they have done so and
why they consider that period to be
appropriate, and their statement as to
whether they have a reasonable
expectation that the Group will be able to
continue in operation and meet its
liabilities as they fall due over the period
of their assessment, including any related
disclosures drawing attention to any
necessary qualifications or assumptions.
Key audit matters
Key audit matters are those matters that,
in our professional judgment, were of most
significance in our audit of the financial
statements of the current period and
include the most significant assessed risks of
material misstatement (whether or not due
to fraud) that we identified. These matters
included those which had the greatest
effect on: the overall audit strategy, the
allocation of resources in the audit; and
directing the efforts of the engagement
team. These matters were addressed in
the context of our audit of the financial
statements as a whole, and in forming our
opinion thereon, and we do not provide
a separate opinion on these matters.
Opinion
We have audited the financial statements
of River and Mercantile Group PLC (the
‘Parent Company’) and its subsidiaries (the
‘Group’) for the year ended 30 June 2017
which comprise the consolidated income
statement, the consolidated statement of
comprehensive income, the consolidated
and Parent Company statements of financial
position, the consolidated and Parent
Company statement of statements in equity,
the consolidated and Parent Company cash
flow statements and the related notes to the
financial statements, including a summary of
significant accounting policies. The financial
reporting framework that has been applied
in their preparation is applicable law and
International Financial Reporting Standards
(IFRSs) as adopted by the European Union
and, as regards the Parent Company financial
statements, as applied in accordance with
the provisions of the Companies Act 2006.
In our opinion the financial statements:
– give a true and fair view of the state of the
Group’s and of the Parent Company’s
affairs as at 30 June 2017 and of the
Group’s profit for the year then ended;
– the Group financial statements have been
properly prepared in accordance with
IFRSs as adopted by the European Union;
– the Parent Company financial statements
have been properly prepared in
accordance with IFRSs as adopted by the
European Union and as applied in
accordance with the provisions of the
Companies Act 2006; and
– the financial statements have been
prepared in accordance with the
requirements of the Companies Act 2006;
and, as regards the group financial
statements, Article 4 of the IAS Regulation.
Basis for opinion
We conducted our audit in accordance
with International Standards on Auditing
(UK) (ISAs(UK)) and applicable law. Our
responsibilities under those standards
are further described in the Auditor’s
responsibilities for the audit of the financial
statements section of our report. We are
independent of the group in accordance
with the ethical requirements that are
relevant to our audit of the financial
statements in the UK, including the FRC’s
Ethical Standard as applied to listed
public interest entities, and we have
fulfilled our other ethical responsibilities
in accordance with these requirements.
We believe that the audit evidence we
have obtained is sufficient and appropriate
to provide a basis for our opinion.
Conclusions relating to principal risks,
going concern and viability statement
We have nothing to report in respect of the
following information in the annual report,
in relation to which the ISAs (UK) require us
to report to you whether we have anything
material to add or draw attention to:
– the disclosures in the annual report set
out on page 28 that describe the principal
risks and explain how they are being
managed or mitigated;
– the Directors’ confirmation set out on
page 32 in the annual report that they
have carried out a robust assessment of
the principal risks facing the group,
including those that would threaten its
business model, future performance,
solvency or liquidity;
– the Directors’ statement set out on page
82 in the financial statements about
whether the Directors considered it
appropriate to adopt the going concern
basis of accounting in preparing the
financial statements and the Directors’
identification of any material
uncertainties to the group and the
Parent Company’s ability to continue
to do so over a period of at least twelve
months from the date of approval of
the financial statements;
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
75
Matter
Audit response
Revenue recognition
The Group’s revenue is made up of distinct
components, primarily management fees,
performance fees and advisory fees.
Revenue recognition is considered to be a
significant audit risk as it is a key driver of return to
investors and there is judgement over the accrual or
deferral of revenue, the treatment of performance
measures and the point at which it is probable that
the revenue will be realised.
Impairment of goodwill and intangibles and
related disclosures
Included in the statement of financial position of the
Group is goodwill arising on business combinations
of £14.9m and intangible assets acquired of £22.3m.
The impairment review of goodwill and other
intangible assets is considered to be a significant
audit risk due to the judgements made in
determining whether there is an indication of
impairment in respect of the intangible assets.
These judgements are made in respect of the
underlying assumptions used to calculate the
value in use considered in the impairment review
of goodwill, and include revenue growth rates,
ongoing expenses such as the remuneration ratio,
and the discount factor applied to present value the
balances.
Remuneration incentive schemes and
related disclosures
The Group has a number of performance share
plans in place. There is significant subjectivity and
judgement involved in respect of the estimates
inherent in the valuation of the schemes and the
calculation of the relevant charges and associated
deferred tax and accruals for national insurance
costs, including the expectation of the number of
shares expected to vest.
The accounting and disclosure requirements involve
a high degree of complexity and there is a risk that
the schemes are not adequately reflected and
disclosed in the financial statements.
Recognition and disclosure of provisions and
contingent liabilities
As disclosed in note 24 to the financial statements,
the Group’s subsidiary RAMAM is co-operating with
an investigation by the FCA under its concurrent
competition powers relating to the participation of
RAMAM in two transactions.
The need for recognition of any provision or
disclosure of contingent liability resulting from
the investigation was considered to be an audit
risk due to the significant judgement involved in
determining the appropriate treatment.
We responded to this risk by performing the following procedures:
– We recalculated a sample of management fees recognised in the year based on AUM/NUM
information derived from ‘information prepared by the entity’ (IPE) and rates prevalent in the
respective investment management agreement. We traced the sample through to invoice and
subsequent cash receipt, or to debtors and accrued income where relevant. Our sample also
included items included within accrued income.
– We tested the IPE showing the AUM and NUM driving the management fee calculation, and
agreed a sample to custodian statements and Bloomberg valuations.
– We tested the IPE showing the AUM and NUM driving the management fee calculation, and
agreed a sample to custodian statements and Bloomberg valuations.
– We recalculated performance fees due in respect of a sample of contracts and tested the
appropriateness of the deferral of performance fees in accordance with the terms of the
contract, the accounting policy and IAS 18.
– We developed expectations of contracts that would give rise to a performance fee by
considering underlying performance against the terms of the contract.
– We vouched a sample of advisory fees to invoice and bank receipt, including a sample of
accrued advisory fees to subsequent invoice and receipt.
– We considered the completeness of advisory fee income by reviewing a sample of post year
end invoices raised for evidence of advisory projects relating to the year.
We responded to this risk by performing the following procedures:
– We reviewed management’s assessment of whether any indications of impairment existed
in respect of the definite-life intangible assets and challenged this assessment in light of our
knowledge of the Group and consideration of forecasts prepared by management.
– We reviewed the value-in-use model prepared by management in order to calculate the
recoverable amount of the relevant cash-generating units (‘CGU’). We re-performed the
calculation of the recoverable amount. We challenged the key assumptions applied by
management, including revenue growth forecasts, ongoing expenses and the discount factor
applied. This involved understanding the basis for management’s assumptions and vouching
these to available evidence and consultation with BDO valuations specialists to determine
whether the discount factor represented an appropriate WACC for the Group.
– We have considered the consistency of forecasts to those which have been examined as part
of the going concern review and have looked at the accuracy of previous forecasts compared
with actual performance and calculated the impact of sensitising key assumptions including
the discount rate applied on the recoverable amount of the CGU.
– We considered the adequacy of disclosures in the financial statements regarding the
assessment performed by management in line with the requirements of IAS 38 and IAS 36.
We responded to this risk by performing the following procedures:
– We recalculated the charge for the year, as well as the deferred tax arising on the performance
shares allocated.
– We recalculated the fair value of PSP awards in 2017 using a Black-Scholes model.
– We challenged management’s assumptions regarding the expectation of the number of
shares expected to vest by reviewing movements in the total shareholder return hurdles
and reviewing available external evidence and we recalculated the impact on the accrual of
national insurance costs.
– We have considered the dilutive effect of the share plans and have considered whether
relevant hurdles have been met in order to have a dilutive impact on earnings per share. We
have recalculated the dilutive impact and have considered the adequacy of disclosures within
the financial statements.
– We reviewed the disclosures required by IFRS 2 in respect of the share based payments.
We responded to this risk by performing the following procedures:
– We reviewed correspondence with the FCA regarding the investigation to understand the
basis for the investigation.
– We reviewed correspondence and advice received from the Group’s legal advisers concerning
the investigation and attended meetings at which the Group’s legal advisers presented to
those charged with governance.
– We reviewed and challenged management’s assessment of the potential outcome of
the investigation and consequent disclosure in the financial statements based on our
understanding of the investigation, the outcome of the internal investigation overseen by the
Audit and Risk Committee and correspondence and advice received by the Group.
– We considered the adequacy of disclosures in the financial statements in the context of the
requirements of IAS 37.
River and Mercantile Group PLC Annual Report and Accounts 2017
INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF RIVER AND MERCANTILE GROUP PLC
Continued
76
In this context, we also have nothing to
report in regard to our responsibility to
specifically address the following items
in the other information and to report as
uncorrected material misstatements of the
other information where we conclude that
those items meet the following conditions:
– Fair, balanced and understandable set out
on page 72 – the statement given by the
Directors that they consider the annual
report and financial statements taken as
a whole is fair, balanced and
understandable and provides the
information necessary for shareholders to
assess the group’s performance, business
model and strategy, is materially
inconsistent with our knowledge obtained
in the audit; or
– Audit Committee reporting set out on
page 42 – the section describing the work
of the Audit Committee does not
appropriately address matters
communicated by us to the Audit
Committee; or
– Directors’ statement of compliance with
the UK Corporate Governance Code set
out on page 38 – the parts of the
Directors’ statement required under the
Listing Rules relating to the company’s
compliance with the UK Corporate
Governance Code containing provisions
specified for review by the auditor in
accordance with Listing Rule 9.8.10R(2)
do not properly disclose a departure from
a relevant provision of the UK Corporate
Governance Code.
Our application of materiality
We apply the concept of materiality
both in planning and performing our
audit, and in evaluating the effect of
misstatements. For planning, we consider
materiality to be the magnitude by which
misstatements, including omissions,
could influence the economic decisions
of reasonable users that are taken on
the basis of the financial statements.
The materiality for the group financial
statements as a whole was set at £540,000.
This was determined with reference to
a benchmark of 5% of profit before tax
adjusted for exceptional performance fees.
We used this benchmark as we consider this
to be one of the principal considerations for
members of the company in assessing the
financial performance of the group. In the
prior year, our materiality was determined
with reference to a benchmark of 1% of
revenue as the Group was only in its second
full year following initial listing. However
we consider an adjusted profit before tax
benchmark to be a more relevant indicator
of financial performance in the longer term.
Performance materiality was set at 60% of
the above materiality levels.
Materiality levels are not significantly
different from those applied in the
previous year.
We agreed with the Audit Committee that we
would report to the committee all individual
audit differences in excess of £11,000. We
also agreed to report differences below
this threshold that, in our view, warranted
reporting on qualitative grounds.
An overview of the scope of our audit
Our audit approach was developed by
obtaining an understanding of the Group’s
activities, the key functions undertaken
by the Board and the overall control
environment. Based on this understanding
we assessed those aspects of the Group’s
transactions and balances which were most
likely to give rise to a material misstatement.
In order to gain appropriate audit coverage
of the risks described above and of
each individually significant reporting
component, full scope audits of all
significant components were performed
by the group audit team. In respect of
the non-significant components based in
the US, which contribute 4% of group net
assets, the group audit team performed
certain audit procedures over the financial
information relevant to the consolidated
financial statements. These procedures
were performed to an appropriate level of
materiality having regard to the level of
group materiality described below as well as
aggregation risk. All significant components
of the group have coterminous year ends,
with the exception of River & Mercantile
Asset Management LLP, which has a year
end of 31 March. A full scope audit was
performed by the group audit team for the
year ended 31 March 2017 and additional
audit procedures were performed to cover
the three month period to 30 June 2017, as
well as the correct allocation of financial
information to the Group’s reporting period.
Other information
The Directors are responsible for the other
information. Our opinion on the financial
statements does not cover the other
information and, except to the extent
otherwise explicitly stated in our report,
we do not express any form of assurance
conclusion thereon. In connection with
our audit of the financial statements, our
responsibility is to read the other information
and, in doing so, consider whether the other
information is materially inconsistent with
the financial statements or our knowledge
obtained in the audit or otherwise appears to
be materially misstated. If we identify such
material inconsistencies or apparent material
misstatements, we are required to determine
whether there is a material misstatement
in the financial statements or a material
misstatement of the other information.
If, based on the work we have performed,
we conclude that there is a material
misstatement of the other information;
we are required to report that fact.
We have nothing to report in this regard.
River and Mercantile Group PLC Annual Report and Accounts 2017
Opinions on other matters prescribed by
the Companies Act 2006
In our opinion, the part of the Directors’
remuneration report to be audited has
been properly prepared in accordance
with the Companies Act 2006.
In our opinion, based on the work
undertaken in the course of the audit:
– the information given in the strategic
report and the Directors’ report for the
financial year for which the financial
statements are prepared is consistent
with the financial statements and those
reports have been prepared in accordance
with applicable legal requirements.
Matters on which we are required
to report by exception.
In the light of the knowledge and
understanding of the group and the parent
company and its environment obtained
in the course of the audit, we have not
identified material misstatements in:
– the strategic report or the Directors’ report.
We have nothing to report in respect
of the following matters in relation to
which the Companies Act 2006 requires
us to report to you if, in our opinion:
– adequate accounting records have not
been kept by the Parent Company, or
returns adequate for our audit have not
been received from branches not visited
by us; or
– the Parent Company financial statements
and the part of the Directors’
remuneration report to be audited are not
in agreement with the accounting records
and returns; or
– certain disclosures of Directors’
remuneration specified by law are not
made; or
– we have not received all the information
and explanations we require for our audit.
Strategic report
Governance
Financials
Responsibilities of Directors
As explained more fully in the Directors’
responsibilities statement set out on page
73, the Directors are responsible for the
preparation of the financial statements
and for being satisfied that they give a true
and fair view, and for such internal control
as the directors determine is necessary
to enable the preparation of financial
statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the
Directors are responsible for assessing the
Group’s and the Parent Company’s ability
to continue as a going concern, disclosing,
as applicable, matters related to going
concern and using the going concern basis
of accounting unless the Directors either
intend to liquidate the Group or the Parent
Company or to cease operations, or have
no realistic alternative but to do so.
Auditor’s responsibilities for the audit of
the financial statements
This report is made solely to the company’s
members, as a body, in accordance with
Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken
so that we might state to the Company’s
members those matters we are required
to state to them in an auditor’s report and
for no other purpose. To the fullest extent
permitted by law, we do not accept or
assume responsibility to anyone other than
the Company and the Company’s members
as a body, for our audit work, for this report,
or for the opinions we have formed.
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from
material misstatement, whether due to
fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable
assurance is a high level of assurance, but
is not a guarantee that an audit conducted
in accordance with ISAs (UK) will always
detect a material misstatement when
it exists. Misstatements can arise from
fraud or error and are considered material
if, individually or in the aggregate, they
could reasonably be expected to influence
the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities
for the audit of the financial statements
is located on the Financial Reporting
Council’s website at: www.frc.org.uk/
auditorsresponsibilities. This description
forms part of our auditor’s report.
77
Other matters which we are required
to address
Following the recommendation of the
Audit Committee, we were appointed
by the Board of Directors to audit the
financial statements for the year ending
30 June 2014 and subsequent financial
periods. We were reappointed as auditors
in respect of the year ended 30 June 2017
by the members of the Company at the
Annual General Meeting on 9 December
2016. The period of total uninterrupted
engagement is 4 years, covering the years
ending 30 June 2014 to 30 June 2017.
We consider that the audit procedures we
have undertaken in accordance with ISAs
(UK) have provided us with reasonable
assurance that irregularities, including
fraud, would have been detected to the
extent that they could have resulted in
material misstatements in the financial
statements. Our audit was not designed to
identify misstatement or other irregularities
that would not be considered to be
material to the financial statements.
The non-audit services prohibited by the
FRC’s Ethical Standard were not provided
to the group or the Parent Company
in the current year and we remain
independent of the group and the Parent
Company in conducting our audit.
Our audit opinion is consistent with the
additional report to the Audit Committee.
Leigh Treacy
Senior Statutory Auditor
For and on behalf of
BDO LLP
Statutory Auditor
London
29 September 2017
BDO LLP is a limited liability partnership
registered in England and Wales (with
registered number OC305127).
River and Mercantile Group PLC Annual Report and Accounts 2017
CONSOLIDATED
INCOME STATEMENT
78
Revenue
Net management fees
Net advisory fees
Performance fees
Other income
Total revenue
Administrative expenses
Depreciation
Amortisation
Total operating expenses
Remuneration and benefits
Fixed remuneration and benefits
Variable remuneration
Total remuneration and benefits
EPSP costs
Total remuneration and benefits including EPSP
Total expenses
Gain on disposal of available-for-sale assets
Profit before interest and tax
Finance income
Finance expense
Profit before tax
Tax charge/(credit)
Current tax
Deferred tax
Profit for the year attributable to owners of the Parent
Earnings per share:
Basic (pence)
Diluted (pence)
Note
3
5
8,19
8,9
6
7
16
10
11
12
Year ended
30 June
2017
£’000
Year ended
30 June
2016
£’000
45,371
10,522
12,549
–
68,442
11,562
116
4,330
16,008
20,114
15,201
35,315
1,566
36,881
52,889
793
16,346
46
(3)
16,389
36,764
8,905
1,526
2
47,197
9,790
103
4,330
14,223
18,423
7,111
25,534
283
25,817
40,040
–
7,157
81
(2)
7,236
4,877
(1,844)
2,411
(1,040)
13,356
5,865
16.45
15.48
7.15
7.15
The notes to the consolidated financial statements form part of and should be read in conjunction with these financial statements.
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
Profit for the year
Items that may be subsequently reclassified to profit or loss:
Foreign currency translation adjustments
Change in value of available-for-sale investments
Tax on change in value of available-for-sale investments
Gain on disposal of available-for-sale investments
Tax on gain on disposal of available-for-sale investments
Year ended
30 June
2017
£’000
Year ended
30 June
2016
£’000
13,356
5,865
66
445
(90)
(793)
159
320
195
(39)
–
–
Note
16
11
16
11
Total comprehensive income for the year attributable to owners of the Parent
13,143
6,341
The notes to the consolidated financial statements form part of and should be read in conjunction with these financial statements.
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
Assets
Cash and cash equivalents
Investment management balances
Available-for-sale investments
Fee receivables
Other receivables
Deferred tax asset
Property, plant and equipment
Intangible assets
Total assets
Liabilities
Investment management balances
Current tax liabilities
Trade and other payables
Deferred tax liability
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Own shares held by EBT
Retained earnings
Equity attributable to owners of the Parent
30 June
2017
£’000
30 June
2016
£’000
Note
79
14
15
16
17
18
11
19
9
15
20
11
21
22
21
30,759
62,138
12
5,619
14,898
3,421
263
37,353
154,463
60,317
3,111
18,699
3,969
14,147
15,448
5,350
6,488
10,766
609
377
41,552
94,737
14,655
1,168
9,831
5,347
86,096
31,001
68,367
63,736
246
14,688
49,340
(4,766)
8,859
246
14,688
49,553
(1,283)
532
68,367
63,736
The notes to the consolidated financial statements form part of and should be read in conjunction with these financial statements.
The financial statements were approved by the Board and authorised for issue on 29 September 2017.
Mike Faulkner
Chief Executive
Kevin Hayes
Chief Financial Officer
River and Mercantile Group PLC Annual Report and Accounts 2017
80
CONSOLIDATED STATEMENT
OF CASH FLOWS
Cash flow from operating activities
Profit before interest and tax
Adjustments for:
Amortisation of intangible assets
Depreciation of property, plant and equipment
Share-based payment expense
Gain on disposal of available-for-sale investments
Operating cash flow before movement in working capital
Increase in operating assets
Increase in operating liabilities
Cash generated from operations
Tax paid
Disposal of assets held at fair value through profit and loss
Net cash generated from operations
Cash flow from investing activities
Purchase of intangible assets
Purchases of property, plant and equipment
Interest received
Investment in available-for-sale investments
Proceeds from disposal of available-for-sale investments
Net cash generated from/(used) in investing activities
Cash flow from financing activities
Interest paid
Dividends paid
Purchase of own shares
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of year
Year ended
30 June
2017
£’000
Year ended
30 June
2016
£’000
Note
16,346
7,157
9
19
7
9
19
16
16
10
13
21
14
4,330
116
2,039
(793)
22,038
(49,952)
54,533
26,619
(2,934)
–
23,685
(79)
(2)
15
(10)
5,793
5,717
4,330
103
768
(4)
12,354
(9,417)
4,547
7,484
(2,798)
134
4,820
–
(267)
41
–
–
(226)
–
(9,345)
(3,483)
(2)
(9,851)
(945)
(12,828)
(10,798)
16,574
(6,204)
14,147
38
30,759
20,227
124
14,147
The notes to the consolidated financial statements form part of and should be read in conjunction with these financial statements.
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
CONSOLIDATED STATEMENT
OF CHANGES IN SHAREHOLDERS’ EQUITY
Share
Capital
£’000
Share
Premium
£’000
Available-for-
sale reserve
£’000
Foreign
exchange
reserve
£’000
Merger
reserve
£’000
Capital
redemption
reserve
£’000
Capital
contribution
£’000
Own shares
held by EBT
£’000
Retained
earnings
£’000
Total
£’000
81
Balance as at
30 June 2015
Comprehensive income
for the year:
Profit for the year
Other comprehensive
income
Deferred tax credit
on available-for-sale
investments
Total comprehensive
income for the year
Transactions with
owners:
Dividends
Share-based payment
expense
Deferred tax credit on
share-based payment
expense
Purchase of own shares
by EBT
Total transactions with
owners:
Balance as at
30 June 2016
Comprehensive income
for the year:
Profit for the year
Other comprehensive
income
Deferred tax credit
on available-for-sale
investments
Total comprehensive
income for the year
Transactions with
owners:
Dividends
Share-based payment
expense
Deferred tax credit on
share-based payment
expense
Purchase of own shares
by EBT
Total transactions with
owners:
Balance as at
30 June 2017
246
14,688
124
(6)
44,433
84
4,442
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
195
–
320
(39)
–
156
320
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,843
67,854
5,865
5,865
–
–
515
(39)
5,865
6,341
(9,851)
(9,851)
768
768
(93)
(93)
(1,283)
–
(1,283)
(1,283)
(9,176)
(10,459)
246
14,688
280
314
44,433
84
4,442
(1,283)
532
63,736
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
246
14,688
–
(189)
(90)
(279)
–
–
–
–
–
1
–
66
–
66
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13,356
13,356
–
(123)
(90)
13,356
13,143
(9,345)
(9,345)
2,039
2,039
2,277
2,277
(3,483)
–
(3,483)
(3,483)
(5,029)
(8,512)
380
44,433
84
4,442
(4,766)
8,859
68,367
The notes to the consolidated financial statements form part of and should be read in conjunction with these financial statements.
River and Mercantile Group PLC Annual Report and Accounts 2017
82
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
1. Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, International
Accounting Standards, International Financial Reporting Interpretation Committee interpretations, and with those parts of the 2006 Act
applicable to groups reporting under IFRS as issued by the International Accounting Standards Board and adopted by the European Union
(‘IFRS’) that are relevant to the Group’s operations and effective for accounting periods beginning on 1 July 2016.
Going concern
The Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for
the foreseeable future.
In reaching this conclusion the Board has considered budgeted and projected results of the business including a 2018 budget and three-year
forecast 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 from the date of approval of the financial statements. Additionally, the capital adequacy
of the Group in base and stress scenarios is tested as part of the ICAAP and viability statement process.
Accordingly, the Group and Company financial statements have been prepared on a going concern basis using the historical cost convention,
except for the measurement at fair value of certain financial instruments that are held at fair value.
Basis of consolidation
The consolidated financial statements include the Company and the entities it controls (its subsidiaries). Subsidiaries are considered to be
controlled where the Group has exposure to variable returns from the subsidiary, the power to affect those variable returns and power over the
subsidiary itself. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.
Subsidiaries are consolidated from the date that the Group gains control, and de-consolidated from the date that control is lost.
The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of
financial position, the subsidiaries’ identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the
acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on
which control is obtained. The consolidated financial statements are based on the financial statements of the individual companies drawn up
using the standard Group accounting policies. Accounting policies applied by individual subsidiaries have been revised where necessary to
ensure consistency with Group policies for consolidation purposes.
All transactions and balances between entities within the Group have been eliminated in the preparation of the consolidated financial statements.
The Employee Benefit Trust is included in the consolidated financial statements of the Group. The trust purchases shares pursuant to the
non-dilutive equity awards granted to employees. These purchases and the operating costs of the trust are funded by the Company. The trust is
controlled by independent trustees and its assets are held separately from those of the Group.
The consolidated statement of financial position has been presented on the basis of the liquidity of assets and liabilities.
The Group’s relationship with fund entities
The Group entities act as the investment managers to funds and segregated managed accounts, and 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 statements.
Foreign currencies
The majority of revenues, assets, liabilities and funding are denominated in UK Pounds sterling (GBP/£), and therefore the presentation
currency of the Group is GBP. All entities within the Group have a functional currency of GBP, except for those based in the US.
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 statement of financial position;
– Income and expenses are translated at the daily exchange rate for the date on which they are incurred; and
– All resulting exchange differences are recognised in other comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate. Exchange differences arising are recognised in other comprehensive income.
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
83
2. Significant accounting policies and significant judgements and estimates
As detailed in note 1, these financial statements are prepared in accordance with IFRS. The significant accounting policies of the Group which
impact these financial statements are:
– Impairment of intangible assets, goodwill and investments recorded in previous acquisitions. This involves judgements including business
growth and estimates including discount rates, which are described in note 9;
– Recognition of management and performance fee revenues. This involves estimates of AUM/NUM positions for the purposes of accruing
revenue, which are described in note 3;
– Provisions, which are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be
required to settle that obligation. Determining whether provisions are required and at what level, requires both judgement and estimates;
– The accounting for share-based remuneration. This involves estimates of future share prices for national insurance cost and judgements
relating to forfeiture rates and business outcomes, which are described in note 7.
3. Revenue
Net management fees
Net management fees represent the fees charged pursuant to an IMA with clients. They are reported net of rebates to clients and commissions
paid to third parties and are charged as a percentage of the client’s Assets under Management (AUM) or Notional 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 2017,
rebates and commissions totalling £2,094,000 (2016: £1,971,000) were paid to clients and 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 project. Advisory revenue is reported net of revenue share arrangements with other advisory
partners. During the year ended 30 June 2017, £Nil was paid to (2016: £68,000 was reclaimed from) a subsidiary of PSG (see related party
note 25) and £Nil was paid to (2016: £2,000 was reclaimed from) a third party, under revenue sharing arrangements relating to Palisades, which
was part of the Group’s US business and was disposed of in the prior year. Fees are accrued monthly and charged when the work has been completed.
Performance fees
Performance fees are fees paid under the IMAs for generating excess investment performance either on an absolute basis subject to a high
water mark, or relative to a benchmark. Performance fees are calculated as a percentage of the investment performance generated and may be
subject to deferral and continued performance objectives in future periods. Performance fees are recognised in income when 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 fee at the end of the performance period which is generally annually, either on the
anniversary of their IMA or on a calendar year basis.
Other income
Other income in the prior year included the realised gains and fair value movements relating to fund units held by the ACD (note 26).
4. Divisional and geographical reporting
The business operates through four divisions, however these are not considered as segments for the purposes of IFRS 8 on the basis that
resource allocation decisions are not made on the basis of segmental reporting and results are not analysed to a profit level. Despite this, the
Directors feel that it is useful to the understanding of the results of operations to include certain information.
The net revenue for the year ended 30 June 2017 and 30 June 2016 together with the year-end AUM and NUM, reflect the activities of the
respective divisions.
Net management and advisory fees
Fiduciary Management division
Derivative Solutions division
Equity Solutions division
Advisory division
Total
Year ended
30 June 2017
Year ended
30 June 2016
Net revenue
£’000
Fee earning
AUM/NUM
£m
Net revenue
£’000
Fee earning
AUM/NUM
£m
17,677
10,883
16,811
10,522
55,893
10,528
16,888
3,633
N/A
31,049
13,871
9,481
13,412
8,905
45,669
9,287
13,903
2,358
N/A
25,548
In addition, performance fees of £6.6m (2016: £1.2m) were earned by the Fiduciary Management division and £6.0m (2016: £0.3m) earned by
the Equity Solutions division.
No single client accounts for more than 10% of the revenue of the Group (2016: 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 2017 was £4.8m (2016: £4.2m). The AUM/NUM of the US
business was £630m (2016: £648m).
Non-current assets held by the US business include £1.5m (2016: £1.4m) of goodwill.
River and Mercantile Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Continued
84
5. Administrative expenses
Marketing
Travel and entertainment
Office facilities
Technology and communications
Professional fees
Governance expenses
Fund administration
Other costs
Total administrative expenses (recurring)
IT migration expenses
Total administrative expenses
Year ended
30 June
2017
£’000
Year ended
30 June
2016
£’000
839
498
2,192
3,720
1,027
413
481
1,250
10,420
1,142
11,562
825
467
1,822
2,692
1,266
706
612
1,400
9,790
–
9,790
Included in other costs is the cost of insurance of £234,000 (2016: £345,000), staff training and recruitment of £217,000 (2016: £447,000)
irrecoverable VAT of £226,000 (2016: £281,000), and bad and doubtful debt expense of £305,000 (2016: £24,000).
Administrative expenses include the remuneration of the external auditors for the following services:
Audit of the Company’s annual accounts
Audit of the Company’s subsidiaries
Audit related assurance services
Tax compliance services
Year ended
30 June
2017
£’000
Year ended
30 June
2016
£’000
95
80
55
19
249
108
82
46
18
254
The tax compliance remuneration relates to services provided in respect of the period to 30 June 2016. Tax compliance services are no longer
provided by the Group’s auditor.
6. Remuneration and benefits
Fixed remuneration represents contractual base salaries, RAMAM LLP member drawings and employee benefits. The Group operates a defined
contribution plan under which the Group pays contributions to a third party.
Variable remuneration relates to discretionary bonuses, variable profit share paid to the members of RAMAM LLP and associated payroll taxes.
Variable remuneration also includes a charge of £1,515,000 (2016: £316,000) relating to the amortisation of the Group’s non-dilutive share
awards and £409,000 (2016: £52,000) of associated social security costs.
The average number of employees (including Directors) employed was:
Advisory division
Fiduciary Management division
Derivative Solutions division
Equity Solutions division
Distribution
Corporate
Total average headcount
Year ended
30 June
2017
No.
Year ended
30 June
2016
No.
68
55
24
20
12
29
63
51
22
16
13
29
208
194
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
The aggregate remuneration of employees (including Directors) comprised:
Wages and salaries
Social security costs
Pension costs (defined contribution)
Share-based payment expense
Total remuneration and benefits (excluding EPSP)
Fixed remuneration
Variable remuneration
EPSP costs:
Share-based payment expense
Social security costs
Total EPSP costs
85
Year ended
30 June
2017
£’000
Year ended
30 June
2016
£’000
Note
29,788
3,326
686
1,515
35,315
20,114
15,201
35,315
452
1,114
1,566
22,298
2,276
644
316
25,534
18,423
7,111
25,534
452
(169)
283
7
7
7
Directors’ remuneration
The aggregate remuneration and fees payable to Executive and Non-Executive Directors for the year ended 30 June 2017 was £3,568,000 (2016:
£2,582,000). Fees payable for the year ended 30 June 2017 to Directors of PSG and Pacific Investments totalled £43,000 and £Nil (2016: £49,000
and £16,000) respectively.
The remuneration of the Executive Directors (which includes the highest paid Director) is included in the remuneration report on page 44.
Key management remuneration
Key management includes the Executive and Non-Executive Directors, and Executive Committee members. The remuneration paid or payable
to key management for employee services is shown below:
Short-term employee benefits
Post employment benefits
Share-based payment expense
Year ended
30 June
2017
£’000
Year ended
30 June
2016
£’000
9,069
111
1,586
10,766
6,014
92
600
6,706
Details of share awards granted to Executive Directors for future performance periods are included in the remuneration report on page 44.
7. Share-based payments
Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the consolidated income
statement over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments
expected to vest at each year end date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number
of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting
conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not
adjusted for failure to achieve a market vesting condition.
Where the terms and conditions of options are modified before they vest, the change in the fair value of the options, measured immediately
before and after the modifications, is recognised in the consolidated income statement over the remaining vesting period.
Executive Performance Share Plan
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 share awards. At the date of admission two classes of
performance share awards were made: Performance Condition A awards and Performance Condition B awards. The Company granted
4,843,626 performance shares under Performance Condition A awards and 2,462,860 performance shares under Performance Condition B
awards. The exercise price for the EPSP share awards is £0.003. These all remain outstanding as at 30 June 2017.
The vesting of Performance Condition A awards is conditional upon achieving a total shareholder return (TSR) of at least 12% compounded over
the four-year performance period ending 30 June 2018. Vesting starts at 12% compound annual TSR and 100% vests at 24% compound annual
TSR over the four-year period. Vesting will be pro-rated on a straight-line basis between 12% and 24%.
The vesting of Performance Condition B awards is conditional on achieving a TSR of at least 25% compounded over the four-year performance
period ending 30 June 2018. Vesting starts at 25% compound annual TSR and 100% vests at 30% compound annual TSR 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.
River and Mercantile Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Continued
86
7. Share-based payments continued
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 awards are 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 2017, no shares had been granted,
forfeited, exercised, expired or vested under either the A or B awards (2016: none).
The fair value of the Performance shares was determined by an independent valuation undertaken by Ernst & Young LLP on behalf of the
Remuneration Committee. 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 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 Condition A awards is 38p per share and the fair value of the Performance Condition B awards is 17p per share.
The total fair value of Performance Condition A and B awards is estimated at £1.8m and £0.4m respectively. The fair value is amortised into
EPSP costs over the vesting period and a charge of £452,000 was recognised for the year ended 30 June 2017 (2016: £452,000), 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 2017 is one year.
The Directors expect that any shares that vest will be subject to applicable employers national insurance 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 2017 was a charge of £1,114,000 (2016:
credit £169,000) and is included in the share-based payment expense. This figure assumes that 100% (2016: 43%) of the Performance Condition
A awards will vest, which is an estimate subject to uncertainty.
Performance Share Plan
The Group’s Performance Share Plan and Deferred Equity Plan (collectively PSP) allows for the grant of: nil cost options, contingent share
awards or forfeitable share awards.
The Directors have stated an intention that vested performance share awards under the PSP would not be dilutive to shareholders, as the shares
will be purchased by the Employee Benefit Trust.
The charge recognised in remuneration expense in respect of PSP awards in the year ended 30 June 2017 is £1,515,000 (2016: £316,000).
Additionally, an accrual of £361,000 (2016: £52,000) for national insurance on vesting has been established.
2015 awards
The Directors granted awards to staff in respect of the year ended 30 June 2015. The awards totalled £1,070,000 and were 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.
The awards vest on 30 June 2017 or 30 June 2018, depending on the specific award. These awards are in respect of employee services during the
year ended 30 June 2015 and in future periods.
The awards contain a combination of performance measures, including: continued employment; future sales targets; Group TSR; and divisional
revenue and AUM/NUM.
The fair value of the awards has been estimated using a combination of Monte Carlo simulation and Black-Scholes modelling.
2016 awards
The Directors granted awards to staff in respect of the year ended 30 June 2016. These awards totalled £354,000 and were 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.
The awards vest on 30 June 2017, 30 June 2018 or 30 June 2019. These awards are in respect of employee services during the year ended 30 June
2016 and in future periods.
In addition, approximately 1.2m shares were awarded to staff and Executive Directors for future periods. These awards are in respect of
employee services during the year ended 30 June 2017 and in future periods.
The awards contain a combination of performance measures, including: continued employment; Group TSR; achieving strategic priorities and
divisional revenue and AUM/NUM.
The fair value of the awards has been estimated using a combination of Monte Carlo simulation and Black-Scholes modelling.
2017 awards
The Directors granted awards to Executive Directors and employees in respect of the year ended 30 June 2017. These awards total £1,533,000
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.
The awards vest on 30 June 2018, 30 June 2019 or 30 June 2020. These awards are in respect of employee services during the year ended 30 June
2017 and in future periods. Therefore the accounting charge in respect of the awards is recognised in part in the year ended 30 June 2017.
In addition, approximately 272,000 shares were awarded to employees for future periods and are therefore not recognised in the current year.
The awards contain a combination of performance measures, including: continued employment; Group TSR; achieving strategic priorities and
divisional revenue.
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 statements the figures have been estimated using the share price as at 9 August 2017, being £3.35.
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
87
The key inputs used in determining the fair value of the PSP awards are:
Financial year of award
Grant date award value £
Grant date share price £
2015
619,735
2.22
2015
375,000
2.22
2015
47,665
2.22
2016
365,825
2.21
2016
1,971,154
2.21
2016
685,000
2.21
2017
576,821
3.35
2017
956,000
3.35
Share plan 1
Share plan 2
Share plan 3
Share plan 4
Share plan 5
Share plan 6
Share Plan 7
Share plan 8
Number of shares:
Number of shares outstanding at
30 June 2015
279,160
168,919
21,471
–
Number of shares granted during
the year
Number of shares forfeited in
the year
Number of shares exercised during
the year
Number of shares outstanding at
–
(33,692)
–
–
–
–
–
165,525
(4,955)
–
–
–
30 June 2016
245,468
168,919
16,516
165,525
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Number of shares granted during
the year
Number of shares forfeited during
the year
Number of shares exercised during
the year
Number of shares outstanding at
–
–
–
–
–
–
–
–
–
–
891,889
309,943
256,365
424,889
(18,099)
(30,189)
–
–
–
–
–
–
–
–
30 June 2017
245,468
168,919
16,516
165,860
861,700
309,943
256,365
424,889
Fair value assumptions:
Exercise price
Risk free rate
Share price volatility
Dividend yield
Key terms:
Vesting period
Weighted average remaining
contractual life
12% compounded TSR Hurdle over
vesting period
Continued employment required
(subject to good leaver provisions)
Other key terms
Vesting profile per individual
Grant date fair value per share
(pence)
No of shares expected to vest
£nil
0.94%
26.08%
5%
£nil
0.94%
26.08%
5%
£nil
0.94%
26.08%
5%
£nil
0.94%
27.40%
5%
£nil
1.00%
27.40%
5%
£nil
1.00%
27.40%
5%
£nil
1.00%
27.90%
5%
£nil
1.00%
27.90%
5%
01/07/2014
–30/06/2017
01/07/2014
–30/06/2018
01/07/2014
–30/06/2017
01/07/2015
–30/06/2018
01/07/2016
–30/06/2019
01/07/2016
–30/06/2019
01/07/2016
–30/06/2019
01/07/2016
–30/06/2020
<1 year
1 year
<1 year
1 year
2 years
2 years
2 years
3 years
Yes
Yes
1 – see
below
Yes
Yes
No
Yes
No
Yes
None
None
None
3 – see
below
All or
nothing
All or
nothing
All or
nothing
Yes
Yes
2 – see
below
Measured
at the end
of each
year
Yes
Yes
No
Yes
Yes
Yes
None
None
None
All or
nothing
All or
nothing
All or
nothing
60.69
78,550
51.71
168,919
204.69
16,516
175.79
116,799
175.79
473,936
175.79
309,943
305
219,800
255
346,075
1. Achievement of specified divisional AUM/NUM and revenue targets within a range.
2. Achievement of specified revenue targets within a range.
3. Straight-line between minimum and maximum divisional AUM/NUM and revenue targets.
The volatility for awards granted in the year has been calculated based upon the annualised daily return on the Company’s share price from IPO
to year-end. All awards exercise at the end of the vesting period subject to the approval of the Remuneration Committee. As at the reporting
date 556,159 of the awards were exercisable (2016: none).
8. Depreciation and amortisation
Depreciation charges primarily relate to IT and communications equipment, and leasehold improvements. The property, plant and equipment,
and the depreciation accounting policies are described in note 19.
The amortisation charge primarily relates to the IMAs recorded in the acquisition of RAMAM as described in note 9. The RAMAM IMA
intangibles are amortised over their expected useful lives of between five and ten years based on an analysis of the respective client channels.
The amortisation is not deductible for tax purposes. At the date of the acquisition a deferred tax liability was recognised and is being charged to
taxes in line with the amortisation of the related RAMAM IMAs (note 11).
River and Mercantile Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Continued
88
9. Intangible assets
Business combinations and goodwill
All business combinations are accounted for using the acquisition method. The cost of a business combination is the aggregate of the fair values,
at the date of exchange, of assets given, liabilities incurred or assumed and equity instruments issued by the acquirer. The fair value of a business
combination is calculated at the acquisition date by recognising the acquired entity’s identifiable assets, liabilities and contingent liabilities that
satisfy the recognition criteria, at their fair values at that date. The acquisition date is the date on which the acquirer effectively obtains control
of the acquired entity. The cost of a business combination in excess of the fair value of net identifiable assets or liabilities acquired, including
intangible assets identified, is recognised as goodwill. Any costs incurred in relation to a business combination are expensed as incurred.
Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the Group’s interest in the fair
value of the net identifiable assets, liabilities and contingent liabilities of the acquiree.
Goodwill is not amortised but is reviewed for impairment annually, or more frequently when there is an indication of impairment. For the
purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the Group’s cash generating units (CGUs)
expected to benefit from the synergies of the combination. Each CGU to which the goodwill is allocated represents the lowest level within the
entity at which the goodwill is monitored for internal management purposes. If the recoverable amount of the CGU is less than the carrying
amount of the unit, the impairment loss is allocated first to reduce the carrying value of any goodwill allocated to the unit and then to the other
assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised is not reversed in a
subsequent period.
Identifiable intangible assets
Investment Management Agreements and customer relationships
IMAs and customer relationships acquired in a business combination are recognised separately from goodwill at their fair value at the acquisition
date. Customer relationships have an estimated useful life of 20 years and IMAs have estimated useful lives of five to ten years. The identified
intangible assets are carried at cost less accumulated amortisation calculated on a straight-line basis.
Impairment of intangible assets, excluding goodwill
At each statement of financial position date or whenever there is an indication that the asset may be impaired, the Group reviews the carrying
amounts of its intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the
asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the CGU to which
the asset belongs. The recoverable amount is the higher of the fair value less costs to sell, and the value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, an impairment loss is recognised as an expense
immediately. For assets other than goodwill, where conditions giving rise to impairment subsequently reverse, the effect of the impairment charge
is also reversed as a credit to the income statement, net of any depreciation or amortisation that would have been charged since the impairment.
Cost:
At 1 July 2015
Disposals
Exchange difference
At 30 June 2016
Additions
Disposals
Exchange difference
At 30 June 2017
Accumulated amortisation and impairment:
At 1 July 2015
Amortisation charge
At 30 June 2016
Amortisation charge
Exchange difference
At 30 June 2017
Net book value:
At 30 June 2016
At 30 June 2017
Goodwill
£’000
Customer lists
and IMAs
£’000
Software
£’000
Total
£’000
15,201
(169)
198
15,230
–
–
101
15,331
36,510
–
–
36,510
–
–
–
36,510
(395)
–
(395)
–
–
(395)
(5,463)
(4,330)
(9,793)
(4,330)
(49)
(14,172)
–
–
–
–
79
–
–
79
–
–
–
–
–
–
51,711
(169)
198
51,740
79
–
101
51,920
(5,858)
(4,330)
(10,188)
(4,330)
(49)
(14,567)
14,835
14,936
26,717
22,338
–
79
41,552
37,353
There was £79,000 of software acquisitions in the year ended 30 June 2017 (2016: none). The disposal of goodwill in the prior year relates to the
disposal of the Palisades business.
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
89
Credit Suisse co-operation agreement
On 26 June 2017, the Group announced a co-operation agreement with Credit Suisse, under which the Emerging Markets Industrial Lifecycle
(ILC) team would join the Group. This agreement is non-binding and so does not represent a business combination in the year ended 30 June
2017. The Directors expect that the transition of assets under management to the Group will be completed in the year ended 30 June 2018.
Impairment review
Goodwill includes the goodwill arising on the acquisition of RAMAM and Cassidy Retirement Group Inc. (Cassidy). Included in the year-end
balance is £13.2m (2016: £13.2m) in respect of RAMAM, £1.5m (2016: £1.4m) in respect of Cassidy and £0.2m (2016: £0.2m) in respect of
P-Solve Investments.
The Directors estimated the recoverable amount of the RAMAM goodwill based upon the value in use of the business. The value in use was
measured using internal budgets and forecasts to generate a 5-year view. A 15% revenue growth rate was assumed until 2022 with zero growth
in to perpetuity and a pre-tax discount rate of 12%.
The key assumptions included in the estimate besides revenue are expenses including remuneration for staff and partners. These were
determined through a review of current levels of revenue and cost, known changes, contractual provisions and sales plans.
Sensitivity analysis was performed on the key inputs of the valuation, being the growth and discount rates and future cash flows. It was
determined that a growth rate of 8% or a discount rate of 19% would still result in a positive NPV and the overall assessment is therefore that
there is no indication of impairment.
The Directors estimated the recoverable amount of the Cassidy goodwill based upon the value in use of the business. The value in use was
measured using internal budgets and forecasts covering a period of 3 years, with a 2% revenue growth rate assumption for perpetuity cash flows
and a pre-tax discount rate of 13%. There were also no significant client losses in the period which could otherwise have been an indicator of
possible impairment.
The key assumptions included in the estimate are revenue, and expenses including remuneration. These were determined through a review of
current levels of revenue and cost, known changes, contractual provisions and sales plans.
Sensitivity analysis was performed on the key inputs of the valuation, using several scenarios. A greater than 10% increase in the discount rate
was required to indicate impairment.
10. Finance income and expense
Finance income and expense are recognised in the period to which they relate on an accruals basis.
Finance income includes £14,000 of bank interest (2016: £28,000), £22,000 of interest earned from a loan to Palisades (2016: £13,000) £8,000
of foreign exchange gain (2016: £41,000) and £2,000 of other finance income (2016: £2,000).
11. Current and deferred tax
The tax charge consists of current tax and deferred tax. Current tax represents the estimated tax payable on the taxable profits for the period.
Taxable profit differs from profit before tax reported in the consolidated income statement because it excludes items of income or expense that
are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Deferred tax is recognised on
temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial
statements, and is measured using the substantively enacted rates expected to apply when the asset or liability will be realised or settled.
Deferred tax assets and liabilities are not offset unless the Group has legal right to offset which it intends to apply. Deferred tax assets are
recognised only to the extent that the Directors consider it probable that they will be recovered.
Deferred tax is recognised in the income statement, except that a charge attributable to an item of income or expense recognised as other
comprehensive income or to an item recognised directly in equity is also recognised in other comprehensive income or directly in equity.
The most significant deferred tax items are the deferred tax liability established against the IMA intangible asset arising from the acquisition of
RAMAM and the deferred tax asset recognised in respect of the 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.
Current tax:
Current tax on profits for the year
Adjustments in respect of prior years
Total current tax
Deferred tax – origination and reversal of timing differences
Total tax charge
Year ended
30 June
2017
£’000
Year ended
30 June
2016
£’000
4,874
3
4,877
2,483
(72)
2,411
(1,844)
(1,040)
3,033
1,371
River and Mercantile Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Continued
90
11. Current and deferred tax continued
The total tax charge assessed for the year is £203,000 lower (2016: £76,000 lower) than the average standard rate of corporation tax in the UK.
The differences are explained below:
Profit before tax
Profit before tax multiplied by the average rate of corporation tax in the UK of 19.75% (2016: 20%)
Effects of:
Expenses not deductible for tax purposes
Deferred tax on amortisation of RAMAM IMAs
Income not subject to tax
Adjustment in respect of prior years
Other timing differences
Total tax charge
Effective from 1 April 2017, the applicable UK corporation tax rate was reduced from 20% to 19%.
The analysis of deferred tax assets and liabilities is as follows:
Deferred tax assets
At beginning of year
(Charge)/credit to the income statement:
– accelerated capital allowances
– deductible temporary differences
– share-based payment expense
Credit/(debit) to equity – share-based payment expense
At end of year
Deferred tax liabilities
At beginning of year
Credit to the income statement:
– amortisation of intangibles
– adjustment to deferred tax on intangibles due to changes in tax rates
Credit/(debit) to equity:
– movement on fair value of available-for-sale investments
– recycling of deferred tax on disposal of available-for-sale investments
At end of year
Year ended
30 June
2017
£’000
16,389
3,236
1,638
(1,306)
–
3
(538)
3,033
Year ended
30 June
2016
£’000
7,236
1,447
1,036
(866)
(10)
(72)
(164)
1,371
Year ended
30 June
2017
£’000
Year ended
30 June
2016
£’000
609
12
(25)
548
2,277
3,421
528
(12)
15
171
(93)
609
5,347
6,174
(849)
(460)
90
(159)
(866)
–
39
3,969
5,347
12. Earnings per share
The basic and diluted earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted
average number of ordinary shares of the Company in issue during the year.
To the extent that any of the EPSP awards (note 7) vest they will have a dilutive effect on the equity holders of the Company. The potential
dilution effect of the EPSP awards is considered in the calculation of diluted earnings per share.
The dilutive effect of the EPSP awards is measured based on the share price and dividends received by shareholders from the date of grant until
the reporting date and is compared against the respective performance criteria of the awards 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 2017 and dividends paid, 100% (2016: none) of the EPSP Performance Condition A shares and 21%
(2016: none) of the EPSP Performance Condition B shares would have met the vesting criteria. As a result, 5,029,000 shares were dilutive.
There were no share awards that were anti-dilutive in the year but which may be dilutive in future periods (2016: none).
Profit attributable to owners of the parent (£’000)
Weighted average number of shares in issue (’000)
Weighted average number of diluted shares (’000)
Earnings per share:
Basic (pence)
Diluted (pence)
River and Mercantile Group PLC Annual Report and Accounts 2017
Year ended
30 June
2017
Year ended
30 June
2016
13,356
81,149
86,288
5,865
82,048
82,048
16.45
15.48
7.15
7.15
Strategic report
Governance
Financials
Reconciliation between weighted average number of shares in issue
Weighted average number of shares in issue – basic
Dilutive effect of shares granted under EPSP and save-as-you-earn
Weighted average number of shares in issue – diluted
91
Year ended
30 June
2017
£’000
Year ended
30 June
2016
£’000
81,149
5,139
86,288
82,048
–
82,048
The weighted average number of shares in issue has reduced as a result of purchases of own shares by the EBT (note 21). At 30 June 2017, the
EBT held 1,884,000 shares (2016: 564,000). The weighted average number held by the EBT during the year was 899,000 (2016: 239,000).
Adjusted profit
Adjusted profit comprises adjusted underlying profit and performance fee profit.
Adjusted underlying profit represents net management and advisory fees less associated remuneration, recurring administrative expenses
(excluding IT transition costs), depreciation, and finance income and expense.
Performance fee profit represents performance fees, less the associated remuneration costs. In the current year, it also includes the gain on
disposal of the Group’s DAA fund.
Adjusted underlying profit
Net management and advisory fees
Administrative expenses–recurring
Underlying remuneration at 52%/54%
Depreciation
Finance income/expense
Adjusted underlying profit before tax
Taxes
Adjusted underlying profit after tax
Adjusted underlying pre-tax margin
Performance fee profit
Performance fees
Other income
Less remuneration at 50%/50%
Plus gain on disposal of available-for-sale assets
Performance fee profit before tax
Taxes
Performance fee profit after tax
Adjusted profit before tax
Adjusted profit after tax
Reconciliation to statutory profit
Profit before tax
Adjustments:
Amortisation of intangible assets and IMA
IT migration costs
EPSP costs
Adjusted profit before tax
Year ended
30 June
2017
£’000
Year ended
30 June
2016
£’000
55,893
(10,420)
(29,040)
(116)
43
16,360
(3,443)
12,917
29%
12,549
–
(6,275)
793
7,067
(1,395)
5,672
45,669
(9,790)
(24,771)
(103)
79
11,084
(2,158)
8, 926
24%
1,526
2
(763)
–
765
(155)
610
23,427
18,589
11,849
9,536
Year ended
30 June
2017
£’000
Year ended
30 June
2016
£’000
16,389
7,236
4,330
1,142
1,566
4,330
–
283
23,427
11,849
IT migration costs are the non-recurring costs of transitioning the Group’s IT infrastructure from PSG and represent the final part of the
separation from Punter Southall Group (PSG) under the Transitional Services Agreement (TSA).
River and Mercantile Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Continued
92
12. Earnings per share continued
Adjusted earnings per share
Adjusted profit after tax
Weighted average shares
Weighted average diluted shares
Adjusted EPS:
Basic (pence)
Diluted (pence)
Year ended
30 June
2017
£’000
Year ended
30 June
2016
£’000
18,589
81,149
86,288
22.90
21.54
9,536
82,048
82,048
11.62
11.62
13. Dividends
The Group recognises dividends when an irrevocable commitment to pay them is incurred. In the case of interim dividends, this is generally the
payment date. In the case of final dividends, this is the date upon which the dividend is approved by shareholders.
During the year, the following dividends were paid:
2015 second interim
2015 final
2016 first interim
2016 second interim
2016 final
2017 first interim
Ordinary (p)
Special (p)
Total (p)
3.6
3.8
3.25
3.3
2.5
4.2
1.0
n/a
0.35
0.1
n/a
1.4
4.6
3.8
3.6
3.4
2.5
5.6
Year ended
30 June
2017
£’000
Year ended
30 June
2016
£’000
–
–
–
2,771
2,034
4,540
9,345
3,776
3,120
2,955
–
–
–
9,851
A second interim dividend in respect of the year of 8.1p per share has been declared by the Directors, of which 2.8p is a special dividend relating
to net performance fees. The Directors have proposed to shareholders a final dividend in respect of the year of 6.0p per share, of which 2.8p is a
special dividend relating to net performance fees. Based upon the number of shares held by the EBT at the year-end (upon which dividends are
waived), the expected total payments are £6.5m and £4.8m for the second interim and final dividends respectively.
14. Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits. At year-end all cash balances were held by banks with credit ratings as
detailed below.
Bank
Barclays Bank
Lloyds Bank
BMO Harris Bank
First Republic Bank
Total cash and cash equivalents
15. Investment management balances
Investment management receivables
Investment management payables
£’000
Credit Rating
Rating Body
20,677
9,695
26
361
30,759
A1 – Moody’s
Baa1 Moody’s
Baa1 Moody’s
A1 Moody’s
30 June
2017
£’000
62,138
60,317
30 June
2016
£’000
15,448
14,655
As ACD of River and Mercantile Funds ICVC (the ICVC) the Group is required to settle transactions between investors and the depositary of the
Fund. The Group is exposed to the short-term liquidity requirements to settle with the depositary of the Fund before receiving payments from
the investor and mitigates this risk by holding cash in its ACD account. The credit risk associated with the investment management balances is
discussed in note 26.
The investment management balances are recorded as loans and receivables and financial liabilities held at amortised cost. They are initially
recognised based upon the values given by the administrator of the ICVC and are subsequently recognised at amortised cost. Due to their
short-term nature (typically less than a week), amortised cost closely approximates fair value. If any investment management receivable was to
remain unpaid significantly past its term, the Directors would consider a provision for impairment. No provisions were made as at 30 June 2017
(2016: £Nil).
The investment management assets and liabilities are valued at the contractually agreed subscription or redemption values.
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
16. Available-for-sale investments
In December 2016, the Group redeemed its £5.0m seed capital investment in the River and Mercantile Dynamic Asset Allocation Fund (the ‘DAA
Fund’). The investment was made in 2014 and was recognised as an available-for-sale financial asset up to the point of sale, with unrealised fair
value movements recognised in other comprehensive income. The fair value of the Group’s investment in the DAA Fund was derived from the
fair value of the underlying investments, some of which are not traded in an active market and therefore the investment was classified as Level 2
under IFRS 13 Fair Value Measurement. The DAA Fund is an unlisted equity vehicle based in the UK.
A gain of £793,000 was realised on redemption of the Group’s position in the fund which is shown in the income statement. During the year, the
Group invested £10,000 of seed capital in the River and Mercantile Global High Alpha fund.
The movement in the carrying value of the available-for-sale investment is analysed below:
93
At 1 July 2015
Movement in fair value
At 30 June 2016
Additions
Movement in fair value
Disposals
At 30 June 2017
£’000
5,155
195
5,350
10
445
(5,793)
12
17. Fee receivables
Fee receivables are recorded initially at the invoiced value, which is the estimated fair value of the receivables and are subsequently held at
amortised cost. The Group’s policy on financial instruments can be found in note 26.
The collectability of the fee receivables is reviewed periodically and if there is evidence to indicate that an amount may not be collectable a
specific provision is established against the receivable. At 30 June 2017, a provision of £55,000 (2016: £82,000) has been established against
potentially irrecoverable receivable balances and the total balance is reported in the consolidated statement of financial position net of this
provision. On confirmation that the fee receivables will not be collectable, the gross carrying value of the asset is written off against the
associated provision.
The ageing of fee receivables is shown below:
Neither past due nor impaired
Past due but not impaired:
– Less than three months
– More than three months
Impaired:
– More than three months
– Provision for impairment
Total fee receivables
30 June
2017
£’000
4,254
995
370
55
(55)
30 June
2016
£’000
4,668
1,057
763
82
(82)
5,619
6,488
The average credit period on fee receivables is 27 days (2016: 46 days). The Directors believe that the carrying value of fee receivables, net of
impairment, represents their fair value due to their short term nature and is the maximum credit risk value. The Directors are satisfied with the
credit quality of counterparties.
18. Other receivables
Accrued income
Prepayments
Other assets
30 June
2017
£’000
13,088
1,080
730
14,898
30 June
2016
£’000
9,239
808
719
10,766
Accrued income includes management, advisory and performance fees that have been recognised in the consolidated income statement in line
with the Group’s accounting policies on revenue recognition, but have not yet been invoiced to clients. Clients are generally invoiced in arrears
on a quarterly basis.
The Group’s policy on financial instruments can be found in note 26.
River and Mercantile Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Continued
94
19. Property, plant and equipment
Property, plant and equipment is carried at historical cost less accumulated depreciation. Depreciation charges the cost of the assets to the
consolidated income statement over their expected useful lives. Office equipment includes computer equipment which is depreciated over three
years, and fixtures, fittings and equipment which is depreciated over seven years. Leasehold improvements are amortised over the remaining
term of the leases. The depreciation period and method is reviewed annually.
Cost:
At 1 July 2015
Additions
At 30 June 2016
Additions
At 30 June 2017
Accumulated depreciation:
At 1 July 2015
Depreciation charge
Exchange difference
At 30 June 2016
Depreciation charge
At 30 June 2017
Net book value:
At 30 June 2016
At 30 June 2017
20. Trade and other payables
Trade payables
VAT payable
Remuneration accruals
Other accruals and payables
Office
equipment
£’000
Leasehold
improvements
£’000
606
82
688
2
690
528
53
(5)
576
73
649
112
41
182
185
367
–
367
52
50
–
102
43
145
265
222
30 June
2017
£’000
1,042
697
14,210
2,750
18,699
Total
£’000
788
267
1,055
2
1,057
580
103
(5)
678
116
794
377
263
30 June
2016
£’000
450
401
6,714
2,266
9,831
The Group’s policy on financial instruments can be found in note 26.
21. Share capital
The Company had the following share capital at the reporting dates.
Allotted, called up and fully paid:
Ordinary shares of £0.003 each
30 June 2017
30 June 2016
Number
£
Number
£
82,095,346 246,286 82,095,346
246,286
The ordinary shares carry the right to vote and rank pari passu for dividends.
The share premium account arises from the excess paid over the nominal value of the shares issued.
During the year, the Group’s EBT purchased Group shares in relation to the PSP scheme (note 7). The shares held are measured at cost.
Opening balance at 1 July 2016
Acquisition of shares by the EBT
Balance as at 30 June 2017
£’000
1,283
3,483
4,766
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
22. Other reserves
Available-for-sale reserve (including deferred tax)
Foreign exchange reserve
Capital redemption reserve
Merger reserve
Capital contribution reserve
95
30 June
2017
£’000
1
380
84
44,433
4,442
49,340
30 June
2016
£’000
280
314
84
44,433
4,442
49,553
The available-for-sale reserve represents the unrealised fair value movements in available-for-sale financial assets. On disposal, the cumulative
fair value changes in reserves are reclassified to the income statement.
The foreign exchange reserve represents the cumulative foreign exchange differences arising on US Dollar denominated businesses in the
Group as well as currency differences on goodwill and fair value adjustments on the acquisition of foreign subsidiaries, as listed in note 27. On
disposal of the US Dollar denominated business, the associated cumulative foreign exchange differences are recycled through the consolidated
income statement.
The capital contribution reserve arose from forgiveness of a dividend by the Group’s then parent, PSG (£3,867,000) and from an historic
acquisition whereby the Group’s then parent, PSG, settled part of the consideration in its own shares (£575,000).
The merger reserve arose on the acquisition of RAMAM in March 2014.
The movement in all reserves is detailed in the consolidated statement of changes in shareholders’ equity.
23. Operating leases
Office facilities are leased under operating leases. The rental cost is charged to the consolidated income statement on a straight-line basis over
the lease term. Rent rebates are accounted for over the period of the lease term.
The Group entered into a non-cancellable operating lease on 26 June 2014 with PSG for the Group’s primary office facilities in London until
December 2021.
The future aggregate minimum lease payments under all non-cancellable operating leases, net of rent rebates are as follows:
No later than one year
Later than one year and no later than five years
Later than five years
30 June
2017
£’000
724
2,426
513
3,663
30 June
2016
£’000
809
2,745
919
4,473
24. Contingent liabilities
The Group’s subsidiary RAMAM is co-operating with an investigation by the FCA under its concurrent competition powers relating to the
participation of RAMAM in two transactions. The matter does not affect any clients of the Group or the NAV of any fund or segregated
mandate. The Group has not been notified of the outcome of this investigation and so it remains uncertain whether there will be any impact on
the Group. However, in the event of a financial impact, the Directors do not expect the net outcome to be material to the financial statements.
25. Related party transactions
Related parties to the Group are:
– Key management personnel;
– PSG who hold 38.1% of the issued share capital of the Group; and
– Pacific Investments Management Limited, its subsidiary undertakings and controlling shareholder, Sir John Beckwith (collectively ‘Pacific
Investments’) were considered to be related parties as they held significant influence over the Group by virtue of holding more than 10% of
the issued share capital of the Group. Following a disposal by Pacific Investments in March 2017, they now hold less than 10% and are
therefore no longer considered a related party.
Significant transactions with Pacific Investments
There have been no significant transactions with Pacific Investments during the year (2016: none).
River and Mercantile Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Continued
96
25. Related party transactions continued
Significant transactions with PSG
Administrative charges from PSG:
Office facilities
Technology and communications
Professional fees:
Accounting services
Total administrative charges and professional fees
Advisory fee revenue share received related to Palisades
Receivables and payables with related parties
Amount (due to)/due from related party:
PSG
Total
30 June
2017
£’000
30 June
2016
£’000
931
470
–
875
686
68
1,401
1,629
–
68
30 June
2017
£’000
30 June
2016
£’000
(224)
(224)
(35)
(35)
Key management personnel compensation
Details of key management personnel compensation can be found in note 6.
26. Financial instruments
Financial assets and financial liabilities are recognised in the Group’s consolidated statement of financial position when the Group becomes
party to the contractual provisions of the instrument. Financial assets are de-recognised when the contractual rights to the cash flows from the
financial assets expire or when the contractual rights to those assets are transferred. Financial liabilities are de-recognised when the obligation
specified in the contract is discharged, cancelled or expires.
Financial assets at fair value through profit or loss (‘FVTPL’)
Financial assets are classified as FVTPL when the asset is a trading instrument, or by designation if not. A financial asset may be designated as
FVTPL upon initial recognition if:
– such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
– the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance evaluated on
a fair value basis in accordance with the Group’s documented risk management strategy, and information about the grouping is provided
internally on that basis.
Financial assets at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in profit or loss.
Trade and other receivables
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
method less provision for impairment. Interest income is recognised by applying the effective interest rate, except for short-term trade and
other receivables when the recognition of interest would be immaterial.
Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty
or default or significant delay in payment) that the Group will be unable to collect all of the amounts due. For trade and other receivables, which
are reported net, such provisions are recorded in a separate account with the loss being recognised in the consolidated income statement. On
confirmation that the trade and other receivables will not be collectable, the gross carrying value of the asset is written off against the
associated provision.
Cash and cash equivalent balances
Cash and cash equivalents balances comprise cash in hand, cash at agents, demand deposits, and other short-term highly liquid investments
that have maturities of three months or less from inception, are readily convertible to a known amount of cash and are subject to an insignificant
risk of changes in value.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories.
Available-for-sale investments are held at fair value if this can be reliably measured. If the investments are not quoted in an active market and
their fair value cannot be reliably measured, the available-for-sale investment is carried at cost, less accumulated impairment. Unless the
valuation falls below its original cost, gains and losses arising from changes in fair value of available-for-sale assets are recognised directly in
equity through other comprehensive income. On disposal the cumulative net gain or loss is transferred to the statement of comprehensive
income. Valuations below cost are recognised as impairment losses in the income statement. Dividends are recognised in the income statement
when the right to receive payment is established.
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
Trade and other payables
Trade and other payables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest
method. Interest expense is recognised by applying the effective interest rate, except for short term trade and other payables when the
recognition of interest would be immaterial.
Categories of financial instruments
Financial instruments held by the Group are categorised under IAS 39 as follows:
97
Financial assets
Cash and cash equivalents
Investment management balances
Fee receivables
Other receivables
Total loan and receivables
Available-for-sale investments
Total available-for-sale
Total financial assets
Other receivables exclude prepayments.
Financial Liabilities
Investment management balances
Trade and other payables
Total other liabilities at amortised cost
Total financial liabilities
30 June
2017
£’000
30 June
2016
£’000
30,759
62,138
5,619
13,818
112,334
12
12
14,147
15,448
6,488
9,958
46,041
5,350
5,350
112,346
51,391
30 June
2017
£’000
30 June
2016
£’000
60,317
17,439
77,756
77,756
14,655
8,933
23,588
23,588
Trade and other payables exclude deferred income.
The Directors consider the carrying amounts of the loan and receivables financial assets and financial liabilities carried at amortised cost to be a
reasonable approximation to their fair values due to the short term nature of the instruments.
Financial risk management
The risks of the business are measured and monitored in accordance with the Board’s risk appetite and policies and procedures covering specific
risk areas, such as: credit, market and liquidity risk.
The Group is exposed to credit risk, market risk (including interest rate and foreign currency risks) and liquidity risks from the financial
instruments identified above. This note describes the objectives, policies and processes of the Group for managing those risks and the methods
used to measure them.
Credit risk management
Credit risk refers to the risk that a counterparty defaults on their contractual obligations resulting in financial loss to the Group. The carrying
amount of loans and receivables recorded in the financial statements represents the Group’s maximum exposure to credit risk. The Group held
no collateral as security against any financial asset. Credit risk arises principally from the Group’s fee receivables, investment management
balances, other receivables and cash balances. The Group manages its credit risk through monitoring the aging of receivables and the credit
quality of the counterparties with which it does business.
The aging of outstanding fee receivables at the reporting date is given in note 17. The Group had no single fee receivable balance at year-end
that is material to the Group (2016: none).
The banks with whom the Group deposits cash and cash equivalent balances are monitored, including their credit ratings (note 14).
The Group bears risk in relation to the investment management balances held in respect of the River and Mercantile Funds ICVC. If any debtor
failed to pay, the Group would redeem the underlying fund units in respect of that debtor, however it would be subject to risk that the value of
the underlying fund units had fallen. The maximum theoretical risk exposure is the full £62.1m (2016: £15.4m) value of the receivables
multiplied by the percentage decrease in the underlying ICVC position during the period between default and redemption. In order to mitigate
the risk of losses arising from late receipt, the Group will seek specific indemnity from counterparties in certain cases. Management monitor the
performance and aging of the investment management positions and take recovery action as appropriate.
River and Mercantile Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Continued
98
26. Financial instruments continued
Market risk – foreign currency risk management
The Group has foreign currency denominated assets and liabilities primarily arising from the US business (including intra-Group balances) and is
therefore exposed to exchange rate fluctuations on these balances. The carrying amount of the Group’s foreign currency denominated
monetary assets and liabilities all in US Dollars, are shown below in GBP:
Fee receivables
Cash and cash equivalents
Payables
Total
30 June
2017
£’000
643
615
(868)
390
30 June
2016
£’000
259
654
(622)
291
A 10% fluctuation in the exchange rate between US Dollars and UK Pounds sterling on the outstanding foreign currency denominated monetary
items at year-end balances would result in a post-tax increase/decrease in profit of £39,000 (2016: £29,000).
The majority of the Group’s other foreign currency exposure is with its US-based subsidiary P-Solve LLC. As at 30 June 2017, P-Solve LLC had
net assets of $1,895,000 (2016: $720,000), thus any future fluctuations in the exchange rate will have a limited impact on the Group and are
considered a low risk.
Foreign exchange risk arising from transactions denominated in foreign currencies are monitored and where appropriate the currency required
to settle the transaction may be purchased ahead of the settlement date.
Market risk – interest rate risk management
The Group has minimal exposure to interest rate risk. The Group has no external borrowings, cash deposits with banks earn a floating rate of
interest and the interest income is not significant in either year.
Liquidity risk management
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. This risk relates to the Group’s prudent
liquidity risk management and implies maintaining sufficient cash reserves to meet the Group’s working capital requirements. Management
monitors forecasts of the Group’s liquidity and cash and cash equivalents on the basis of expected cash flow.
The Group is cash generative before the payment of dividends and has cash and cash equivalent balances that support the Group’s working
capital requirements. The fee receivable invoicing cycle is generally quarterly; as a result working capital balances are maintained to meet the
ongoing expenses of the business during the quarterly cycles. The Group’s capital expenditure requirements have not been significant and have
been limited to office and IT equipment.
Prior to significant cash outflows (or entering into commitments which would result in significant cash outflows), including dividends, the Group
undertakes liquidity and capital analysis.
The Group has entered into operating leases over its premises. Note 23 discloses the future aggregate minimum lease payments at the balance
sheet date, net of rebates over the life of the contracts.
At 30 June 2017 the Group had cash and cash equivalents of £30.8m (2016: £14.1m).
As ACD of River and Mercantile Funds ICVC (the ICVC), some of the operating cash balance of RAMAM is held in the ACD operating account into
which the management fees from the ICVC are paid on a monthly basis. Of the ACD operating account balance at each year end, the proportion
not attributable to client fund transactions can be utilised by RAMAM within a 24-hour notice period and thus the account is considered liquid.
At 30 June 2017 £1.1m (2016: £1.3m) of the cash and cash equivalents balance relating to the ACD account was held.
Liquidity gap analysis
The table below presents the cash flows receivable and payable by the Group under non-derivative financial assets and liabilities by remaining
contractual maturities at the reporting date. The amounts disclosed in the table are the contractual, undiscounted cash flows.
The net liquidity positions in the table below relate to cash flows on contractual obligations existing at the reporting date and does not take
account of any cash flows generated from profits on normal trading activities.
As at 30 June 2017
Assets
Cash and cash equivalents
Investment management balances
Fee receivables
Other receivables
Total financial assets
Liabilities
Investment management balances
Trade and other payables
Total financial liabilities
Net liquidity surplus
River and Mercantile Group PLC Annual Report and Accounts 2017
On demand
£’000
< 3 months
£’000
3–12 months
£’000
30,759
–
–
–
–
62,138
5,249
13,818
30,759
81,205
–
–
–
30,759
60,317
17,439
77,756
3,449
–
–
370
–
370
–
–
–
370
Strategic report
Governance
Financials
As at 30 June 2016
Assets
Cash and cash equivalents
Investment management balances
Fee receivables
Other receivables
Total financial assets
Liabilities
Investment management balances
Trade and other payables
Total financial liabilities
Net liquidity surplus
On demand
£’000
< 3 months
£’000
3–12 months
£’000
99
14,147
–
–
–
14,147
–
–
–
–
15,448
5,667
9,958
31,073
14,655
8,933
23,588
–
–
821
–
821
–
–
–
14,147
7,485
821
Capital management
The Group operates its subsidiaries as self-sufficient entities, which are expected to be able to meet their funding and capital requirements
without recourse to the Parent.
The Group’s capital structure consists of equity (share capital and share premium) and retained earnings; capital is managed on a consolidated
and individual entity basis to ensure that each entity is able to continue as a going concern. Three of the Group’s subsidiaries are regulated
entities (two in the UK and one in the US). The Group scrutinises its capital adequacy using the Pillar 2 and ICAAP frameworks which are
regulated by the FCA to maintain adequate capital requirements. The Group has complied with its regulatory capital requirements throughout
the period covered by these financial statements.
27. Ultimate controlling party and subsidiary undertakings
The Group became publicly listed on 26 June 2014 and remains publicly listed.
Subsidiary undertakings
The following subsidiaries have been included in the consolidated financial information of the Group:
Name
P-Solve Investments Limited¹
P-Solve Holdings Limited¹
P-Solve LLC ¹ ²
River and Mercantile Holdings Limited
River and Mercantile Asset Management LLP ¹
River and Mercantile Asset Management LLC¹ ²
River and Mercantile Group Services Limited¹ ²
River and Mercantile Group Trustees Limited¹ ²
River and Mercantile Group Employee Benefit Trust
Indirect holding
1
2 Exempt from audit requirements
Country of
incorporation
of registration
Proportion of
voting rights /
ordinary share
capital held %
UK
UK
US
UK
UK
US
UK
UK
UK
100/100
100/70
100/100
100/100
100/100
100/100
100/100
100/100
0/0
Registered office address
Nature of business
11 Strand, London, WC2N 5HR Investment management
11 Strand, London, WC2N 5HR Holding company for the
US business
Actuarial and consulting
Holding company
30 Coleman St, London, EC2R 5AL Investment management
Marketing
200 West St, Waltham, MA 02451, US
11 Strand, London, WC2N 5HR
1521 Concord Pike, Wilmington,
19803, US
11 Strand, London, WC2N 5HR Dormant service company
11 Strand, London, WC2N 5HR Dormant service company
Employee Benefit Trust
The Company indirectly holds 20,250,896 ordinary shares in P-Solve Holdings Limited which carry 100% of the voting rights. A further
8,793,056 A ordinary shares of P-Solve Holdings Limited (representing 30% of the total issued ordinary share capital) are held by employees
and ex-employees of P-Solve LLC. The A ordinary shares of P-Solve Holdings Limited do not carry any voting rights, but rank equally with the
ordinary shares in respect of dividend rights; and capital rights above a hurdle of £1.8m.
River and Mercantile Asset Management LLP and LLC have reporting years ending 31 March and 31 December respectively on a standalone
basis. These were the existing year-end dates as at acquisition and no change is expected.
River and Mercantile Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Continued
100
28 New standards and interpretations
There have been no new standards having a material impact on the financial statements for the year.
The following standards and amendments to existing standards have been published and are mandatory from the financial period beginning on
or after the effective dates shown below but are not currently relevant to the Group (although they may affect the accounting for future
transactions and events).
Topic
Key requirements
Applying IFRS
9 Financial
Instruments
Annual
improvements to
IFRSs (2014-2016
Cycle)
Effective date
1 January 2018
The objective of the amendments is to address the temporary accounting consequences of
the different effective dates of IFRS 9 Financial Instruments and the forthcoming insurance
contracts standard (expected to be IFRS 17).
IFRS 1 has been amended to remove short-term exemptions dealing with IFRS 7
Financial Instruments: Disclosures, IAS 19 Employee Benefits and IFRS 10 Consolidated
Financial Statements.
1 January 2017 and
1 January 2018
IFRS 12 Disclosure of Interests in Other Entities. Amendments have been made to clarify
the scope of IFRS 12 in respect of interests in entities within the scope of IFRS 5 Non-current
Assets Held for Sale and Discontinued Operations.
IAS 28 Investments in Associates and Joint Ventures. Clarified that the election to measure
at fair value through profit or loss an investment in an associate or joint venture that is held
by an entity that is a venture capital organisation, or other qualifying entity, is available
for each investment in an associate or joint venture or an investment-by-investment basis,
upon initial recognition.
IFRIC 22 Foreign
Currency
Translations
and Advance
Consideration
IFRIC 22 addresses how to determine the date of the transaction for the purpose of
determining the exchange rate to use on an initial recognition of the related asset, expense or
income (or part of it) on the de-recognition of a non-monetary asset or non-monetary liability
arising from the payment or receipt of advance consideration in a foreign currency (e.g. a
prepayment or deferred income).
1 January 2018
Amendments to
IAS 40; Transfers of
Investment Property
IAS 40 requires a property to be transferred to, or from, investment property only when there
is a change in use. The amendment clarifies that a change in management’s intentions for the
use of a property does not in isolation provide evidence of a change in use. This is because
management’s intentions, alone, do not provide evidence of a change in use.
1 January 2018
IFRS 16 Leases
IFRS 16 replaces the outgoing IAS 17 and makes a significant change to how leases are
accounted for, in that it removes the distinction between operating and finance leases. Under
IAS 17, leases classified as finance leases led to the capitalisation of the underlying asset being
leased, and the recording of a liability reflecting future lease payments. Operating leases
(such as building rent), are simply expensed to the income statement. R&M Group only has
operating leases under IAS 17.
1 January 2019
Under IFRS 16, all lease contracts are accounted for more in line with the previous finance
lease approach where lessees have to recognise a lease liability reflecting future lease
payments and a ‘right-of-use asset’ for almost all lease contracts.
In the income statement lessees will have to present interest expense on the lease liability
and depreciation on the right-of-use asset. In the cash flow statement the part of the lease
payments that reflects interest on the lease liability can be presented as an operating cash
flow (if it is the entity’s policy to present interest payments as operating cash flows). Cash
payments for the principal portion of the lease liability are classified within financing activities.
Payments for short-term leases, for leases of low-value assets and variable lease payments not
included in the measurement of the lease liability are presented within operating activities.
IFRS 15 Revenue
recognition
IFRS 15 replaces the outgoing IAS 18 with the objective of establishing the principles that
an entity shall apply to report information to users of financial statements about the nature,
amounts, timing and uncertainty of revenue and cash flow arising from a contract with a client.
The introduction of IFRS 15 is to close the gap between IFRS and US GAAP.
1 January 2018
The Directors have assessed the impact that the adoption of these standards and interpretations will have on future periods and have concluded
that none aside from IFRS 16 are likely to have a material impact on the financial statements of the Group. IFRS 16 will lead to an increase in
non-current assets to reflect lease right-of-use assets and in increase in liabilities to reflect future lease payments.
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
29. Events after the reporting date
Since the end of the financial year, the Directors are not aware of any other matter or circumstance not otherwise dealt with in this report or the
financial statements that has significantly or will significantly affect the operations of the Group, the results of those operations or the state of
affairs of the Group.
A second interim dividend in respect of the year of 8.1p per share has been declared, of which 2.8p is a special dividend relating to net
performance fees. The Directors have proposed a final dividend in respect of the year of 6.0p per share, of which 2.8p is a special dividend
relating to net performance fees. Based upon the number of shares held by the EBT at the year-end (upon which dividends are waived), the
expected total payments are £6.5m and £4.8m for the second interim and final dividends respectively.
Pursuant to the ILC team joining the Group, in July 2017 the Group entered into a new operating lease for office facilities in Chicago. In August
2017, the Group entered into new operating leases for an existing floor and an additional floor of its Coleman Street offices.
101
River and Mercantile Group PLC Annual Report and Accounts 2017
102
COMPANY STATEMENT
OF FINANCIAL POSITION
Assets
Cash and cash equivalents
Other receivables
Deferred tax asset
Property, plant and equipment
Intangible assets
Investments
Total assets
Liabilities
Payables
Deferred tax liability
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Retained earnings
Equity attributable to owners
The Company’s profit for the year was £7,461,000 (2016: £11,435,000).
30 June
2017
£’000
30 June
2016
£’000
Note
2
3
4
5
6
7
8
9
10
11
15,182
5,663
2,629
19
79
56,941
7,633
10,094
437
38
–
55,756
80,513
73,958
5,980
–
5,980
1,543
–
1,543
74,533
72,415
246
14,688
48,384
11,215
74,533
246
14,688
48,384
9,097
72,415
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
COMPANY STATEMENT
OF CASH FLOWS
103
Cash flow from operating activities
Loss before interest, tax and dividends from subsidiaries
Adjustments for:
Depreciation of property, plant and equipment
EBT funding
Share-based payment expense
Operating cash flow before movement in working capital
Decrease/(increase) in operating assets
Increase in operating liabilities
Cash generated by/(used in) operations
Taxation received
Net cash generated by/(used in) operations
Cash flow from investing activities
Purchase of intangible assets
Purchases of property, plant and equipment
Interest (paid)/received
Dividends received from subsidiaries
Net cash generated by investing activities
Cash flow from financing activities
EBT funding settled
Dividends paid
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of year
Year ended
30 June
2017
£’000
Year ended
30 June
2016
£’000
(9,696)
(2,636)
20
3,582
856
(5,238)
4,171
4,281
3,214
788
4,002
2
1,283
665
(686)
(4,020)
291
(4,415)
106
(4,309)
(79)
(2)
(7)
16,550
–
(40)
96
13,749
16,462
13,805
(3,570)
(9,345)
(945)
(9,851)
(12,915)
(10,796)
7,549
(1,300)
7,633
–
15,182
8,933
–
7,633
River and Mercantile Group PLC Annual Report and Accounts 2017
104
COMPANY STATEMENT OF CHANGES
IN SHAREHOLDERS’ EQUITY
Balance as at 30 June 2015
Comprehensive income for the year:
Profit for the year
Total comprehensive income for the year
Transactions with owners:
Dividends
Share-based payment expense
Deferred tax credit on share-based payment expense
Total transactions with owners:
Balance as at 30 June 2016
Comprehensive income for the year:
Profit for the year
Total comprehensive income for the year
Transactions with owners:
Dividends
Share-based payment expense
Deferred tax credit on share-based payment expense
Total transactions with owners:
Balance as at 30 June 2017
Share
Capital
£’000
Share
Premium
£’000
Merger
reserve
£’000
Capital
redemption
reserve
£’000
Capital
contribution
£’000
Retained
earnings
£’000
Total
£’000
246
14,688
44,433
84
3,867
6,805
70,123
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11,435
11,435
11,435
11,435
(9,851)
786
(78)
(9,143)
(9,851)
786
(78)
(9,143)
246
14,688
44,433
84
3,867
9,097
72,415
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,461
7,461
(9,345)
2,039
1,963
(5,343)
7,461
7,461
(9,345)
2,039
1,963
(5,343)
246
14,688
44,433
84
3,867
11,215
74,533
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
NOTES TO THE COMPANY
FINANCIAL STATEMENTS
105
1. Basis of preparation
The Company’s financial statements have been prepared in accordance with International Financial Reporting Standards, International
Accounting Standards and interpretations, International Financial Reporting Interpretation Committee interpretations, and with those parts of
the 2006 Act applicable to companies reporting under IFRS as issued by the International Accounting Standards Board as adopted by the
European Union (IFRS) that are relevant to its operations and effective for accounting periods beginning on 1 July 2016.
Principal place of business
The Company’s principle place of business is the same as the Company’s registered office.
Result for the year
The profit after tax for the year ended 30 June 2017 was £7,461,000 (2016: £11,435,000). This includes a charge of £3,582,000 relating to
funding provided to the Group’s EBT (2016: £1,283,000).
In accordance with s408 of the Companies Act 2006 a separate income statement has not been presented for the Company. There are no items of
comprehensive income other than the result for the year and therefore no statement of comprehensive income has been prepared for the Company.
Foreign currencies
To the extent that the Company undertakes transactions in currencies other than GBP, the transactions are translated into GBP using the
exchange rate prevailing at the date of the transaction. Balances denominated in foreign currencies are translated into GBP using the exchange
rate prevailing at the balance sheet date. All foreign exchange differences arising from the settlement of transactions or the translation of
balances are recognised in operating expenses in the income statement.
Employees
The Company had 16 employees during the year (2016: 8). Total remuneration costs were £8,060,000 (2016: £2,810,000). This change reflects
restructuring of the location of staff for the Group’s central functions.
Dividends
See note 13 of the consolidated financial statements.
2. Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, cash at agents, demand deposits, and other short-term highly liquid investments that
have maturities of three months or less from inception, are readily convertible to a known amount of cash and are subject to an insignificant
risk of changes in value. Below is a table detailing the credit risk rating of the banks with which the Company holds its cash, and the balance
held at year-end.
Bank
Barclays Bank
3. Other receivables
Taxes and social security
Prepayments and accrued income
Amounts owed from Group undertakings
Other debtors
£,000
Credit Rating
Rating Body
15,182
A1 – Moody’s
Year ended
30 June
2017
£’000
Year ended
30 June
2016
£’000
202
336
5,029
96
5,663
171
271
9,642
10
10,094
Amounts owed from Group undertakings represent balances incurred in the course of trade and are payable on demand.
4. Tax
The Company’s accounting policy in respect of tax is the same as that of the Group as detailed in note 11 of the consolidated financial
statements.
Current tax on profits for the year
Adjustments in respect of prior years
Total current tax
Deferred tax on origination and reversal of timing differences
Total tax credit
Year ended
30 June
2017
£’000
Year ended
30 June
2016
£’000
(332)
–
(332)
(229)
(561)
(111)
–
(111)
(114)
(225)
River and Mercantile Group PLC Annual Report and Accounts 2017
NOTES TO THE COMPANY FINANCIAL STATEMENTS
Continued
106
4. Tax continued
The tax assessed for the years is lower (2016: lower) than the average standard rate of corporation tax in the UK.
The differences are explained below:
Profit before tax and EBT funding costs
Profit before tax multiplied by the average rate of corporation tax in the UK of 19.75% (2016: 20%)
Effects of:
Income not assessable to tax
Group relief
Other timing differences
Expenses not deductible for tax purposes
Total tax credit
Deferred tax assets:
At beginning of year
Credit to the income statement – share-based payment expense
Debit/(credit) to equity – share-based payment expense
At year-end
Year ended
30 June
2017
£’000
10,381
2,050
Year ended
30 June
2016
£’000
12,493
2,499
(3,268)
1,218
(561)
–
(561)
(2,750)
–
23
3
(225)
Year ended
30 June
2017
£’000
Year ended
30 June
2016
£’000
437
229
1,963
2,629
399
116
(78)
437
5. Property plant and equipment
Property, plant and equipment is carried at historical cost less accumulated depreciation. Depreciation charges the cost of the assets to the
consolidated income statement over their expected useful lives.
Cost:
At 1 July 2015 and 30 June 2016
Additions
At 30 June 2017
Accumulated depreciation:
At 1 July 2015 and 30 June 2016
Depreciation charge
At 30 June 2017
Net book value:
At 1 July 2016
At 30 June 2017
Leasehold
improvements
£’000
Total
£’000
40
2
42
2
21
23
38
19
40
2
42
2
21
23
38
19
6. Intangible assets
Intangible assets are carried at historical cost less accumulated amortisation and impairment. Amortisation charges the cost of the assets to the
consolidated income statement over their expected useful lives.
Cost:
At 1 July 2015 and 30 June 2016
Additions
At 30 June 2017
Accumulated amortisation and impairment:
At 1 July 2015 and 30 June 2016
Amortisation charge
At 30 June 2017
Net book value:
At 1 July 2016
At 30 June 2017
River and Mercantile Group PLC Annual Report and Accounts 2017
Software
£’000
Total
£’000
–
79
79
–
–
79
–
79
–
79
79
–
–
79
–
79
Strategic report
Governance
Financials
7. Investments in subsidiaries
At start of year
Additions – share-based payments in subsidiaries
At end of year
The Company’s investments in subsidiaries are stated at cost less provision for any impairment incurred.
8. Payables
Trade payables
Accruals and deferred income
107
Year ended
30 June
2017
£’000
Year ended
30 June
2016
£’000
55,756
1,185
56,941
55,635
121
55,756
Year ended
30 June
2017
£’000
Year ended
30 June
2016
£’000
636
5,344
5,980
315
1,228
1,543
Amounts owed to Group undertakings represent balances incurred in the course of trade and are payable on demand.
9. Share capital
Full details of the Company’s share capital can be found in note 21 of the consolidated financial statements.
10. Share premium
A reconciliation of the movements in share premium can be found in the Company statement of changes in equity.
11. Other reserves
A reconciliation of the movements in reserves can be found in the Company statement of changes in equity. Full details on the nature of the
other reserves in the Company can be found in note 22 of the consolidated financial statements.
A breakdown of other reserves is detailed below.
Merger reserve
Capital contribution reserve
Capital redemption reserve
30 June
2017
£’000
44,433
3,867
84
48,384
30 June
2016
£’000
44,433
3,867
84
48,384
As at 30 June 2017, the Company had £15,082,000 of distributable reserves (2016: £12,964,000)
12. Financial instruments
A discussion of the financial risks and associated financial risk management, which applies to all of the companies in the Group, can be found in
note 26 of the consolidated financial statements, along with the Group’s accounting policy in respect of financial instruments.
The financial assets and liabilities of the Company are categorised under IAS 39 as follows.
Financial assets classified as loans and receivables
Cash and cash equivalents
Other receivables
Total financial assets
Other receivables exclude prepayments and accrued income.
Financial liabilities held at amortised cost
Payables
Total financial liabilities
Payables exclude accruals and deferred income.
30 June
2017
£’000
30 June
2016
£’000
15,182
3,133
18,315
7,633
9,653
17,286
30 June
2017
£’000
30 June
2016
£’000
636
636
315
315
River and Mercantile Group PLC Annual Report and Accounts 2017
NOTES TO THE COMPANY FINANCIAL STATEMENTS
Continued
108
12. Financial instruments continued
Credit risk management
Credit risk refers to the risk that a counterparty defaults on their contractual obligations resulting in financial loss to the Company. The carrying
amount of loans and receivables recorded in the financial statements represents the Company’s maximum exposure to credit risk. The Company
held no collateral as security against any financial asset. Credit risk arises principally from the Company’s intercompany and cash balances.
The Company manages its credit risk through monitoring the credit quality of the counterparties with which cash is held and the Company’s
subsidiaries resources.
The banks with whom the Company deposits cash and cash equivalent balances are monitored, including their credit ratings (note 2).
Market risk–Interest rate risk management
The Company has minimal exposure to interest rate risk. The Company has no external borrowings and cash deposits with banks earn a fixed
rate of interest. Interest income is not significant in either year.
Liquidity gap analysis
The table below presents the cash flows receivable and payable by the Company under non-derivative financial assets and liabilities by
remaining contractual maturities at the balance sheet date. The amounts disclosed in the table are the contractual, undiscounted cash flows.
The net liquidity positions in the table below relate to cash flows on contractual obligations existing at the balance sheet date and does not take
account of any cash flows generated from profits on normal trading activities.
On demand
£’000
< 3 months
£’000
3-12 months
£’000
15,182
3,133
18,315
636
636
17,679
–
–
–
–
–
–
–
–
–
–
–
–
–
–
On demand
£’000
< 3 months
£’000
3-12 months
£’000
7,633
9,653
17,286
315
315
16,971
–
–
–
–
–
–
–
–
–
–
–
–
–
–
As at 30 June 2017
Assets
Cash and cash equivalents
Other receivables
Total financial assets
Liabilities
Payables
Total financial liabilities
Net liquidity surplus
As at 30 June 2016
Assets
Cash and cash equivalents
Other receivables
Total financial assets
Liabilities
Payables
Total financial liabilities
Net liquidity surplus
Other receivables excludes prepayments and payables excludes deferred income.
13. Directors’ remuneration
Details of the individual Directors’ remuneration is given in the Remuneration Committee report.
River and Mercantile Group PLC Annual Report and Accounts 2017
Strategic report
Governance
Financials
14. Related parties
Related parties to the Company are:
– Other River and Mercantile Group undertakings;
– Key management personnel;
– PSG who hold 38.1% of the issued share capital of the Group and is thus a controlling shareholder; and
– Pacific Investments Management Limited, its subsidiary undertakings and controlling shareholder, Sir John Beckwith (collectively ‘Pacific
Investments’) were considered to be related parties as they held significant influence over the Group by virtue of holding more than 10% of
the issued share capital of the Group. Following a disposal by Pacific Investments in March 2017, they now hold less than 10% and are
therefore no longer considered a related party.
The Company entered into the following transactions with related parties:
109
Related party
Punter Southall Group
River and Mercantile Group undertakings
Type of transaction
Admin expense
Balances
Inter-company balances
Group cost sharing
Dividends received
Transaction amount
Balance owed/(owing)
30 June
2017
£’000
60
–
–
2,983
16,550
30 June
2016
£’000
66
–
–
3,382
13,749
30 June
2017
£’000
(224)
–
2,836
–
–
30 June
2016
£’000
(35)
(22)
9,651
–
–
Key management personnel compensation
Details of key management personnel compensation can be found in note 6 of the consolidated financial statements.
15. Other information
The Company has taken the exemption under s408(2) of the Companies Act 2006 to not present remuneration separately in these financial statements.
A second interim dividend in respect of the year of 8.1p per share has been declared, of which 2.8p is a special dividend relating to net
performance fees. The Directors have proposed a final dividend in respect of the year of 6.0p per share, of which 2.8p is a special dividend
relating to net performance fees. Based upon the number of shares held by the EBT at the year-end (upon which dividends are waived), the
expected total payments are £6.5m and £4.8m for the second interim and final dividends respectively.
The Company has not entered into any significant commitments or contingent liabilities after the balance sheet date.
River and Mercantile Group PLC Annual Report and Accounts 2017
110
GLOSSARY
ABI – Association of British Insurers
ACD – Authorised corporate director
AGM – Annual general meeting
AUA – Assets under advice
AUM – Assets under management
CAGR – Compound annual growth rate
CGU – Cash generating unit
CMA – Competition and Markets Authority
DAA – Dynamic asset allocation
DB – Defined benefit
DC – Defined contribution
DEP – Deferred equity plan
EBT – Employee Benefit Trust
EPS – Earnings per share
EPSP – Executive performance share plan. A dilutive share plan awarded to Executives during the Group’s IPO
ESG – Environmental, social, governance
ETF – Exchange traded fund
FCA – Financial Conduct Authority
FRC – Financial Reporting Council
IAA – Investment advisory agreement
ICAAP – Internal capital adequacy assessment process
ICVC – Investment company of variable capital
IFA – Independent financial advisor
ILC – Industrial life cycle
IMA – Investment management agreement
IPO – Initial public offering
KPI – Key performance indicator
LDI – Liability-driven investment, an investment strategy based on the cash flows needed to fund future liabilities
LGPS – Local government pension scheme
LTIP – Long-term incentive plan
MiFIR – Markets in Financial Investments Regulation
MiFID – Markets in Financial Instruments Directive
NAV – Net asset value
NUM – Notional under management
PPF – Pension Protection Fund, a statutory fund established under the provisions of the Pensions Act 2004
PSG – Punter Southall Group Limited
PSP – Performance share plan
PVT – Potential, value and timing. The investment strategy employed by the Group’s Equity Solutions division
eligible defined benefit fund members in case of employer insolvency
RAMAM – River and Mercantile Asset Management LLP
RWAA – Risk weighted asset attribution
SIPP – Self-invested pension plan
TIGS – Total Investment Governance Solution
TSA – Transitional service agreement
TSR – Total shareholder return
UCITS – Undertakings for the collective investment of transferable securities
WACC – Weighted average cost of capital
YoY – Year-on-year
Buy-in is the process by which trustees of a pension scheme buy an insurance policy to cover a group of their members. The trustees hold the
policy as an asset and remain responsible for paying the pensions.
Buyout is a type of financial transfer whereby a pension fund sponsor pays a fixed amount in order to free itself of any liabilities (and assets)
relating to that fund.
Mandated AUM/NUM represents the Group’s closing AUM/NUM, adjusted for any mandates or redemptions in transition.
Mandates in Transition represent the AUM/NUM of mandates which have been awarded by clients at the period-end date and will transition
into fee earning assets. The timing, and ultimate amount transitioned is determined by the client. We report an estimated AUM/NUM for those
mandates where there is a high likelihood of the amount being transitioned within the next three months.
Redemptions in transition are redemptions which have been notified by the client at the period-end date, but where the AUM/NUM is included
in fee earning assets at period end. The redemptions will be included in a future period.
River and Mercantile Group PLC Annual Report and Accounts 2017
Company number
04035248
Registered office
11 Strand
London
WC2N 5HR
Tel: 020 3327 5100
Company Secretary
Sally Buckmaster
Website
www.riverandmercantile.com
Annual General Meeting
8 December 2017 at 2pm
11 Strand
London
WC2N 5HR
SHAREHOLDER INFORMATION
AND ADVISORS
Auditors
BDO LLP
55 Baker Street
London
W1U 7EU
Corporate broker and advisor
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London
EC4M 7LT
Share listing
River and Mercantile Group PLC‘s ordinary shares of £0.003 are
admitted to trading on the Main Market of the London Stock
Exchange under ticker RIV.
Information on the share price and the Company can be accessed
via the Company’s website or at www.londonstockexchange.com.
Dividends
Where possible, it is recommended that dividend payments are made
directly into a bank account to provide improved security and faster
access to funds. You may give instruction via the Registrar’s website
www.shareview.co.uk or in writing.
Final dividend for the financial year ended 30 June 2017
Amount
6.0 pence per ordinary share
Bloomberg
0994474D:LN
ISIN
GB00BLZH7X42
SEDOL code
BLZH7X4
Ticker
RIV
Ex-dividend date
23 November 2017
Record date
24 November 2017
Payment date
15 December 2017
Registrars
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Shareholder helpline
0371 384 2030
(+44 121 415 7047)
www.shareview.co.uk
G R O U P
www.riverandmercantile.com
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