RIV Capital Annual Report 2019

FY2019 Annual Report · RIV Capital

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Annual Report and Accounts 2019

River and Mercantile
is a client focused
investment specialist.

We offer a broad range of services, from
consulting activities including advisory
to fully-delegated fiduciary and asset
management, incorporating equities,
derivatives and multi-asset solutions.

B O S T O N : U S A

Charles River

River and Mercantile is a client focused investment
specialist working closely with clients in the UK, Europe,
USA, Australia and New Zealand. Our clients include
institutional pension schemes, wholesale financial
intermediaries, insurance companies, state and local
government funds, charitable institutions and family offices.

Understanding clients’ current and future complex
investment and financial liabilities is key to developing
relevant solutions and products.

We are focused on designing, building and managing
specialist investment solutions and products designed
to meet specific client needs which have broad client
application across our target audience groups.

We work with our clients as partners to ensure their needs,
and the solutions and products, are clearly understood
and implemented.

We have developed a rewarding and open environment to
allow innovation and investment expertise to flourish.

Front cover image

L O N D O N : U K

River Thames

River and Mercantile Group PLC Annual Report and Accounts 2019

S T R AT E G I C R E P O R T

Investment performance

01 2019 highlights
02 Chairman’s statement
06 Group Chief Executive’s review
14 Chief Investment Officer’s report
19
20 Business model
22 Key Performance Indicators
24 Financial review
30 Risk management
35 Viability statement
36 People report
39 Responsible investment

G O V E R N A N C E

42 Board of Directors
44 Corporate governance report
48 Nomination Committee report
50 Audit Committee report
54 Risk Committee report
56 Remuneration Committee report

F I N A N C I A L S TAT E M E N T S

70 Directors’ report
73 Directors’ responsibilities
74
Independent auditor’s report
80 Consolidated income statement
81 Consolidated statement of
comprehensive income
82 Consolidated statement of

financial position

83 Consolidated statement of cash flows
84 Consolidated statement of changes in

shareholders’ equity
85 Notes to the consolidated
financial statements

107 Company statement of financial position
108 Company statement of cash flows
109 Company statement of changes in

shareholders’ equity

110 Notes to the Company financial

statements

A D D I T I O N A L I N F O R M A T I O N

115 Glossary
116 Shareholder information and advisors

2019 HIGHLIGHTS

We have delivered robust performance during challenging
market conditions and have continued to invest in our core
business and broaden our distribution.

Fee Earning AUM/NUM
£’bn

£39.8BN

2019

2018

2017

39.8

33.8

31.0

Statutory profit after tax
£’m

£13.0M

2019

2018

2017

13.0

15.1

13.4

Net Management and Advisory Fees
£’m

£65.6M

2019

2018

2017

65.6

64.2

55.9

Adjusted underlying pre-tax margin1
%

22%

2019

2018

2017

Performance fees
£’m

£12.5M

2019

2018

2017

10.6

12.5

Earnings per share

16.2P

Statutory

20.3P

Adjusted

13.9P

Adjusted underlying

Total dividend for the year2

16.4P

1. Adjusted underlying pre-tax margin represents net management and advisory fees less associated remuneration,
administrative expenses, amortisation of software, depreciation, and finance income and expense; divided by net
management and advisory fees.
Including 5.0 pence proposed final dividend.

Forward looking statements
This Annual Report contains forward looking statements with respect to the financial condition,
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.

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River and Mercantile Group PLC Annual Report and Accounts 2019

CHAIRMAN ’ S S TATEMENT

We believe this has played a significant
part in our achieving, this year, gross new
sales of £6.9bn and growth of 18% in fee
earning AUM/NUM.

The majority of the AUM/NUM
net growth occurred in the second
half of the year and, as a result, net
management and advisory revenue grew
by only 2% in the year. We have also seen
the full impact of MiFID II on research
costs and we have continued to invest in
infrastructure and new initiatives.

As a result of the combined effect of
the second half phasing of AUM growth
and investment initiatives made, the
statutory profit before tax and adjusted
underlying profits before tax both fell
by 9%. We have maintained the policy of
returning a high level of adjusted profits
to shareholders, with total dividends
this year declared and proposed of 16.4
pence or 86% of adjusted profit (2018:
18.6 pence, 85%).

As described in James Barham’s Group
Chief Executive report, the Group will
undertake investments to grow the
business organically. We will provide
shareholders with specific guidance
relating to the financial impact of these
investments on the current period’s net
earnings, which will allow shareholders
to evaluate anticipated dividend
distributions based on the Group’s
current dividend policy.

CONDUC T
Last year, I emphasised the critical
importance of creating and sustaining a
strong culture based around exemplary
standards of behaviour. We set high
standards and set the tone from the
top, reinforcing our strategy, our actions
and our communications. It is, like the
old image of painting the Forth railway
bridge, a never-ending task: culture does
not exist in a vacuum – it requires to
be continually learned, relearned, lived
and taught. No company is, of course,
immune from mistakes being made, but
in a conduct-led culture we expect errors
to be admitted up front and problems
rectified openly. We have always believed
that how a business deals with these
challenges speaks volumes about the
strength of integrity and values. Only in
that way will we meet the expectations of
our clients, regulators and shareholders.

We have been making our final
preparations for the implementation of
the Senior Managers and Certification
Regime (SMCR) on 9 December 2019.
The Group’s two FCA regulated entities
will be in-scope of the SMCR and will
be ‘core’ firms. Our work towards SMCR
implementation has included identifying
and training our senior managers and
certified staff and putting in place the
relevant policies, processes, systems and

J O N AT H A N D A W S O N

C H A I R M A N O F T H E B O A R D

“ The Board therefore looks forward with
continued confidence.”

In many respects much of the
background picture that I described
last year has continued without
major change.

First, how the UK will withdraw from the
European Union (EU) is, at the time of
writing, no closer to being answered than
a year ago, although we are obviously
now very close to the 31 October
deadline. Whether Boris Johnson can
achieve a breakthrough with Parliament
and/or the EU remains to be seen.
I am confident, however, that River
and Mercantile is as well prepared as
it can be at present.

Secondly, the global trade environment
continues to be under threat from the
ongoing US/China trade dispute, as
well as the risk of further tariff barriers
involving US/EU trade. This uncertainty
is a significant threat to the future
prosperity of the world. In addition, there
are further tensions in the Gulf involving
the US, ourselves and Iran, as well as
the impact of the continuing proxy war
involving Saudi Arabia and Yemeni rebels
and ongoing threats to safe navigation
in the Gulf.

Despite the external challenges, at
River and Mercantile we have remained
steadfast in our focus on putting
our clients’ interests at the heart of
everything that we do. Our investment
performance has been strong over the
longer term with all of our funds ahead
of their respective benchmarks since
inception, although long equity funds
have had a more challenging period
as value driven investment has been
less favoured by the market. At the
same time, we have been careful to
communicate our economic and market
thinking clearly with our clients. In our
Solutions and Macro businesses, our
focus on the River FOURcast model of
investment behaviours has given clients,
particularly in our Fiduciary Management
business, direct insight into our thinking
and processes by which we seek to
achieve their investment objectives.

River and Mercantile is at an exciting
point in its growth. We think that there
are significant opportunities for us in
our pensions business in the UK and,
increasingly, the US and Australia,
in our derivatives and our long-only
asset management businesses.

River and Mercantile Group PLC Annual Report and Accounts 2019

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controls designed to facilitate ongoing
compliance. As with many regulatory
projects the story does not end on the
implementation date, we have therefore
been very focused on looking ahead
to ensure the smooth transition of our
business-as-usual practices into the new
SMCR environment.

BOA R D A ND M A N AGEMENT CH A NGE S
Over the last couple of years, Mike
Faulkner has increasingly focused
his efforts on driving forward our
investment thinking, developing
new investment approaches and the
preparation of new investment funds
for launch. After careful reflection over
the past year, Mike concluded that he
would best be able to serve the Group if
he could spend the majority of his time
focused on the investment parts of our
business. As a result, we announced
in June that James Barham would be
appointed Group Chief Executive on
1 July. James had been the Deputy Group
CEO since September 2018. The Board
is very pleased with the start that James
has made in his new role.

B R I S B A N E : AU S T R A L I A

Brisbane River

Since then our thinking has evolved
further and we have agreed that the
investment elements of River and
Mercantile should be pulled together
under the overall guidance of Mike
and we were pleased to announce that
Mike would take on the role of Group
Chief Investment Officer (Group CIO).
The ongoing delivery of market-leading
investment returns along with the
development of our Macro business
is central to fulfilling the long-term
potential of River and Mercantile.

To ensure that his time is unencumbered,
we have agreed with Mike that he will
step down as an Executive Director at
the 2019 AGM. This will allow him the
time to be fully focused on development
of our investment thinking as Group CIO
and the management and development
of our Macro business. Mike’s
remuneration will be restructured to be
consistent with his new role and will be
comparable with the arrangements that
other similar portfolio managers and
CIOs receive.

River and Mercantile Group PLC Annual Report and Accounts 2019

CHAIRMAN ’ S S TATEMENT CONTINUED

C H I C A G O : U S A

Lake Michigan

“ The business is well positioned to take
advantage of some developing themes in
our marketplace over the coming years.”

and Committees in the regular reviews
of the performance of their business
responsibilities. In addition, the
restructured Board will also meet the
Hampton-Alexander target that at least
33% of the Board should be female.

In parallel, Jack Berry continues to play
a key role in the management of our
Solutions business and some of our
most important clients. To allow him
more time to work on the positioning and
future development of our UK Solutions
business and to focus on growing the
complex client-base, especially in light
of the retendering opportunities arising
from the CMA review of the fiduciary
management sector in June 2019, we
have agreed that he will also step down
from the Board at the 2019 AGM.

There have also been three changes
amongst the Non-Executive members
of the Board. Robin Minter-Kemp,
previously Remuneration Committee
Chair, stepped down on 30 June as
previously announced. His replacement
in that role is Miriam Greenwood, who
was appointed to the Board on 28 May
2019. In addition, Jonathan Punter, one of
the founder members of Punter Southall
Group and its representative on the
Board under the relationship agreement
entered into at the time of the IPO,
stepped down on 30 June.

I am personally grateful to both Robin
and Jonathan for their contributions to

the Board since IPO and especially since
I was appointed Chairman.

With effect from 1 July, River and
Mercantile became subject to the
new UK Corporate Governance Code
(the 2018 Code). Under the previous
UK Corporate Governance Code (the
2016 Code), as a small company, River
and Mercantile had been exempt from
compliance with the requirement that
at least half of the Board, excluding the
Chairman, should comprise independent
Non-Executive Directors. As a result
of Mike Faulkner, Jack Berry and
Jonathan Punter stepping down from
the Board we shall be fully compliant
with the 2018 Code in respect of the
membership of the Board following
the AGM. The Board will then comprise
myself as independent Chairman, three
independent Non-Executive Directors
and two Executive Directors (CEO and
CFO). The significantly smaller size of
the Board will enhance our governance
focus and improve our effectiveness. The
Board and the Board Committees will
continue to exercise careful oversight
of each of the businesses in the Group,
ensuring that all senior executives in
the Group get exposure to the Board

As required by the 2018 Code, Miriam
Greenwood has been appointed as
the Board’s designated Non-Executive
Director responsible for engagement
with our workforce. As Chair of the
Remuneration Committee, Miriam has a
broad remit for the oversight of employee
remuneration and employee matters.

AGM
This year’s AGM will be held on
9 December 2019.

In addition to the usual business, there
are two important items, in particular,
on which I wish to comment. First, we
have put forward a resolution to give
the Directors power for the Company
to buyback shares. This power is widely
held by public companies and it had
been the intention to incorporate such
a power at the time of the IPO. It can
be an attractive way to return excess
capital to investors. Appropriate use of
the power would also be expected to
enhance per share growth and improve
overall returns to shareholders. We have
no immediate intention to use the power
but wish to have that ability should the
returns from such a buyback be more
attractive than other routes such as
special dividends. I emphasise that the
Board would only initiate buybacks

River and Mercantile Group PLC Annual Report and Accounts 2019

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N E W Y O R K : U S A

East River

OUTLOOK
The business is well positioned to take
advantage of some developing themes in
our marketplace over the coming year:
– The retendering window emanating

from the CMA review.

– The growing demand for our

derivatives solutions.

– The strong performance of our

macro strategy and our ability to take
advantage of a compressing market.
– The recognition by investors of ‘Value’

as an investment strategy and our long
track record of delivering that strategy.

The Board therefore looks forward with
continued confidence.

Finally, on behalf of the Board, I would
like to thank all of our people at River
and Mercantile for their continuing
hard work, spirit and enthusiasm for
our business. The Company is nothing
without its people and the Board deeply
appreciates everyone’s effort to make
River and Mercantile a success.

Jonathan Dawson
Chairman of the Board

if we considered that the Company
had surplus capital, which could not
be profitably invested in growing
the business.

Secondly, following the general meeting
earlier this year in which shareholders’
approved a resolution to ratify and
confirm the payment of certain dividends
previously paid, we have put forward a
resolution to give the Board approval
to undertake a Court approved capital
reduction process to reclassify the
merger reserve (£44m at 30 June 2019)
as a distributable reserve.

I would also like to comment on the
shareholder feedback we received on the
application of the current remuneration
policy at our 2018 AGM. Whilst there
was a majority of votes in favour of the
2018 Remuneration Report, we noted
that a number of shareholders had some
concerns and were unable to support
the 2018 Remuneration Report. We had
planned to consult with shareholders
fully on a new remuneration policy, but
following the change in Remuneration
Committee Chair and Executive Director
role changes, we decided to delay
proposing a new policy until next year.
We have naturally listened carefully to
comments from investors and proxy
agents on the application of the current
policy and have accordingly increased
our disclosures relating to performance
targets and the scoring of individual
senior executives as well as removing the
inclusion of a direct share of investment
performance fees in the remuneration
available to senior executives.

River and Mercantile Group PLC Annual Report and Accounts 2019

GROUP CHIEF E XECUTIVE’ S RE VIE W

The investment environment during
the period was, and continues to
be, demanding and a number of
our investment strategies whilst
outperforming in absolute terms
underperformed against their relative
benchmarks as the factors they
favour struggled.

Net management and advisory fees
including performance fees rose by 4% to
£78.1m slightly ahead of analysts’ average
expectations. Adjusted underlying profit
before tax was £14.7m in line with the
average of analysts’ expectations at
£14.7m and adjusted basic earnings per
share was 20.3 pence a decrease of 7%
against the previous year.

A key element of this growth came
through from the strong performance
fees earned during the year. Equity
Solutions provided £2m and Solutions
provided £10.6m, following positive
performance. This part of our growth
will vary over time and as I discuss later
in this report, will be subject to our ability
to generate strong investment returns
for our clients. This can be expected to
wax and wane over time depending on
the underlying conditions.

We have seen a volatile market over
the last 12 months and in particular,
at certain stages during the period,
falling equity markets especially in
the final quarter of the last calendar
year. We have always believed that
our diversified business model,
where nearly 50% of our revenues
are independent of equity market
beta, provides the business and our
shareholders greater protection. It was
encouraging to see this belief statement
proved as equity markets fell. In spite
of our lower beta, we are still able to
provide strong growth and we continue
to work hard with our clients to ensure
that we have enduring relationships.

J A M E S B A R H A M

G R O U P C H I E F E X E C U T I V E

“ The entrepreneurial spirit burns fiercely
within the Group designed to deliver
strong outcomes for clients.”

It was a great honour to be asked to
step up and take over the Group Chief
Executive role from Mike Faulkner earlier
this year. We have known each other and
worked together in various guises over
the last 25 years and whilst we are very
similar in terms of our values, beliefs,
ambitions and entrepreneurial spirit,
we do think in different ways. It is this
difference that has been our strength.

As General George Patton once said:

“If everyone is thinking alike, then
somebody isn’t thinking.”

R E V IE W OF THE Y E A R
The last year has been a period of
robust performance for the Group
during challenging market and industry
conditions. We have delivered excellent
growth with AUM/NUM rising by 18% to
£39.8bn, which is 6% ahead of analyst
expectations at the beginning of the
financial year. It is very encouraging to
see the net sales ratio return to the level
we strive to achieve. This year has seen
a record level of gross sales at £6.9bn,
a year-on-year increase of 21%. As we
have described previously, we want to

deliver asset growth in our business at
a minimum of 12% per annum.

This growth is made up of a combination
of net sales ratio and growth generated
through investment performance.

Net sales ratio per annum %

Investment return generation per annum
%

FY2015 FY2016 FY2017 FY2018 FY2019 Average

Sales less redemptions divided by opening AUM/NUM.

Investment performance plus net rebalance divided by
opening AUM/NUM.

River and Mercantile Group PLC Annual Report and Accounts 2019

This is shown in the Revenue Weighted
Asset Allocation (RWAA) shown below.

Group RWAA
June 2019

A DJUS TED UNDER LY ING M A RGIN OF COR E A ND IN V E S TMENT S BUS INE S S

£’000

Underlying net management and advisory revenue
Remuneration
Administrative costs
Amortisation, depreciation and net finance income
Adjusted underlying profit before tax
Adjusted underlying profit margin before tax

Core business
and initiatives

Investment
areas

Reported
figures

65,584
(33,687)
(15,488)
118
16,527
25%

–
(1,718)
(159)
–
(1,877)
–

65,584
(35,405)
(15,647)
118
14,650
22%

Equities – Non-discretionary
Equities – Discretionary
Interest rates
Cash/independent
Other

37%
3%
19%
38%
3%

We continue to monitor attrition rate
and whilst the long-term levels remain
stable at around 3% we will see this
spike from time to time dependent on
circumstances. Over the period this was
only 1% and reflected strong underlying
client relationships.

It was encouraging to see growth across
our business in the last year. We have
seen a return to growth in our Fiduciary
Management division and strong
growth in Equities – Institutional and
Derivatives and I comment further on
our distribution focus later in this report.

We continue to invest in our business –
which will be a theme over the coming
years – and I have talked in detail later in
this report on the nature of our current
investments. We will monitor and report
on these as they develop and once
they have reached profitability we will
roll these investments into our core
business. In addition, we are continuing
to invest in our Core business and we
refer to these investments as Initiatives.
Initiatives are designed to bolster
our existing Core businesses and are
captured within the Core business from
a cost and remuneration perspective.

I have shown above metrics on our
business split into these two areas; our
Core business which includes Initiatives
and those areas in which we are
currently investing, which we refer to as
Investment areas. I have set out in more
detail later in this report the specific
initiatives we are making in our Core
business and the Investment areas.

R EGR E T TED IN S TIT UTION A L AT TR ITION (R I A)

£’m

Gross outflows
Opening AUM/NUM
Outflow %
RIA 2019

RIA 2018
RIA 2017

Fiduciary
Management

Derivative
Solutions

Equity Solutions
– Institutional

616
10,642
5.8%
0.6%

0.2%
1.1%

1,257
18,622
6.8%
1.7%

14.8%
3.6%

439
2,692
16.3%
0.0%

0.3%
11.6%

Total

2,312
31,956
7.2%
1.1%

8.1%
3.0%

The Core business adjusted underlying
profit is continuing to grow, which in
time will feed into a steadily improving
reported adjusted underlying operating
margin.

We are also expanding our capabilities,
with a particular focus on distribution.
Since the year end, we have recruited
David Hanratty to be our Global Head
of Distribution. David was previously in
a similar role at Pioneer, subsequently
bought by Amundi in late 2017. David is
highly regarded in the industry and has
significant experience in our core and
developing markets as well as strong
technical knowledge. I am delighted
he has joined the business and we will
make a range of additional appointments
across our distribution capabilities to
ensure we are in a strong position to
deliver the exciting strategies that we
currently manage and are continuing
to develop.

We have delivered organic growth in
AUM/NUM at a compound rate of 18%
per annum since our IPO five years
ago and we now want to complement
this growth with alternative sources of
expansion that will position the business
more aggressively in those areas in
which we are currently competing,
but also in certain areas where we see
exciting opportunities.

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River and Mercantile Group PLC Annual Report and Accounts 2019

GROUP CHIEF E XECUTIVE’ S RE VIE W CONTINUED

B R I S B A N E : AU S T R A L I A

Brisbane River

OV ERV IE W OF THE GROUP
River and Mercantile Group PLC was
formed following the merger of River and
Mercantile Asset Management LLP and
P-Solve Limited in February 2014 and
subsequently listed on the London Stock
Exchange in June of that year. These
antecedent businesses were founded by
their respective CEOs, Mike and I in 2001
and 2006. We both agreed at the time of
the merger that it was more appropriate
that Mike lead as CEO with myself
responsible initially for the Group-wide
distribution function and subsequently
incorporating the asset management
elements of our business and then more
recently as Deputy Group CEO. As every
business should, we have a series of
long-term succession plans and these
are based on how our business evolves,
and how its needs change alongside the
development of our people.

It has been clear that the needs of our
clients and therefore our business are
undergoing some significant change
and this means that the needs of
our business are better served by
a change in leadership that allowed

Mike to focus the entirety of his time
on the development and management
of a range of existing and emerging
macro strategies and driving forward
our broader investment thinking.
Subsequent to this change, Mike and
I have concluded that we need to be
more harmonised as a Group in the way
we approach investment challenges to
ensure that our investment thinking is
driven forward in a coordinated and
cohesive fashion. Mike will therefore
become the Group CIO, to ensure that
we are maximising our capabilities
in this vital area of our business and
that our clients’ investment needs are
foremost in our minds. Mike has written
at some length on his new role later in
this Report and in particular, the macro
strategies and why these are so critical
to the longer-term development of
our business.

CHANGE … E VOLUTION AND RE VOLUTION
Our industry is in the throes of some
significant change; some driven by the
evolving needs of our clients but also
because of commercial imperatives. All

industries have to develop; we operate
in a living and breathing investment
universe and to remain static will lead to
a business fast becoming isolated and
potentially extinct. Change therefore
should be seen as prerequisite for
commercial survival as opposed to a
threat that must be resisted. This applies
to the existing investment solutions and
products that we deliver and manage for
our clients, as well as how we manage
and evolve our own business.

I am not espousing fundamental
reinvention of investment beliefs; a fund
management company that changes its
investment philosophy and process is
probably more vulnerable than one that
is resistant to any evolution. That said,
I have always admired fund managers
and fund management companies that
learn. The market evolves and therefore
an investment process must learn
from history.

River and Mercantile Group PLC Annual Report and Accounts 2019

Writer and philosopher George
Santayana stated:

“Those who cannot remember the past
are condemned to repeat it.”

This, as in many markets, has significant
ramifications in our industry. Hugh
Sergeant and his investment team
have continuously demonstrated this
learning characteristic. Although he has
always had a committed value style,
the application of this has evolved away
from the narrow implementation of
many of his peers over the years into
the pragmatic investment approach that
is known as PVT (Potential, Valuation
and Timing) and has served him and his
clients so well. That said there are always
investment cycles and we have been
through a period where the factors he
favours have struggled; however, that
does not mean that you change your
investment spots and chase the latest
investment fad; you remain committed
to the core principles of your investment
beliefs. As an aside, we do believe that
we are moving into a period where
the value investor is likely to be better
rewarded. It is clear when looking at
Hugh’s performance as a committed
value manager, if investors wish to take
advantage of the value opportunity,
when looking at the evidence of his
returns against his value peer group
there is no one better at delivering
superior investment returns than Hugh.

We believe that the broader investment
market is moving into a different phase
and the returns that have been achieved
in the past may be more difficult to
achieve in the future. We are not
suggesting that certain asset classes
are doomed to uncertain times; in fact,
we believe that the equity market and in
particular those stocks with attractive
value characteristics, could provide some
very attractive returns in the medium
term. However, we do believe that with
the prevailing economic backdrop we are
more likely to be entering a period where
returns may well be lower than has been
the case in recent history.

We have been through a period where
institutional advisors have promulgated
a need to reduce risk, this has been
driven by the changing circumstances
within pension funds and their
sponsoring employers. The arguments
for reducing risk have been clearly
articulated. However, the consequence
of reduced risk in many cases is reduced
and in some cases no return. I am sure
that we all agree that we have to take
some risk in our daily lives to exist. I need
to go to work to earn money to pay my
mortgage etc. However, there is a risk
that in leaving the house to go to work
I am involved in a terrible accident that
reduces or removes my ability to earn

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B O S T O N : U S A

Charles River

money. I clearly still need go to work and
therefore I assess the associated risks
and act accordingly.

addition of complex macro solutions
further enhances our ability to deliver
positive outcomes for all of our clients.

This is the same in investment markets;
if I do not take any risk, I will not be able
to generate any return and therefore
will be unable to meet my liabilities.
Whilst this analogy does not apply to
those pension funds with strong and
dependable sponsors and healthy
levels of investment surplus, it does
apply to the majority of pension funds
and other investors. Our Solutions
business has always been the advisor
or fiduciary manager that has solved
complex client problems. The investment
expertise and advice required to solve
significantly underfunded positions is
different to that required to manage a
more solvent position. The development
of our derivatives capability alongside
this investment advice has placed us
in a unique position to manage risk
alongside return and many of our clients
have benefited from this approach. The

The change that we have made at a
leadership level at River and Mercantile
is designed to give our business the
freedom to meet this change and to
develop and manage appropriate
solutions that will help our clients
manage their investment needs.

We therefore need to embrace change
and all this means for our clients and
our shareholders. I have always believed
that our industry is dominated by two
pieces of high ground: one the prevail of
the large multi-national fund managers
who have been able to utilise their
scale and distribution capabilities to
dominate markets and to withstand the
twin commercial pressures of reduced
fees and increased costs. The other
area of high ground is dominated by
the specialists that have been able to
grow and manage fee pressures due
to the high quality of the products and

River and Mercantile Group PLC Annual Report and Accounts 2019

GROUP CHIEF E XECUTIVE’ S RE VIE W CONTINUED

N E W Y O R K : U S A

Hudson River

solutions that they develop which are
very difficult to replicate. The remainder
are trapped in the valley between these
two opposing forces and as any military
person will know, become vulnerable
and weak.

We at River and Mercantile have
always prided ourselves on our ability
to change and evolve to prevailing
market conditions. These included the
development of the fiduciary market
in the UK in 2003, which was a direct
response to changing governance
requirements; the use of derivatives
as a means of managing risk and
delivering required return in pension
funds in 2005; the evolution of specific
investment strategies to meet recovery
investment opportunities emanating
from the global financial crisis in 2008;
and the recognition of changing market
conditions and needs, leading to the
first merger of an asset management
and solutions business in 2014. These
have all been examples of where our
business has recognised the need and
changed accordingly.

Developing solutions for a lower
returning world is more than just simple
investment engineering. It requires
not only a fundamental understanding
of the holistic needs of our clients,
but also crucially an understanding of
macroeconomic factors and how these
can influence investments. We have
been working on developing a range
of investment strategies designed to
deliver significant returns at a time
when the need is greatest. An example
of this is the Global Macro strategy that
we launched in early 2018 and ran with
corporate money only as we tested the
operational and underlying investment
model. This was designed to provide
double-digit returns through the cycle
and critically provide positive absolute
returns during sustained periods of
negative equity markets. The early
returns have been very encouraging;
Mike discusses this in detail in the
Global Macro strategy white paper we
have recently sent to potential clients,
which provides academic and numeric
evidence in support of his investment
approach, and more broadly how this
influences many of the other new
developments on which we are working.

We are continuing to invest in our
business and have expanded on this in
detail below. We have decided it would
be helpful if we described our business
in terms of our Core business and the
Investments and Initiatives we are
making in our business to drive growth
over the next three years. We articulated
this approach at the time of our interims,
and we have continued this approach
more explicitly in this Report. It is crucial
that a business continues to make
sensible investments in its people and
processes, and responds to the changing
business landscape and environment.
I do not want River and Mercantile to
become a business driven by senseless
metrics that do not define how we are
currently performing or will fare in the
years to come. We have a fantastic
opportunity to invest in developing the
products and solutions that we deliver to
our clients and the people who make this
happen. We will also continue to recruit
high-quality individuals into the business
at every opportunity. These investments
will help our business flourish, maintain
our position on the ‘high ground’ and
avoid the dangers lurking in the ‘valley’.

River and Mercantile Group PLC Annual Report and Accounts 2019

INITI ATI V E S A ND IN V E S TMENT S
As I highlighted earlier in my report, we
are making a number of Investments
and Initiatives in our business and will
continue to support these until the point
at which they become part of our core
business or that Investment or Initiative
does not turn into a feasible opportunity
and we decide to withdraw support. We
have set clear metrics to allow ourselves
and the Board to govern the relative
success or otherwise.

We are investing in the following specific
Initiatives within our Core business:

Macro strategies
With Mike’s guidance, we have a range
of innovative strategies to meet the
emerging needs of our clients such
as Global Macro, Emerging Market
Absolute Return, and Global Quality.
We have launched these strategies and
are already taking these to our clients
across the business.

ILC
We made an investment in the Emerging
Market equity team, based in Chicago
that joined us from Credit Suisse. The
team has a value-based investment
approach similar to that utilised by the
PVT team and a long track record. We
are in the process of establishing a range
of suitable investment vehicles in the US
to meet client requirements.

Separate to this we have made the
following Investments in our business
over the last eighteen months:

Australian distribution
We have been building relationships and
clients in Australia for the last few years
and recognised that we needed to make
an investment and establish a presence
in this very vibrant and sophisticated
market. The first stage in this investment
programme was the recruitment of
Tim Horan in 2018. He has made an
excellent start in ensuring that River and
Mercantile is a recognised feature of the
institutional and wholesale markets,
and we will continue this investment with
additional hires over the coming 12 to
18 months.

New York
We were fortunate to be able to recruit
a team of high-level executives from
Mercer last year and we subsequently
opened an office in New York, which
will allow the team to spearhead our
continued growth into this important
market. The early signs are extremely
positive, we are seeing the level of
engagement with larger multinational
pension funds increase significantly
and we will continue to support this
investment over the coming years.

The entrepreneurial spirit burns fiercely
within River and Mercantile and there is
a range of other initiatives that are being
identified and researched as possible
future investments. We will continue to
keep you informed of our thinking in this
space and when we are at the point of
investing further in our development.

These investments will generally involve
hiring additional resources and incurring
additional remuneration costs. In the
Group’s remuneration policy, approved
by shareholders in 2017, provision
was made for the temporary increase
of the remuneration ratio above 54%
of underlying revenue to permit such
investments. While historically we
have not had to do this, and have been
below the 54% remuneration cap, the
Remuneration Committee has adjusted
this, on a temporary basis, to allow
management to be above the 54%
remuneration cap specifically to fund
these investments, if necessary.

DE TA ILED R E V IE W OF 2 019
In reviewing the last 12 months, I think
that it is important to put this into
context of the last 24 months and since
our IPO in June 2014. The headline asset
numbers for 2019 look positive; the
Group has moved back onto a strong
growth path and I was delighted to see
that our net sales ratio is again at a level
that compares favourably against our
peers in the industry. The investment
environment was more challenging
than we have seen since the Group
was formed and conditions for some
of our strategies have been less than
supportive. However, our long-term
investment returns remain strong with
all of our investment strategies and
products ahead of their respective
benchmarks since inception.

The wholesale market in the UK has
continued to be difficult and the
Investment Association numbers bear
this out. Retail sales of Equities over the
12 months to June 2019 were negative
by over £4bn on a net basis and we were
impacted by this trend. We have also
seen an unusually narrow market where
sales have been channelled through a
small number of funds at a restricted
number of investment houses and
investment platforms. Investment in UK
wholesale funds has fallen over the last
12 months and whilst there has been
growth in certain global funds these
have tended to be those strategies that
have focused on the most expensive and
fashionable stocks in markets. Our own
wholesale business had a more muted
period and saw redemptions in our UK
strategies consistent with the Investment
Association figures. In contrast we have
seen strong growth in our global equity
strategies from institutional clients in the
UK, US and Australia, however this tends

to be at a lower margin and this mix-
shift in margin at a Group level has had
an impact on our overall financials. Our
long-term investment returns are very
strong, 100% of our portfolios are ahead
of their respective benchmarks since
inception, and we expect that we will see
a return to growth in our wholesale book
as the investment cycle changes. We
are committed to this market in the UK
and the recruitment of David Hanratty
with his experience and expertise and
the additional recruitments that will be
made to support our existing clients and
widen our client base are evidence of
this commitment.

OPER ATING BUS INE S SE S
The Group has grown its assets at a
compound average growth rate of
18% per annum since its IPO in 2014.
The development of four intertwined
divisions has continued to be a success
and we have continued to see strong
growth across the business.

Fiduciary management
The last few years have been dominated
by the CMA review into the industry
and this has clearly had a dampening
impact on activity levels during the early
part of the year. The final order was
published on 10 June 2019 although the
interim report was circulated earlier in
the year. During the course of the CMA
investigation, we provided the CMA
with our views and we are delighted
that there appear to be some sensible
decisions regarding clarification and
consistency of investment returns and
fee structures.

We have continued to see a recovery
in activity in this market and there is
evidence of a strong return to growth
from our business as the market
normalises following the review. We
expect activity levels to increase as
we move into a window during which
we expect a significant number of
legacy mandates across the market
to undertake formal tenders.

Investment returns have continued to
be strong during the period and we have
rolled out our River FOURcast investment
thinking to all of our Solutions clients
to ensure a clear understanding of
our approach and the investment
implications of our macro views.

We were instrumental in developing
the fiduciary solution for UK pension
funds in 2003 and we continue to
be one of the leading players in this
growing market. We continue to
develop a series of new investment
solutions to service both our Fiduciary
and Advisory clients as their needs
evolve and we will continue to invest in
this division over the coming years.

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River and Mercantile Group PLC Annual Report and Accounts 2019

GROUP CHIEF E XECUTIVE’ S RE VIE W CONTINUED

Advisory
Our Advisory revenues remained broadly
flat for the period in the UK as we
continued to see a number of our clients,
due to changes in their governance
structure, decide to retain River and
Mercantile, accessing our investment
thinking and approach in a Fiduciary
manner as opposed to Advisory
following a competitive tender. We have
always maintained and were pleased
to see the CMA concur that, fiduciary
and advisory are merely different sides
of the same coin. The primary decision
a Trustee Board needs to make is to
identify the right investment partner
with whom they wish to work and the
secondary decision is to understand the
appropriate governance structure to
meet their needs.

We are continuing to see growth
emanate from both the UK and US. We
have made a significant investment in
opening offices in New York following
the arrival of two senior executives
from Mercer and we are delighted with
early developments. The Advisory part
of our business has been core since
our inception and we will continue to
invest in this area both in personnel
and by identifying suitable inorganic
growth opportunities to complement
our activities in this area.

Derivatives
We have seen very strong growth in
our Derivatives business since the IPO.
We have grown NUM by over 150% in
that period. Growth in the FY2019 has
continued. We are now working with a
broad range of clients and consultants
and in particular, we have seen a
strong growth in mandates from Local
Government Pension Schemes (‘LGPS’)
over the last 18 months. Our skills in
this area are recognised as being some
of the most professional and innovative
in the market and we are working hard
to develop these further and identify
opportunities to both develop solutions
and clients that would benefit most
from the implementation of this thinking
alongside or instead of their existing
relationships.

As highlighted above, we have continued
to see a strong appetite for structured
equity/protection mandates in LGPS.
We are beginning to see a strong
appetite for derivative structures in
the US and Masroor Ahmad (Head
of Derivative Solutions) and his team
are working closely with the New York
team and engaging with multinational
corporations. We also see interesting
opportunities in our other markets such
as Australia, where we are beginning
to see some early signs of interest in
Derivative solutions.

We will continue to invest in this
business line, which we believe will
continue to provide strong growth
opportunities as the market increasingly
becomes more sophisticated and
the use of complex risk management
tools becomes more widespread.

Equities
As highlighted earlier in this review,
our Equities businesses have a clear
investment philosophy and process; and
have consistently applied this in what
has been a challenging environment for
their favoured factors. This approach
has gone through periods when their
favoured factors have not supported
the investment approach and the last
12 months has been one of those
environments. The teams in London led
by Hugh Sergeant and in Chicago led
by Al Bryant have similar investment
processes and the impact of this
investment environment has been
similar across both teams. We are not
short-term investors, we are looking
to generate superior returns through
the cycle and whilst frustrating in the
near term this does provide some
fantastic valuation opportunities for
the sophisticated investor who has the
ability to “look across the valley”.

We have continued to invest in the
equities franchises and we have
identified a number of opportunities
to grow these further in the coming
12 months. We have been loath to buy
assets for the sake of some short-term
asset growth on its own, but we have
identified a number of opportunities that
also provide additional manufacturing
opportunity and/or additional
distribution resource.

We have continued to see strong growth
in our institutional client base in all
markets and in particular the exciting
opportunities that we are beginning to
see from our decision to open an office
in Australia last year.

Macro
We are treating Macro as a new initiative
and we believe that in time this will
become a separate division in its own
right. Once that is the case we will
report on this accordingly. The Macro
initiative has evolved over this year
and as we highlighted is a result of the
emerging needs we have identified in
the market and it provides the business
with the infrastructure to develop a
range of relevant solutions. Mike will
cover in his report in more detail the
Macro opportunity and what we mean
by Macro. I am delighted with the way
the business has reacted to these
changes and the large number of exciting
products and solutions that are being
developed are a testament to the high

quality of individuals we have across the
business. These strategies are in the
process of being taken to our clients and
the response appears to be supportive.

Distribution
We have begun a phase of investment
in our Distribution platform and as
highlighted earlier in my report I am
delighted that David Hanratty has
joined the business to develop further
our distribution capabilities across the
Group. I have always believed that this
development should be a combination
of ‘build, buy and partner’. We will build
internal distribution capabilities as we
find the right individuals and teams and
evidence of this is the investment we
made last year in Australian Distribution.
Tim Horan joined the business from
WestPac where he had many years of
success building out a new business
line for the bank and he has made a
great start in developing the River and
Mercantile franchise in the region since
he joined our business. We will continue
to invest and support Tim and we hope
to make further recruitments over the
coming 12 months.

We will look to identify strategic
opportunities that assist our
development plans and provide
significant distribution capabilities
in markets where we are under
represented or where we identify
opportunities to diversify. We have also
collaborated with some distribution
specialists in the US market, which will
provide much-needed bandwidth as we
develop our own capabilities.

This was a record year of AUM growth
for the Group with total sales of
£6.9bn and net flow of £5.4bn. It was
encouraging to see the continued
penetration into the LGPS market
championed by Jason Wood with our
structured equity and Liability Driven
Investments solutions and the broader
growth in our overall Institutional
business led by Arabella Townshend.

As we have previously highlighted, we
have made a significant commitment
and investment in Australia with the
establishment of presences in Sydney
and Brisbane following a number
of years developing relationships.
It has been very rewarding to see
the continued growth in this market
with a recent AU$390m global
equities mandate appointment
from a major Superfund.

We are committed to the wholesale
market here in the UK and developing
relationships over time in these
markets in the US and Australia. The UK
wholesale market has seen a difficult
trading environment and the Investment

River and Mercantile Group PLC Annual Report and Accounts 2019

Association reported that the UK All
Companies Sector has been the worst
selling sector eight times in the last 10
years; in addition, UK domiciled funds
according to figures from Morningstar
Direct have suffered total outflows of
£30bn since April 2018. Notwithstanding
these depressing industry numbers,
100% of our investment strategies
available to this market are ahead of
their respective benchmarks since
inception and continue to be relevant
to our client needs in this space. We
will continue to work hard to make sure
that our strategies are available across
all platforms and accessible to the
end client.

SUMM A RY
This has been a strong year of
development for the business. We
have continued to deliver growth in our
underlying business and whilst there has
been a mix-shift in the economics from
where this growth has emanated, we
believe this will settle over time.

We continue to invest across the Group
and are also making specific investments
and delivering initiatives in four key parts
of our business and I will continue to
report on these over the coming years.
As we identify additional opportunities
to support our future growth, we will
add these to this broader list. I am
excited by the opportunities that exist
for our core business and I have been
delighted in the growth that we have
been able to deliver. The investment
in our core operating platform has

D E N V E R : U S A

Ferril Lake

continued and is now in a position to
be able to support not just the core
business but also the investments
that we are making more broadly.

As a business, we have a clear set of
values; we are passionate about our
clients’ success, we want to be creative-
involving, challenging and convincing
others. We want to create an open,
candid and constructive working
environment, individually demanding of
our best, and whilst being commercial
in all that we do, remain focused on
our people.

I would like to take this opportunity
to thank all our employees for their
continued support and hard work over
the last year and our shareholders who
have continued to support our plans
to grow and develop the business.

James Barham
Group Chief Executive

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River and Mercantile Group PLC Annual Report and Accounts 2019

GROUP CHIEF INVES TMENT OFFICER ’ S REPORT

“ All our strategies are tied back
to client need.”

M I K E F A U L K N E R

G R O U P C H I E F I N V E S T M E N T O F F I C E R

It will not be lost on shareholders that
I am, for the first time, reporting as
Group CIO and manager of our Macro
strategies and not as Group CEO. The
decision for me to step down and focus
on the Group’s investments and the
management of our Macro strategies
represented part of a normal succession
process and thankfully, in all of the
shareholder conversations we have
had, has not come as a surprise to
anyone. I therefore wanted to take the
opportunity to set out in this statement
what we mean by Macro strategies, the
trends we see occurring in the industry
that should create demand for them,
and where we see some important areas
of development in the strategies we
offer going forward. It is because of my
strength of belief in this opportunity that
we decided it was better for the Group
and shareholders for me to focus on
the investment processes underlying
this, and to pass on leadership of the
Group to James, in whom I have the
utmost confidence.

W H AT A R E M ACRO S TR ATEGIE S ?
When most people think of macro, they
think of macroeconomic factors such as
economic growth, inflation and interest
rates. These are certainly examples
of macro themes, and the list of such
influences is now long. We would tend
to define a macro theme as something
that is not specific to a single company

or investment, but rather influences a
range of investments at the same time in
a significant way. A recent example would
be the on-risk/off-risk trade, that has led
companies with low volatility to perform
significantly better than companies
with higher volatility. The chart below
illustrates the above.

Low volatility companies have outperformed

Index Level (Base = 100)
125

120

115

110

105

100

Jun 18 Jul 18

Aug 18 Sep 18 Oct 18 Nov 18 Dec 18 Jan 19 Feb 19 Mar 19 Apr 19 May 19 Jun 19

S&P 500 Low Volatility
S&P 500

River and Mercantile Group PLC Annual Report and Accounts 2019

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Sydney Harbour

The market has simply decided that,
based on concerns about a variety of
things, it would progressively favour
lower risk stocks. The difference is
significant, and arguably you only
needed to get that one call right to
add significant value for clients.

We have historically tended to reflect
these views in multi-asset class
strategies, and will continue to do
so. But the reason we are making a
distinction between macro and multi-
asset (the latter is a subset of the former)
is because there are strategies that are
not multi-asset but are still macro.

Hence our Macro function is intended
to drive the development of a series
of investment strategies that have
significant macro content. The key
strategies we have implemented to date
are shown in the table opposite.

Strategy

Description

Objective

Dynamic Asset
Allocation strategy

Multi-asset, rotation –
currently offered in fund
form1

Deliver significant, equity like returns
in the long run but with greater
stability

Global Macro
strategy

Systematic macro, currently
offered in fund form2

Global Quality Total
Return strategy

Currently implemented as
a total return swap, market
neutral equity strategy

Deliver double-digit returns over
a cycle; produce positive returns in
a sustained equity downturn; deliver
high Sharpe ratio (in excess of 1)
over the cycle

Deliver pure alpha of 2–3% per
annum over a cycle, with a low
volatility, through exposure to quality
stocks (defined by our proprietary
process)

Global Responsible
Investment strategy

Long-only equity strategy,
currently managed on a
segregated basis but will also
be offered in fund form

Deliver long term return in excess
of equity benchmarks through
investment in companies that satisfy
our responsible investment criteria

1. River and Mercantile Funds ICVC – Dynamic Asset Allocation Fund.
2. River and Mercantile Investments ICAV – River and Mercantile Investments Global Macro Fund.

River and Mercantile Group PLC Annual Report and Accounts 2019

GROUP CHIEF INVES TMENT OFFICER ’ S REPORT CONTINUED

The net effect of all this should be
a meaningful reduction in the costs
that are levied on asset portfolios.
For pension assets, that has a direct
effect on the return experience of
the beneficiaries. This is an important
benefit and a key reason why we believe
consolidation has real attraction globally.

However, it also means that internal
investment teams are seeking to solve
particular portfolio problems and need
specific tools to achieve this. Some of
these tools will be traditional products
and strategies. But, others will need
to be designed to explicit portfolio
objectives and we see real opportunity
in our ability to design and deliver these
types of strategies.

NEEDS W E A R E SEE ING E X PR E S SED BY
CLIENT S ’ CIOS
It is critical that these strategies are
designed to deliver on needs that are
meaningful to investors, rather than
those the investment manager wants to
solve (because they know how to). We
therefore start in the design process with
the broad needs expressed by clients
and prospects. To give some insight
into this, the majority of conversations
I have with CIOs are ending up with the
following needs in some form or another:
– “I need more return, but alpha has

been very disappointing”

– “I feel like my equity exposure – beta –
needs to be more efficient and stable”

– “I’m not convinced my liquid

alternatives are diversifying well
enough, or performing efficiently –
what can I do?”

– “We have a significant cash flow

problem but I can’t afford to sacrifice
return”

– “I think I need more liquidity, without

sacrificing return”

– “I think we need to communicate with
our Board more effectively and could
do with some help”

– “I don’t know whether we’re managing/
governing our illiquids well enough”.

The last two are more governance-
related and as a business we are well
placed to help through our Advisory
and Solutions business lines. The others
are purer investment needs and have
some complexity if we are to solve
them correctly.

Some of these needs have multiple
solutions depending on the nuance.
For example, our Emerging Markets
Absolute Return strategy is a solution
to the second need, but applied
specifically to emerging markets.
Structured equity is also a solution
to the same need, provided that
certain other criteria are met. We are
building still another solution to this
need when it is expressed as needing
beta exposure continuously (i.e. at
all times). Being able to address the
same need in a number of ways helps
us to address the particular nuances
of a problem a client is often facing.

Our Global Quality Total Return swap
has been developed as a solution to
a number of these needs (not just
one). It is a very efficient way of adding
return at a total portfolio level. It can
be used to improve the performance
of a liquid alternatives portfolio. It can
help in the provision of cash flow, and
it’s a great way of increasing liquidity
because it doesn’t require investors
to commit capital (beyond collateral).
For this reason, this type of strategy
can be used to solve multiple needs
and therefore we expect to widen
significantly the range that we offer,
but using different return strategies.

All of our strategies will be tied back to
needs expressed like this, where they
solve a real portfolio problem, not just
an alpha source.

An influence on the importance of these
needs will be market conditions, and it
is to this I turn next.

We are also in the process of
developing additional investment
strategies and these are described
later in this statement.

THE TR END TOWA R DS CON SOLIDATION
I S A N OPPORT UNIT Y FOR OUR BUS INE S S
There is a particular trend we see in the
institutional marketplace that we believe
will have significant ramifications for how
investment services are delivered. That is
the trend towards consolidation.

Consolidation is both logical and
inevitable in our view. It has been seen
most significantly in Australia, where the
superannuation market has contracted
from over 2,500 to about a tenth of that,
and is expected to contract further.
James talked about this at length in his
Report last year.

CON SOLIDATION OF SUPER A NNUATION
M A R K E T

Sector

Corporate
Industry
Public
Retail

Total

2004
Number of
Funds

2019
Number of
Funds

2,464
134
76
254

2,928

22
38
18
116

194

We are seeing similar trends in the UK
local government sector, and in a sense
the trend towards fiduciary management
is also a reflection of this (i.e. the
consolidation occurs with the fiduciary
management provider). We see the logic
of the trend as strong and expect it to
occur further.

There are a number of consequences
of greater scale. One is typically the
internalisation of a CIO or equivalent
individual to take responsibility for
the governance of the investments
in the portfolio. Often it implies a
broader investment team is brought
in. In some cases, security selection is
being internalised for particular asset
classes. Some institutions have decided
to use their scale to execute trades
themselves, and investment managers
are responsible simply for identifying
what those trades should be.

River and Mercantile Group PLC Annual Report and Accounts 2019

M A R K E T CONDITION S A ND THE IR
INFLUENCE
In the last 12 months, we have seen
significant movement in markets both
ways, and a lot of political risk. Those
who are clients, or who read these
reports, will know that for the first half
of our FY2019 we were negative on
market conditions. This was primarily
because we saw credit conditions
worsening, economic activity worsening
(but not being bad in absolute terms)
and relatively high valuations. After
the shake out between October and
December 2018, we took the view
that it was probably overdone, and
reallocated back to risk assets (in our
discretionary portfolios) to go back
to neutral. This has proved sensible
throughout the second half.

The question is where to from here?
Some things appear obvious, others are
more marginal.

Our FOURcast model has us in Stable
conditions. This is generally positive for
emerging markets, and global smaller
companies, relative to developed
markets. I think this is logical, and we
have had clients reallocating to these
classes. Similarly, looking out into
2020, we feel quite strongly that equity
markets will be up, possibly strongly,
by the end of 2020 as the Purchasing
Managers Index in the US and the ROW
should be rising at that point – the latter
is expected to rise sooner because the
US had been tightening until towards
the end of 2018. More generally, I think

R I V ER FOUR C A S T

“ Being able to address the same need in
a number of ways helps us to address
the particular nuances of a problem
a client is often facing.”

the next few years should be good for
equities, provided that interest rates
and credit spreads stay relatively low.
Generally that tends to be positive for
equities (rationally) and it is hard to
see that going away. So all else being
equal, we would probably be biased
towards equities.

The current challenge is how it plays
out in the immediate future. Conditions
look like they will worsen at the margin
in the US (certainly we expect earnings
to be worse for a bit) but offsetting that
is the massive change in view on interest
rates in the market, that is itself a form
of stimulus. These are two opposing
forces and it is not clear which will win, at
least not yet. Were it not for this, I think
we would be more bullish on equities
globally, but it is hard to see falls in US
equity markets not affecting the ROW.
Opinion is enormously divided in the
market on these points between the
bulls and the bears, more so than I can
remember in recent years. The political
unrest probably exacerbates this.

If I had to give a prediction, I think
recession won’t happen, not in the near
future anyway. It seems more likely that
credit conditions are supported for
now, and as long as capital expenditure
continues in the US, then I can’t see it
heading into recession. Credit prices
haven’t deteriorated enough for capital
expenditure to dry up. The other
influence that seems important is US
productivity improvement, which has
been rising and this doesn’t seem
consistent with a recession. Separately,
China has been stimulating hard and it
seems very likely it will continue to do
so until it sees improvement.

Obviously, none of that means that
equity markets won’t fall in the near
future – it just probably means if they do
that we will see a natural reaction, which
is a normal 10%–15% correction as part
of a longer-term upward movement.

As a final point, it does look at the
moment like Value might be getting
ready to recover. My best guess is that
2020 will be a good year for Value, and
it will be coming off a low base. The
combination of improving economic
expectations and improving credit
conditions should be a positive for Value.

Overall these should be reasonable if
not excellent conditions for long-term
investors, albeit with some bumps.

In communicating to clients and investors, we generally tend to use a four-phase
approach to thinking about where we are in the market cycle. These four phases
are as follows:

Generalised Upward Re-Rating – most classes rise at the same time. This
phase always occurs from markets being cheap.

Stable Conditions – economically everything is at least OK, credit conditions
are generally supportive, and markets are neither very cheap nor very
expensive.

Apprehension – markets are expensive, yet markets still keep on rising,
generally supported by credit conditions.

Downturn – markets fall, or get ready to do so, and is generally coupled with
worsening credit conditions and/or poor economics.

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River and Mercantile Group PLC Annual Report and Accounts 2019

GROUP CHIEF INVES TMENT OFFICER ’ S REPORT CONTINUED

OV ER A LL SUMM A RY
The strategy we set out at the IPO to
deliver tailored strategies for client
needs remains at the heart of our
business. The development of our macro
strategies is simply an extension of that
idea, but focused rather on portfolio
components. We believe this opportunity
is significant, and all the more so given
the trend towards consolidation in
the industry. The significance of the
opportunity is why James and I have
concluded that our roles should change,
to give me the ability to focus totally
on the investment strategies and
innovations we bring to clients. Our
engagement with shareholders and
clients to date suggests that they also
view it as an obvious move.

I am genuinely excited by these
developments and believe we are
well placed to meet this next wave
of demand.

Mike Faulkner
Group Chief Investment Officer

PER FOR M A NCE OF E X I S TING M ACRO
S TR ATEGIE S
Our Global Macro strategy is a key
strategy for us and generating good
interest. Its performance has proved
strong in its first year or so.

We have also achieved good
performance in DAA and our Global
Quality strategy, albeit that in the case
of the latter the performance is over a
short period. The table below illustrates
the DAA and GLOMA cumulative
performance.

These are important strategies for
us, not least because they both do
a good job of generating returns in
upward moving, but potentially bumpy,
conditions. The market conditions I’ve
described above are also an influence on
how we are focusing the development of
new strategies.

INNOVATION A ND FUT UR E S TR ATEGIE S
As I have identified above, we see some
real opportunities in delivering to specific
needs, particularly in the following:

– New total return swap strategies
We are seeking to develop strategies
beyond quality into other areas,
including Value. We believe our
approach to thinking about these
strategies is differentiated, and
perhaps unique, and therefore we
would like to develop a range of choice
for potential investors.

– Managed beta strategy

We are seeking to design a more
sophisticated approach to delivering
beta efficiently, and see real interest
in solving this problem in a variety
of client areas, but particularly family
offices, endowments and defined
contribution pension plans.

– Discretionary macro strategy
Our Global Macro strategy is
systematic. We have separately been
developing a process that is more
judgemental, and we believe there is an
opportunity for a strategy with higher
volatility levels and a consequently
higher return target. We are hoping to
launch this strategy during FY2020.

Our innovation focus is on these areas
for now, as we believe between them
there is significant revenue capacity, on
top of the existing strategies. They are
also consistent with prevailing market
conditions and I believe we should do
a good job of delivering.

Within our other business lines, we remain
interested in launching the following
strategies, which are consistent with the
market conditions described above:
– A global/international small cap strategy.
– An international (excluding US) version
of Global High Alpha, initially for the
US market.

– A large cap value product to leverage
the PVT skills in this segment (our
initial analysis suggests that the PVT
process works very well in large cap).
– A pooled version of structured equity

delivered on platform for UK DB
and DC.

DAA and GLOMA Cumulative Performance

Index Level (Base = 100)
115

110

105

100

Jun 18 Jul 18

Aug 18 Sep 18 Oct 18 Nov 18 Dec 18 Jan 19 Feb 19 Mar 19 Apr 19 May 19 Jun 19

Global Macro (Gross)
DAA (Gross)

River and Mercantile Group PLC Annual Report and Accounts 2019

INVES TMENT PERFORMANCE

Annualised Investment Performance
By Investment Strategy

STABILITY/RETURN GENERATION
TIGS
RAMIL Stable Growth Fund
Fiduciary DC – Long Term Growth
Fiduciary DC – Stable Growth
Fiduciary DC – Cautious Growth
Dynamic Asset Allocation
Global Macro
Fiduciary Insurance***
US Solutions
EMAR*

Total Solutions AUM

RETURN GENERATION/INCOME
UK Equity Income
RETURN GENERATION – SPECIALIST
UK Equity Smaller Companies
UK Recovery
Global Recovery
Global Recovery Focus
RETURN GENERATION – CORE
UK Equity High Alpha
UK Core Segregated
UK Dynamic Equity
UK Micro Cap Investment Company
Global High Alpha
Segregated Mandates***
ILC Emerging Markets
Global EM
Small/Mid Cap

Total Equity Solutions AUM

Structured Equity
LDI

Total Derivatives NUM

Total AUM/NUM

AUM/NUM
£bn

30 June
2019

Estimated
Capacity
£bn

1 Year (%)

5 Years (% p.a.)

Since Inception (% p.a.)

Abs.

Rel.

Abs.

Rel.

Abs.

Rel.

Date

11.4

0.0
0.1
0.1
0.5
0.0
0.1
0.7
0.0

30.0

10.0% 1.9% 11.0% 1.8% 10.1% 2.5%
4.5% 0.6% 6.2% 2.6% 8.0% 4.2%
5.8% 1.4% 7.7% 1.2% 9.1% 2.3%
6.1% 1.2% 6.9% 1.4% 8.2% 2.4%
6.3% 1.5% 8.2% 3.7% 8.5% 3.8%
5.5% 0.9%
4.4% (0.5%)
n/a
n/a
n/a
n/a
4.8% (1.4%) 4.3% (0.8%) 6.2% (0.8%)
1.0% (0.5%) 6.7% 4.1% 19.5% 8.3%

n/a
n/a 14.4%
n/a
n/a

n/a
n/a
n/a

10.0
10.0 8.9%
n/a
n/a
n/a
11.0

Jan-04
Dec-08
Oct-11
Oct-11
Oct-11
Sep-14
Mar-18
Apr-16
Aug-13
Feb-03

12.9

61.0

0.2

2.0

(4.7%)

(5.3%) 5.5% (0.8%) 11.5% 0.9%

Feb-09

0.4
0.3
0.5
0.1

0.1
0.2
0.1
0.1
0.1
3.1

0.1
0.0

5.2

5.8
15.9

21.7

(2.3%) 9.3% 3.6% 11.5% 5.8%
(9.5%)
0.8
7.2% 0.9% 12.7% 5.0%
(4.5%)
(4.0%)
0.2
1.0
0.1% (9.6%) 9.4% 3.3% 14.0% 2.6%
1.0 (14.7%) (20.5%) 3.6% (2.5%) 13.3% 4.0%

(4.0%)
(3.3%)
(5.1%)
(7.4%)

(4.6%)
7.4% 1.1% 8.0% 2.1%
1.0
(3.9%) 6.3% (0.0%) 8.3% 1.0%
1.0
7.2% 0.9% 6.9% 1.4%
(5.7%)
1.0
n/a 16.6% 9.3%
0.1
(0.2%)
n/a 13.1% 1.0%
7.0 0.4% (9.3%)
n/a
n/a
n/a
n/a
n/a
n/a

n/a
n/a
n/a

3.5 0.6% (0.6%) 2.4% (0.1%) 3.6% 0.4%
(1.4%) 2.7% 1.5% 3.6% 2.0%
2.0

(1.0%)

21.0

>20
>30

>50

n/a**

39.8

>100

Nov-06
Jul-08
Mar-13
Feb-12

Nov-06
Nov-10
Mar-07
Dec-14
Dec-14
n/a

Jan-12
Jan-13

Dec-05
Dec-05

Source: River and Mercantile Group PLC.
Z share class (gross of fees) performance for all funds except the ES R&M UK Equity Income and ES R&M UK Equity Smaller Companies funds which is B class performance.
Performance for the ES R&M UK Equity Income Fund B share class (Inc) and the ES R&M UK Equity Smaller Companies Fund B share class (accumulation units) is net of an annual
management charge of 0.75% per annum.
* EM Absolute Return Strategy. Sourced: R&M Group 30th June 2019. Returns shown are based on a simulated back-test of the current framework for the investment strategy
between 28th February 2003 and 30th June 2019. All returns are shown in USD with no currency hedging. PERFORMANCE REFERS TO SIMULATED PAST PERFORMANCE AND
PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

** Derivatives mandates do not target investment outperformance therefore this is not measured.
*** Segregated mandates are measured against specific client benchmarks and therefore a composite performance benchmark is not meaningful.

The information above is disclosed in order to allow shareholders to assess the current performance of our investment strategies.
While historical investment performance is not an indicator of future investment performance, the long term track records of our
strategies give shareholders an indication of the sustainability of our investment performance across different investment cycles.

The information regarding the capacity of the strategies gives shareholders an indication of the available capacity in each of the
strategies to determine the potential for future growth in AUM and revenues.

Other than indicated above, all investment performance is shown before the Group’s management and performance fees are
deducted. This gross of fees basis is chosen as it enables comparison of investment returns to be made across share classes and
clients with different fee arrangements. The benchmark and target used to calculate relative performance is also on a gross of
fees basis. Accordingly, we believe that the presentation of the gross investment performance allows shareholders to more clearly
assess the potential for each of the strategies, independent of the investors’ specific contractual fee arrangements.

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River and Mercantile Group PLC Annual Report and Accounts 2019

BUSINESS MODEL

Diversified growth across our divisions

OVER ALL APPROACH TO WHAT WE DO

HOW WE ARE STRUCTURED

The core ethos of the Group
is to be aligned with our
clients’ desired outcomes.

The Group is structured
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 and complementary capabilities
which can be applied singly or in combination to deliver
a client outcome.

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:

Understanding our clients in great depth – in order that
we can define the need in the right level of detail and can
solve the need 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, is important to understand
if we are to appreciate properly the investment needs.

Solutions

FIDUCIARY MANAGEMENT

AUM

£12.9BN

ADVISORY

AUA

£25BN

Developing and maintaining very strong investment
skills that can be deployed in various ways to solve
these investment challenges.

Asset Management

DERIVATIVE SOLUTIONS

NUM

£21.7BN

EQUITY SOLUTIONS

AUM

£5.3BN

River and Mercantile Group PLC Annual Report and Accounts 2019

HOW WE GENER ATE REVENUE

THE RESULTS FOR…

The Group
generates revenue
in four main ways:

1 M A N A G E M E N T F E E S
In the Fiduciary Management, Derivative
Solutions and Equity Solutions divisions,
fees are generally charged based upon levels
of AUM or NUM. These fees are expressed
in basis points 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.

T H E R E S U LT S F O R S H A R E H O L D E R S
– Strong underlying revenue

growth per annum from organic
sources over an increasing range
of investment solutions

– Growth adjusted underlying

profit margin over time

– Continuing growth in underlying

dividends, with additional returns
from performance fees.

2 P E R F O R M A N C E F E E S
Some Equity 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.

3 A D V I S O R Y R E TA I N E R S
Advisory retainers are earned when clients
engage us to provide pre-agreed levels of
service over time, generally a year. They are
often recurring over a number of years.

4 A D V I S O R Y P R O J E C T S
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.

T H E R E S U LT S F O R O T H E R
S TA K E H O L D E R S
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.

T H E O U T CO M E F O R T H E B U S I N E S S
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.

GROWTH IN NET MANAGEMENT
AND ADVISORY FEES

ADJUSTED UNDERLYING MARGIN

22%

TOTAL DIVIDEND FOR THE YEAR

16.4P

OVERALL REMUNERATION RATIO

53%

TAX PAID

£4.7M

This is reflected in our growth in
AUM/NUM, low attrition rates, and
high client satisfaction.

REGRETTED INSTITUTIONAL
ATTRITION

GROWTH IN FEE EARNING
AUM/NUM

18%

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River and Mercantile Group PLC Annual Report and Accounts 2019

KE Y PERFORMANCE INDIC ATOR S (KPI s)

The following summarises the Group’s KPIs
for the year ended 30 June 2019:

“ Our diversified business
model provides the business
and our shareholders
greater protection.”

2 Regretted institutional
attrition (RIA) (%)

1 Fee earning

AUM/NUM (£’m)

Growth in fee earning AUM/NUM

18%

2019

2018

2017

2016

2015

39,814

33,843

31,049

25,548

21,017

2019

2018

2017

2016

2015

Growth in fee earning
AUM/NUM

18%

22%

21%

The growth in AUM/NUM is a key indicator of the client engagement
process and is the driver for growth in net management fees. The
growth in AUM/NUM is a function of new mandates (including
acquisitions), low attrition rates, aggregate investment performance
and net rebalance.

In FY2019, the growth rate in fee earning AUM/NUM has returned to
historical levels due to wins of sizable mandates in Institutional Equities
and Derivatives Solutions. Wholesale flows were lower due to more
difficult equity markets. The business continues to have significant
excess AUM/NUM capacity in existing and new strategies.

3 Net management

and advisory fees (£’m)

Growth in net management and advisory fees

Client attrition

2019

2018

2017

2016

2015

Client attrition

2019

2018

2017

2016

2015

65.6

64.2

55.9

45.7

46.7

2018

2017

2016

2015

2019

2018

2017

2016

2015

Growth in net management
and advisory fees

15%

22%

(2)%

33%

RIA is calculated as the opening AUM/NUM of lost institutional clients,
divided by total opening AUM/NUM. It excludes pension clients which
have entered the Pension Protection Fund due to sponsor default or
pensions who have moved to Buy-In or Buy-Out, and redemptions
arising from fund benefit payments.

RIA is not directly measured for Equity Solutions – Wholesale as
investor redemption decisions tend to be driven by asset allocation and
investment performance outcomes.

A low client attrition is a measure of our client engagement process and
results in higher net growth in AUM/NUM and efficiency gains in the
cost of distribution.

In 2019, RIA reflected a continued strong client engagement. In 2018 RIA
was impacted by structured equity mandates which matured and were
not replaced.

Management and advisory fees represent the underlying revenues
generated by the business. This metric measures the sustainability
of the business.

The lower growth in net management fees and advisory fees reflects
the full-year effect of negative flows in Equity Solutions – Wholesale
and the timing of AUM/NUM flows and investment performance in the
current year which were stronger in the second half of the year. The
average management fee margin was 16bps, compared with 17bps
in 2018 which is reflected in the mix-shift in AUM/NUM.

River and Mercantile Group PLC Annual Report and Accounts 2019

5 Percentage of adjusted earnings

per share distributed

Year

2019

2018

2017

2016

2015

Adjusted
underlying EPS
(basic)

Net
performance
fee EPS (basic)

Adjusted EPS
(basic)

Total dividend
paid or
proposed for
the year:

Percentage of
adjusted
underlying
profit
distributed

Percentage of
net
performance
fee profit
distributed

Percentage of
adjusted
earnings per
share
distributed

13.9p

16.0p

15.9p

10.6p

12.8p

6.4p

5.9p

7.0p

1.0p

2.6p

20.3p

21.9p

22.9p

11.6p

15.4p

16.4p

18.6p

19.7p

9.5p

13.0p

80%

100% 100%

100%

81%

85%

86%

82%

83%

The Group’s dividend policy is to pay at least 60% of the Group’s
adjusted underlying profits available for distribution by way of ordinary
dividends. In addition, the Group expects to generate surplus capital
over time primarily from net performance fee earnings. The Group
intends to distribute such available surpluses, after taking into account
regulatory capital requirements at the time and potential strategic
opportunities, to shareholders primarily by way of special dividends.

During the years 2015 to 2019 the Group has paid 80% of adjusted
underlying profits and 100% of net performance fee profit as
dividends. The year on year variation on adjusted earnings being
distributed is a result of the ratio of net performance to adjusted
underlying profits.

In FY2019 basic earnings per share is calculated on the basis of
weighted average shares outstanding during the year. On 26 June 2019,
the EPSP award vested 2.9m shares. The second interim and proposed
final dividend will be paid on these additional shares. FY2019 adjusted
profit after tax was £16.2m. Dividends paid and proposed aggregate
£13.9m representing 86% of total adjusted profit.

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4 Adjusted underlying
pre-tax margin (%)

Adjusted underlying pre-tax margin

22%

2019

2018

2017

2016

2015

2019

2018

2017

2016

2015

Adjusted underlying
pre-tax margin

22%

25%

29%

24%

27%

Adjusted underlying pre-tax margin is an indication of the ability to
achieve scale through increased AUM/NUM and revenues, at a lower
marginal increase in related expenses.

Adjusted underlying pre-tax margin reflects an increase in
remuneration expense as the business has continued to invest in
new growth opportunities and the full-year effect of research costs in
Equities following the implementation of MiFID II. Net of the effects of
investment spending in new growth opportunities, the Core business
adjusted underlying pre tax margin was 25%.

Adjusted underlying profit represents net management and advisory fees
less associated remuneration, administrative expenses, depreciation,
amortisation of software, and finance income and expense.

Adjusted profit before tax to statutory
profit reconciliation (£m)

0.0

Net management and
advisory fees

Administrative expenses

Underlying remuneration

Amortisation of software,
depreciation and finance
income

Adjusted underlying profit
before tax

Performance fees

Less remuneration at 50%

Gain on disposal of AFS

Adjusted profit before tax

Amortisation of intangible
assets and IMA

Other income

EPSP costs

Statutory profit before tax

River and Mercantile Group PLC Annual Report and Accounts 2019

FINANCIAL RE VIE W

“ A strong year of net
flows and investment
performance, however the
timing of AUM/NUM growth
and investments made in
the business have reduced
the Group’s overall financial
results this year.”

K E V I N H AY E S

G R O U P C H I E F F I N A N C I A L O F F I C E R

AUM / NUM A ND M A RGIN S
We have continued to grow AUM/NUM through both positive
net flows and investment performance. Net management fee
margin levels have been broadly maintained across all divisions.

The following table shows the AUM/NUM for the year ended
30 June 2019:

FIN A NCI A L HIGHLIGHT S
– Statutory net profit after tax was £13.0m, compared with

£15.1m in the prior year.

– Statutory basic earnings per share were 16.22 pence per

share, compared with 18.83 pence per share in the prior year.
– Adjusted underlying profit before tax was £14.7m, compared

with £16.1m in the prior year.

– Adjusted underlying EPS was 13.91 pence per share,

compared with 16.06 pence per share in the prior year.

– Adjusted profit after tax was £16.2m, compared with £17.6m

in the prior year.

– Adjusted basic earnings per share was 20.26 pence per

share, compared with 21.85 pence per share in the prior year.

A S SE T GROW TH
– Fee earning AUM/NUM increased by 18% year on year,

to £39.8bn.

– Gross sales for the year were £6.9bn.
– Net flows for the year were £5.4bn.
– Investment performance increased AUM by £0.6bn.

OPER ATING HIGHLIGHT S
– Net management and advisory fees increased by 2% year on

year to £65.6m.

– Performance fees were £12.5m, compared with £10.6m in the

prior year.

– Adjusted underlying pre tax margin was 22%, compared with
25% in the prior year. The Core business, before investment
in new business opportunities, generated adjusted
underlying pre tax margin of 25%.

£’m

Opening fee earning AUM/NUM
Sales
Redemptions

Net rebalance

Net flow
Investment performance

Fiduciary
Management
(AUM)

10,642
1,805
(616)

1,189
279

1,468
754

Derivative
Solutions
(NUM)

18,622
3,276
(1,257)

2,019
1,042

3,061
–

Equity Solutions (AUM)

Wholesale

Institutional

Total

AUM/NUM

Total

1,887
245
(498)

(253)
–

(253)
(152)

2,692
1,568
(439)

1,129
–

1,129
(36)

4,579
1,813
(937)

876
–

876
(188)

33,843
6,894
(2,810)

4,084
1,321

5,405
566

Closing fee earning AUM/NUM

12,864

21,683

1,482

3,785

5,267

39,814

Mandates in transition
Redemptions in transition

Total mandated AUM/NUM

–
–

–
(664)

–
–

–
(664)

12,864

21,019

1,482

3,785

5,267

39,150

Opening mandated AUM/NUM

10,605

18,616

1,887

2,880

4,767

33,988

Increase in fee earning assets
Increase in mandated assets

Average fee earning AUM/NUM
Average margin 2019 (bps)
Average margin 2018 (bps)
Medium term margin guidance (bps)
Net management fees 2019 £’m

20.9%
21.3%

11,326
16–17
17–18
14–15
18.8

16.4%
12.9%

19,513
6–7
6–7
6–7
13.4

(21.5)%
(21.5)%

1,611
70–71
70–71
66–68
11.3

40.6%
31.4%

3,281
36–40
39–40
36–40
12.1

15.0%
10.5%

4,892
47–50
53–54

23.4

17.6%
15.2%

35,731
16
17
15–16
55.5

River and Mercantile Group PLC Annual Report and Accounts 2019

“ Based on the year end AUM/NUM and average margin,
the in-force management fee revenue is estimated to be
£61m, an increase of 10% over the actual management
fee revenue recorded in the year to June 2019.”

This year has seen a record level of gross sales at £6.9bn,
a year on year increase of 21%. Gross sales included £4.4bn
of AUM/NUM from new clients and £2.5bn from increased
allocations and new mandates from existing clients. Net
rebalance included £1bn relating to increased hedging levels
for clients with LDI. Redemptions were £2.8bn, including £0.6bn
of structured equity strategies in Derivative Solutions that
reached their contractual maturity, and £483m of Fiduciary
Management mandates where the schemes went to Buy-Out
or Buy-In. The net outflows in Equity Solutions – Wholesale of
£253m reflects general negative retail sentiment to equities
during the year. For the year, investment performance added
£0.6bn and while positive in Fiduciary Management, was overall
negative in Equity Solutions reflecting the equity markets
during the year.

£’m

FY2019

Opening fee-earning

33,843

34,169

33,843

AUM/NUM

Net sales
Rebalance and transfers
Investment performance

Closing fee-earning

AUM/NUM

1,280
35
(989)

2,804
1,286
1,555

4,084
1,321
566

34,169

39,814

In FY2019 H1, investment performance was negative £1.0bn,
while FY2019 H2 showed a significant recovery adding £1.6bn
to client portfolios. As discussed in the Group Chief Executive’s
Review, a period of economic downturn had been anticipated in
FY2019 H1 and therefore we had positioned clients’ portfolios
more defensively in Fiduciary Management. In FY2019 H2, all
divisions were able to take advantage of the more positive
markets and recorded significant investment performance gains.

Net sales were £4bn for the year with the majority in FY2019 H2.

R EGR E T TED IN S TIT UTION A L AT TR ITION (R I A)
Our business model is focused on meeting our clients’
investment needs. Our engagement approach results in an
alignment between the investment strategy and the clients’
desired range of investment outcomes. Our aim through this
approach is to achieve higher levels of client satisfaction and
therefore lower redemption rates. We measure this through RIA.

£’m

Gross outflows
Opening AUM/

NUM
Outflow %
RIA 2019

RIA 2018
RIA 2017

Fiduciary
Management

Derivative
Solutions

Equity Solutions
– Institutional

616

1,257

439

10,642
5.8%
0.6%

0.2%
1.1%

18,622
6.8%
1.7%

14.8%
3.6%

2,692
16.3%
0.0%

0.3%
11.6%

Total

2,312

31,956
7.2%
1.1%

8.1%
3.0%

In the prior year, Derivative Solutions’ RIA saw the redemption
of a large mandate which reached its contractual maturity date,
excluding this redemption the 2018 RIA for Derivatives was
6.6% and 3.4% for the Group. In Equity Solutions – Institutional
the increase in redemptions in FY2019 reflect reduced
allocations to Emerging Market and UK equity strategies as
sentiment has continued to be more negative in this space.

2%
14%
(22)%
31%

(3)%
(1)%

(2%)

29%
(18)%

18%

2019

2018

Increase/
(decrease)

TOTA L R E V ENUE S

£’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

18,790
13,379
11,270
12,107

18,400
11,777
14,521
9,265

55,546

53,963

5,295
4,743

5,443
4,792

10,038

10,235

advisory fees

65,584

64,198

Performance fees
– Fiduciary Management
– Equity Solutions

10,553
1,966

8,167
2,408

Total performance fees

12,519

10,575

Total revenue

78,103

74,773

Total revenues increased 4% to £78.1m, with 2% growth in
net management and advisory fees and 18% increase in
performance fees.

In FY2019 the timing of AUM/NUM flows had a significant
impact on the level of management fees earned in the year. In
FY2019 H1 net AUM/NUM flows and investment performance
were £326m, compared with FY2019 H2 of £5.6bn.

Overall net management fees increased 3% to £55.5m,
below our medium-term target of at least 12% growth per
year, however Derivative Solutions and Equity Solutions –
Institutional both grew revenues significantly ahead of this
target at 14% and 31%, respectively.

The loss of high margin Equity Solutions – Wholesale AUM
resulted in wholesale revenues being down 22%.

In Fiduciary Management revenues grew by 2% largely due
to the timing of net flows and investment performance which
were biased towards FY2019 H2 resulting in lower revenue
generation in the year.

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River and Mercantile Group PLC Annual Report and Accounts 2019

FINANCIAL RE VIE W CONTINUED

Based on the year end AUM/NUM and average margin, the
in-force management fee revenue is estimated to be £61m,
an increase of 10% over the actual management fee revenue
recorded in the year to June 2019.

Derivative Solutions comprises Liability Driven Investment
(LDI including gilt collateral management) and Structured
Equity products.

Advisory revenues declined in the year by 2% which reflected a
lower level of project revenues and a slowdown in new advisory
mandate opportunities pending the release of the CMA’s
findings on fiduciary management and consulting services
during the year.

Performance fees increased by 18% compared with the
prior year as a result of continued strong investment
performance that triggered the crystallisation of previously
deferred performance fees in Fiduciary Management. It is
anticipated that FY2020 will have significantly lower levels
of performance fees in Fiduciary Management. Equity
Solutions’ performance fees (which are now primarily
from the River and Mercantile Micro Cap Investment
Company (RMMIC), were £2.0m. These were lower than
last year largely due to lower investment performance.

M A N AGEMENT FEE M A RGIN S
The divisional management fee margins have remained
consistent with our medium-term guidance. Our overall
margin decreased by 1bp reflecting the decrease in higher
margin Equity Solutions – Wholesale AUM during the year and
an increase in NUM from Derivative Solutions. We anticipate
that as a result of the mix-shift in our AUM/NUM the overall
management fee margin will reduce from 16bps to 15bps for
FY2020. In Fiduciary Management, we anticipate that as a result
of the retendering of mandates, post the publication of the
CMA findings, the management fees in the industry will reduce
and therefore we have reduced our average medium term
guidance by 1bp to 14bps–15bps.

NE T M A N AGEMENT FEE S
Fiduciary Management

Closing fee earning AUM £’m

Growth in
fee earning
AUM

Average
AUM
£’m

Average
margin
(bps)

Revenue
£’m

Growth in
revenue
YoY

Derivatives by type:

£’m

Opening fee earning NUM
Sales
Redemptions
Net rebalance

Net flow

Structured
equity

Gilts and
LDI

Total
NUM

3,776 14,846 18,622
3,276
2,666
610
(1,257)
(647)
(610)
1,042
1,073
(31)

2,025

1,036

3,061

Closing fee earning NUM

5,801

15,882 21,683

Mandates in transition
Redemptions in transition

–
(664)

–
–

–
(664)

Total mandated NUM

5,137

15,882 21,019

LDI relates to the management of interest rate and inflation risk
in the underlying pension liabilities. In FY2019, we continued
to see strong flows from new clients and existing clients who
have increased their level of hedging to respond to market and
scheme funding levels.

Derivative Solutions’ structured equity capabilities provide
strategies to shape the return profile of clients’ equity
portfolios. The continued strength of the equity markets
coupled with an increase in the fear of a pullback in equities
have led to a number of new mandates including a £2bn
mandate from a local government pension scheme.

As structured equity products are usually sold at a lower
margin than LDI, the average margins of the Derivative
Solutions division will fall over time if Structured Equity
continues to sell strongly, due to mix-shift effects.

Equity Solutions – Wholesale

12,864

20.9% 11,326

16–17

18.8

Closing fee earning AUM £’m

Growth in
fee earning
AUM

Average
AUM
£’m

Average
margin
(bps)

Revenue
£’m

Growth in
revenue
YoY

While Fiduciary AUM grew by 21% through net flows and
investment performance overall, the majority of the AUM
growth occurred in FY2019 H2 and as a result management
fee revenue grew by only 2% in the year. In-force revenues at
year end are therefore higher than the actual revenue in the
FY2019 which means that we have embedded revenue growth
in FY2020 of c.10%. New fiduciary management mandate
opportunities have been more muted during the year pending
the publication of the CMA findings into fiduciary management
and investment consulting. However, we anticipate significant
new fiduciary management mandate opportunities in FY2020
both from new clients considering fiduciary management
and participation in the industry wide retendering of existing
fiduciary management mandates.

Derivative Solutions

Closing fee earning NUM £’m

Growth in
fee earning
NUM

Average
NUM
£’m

Average
margin
(bps)

Revenue
£’m

Growth in
revenue
YoY

21,683

16.4% 19,513

6–7

13.4

14%

1,482

(21.5)%

1,611

70–71

11.3

(22)%

The net outflows in Equity Solutions – Wholesale of £253m
reflects general negative retail sentiment to equities during
the year. Revenue growth in the year was negative due to the
full-year impact of AUM reduction last year and the impact of
weaker AUM growth this year.

Equity Solutions – Institutional

Closing fee earning AUM £’m

Growth in
fee earning
AUM

Average
AUM
£’m

Average
margin
(bps)

Revenue
£’m

Growth in
revenue
YoY

3,785

40.6%

3,281

36–40

12.1

31%

Equity Solutions – Institutional grew strongly in the year,
as demand continued for the Global High Alpha strategy in
particular in the UK, US, Australia and New Zealand. We now
manage £905m of AUM originating from Australia/New Zealand
and by establishing our new office in Australia, we expect to
expand our business in a market with significant pension assets.

River and Mercantile Group PLC Annual Report and Accounts 2019

A DV I SORY R E V ENUE S
Advisory revenues declined in the year by 2% which reflected a
lower level of project revenues and a slowdown in new advisory
mandate opportunities given the CMA review of fiduciary
management and consulting services during the year.

The split between retainers and project fees was:

£’000

Retainers
Project fees

2019

2018

5,295
4,743

5,443
4,792

While the accounting change will not impact the Group’s
cash flows, the timing of recognition of the lease costs will
be different under the new standards and will increase net
expenses by up to £0.1m annually in the five years following
initial application, decreasing the Group’s reported profits.
Occupancy charges for leased premises will be recognised
through depreciation and interest expense. It is anticipated
this initial increase in net costs recognised will trend towards
a net decrease in the longer term. Additional detail on the new
leases accounting standard is provided in note 1 to the Group
financial statements.

Total advisory fees

10,038

10,235

R EMUNER ATION

PER FOR M A NCE FEE R E V ENUE
This year has been another strong year of investment
performance across all strategies. Performance fees in
Fiduciary Management were £10.6m, resulting from the
underlying investment performance generated by the
investment teams, coupled with the more stable interest rate
environment. Equity Solutions performance fees are primarily
from RMMIC, fees in the year were £2.0m.

In Fiduciary Management, based on the level of previous
deferred performance fees, we anticipate a significantly lower
level of performance fees in FY2020.

A DMINI S TR ATI V E E X PEN SE S

£’000

2019

2018

Administrative expenses excluding
governance and research costs

Governance costs
External research costs

Administrative expenses

13,743
570
1,334

15,647

Total net management and advisory fees

65,584

12,800
538
736

14,074

64,198

Administrative expenses as a percentage
of net management and advisory fees

24%

22%

Administrative costs as a percentage of revenue increased by
2% to 24%, of which the most significant increase was the full-
year effect of external research costs in the Equity Solutions
business. In addition, we incurred fund administration
costs relating to new segregated mandates, regulatory and
compliance costs related to the implementation of SMCR and
occupancy expense due to an office move to bring the UK
facilities closer together.

We anticipate that additional expenses relating to continued
investment in the business, in particular costs associated with
launching new products and investments in Australia and the
US will increase administration expenses in the near term by
approximately £1.1m.

From 1 July 2019, the change in accounting for leases,
which came in to effect 1 January 2019, will bring our lease
commitments onto the Group’s balance sheet and also change
the classification and recognition of costs associated with the
Group’s leased premises.

£’000

Fixed remuneration
Variable remuneration

Total remuneration (excluding recruitment

fees)

Recruitment fees

Total remuneration expense
Total revenue (excluding seeding and

other income)

2019

2018

26,145
15,126

22,940
15,806

41,271
393

38,746
404

41,664

39,150

78,103

74,773

Remuneration ratio (total remuneration

excluding recruitment fees/total revenue)

53%

52%

Remuneration expense includes: fixed remuneration
comprising base salaries, drawings, benefits and associated
taxes; and variable remuneration comprising performance
bonus, profit share paid to the partners of RAMAM, the
amortisation of the fair value of performance share awards
under non-dilutive share plans and associated taxes. Included
in remuneration expenses is the cost of recruiting fees paid to
third-party consultants.

The Remuneration Policy, approved by shareholders in 2017,
limits remuneration to 54% of underlying revenue and 50% of
net performance fees. Total remuneration this year reflects
remuneration at 54% and 50% compared with last year at 53%
and 50%. The increase in the ratio is primarily the full year
effect of the investments made in Australia and New York,
referred to below.

Core business and investments
As discussed in the Group Chief Executive’s Review, we have
continued to invest in the growth of the business through
a series of organic initiatives and investments. Historically
these opportunities, including the ILC team, have been funded
within the existing remuneration and administration expense
base of the Group. These investments represent organic
growth primarily in people which will involve remuneration
and additional related administration expenses. It is likely that
during the initial phase of these investments the contribution
to net margin may be negative and therefore will detract
from the margin improvement of the overall business.
Accordingly, we will disclose the business split between Core
and Investments. This allows us to show the progress made in
margin expansion of the Core business.

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River and Mercantile Group PLC Annual Report and Accounts 2019

FINANCIAL RE VIE W CONTINUED

We will provide specific guidance relating to the financial
impact of these investments on the current period’s net
earnings which will allow shareholders to evaluate anticipated
dividend distributions based on applying the Group’s current
dividend policy.

It is anticipated that the investments in New York Solutions and
Australia will continue at similar levels in FY2020.

Executive Performance Share Plan (EPSP)
The EPSP was established shortly before the IPO, and Executive
Directors were given awards over a maximum of 7.3m shares,
which they would be entitled to receive based upon achieving
a compound total shareholder return of between 12% and
30% during the period from IPO to June 2018, with a one-year
holding period after that date, until June 2019. At June 2018,
the end of the measurement period, the compound annual
Total Shareholder Return was 19%. This resulted in 57% of the
A shares being eligible for award and none of the B Shares.
This equates to a total of 2.9m shares or 3% of current issued
share capital.

S TAT UTORY A ND A DJUS TED PROFIT S

£’000

2019

2018

Net management and advisory fees
Performance fees

Total revenue
Administrative expenses
Remuneration expenses
Other

Profit before tax
Tax

65,584
12,519

78,103
15,647
41,664
4,004

16,788
3,793

64,198
10,575

74,773
14,074
39,150
3,097

18,452
3,310

Statutory profit after tax

12,995

15,142

Adjusted profit before tax
Adjusted pre-tax margin

Adjusted underlying profit before tax
Adjusted underlying pre-tax margin

Net performance fee before tax
Net performance pre-tax margin

Adjusted underlying profits after tax
Adjusted profit after tax

Statutory
Basic EPS
Diluted EPS

Adjusted
Basic EPS
Diluted EPS

Adjusted underlying
Basic EPS
Diluted EPS

20,929
27%

14,650
22%

6,279
50%

11,143
16,228

21,824
29%

16,079
25%

5,745
50%

12,914
17,567

16.22p
15.61p

18.83p
18.08p

20.26p
19.50p

21.85p
20.98p

13.91p
13.39p

16.06p
15.42p

Statutory profit after tax and adjusted underlying profit after
tax both decreased by £2m compared with the prior year, as a
result of increased revenue offset by increased administrative
expenses and remuneration. These increases were primarily
the result of the full year effect of investments made in the
business and research costs.

The Directors believe that adjusted profit after tax is a
measure of the cash operating profits of the business and
gives an indication of the profits available for distribution
to shareholders. The definition of adjusted and adjusted
underlying profit, alongside a reconciliation to statutory
profit can be found in note 14 of the consolidated
financial statements.

The Directors believe that the underlying profits, generated
from net management and advisory fee income, represent the
profit from the ongoing business as they exclude the effect of
performance fees which can fluctuate from year to year.

Adjusted underlying pre-tax margin represents adjusted
underlying profit before tax, divided by net management and
advisory fees.

C A PITA L , LIQUIDIT Y A ND R EGUL ATORY C A PITA L
The business is strongly cash generative, generating net cash
from operations of £14.9m. Cash and cash equivalents at year
end were £24m.

As a Group, incorporating businesses regulated by the
FCA, we hold prudent levels of capital resource in order to
ensure our financial stability. The Internal Capital Adequacy
Assessment Process (ICAAP) is a ‘living’ process and is treated
as a continuous exercise to ensure that we are holding
sufficient levels of equity capital for the scale and nature of our
operations and risk. During the year we have revised our risk
and capital framework, and increased our regulatory capital
resources to reflect the expansion and underlying growth in
our business.

As at 30 June 2019, adjusting for the effect of the interim and
proposed final dividends, the Group holds a regulatory capital
surplus of around 21% in excess of our assessed requirement.

Following the adoption of IFRS 16 in respect of leases, the
Group’s regulatory capital surplus is expected to decrease by
around £0.3m from 1 July 2019.

EMPLOY EE BENEFIT TRUS T (EB T )
The Group’s EBT purchases Group shares in the open market to
meet the potential vesting of share awards granted under the
Group’s PSP and DEP share plans.

During the year, the Group’s EBT purchased 0.7m shares
relating to the previous year’s share awards and transferred
0.2m shares as a result of vested awards. The net cost of
these transactions was £1.3m and is shown in the Statement
of Changes in Equity. As at 30 June 2019, the EBT held 2.4m
shares. The weighted average number of shares in issue has
reduced as a result of purchases of own shares by the EBT.

As at 30 June 2019, the Group had granted share awards which
were either expected to vest, or could possibly vest, over 3.2m
shares. During the Group’s end of year remuneration process,
the Group granted share awards over a further 1.3m shares,
based upon an estimated grant price.

River and Mercantile Group PLC Annual Report and Accounts 2019

AUTHOR I SED COR POR ATE DIR EC TOR
Group entities act as the investment managers to funds and
segregated managed accounts, and RAMAM has in the period
acted as the Authorised Corporate Director (ACD) of River and
Mercantile Funds ICVC.

The Group has now appointed an independent ACD, Equity
Trustees Limited, for the River and Mercantile Funds ICVC.
This appointment has been approved by the regulator and
took effect in October 2019.

As a result, in future periods the requirement to settle
transactions between the investors and the depository of the
fund will transfer to Equity Trustees Limited as the ACD. The
Group will no longer be exposed to the short-term liquidity
requirements to settle with the depositary of the fund before
receiving payments from the investor and these balances will
no longer be held on the Group balance sheet.

DI S TR IBUTA BLE R E SERV E S A ND DI V IDENDS
At the 2019 AGM, the Board is recommending to shareholders
to give the Board approval to undertake a Court approved
capital reduction process to reclassify the merger reserve
(£44m at 30 June 2019) as a distributable reserve.

On 6 April 2019, an interim dividend of 6.3 pence per share was
paid, which included a special dividend of 2.0 pence relating to
net performance fees. The Directors have declared a second
interim dividend of 5.1 pence per share, of which 1.6 pence is
a special dividend relating to net performance fees to be paid
on 22 November 2019.

In addition, the Directors are proposing to shareholders a final
dividend of 5.0 pence per share, of which 2.4 pence per share
is a special dividend relating to net performance fees. Total
dividends per share paid, declared or proposed for the year
ended 30 June 2019 are 16.4 pence per share, representing
80% of the adjusted underlying profit after tax and 100% of
the net performance fee profit after tax.

As at 30 June 2019, the Company had £10.8m of distributable
reserves (2018: £11.5m).

Kevin Hayes
Group Chief Financial Officer

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River and Mercantile Group PLC Annual Report and Accounts 2019

RISK MANAGEMENT

Taking risk is an inherent part of the Group’s business
activities: when a Group member advises a customer on their
investments, undertakes a fiduciary management mandate,
or offers investment products and services the Group takes
on a degree of risk. We endeavour only to take risks that
we understand, have the capability to manage, and where
we conclude that potential benefits justify the risks taken.
We take risk carefully and within the risk appetite set by the
Board and monitored by the Board’s Risk Committee.

This section explains how we identify and manage the risks in
our business. It outlines our key risks, how we mitigate them
and our assessment of their potential impact on our business
in the context of the current environment.

A PPROACH TO R I SK M A N AGEMENT
The Group’s overall risk management objective is to manage
its business and associated risks in a manner that balances
maintaining the safety and soundness of the Group with
limiting the risk of not delivering expected outcomes to
clients. The Group considers this objective to be strongly
aligned to the outcomes expected by its other stakeholders:
shareholders, employees, regulators, and the broader market
and community.

We take a cautious and proactive approach to risk management,
recognising the importance of understanding risks to the
business, and managing them effectively. We have a formal
structure for managing risks across the Group comprising
independent governance and oversight of risk, a risk appetite
set and approved by the Board, risk management frameworks
(including policies and supporting documentation) and a
formalised process for providing risk reporting to the Board
through the Risk Committee. We continue to invest in our
risk management approach. This investment has included
strengthening the second line of defence by creating the new
post of Chief Risk Officer, and the creation of an independent risk
function separate from the legal and compliance department.

The Board has overall responsibility for risk management
within the Group and is accountable for oversight of the
risk management processes. On an annual basis, the Board
reviews the principal risks, using appropriate quantitative
assessment techniques such as stress testing to understand
the level of exposure.

Governance
The Group has established a structured approach to risk
governance, ensuring an effective level of alignment between
oversight and management responsibility for risk. This
approach includes risk policies and standards, and executive-
level Risk Oversight Committees. The risk governance structure
includes clearly defined roles and responsibilities for Board and
Executive Committees, control functions and the accountable
executives. Non-Executive Director oversight of the risk
management process with respect to standards of conduct,
risk management and internal control is exercised through
the Risk Committee, more details of which are on page 54.

Risk governance

RMG Board

Board Risk Committee

Group Executive Committee

RMG CRO
RMG Group Head
of Compliance

Risk and Operating Committee

The Group has implemented a ‘three lines of defence’ model
to manage risk and provide assurance to management and
the Board with regards to the effectiveness of the Group’s
control environment.

The first line of defence comprises business management and
employees (not including those employees in the second
line of defence). They are the risk owners and have primary
responsibility for managing risk as part of their day-to-day
business activities.

The second line of defence comprises the risk and compliance
functions, and parts of the legal, finance and human
resource functions. They provide objective oversight,
monitoring and independent challenge of risk taking and
risk management activities.

The third line of defence comprises the Group’s internal
assurance/audit function (currently outsourced). Internal Audit
supports the Board and executive management in protecting
the assets, reputation and sustainability of the organisation
by providing independent, objective assurance activity.

Risk appetite
The Group’s risk appetite statement sets out the aggregate
level and types of risk that we are willing to accept, or wish
to avoid, in pursuit of our business objectives. It includes
qualitative statements as well as quantitative measures
expressed relative to earnings, capital, risk measures or other
relevant measures as appropriate. It includes a consideration of
certain risks that are more difficult to quantify, such as conduct-
related risks. It underpins the implementation of our evolving
risk monitoring and risk reporting processes.

River and Mercantile Group PLC Annual Report and Accounts 2019

Conduct
In addition to an effective risk management framework, good
conduct and clarity on the expectations around it is critical
to effective management of risk. We have always considered
ourselves to be a business focused on client outcomes, with
conduct a core value to our thinking. We place significant
focus on the integrity and good conduct of employees, with
our appraisal process including an assessment of displayed
behaviours. Conduct as a broader theme has received a great
deal of attention and active support from the Board and the
Group’s executive management, led from the front by our
Chairman and by the Group Chief Executive.

Conduct-related risks are those that could result in negative
impacts on clients and/or market stability or restrict effective
competition. We do not see conduct risk as a separate risk
category. Strategic, investment and operational risks may all
result in conduct-related risk.

PR INCIPA L R I SK S A ND UNCERTA INTIE S
The Directors have conducted a robust assessment of the
principal risks facing the Group, including those that would
threaten its business model, future performance, solvency
and liquidity. These assessments have been made in light of
the current environment, taking into consideration the views
of subject matter experts and risk owners within the Group,
market conditions, regulatory sentiment and changes within
the business.

Our principal risks and uncertainties are set out in the table
on the following pages.

Risk management framework
The Group’s risk management framework sets out the
approach we take to identify, measure, assess, manage,
monitor and report risks. It is designed to enable the Board to
receive assurance that risks are being appropriately identified
and managed in line with the Group’s risk appetite.

Identify

Report

Assess

Risk
management
process

Monitor

Manage

Our risk assessment processes enable us to identify and assess
the most significant risks that we face. These processes are the
foundation of our risk management framework. We conduct
stress testing and scenario analysis, covering a broad range of
scenarios including market shocks and idiosyncratic risk events,
to understand the Group business model’s resilience to internal
and external shocks, and to model quantitatively the risk to
the Group’s capital requirements and profitability. We conduct
these assessments across the Group and involve department
heads, senior managers, executives and the Board. The
assessments allow executive management to make informed
risk-based decisions and to plan appropriately for the ongoing
running of the Group.

As the Group includes authorised and regulated subsidiaries,
the Group and relevant subsidiaries are required to hold
appropriate levels of capital and liquidity to ensure their
sustainability. Systems and controls and the process for
assessing the adequacy of financial resources and associated
risks are documented in the Group’s ICAAP, which examines
downside events including revenue declines and the costs of
an orderly cessation of the Group; and if appropriate the Group
will hold additional capital as a result of these tests.

We will continue to strengthen the risk management framework
and its operation over the coming year.

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River and Mercantile Group PLC Annual Report and Accounts 2019

RISK MANAGEMENT CONTINUED

PR INCIPA L R I SK S A ND UNCERTA INTIE S

Principal risk

Risk management approach

Sustained market decline
The risk of a severe economic downturn and related
sustained decline in asset prices.

A severe economic downturn could lead to a
reduction in AUM resulting in a decline in revenue
and capital levels.

Loss of critical staff
The risk of failure to retain or attract the people critical
to successfully delivering investment outperformance
to our clients and all other aspects of our strategy.

The unplanned departure of a senior fund
manager or a member of our leadership team
could lead to significant redemptions from our
funds, failure to deliver our strategy or failure to
run our business efficiently, resulting in a material
impact on revenue and capital levels.

Sustained fund underperformance
The risk that our clients will not meet their investment
objectives due to poor relative performance of one or
more of the Group’s funds over a prolonged period.

Sustained underperformance across a range of
the Group’s products and strategies could result
in a corresponding reduction in management and
performance fee revenue.

Liquidity risk
The risk that the Group, although solvent, either does
not have available sufficient financial resources to
enable it to meet its obligations as they fall due or
can only secure such resources at excessive cost.

Counterparty and credit risk
The potential failure of clients or counterparties to
fulfil their contractual obligations.

The diversification of the Group’s business activities reduces the impact of procyclicality, i.e. the risk of
deterioration in business or economic conditions requiring a firm to contract its business when market
conditions are unfavourable.

During challenging economic times, advisory retainer and project revenues in RAMIL would be
expected to increase in the short term as clients seek additional guidance to manage through the
challenging conditions. Likewise, in strong markets the RAMAM business would be expected to
experience stronger performance and growth.

Revenue within our derivatives business is largely dependent on NUM which, unlike AUM, is unaffected
by market movements. Although a severe economic downturn could impact the viability of some
derivatives counterparties, we have no direct exposure to derivatives counterparties as we act as
agent, rather than principal, on all derivatives transactions.

The loss of a portfolio manager from RAMAM is most likely to affect the Group. The Group mitigates
this risk through developed succession planning and a shared philosophy and approach that combines
investment manager independence with a disciplined investment process. This is supported by
a systematic screening tool and shared analyst resource, so that reliance on a single individuals
is reduced.

Our remuneration structures provide incentives linked to their individual, divisional and Group
performance. They are designed to attract and retain critical staff, and to motivate and support
the development of our employees.

The Group has clearly defined investment processes designed to meet investment targets within
stated risk parameters.

The Group carries out review and challenge of investment risks, independent of our fund managers,
across all asset classes. Issues and areas of excessive risk are escalated to members of senior
management and the Group Risk Committee. The review and challenge include seeking rationale
from the fund managers for performance to ensure the appropriate due diligence has been carried
out and all intended risks are being taken and managed.

The liquidity risk management objective of the Group is to ensure that at all times it has sufficient
liquidity to ensure that it can meet its liabilities as they fall due under both ‘business as usual’ and
stressed conditions and without incurring losses above the applicable risk tolerance.

The Group holds several classes of liquid resources. Liquid assets identified by the Group include
trade debtors, other debtors, investments, cash and cash equivalents. The business is cash generative
before the payment of dividends and has balances that support working capital requirements. All cash
balances are held in ‘on call’ accounts and are therefore immediately available.

Liquidity stress testing is performed in order to test and examine the adequacy of the Group’s overall
liquidity resources, and hence allow executive management to make informed decisions and to plan
appropriately for the ongoing running of the Group.

The Group operates its business on the basis that its operational subsidiaries are self-sufficient and
expected to meet their capital and liquidity requirements without recourse to their parent or other
companies in the wider Group.

The Group deposits cash at credit institutions with high long-term and short-term credit ratings
reducing the risk that the institution will default on repayment of the cash deposits.

The Group has established a robust debt collection process mitigating the risk of clients defaulting on
payment of fees. Additionally, the Group has the contractual right and ability to take fees from assets
for the vast majority of clients who incur management and advisory fees.

River and Mercantile Group PLC Annual Report and Accounts 2019

Principal risk

Risk management approach

Failure of a critical outsourced service
provider
The risk that an outsourced partner fails to provide
the service required either through their own
organisational failure, or through substandard
performance.

Our relationships with stakeholders may be
jeopardised if our outsourced partners provide
inadequate service, resulting in the loss of clients
or regulatory or financial censure and negative
financial consequences.

Information and communication
technology infrastructure
The risk of critical systems or connectivity failures
leading to an inability of the Group to operate for
a period of time.

The unavailability of our key systems could mean
we are unable to act on behalf of our clients and/
or perform other time-critical activities to ensure
the smooth running of our business. This could
lead to trading losses, as well as client losses and
reputational damage.

Cybercrime
The risk that a successful cyberattack could result
in the loss of Group or client assets or data or cause
significant disruption to key systems.

Failure to repel successfully a significant attack
could undermine stakeholder confidence in our
ability to safeguard assets, which could affect our
ability to retain existing clients and attract new
business, and hence affect capital and revenue.

Legal and regulatory risks
The risk of breaching, or non-compliance with
applicable law and regulations, resulting in an
increased level of regulatory intervention, regulatory
censure and/or fines, and temporary restrictions on
our ability to operate.

A breach of regulatory or legal requirements could
result in fines and sanctions which could diminish
the Group’s reputation with clients and the market
generally.

Regulatory changes because of Brexit may lead
to increased levels of regulatory capital or costs
of compliance.

Ahead of outsourcing critical operational activities, the Group performs due diligence that reflects
the potential risk to our business and clients. Where the Group outsources operational activities,
it chooses parties of an appropriate nature and scale to provide robust controls.

All outsource partners who provide the Group with critical services are subject to ongoing oversight,
giving us assurance that they meet our required standards.

The Group’s information and communication technology infrastructure is hosted in secure Tier 3
data centres with a high degree of redundant power and network connections. This infrastructure
is designed to be fully resilient from a disaster recovery perspective and includes diverse
communications lines, near real-time data replication between geographically separated data centres
and multiple network routing paths.

Disaster recovery is supported by replication technology providing a copy of the production
environment that can be quickly brought back in the disaster recovery data centre. Unlike traditional
point-in-time backups, this enables a recovery point objective of several seconds and a recovery time
objective of near uninterrupted for critical market facing systems, and several hours for less critical
systems.

This disaster recovery strategy is tested at least annually to provide assurance of its effectiveness.
The most recent disaster recovery test provided a high degree of confidence in the design’s ability to
cope with a major disruptive event to the primary data centre.

The Group adopts a multi-layered approach to cybersecurity, consisting of training, policies and cyber
controls. The Group maintains physical preventions (firewalls, filters, device management) and best
practices such as patch management to minimise the risk of successful cyberattack. Systems are
subject to periodic penetration testing; the Group attained Cyber Essentials certification in 2018.

We have established a mandatory security awareness programme for all employees to extend
knowledge and understanding of cyber risks within the business. Employees are regularly reminded to
remain vigilant to the risk of cyberattack.

Data back-ups are replicated to a secure offsite data centre and stored in an encrypted state.
The data backups are not accessible through normal operating procedures and are therefore offline
during storage.

The Group promotes a strong compliance culture and requires all relevant employees to undertake
training on regulatory matters.

The legal and compliance functions support the business in implementing and maintaining
appropriate regulatory controls, guided by relevant policies. Compliance with relevant regulatory
requirements is monitored in accordance with a risk-based programme.

The Group’s legal and compliance functions continually monitor legal and regulatory developments
to assess potential business implications. We maintain active dialogue both with our clients and with
regulatory bodies so that we can understand and adapt business model and strategy accordingly.

The compliance function operates processes and controls to ensure the timely and accurate
submission of information to the Financial Conduct Authority.

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River and Mercantile Group PLC Annual Report and Accounts 2019

RISK MANAGEMENT CONTINUED

Principal risk

Risk management approach

Failure to perform fiduciary duty
The risk that we unintentionally or negligently fail
to meet a professional obligation to specific clients
(including fiduciary and suitability 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.

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.

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 compliance and risk functions, which operate alongside the business but have
independent reporting lines, act as a second line of defence in respect of the investment management
process.

Breakdown of processes and controls
resulting in operational errors
The risk that inadequate or failed processes, people,
systems and controls or from external events could
result in direct financial losses, reputational damage
and failure to win new business.

A significant error or breach of a client agreement
may result in additional costs to redress the issue
and could lead to outflows.

The unavailability of our business premises could
mean we are unable to act on behalf of our clients
and/or perform other time-critical activities to
ensure the smooth running of our business. This
could lead to trading losses, as well as client losses
and reputational damage.

Effective Group oversight and governance through the Board of Directors and Board Committees.

Our policies, procedures and other documentation govern workflows, internal control procedures
and escalation protocols. We look to continuously improve our processes and controls and their
formalisation.

We employ experienced and knowledgeable employees and apply appropriate segregation of roles
and responsibilities. A business continuity management programme is on place for the continuity of
critical business functions and services. We have implemented remote working, including core system
access for all our essential staff if they cannot travel to our offices.

Insurance covering errors and omission is used to mitigate significant financial loss.

The Group’s compliance and risk 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.

River and Mercantile Group PLC Annual Report and Accounts 2019

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 impact of
negative events occurring.

VIABILIT Y S TATEMENT

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.

The viability process was run closely with
the financial modelling for the ICAAP,
involving business heads, divisional
COOs, and senior representatives from
finance, risk, and compliance functions.

The viability process considered the
principal risks that could threaten the
Group’s business model, profitability,
solvency and regulatory capital
adequacy. As the business is cash
generative, the risks 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.

Five scenarios were chosen to simulate
severe yet plausible stressed outcomes:
1. A prolonged downturn, with stagnant
recovery over the viability assessment
period;

2. Group-wide, severe and sustained

reduction in basis points charged on
AUM/NUM;

3. The loss of key investment personnel
within the Group, leading to outflows
of assets;

4. The occurrence of both (1) and (2)

simultaneously; and

5. The occurrence of both (1) and (3)

simultaneously.

The scenario evaluation was
based on the Group’s 2019/2020
budget, three-year financial
projections and the modelled
impact of each of the scenarios.

The impact of market events on asset
values and investment performance
was modelled by investment teams
within the business, and the second-
order impact on AUM/NUM flows was
assessed 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.
Management actions to reduce costs
or otherwise protect regulatory capital,
cash or profits were subject to rigorous
challenge to ensure actions were
feasible, both in scope and timing.

The Group’s balance sheet, cash and
regulatory capital positions in each
scenario were modelled by Group
finance by applying known historical
behaviours (such as invoicing timing
and frequency, average debtor payment
days) and adjusting for any expected
impact arising from the stress scenarios.

The lowest profit, regulatory capital
and cash position prior to management
actions arose in scenario four, however
in each scenario, after mitigating actions,
the Group remained profitable, solvent
and in excess of its capital requirements,
albeit at reduced levels. As a result, the
business remained viable.

The resilience of the business to these
different scenarios resulted from:
– The relative diversification of revenue

between different asset classes,
notional amounts and advisory
revenues – this is illustrated further
in the Group’s RWAA on page 7;
– The general 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 RIA, which is
measured on page 25;

– The remuneration policy of the

Group and the underlying divisions
generally being expressed as a
percentage of revenue, meaning the
impact of revenue reductions are
partially cushioned by falling variable
remuneration levels (up to a point);
and

– The current strong profit levels,

combined with a dividend policy based
upon actual profits, as opposed to a
progressive dividend. This approach
gives the Group more flexibility to
respond to severe stresses.

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River and Mercantile Group PLC Annual Report and Accounts 2019

PEOPLE REPORT

“ We want to create an open,
candid and constructive
working environment.”

I A N I C E T O N

M A N A G I N G D I R E C T O R – TA L E N T, P E R F O R M A N C E A N D R E W A R D

addressed by action plans implemented
by employee led working groups. The
relocation of one of the Group’s offices
from 11 Strand to 1 Aldermanbury
Square, a few minutes’ walk from the
Group’s other office at Coleman Street,
has already had a positive impact on
these areas for improvement.

PER FOR M A NCE
The Group’s values describe the
behaviours that the business
considers to be critical to success.
Behaviours not consistent with
the values are not acceptable and
are dealt with appropriately.

To assist in measuring performance,
the Group has identified a number
of behavioural competences which
measure employee’s performance
against the Group’s values and feed
into the Group’s annual performance
appraisal programme.

R E WA R D A ND R ECOGNITION
As well as offering competitive base
salaries the Group runs an employee
bonus scheme which is dependent on
personal and business performance.
Bonuses may be paid as cash or as part
of the Company’s deferred equity plan
under which payments may be made
in units of funds or in Company shares.
The Company also runs an annual Save
As You Earn scheme and during this
financial year 218,828 shares vested for
42 employees.

On a quarterly basis the Group
holds Town Hall meetings to provide
employees with an update on
business performance and to give
an opportunity to ask questions
directly to senior management.

During the financial year the Group
undertook its first employee opinion
survey and achieved a 76% response
rate and an overall rate of engagement
of 59%, a good response rate for a
first-time survey. The most positive
employee experience scores reflect a
focus on being client centric, offering
opportunities for career progression,
valuing innovation and creative thinking
and employees enjoying working with
their colleagues, teams and peers.
Areas highlighted for improvement
include greater collaboration and
communication, these areas are being

VA LUE S

Passionate about client
success

Creative – involving,
challenging and
convincing others

Open, candid and
constructive

Demanding of our best

Commercial in all that
we do

We expect our people to be passionate about client
success. We care about our clients. We gauge this by
whether clients believe our commitment.

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.

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.

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.

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.

Talented employees, their development
and advancement, are critical to the
success of the Group. It is therefore
imperative that the Group engages
effectively with its employees to ensure
it is able to retain them. The Group has
a talent management philosophy that
is linked to attracting, advancing and
retaining talented employees. This talent
management philosophy is based on the
Group’s principles that define what and
who we are.

PR INCIPLE S

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 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, however
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 workforce
that is diverse.

River and Mercantile Group PLC Annual Report and Accounts 2019

“ The most positive employee experience scores
reflect a focus on being client centric and offering
opportunities for career progression.”

River and Mercantile Derivatives won the award for LDI
Manager of the Year at the Pensions Age Awards 2019 and
River and Mercantile Solutions was highly commended in the
DCI Multi-Asset Fund Manager of the Year category at the
Professional Pensions UK Awards 2019.

WOR K / LIFE B A L A NCE A ND HE A LTH A ND W ELLBE ING
The Group encourages a balanced approach to working and
offers flexible working arrangements to all employees. This year
the Group has enhanced its maternity pay from 12 to 26 weeks
and has increased its annual leave entitlement to 28 days plus
bank holidays. Employees are offered comprehensive medical
insurance which incorporates many health and wellbeing
features including wellbeing assessments, workshops on key
topics like managing stress and lifestyle.

At the end of 2018 the Group introduced the concept of mental
health first aiders and trained a number of employees who are
leading a Time To Change action plan.

The Group continues to offer to all employees the opportunity to
benefit from the cycle to work salary sacrifice scheme.

R ECRUITMENT
The Group is committed to the fair and equitable treatment of
all employees and applicants in the recruitment process.
During the year a number of workshops focusing on developing
recruitment skills have been rolled out to the Group’s line
managers.

DI V ER S IT Y A ND INCLUS ION
The Group continues to drive diversity and inclusion at all levels
with the aim of valuing everyone equally and respecting all
aspects of diversity. The Group remains supportive of the focus
on diversity in the 2018 Code and has accordingly decided
again to early adopt disclosure of the gender balance of senior
management and their direct reports as required by the 2018
Code which follows the recommendation of the Hampton-
Alexander FTSE Women Leaders Project.

Gender balance as at 30 June 2019

Position

Directors1
Senior management
Senior management direct reports
Total employees2

Female

2
3
15
71

Male

6
9
35
194

1. Note that this will change following the AGM in 2019 to four male Directors and two

female Directors.
Including RAMAM partners.

GENDER PAY R EPORTING
Although the Company is not obliged to publish the gender pay
reporting analysis as it does not have 250 or more UK based
employees, it is included here for general information, and is
comparable to our industry peers. It is also notable that the
same proportion of men and women receive a bonus, albeit
there is a wider gender gap with bonus than on pay which is
reflective of the existing gender seniority pattern, as can be
seen from the second table below. We will continue to take
actions to move these results in a positive direction.

Gender pay
gap – mean

Gender
pay
gap – median

Gender bonus
gap – mean

Gender bonus
gap – median

Proportion of
men getting
bonus

Proportion
of women
getting bonus

24.6%

31.5%

41.2%

87.9%

87.7%

As per the requirements: the mean hourly rate is the average
hourly wage across the entire organisation, so the mean gender
pay gap is a measure of the difference between women’s
mean hourly wage and men’s mean hourly wage. The median
hourly rate is calculated by ranking all employees from the
highest paid to the lowest paid, and taking the hourly wage
of the person in the middle; so the median gender pay gap
is the difference between women’s median hourly wage (the
middle paid woman) and men’s median hourly wage (the middle
paid man).

The proportion of women by quartile is as follows:

River and Mercantile Group excluding Partners

Upper
Upper middle
Lower middle
Lower

Male

85%
75%
69%
64%

Female

15%
25%
31%
36%

A DVA NCEMENT
All employees have an equal opportunity for advancement,
including training and development. The Group operates an
internal grading system which measures development and
supports a promotion panel process. During the financial year
35 employees were promoted.

TR A INING , DE V ELOPMENT A ND PROFE S S ION A L
QUA LIFIC ATION S
The Group has delivered a wide range of general and
management training over the financial year and has
offered time and financial assistance to those employees
undertaking professional qualifications. The Group has recently
implemented an online performance management platform
and all employees have received training on how to use the
system, set objectives and record personal development plans.

All employees are required to complete mandatory compliance
training.

To prepare for the implementation of the SMCR the Group
has invested extensively in training employees and rolling out
a number of training sessions for the Company’s Directors
and senior managers. The Group will continue delivering its
mobilisation plan in the lead up to the implementation of the
regime on 9 December 2019.

The Group remains fully supportive of apprenticeships and
as an apprenticeship levy paying organisation, the Group
has access to levy funds which are being utilised to support
management development programmes at Levels 3 and 5,
business administration and finance qualifications.

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River and Mercantile Group PLC Annual Report and Accounts 2019

PEOPLE REPORT CONTINUED

SOCI A L R E SPON S IBILIT Y
The Group’s employee led Charity
Committee coordinates a variety of
activities across the employee group,
raising funds for a nominated charity
and allowing employees to earn matched
funding from the Group for registered
charities they are supporting. The Group
continues to work in conjunction with the
Social Mobility Foundation and has again
offered places on its intern programmes
to young people from a variety of
backgrounds.

MODER N SL AV ERY
We are committed to preventing acts of
modern slavery and the occurrence of
human trafficking in our business and
supply chain. We expect our suppliers to
uphold human rights.

We have an anti-slavery policy
and continue to survey our largest
suppliers for compliance with the
Modern Slavery Act.

EN V IRONMENTA L M AT TER S:
GR EENHOUSE G A SE S
We have our primary offices in London
and Boston, with further offices in
Denver, Chicago, New York, Sydney
and Brisbane. 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.

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.

C A R BON NEUTR A L
The Group’s calculated emissions
figure 1,852 of tCO2e including all travel
and commuting.

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
report that the Group has once again
been certified carbon neutral by Natural
Capital Partners.

Ian Iceton
Managing Director – Talent,
Performance and Reward

Pages 2 to 38 constitute the Strategic Report which was approved by the Board
on 31 October 2019 and signed on its behalf by

James Barham
Group Chief Executive

Kevin Hayes
Group Chief Financial Officer

River and Mercantile Group PLC Annual Report and Accounts 2019

RESPONSIBLE INVES TMENT

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C H I C AG O : U S A

Chicago River

IN V E S TING R E SPON S IBLY
Considerations of stewardship; the
responsible allocation, management
and oversight of capital to create
long-term value for clients, leading to
sustainable benefits for the economy,
the environment and society are
consistent with our clients’ evolving
investment needs and therefore play an
expanding role in the Group’s focus on
delivering investment solutions to meet
those needs. As the Group combines
asset management and institutional
solutions, the different divisions fulfil
their stewardship obligations in different
ways. The Equities division has direct

engagement with companies, whilst the
Solutions division ensures the underlying
asset managers selected are fulfilling
their obligations in this area.

HIGHLIGHT S
– River and Mercantile became a
signatory to the Principles for
Responsible Investment, an investor
initiative in partnership with UNEP
Finance Initiative and UN Global
Compact.

– The Group ESG Committee was

established, leveraging the Group’s
ESG expertise.

– In the year ending 30 June 2019,

our equity fund managers voted at
1,018 company general meetings,
voting against 18% of the resolutions
proposed by companies, and voted
on 200 shareholder resolutions with
44% of votes made against the Board
recommendation.

River and Mercantile Group PLC Annual Report and Accounts 2019

RESPONSIBLE INVES TMENT CONTINUED

We regard voting at company general
meetings as an essential component in
improving the stewardship of a company
in the interests of all stakeholders.

This year we voted at 1,018 company
general meetings, voting against 18%
of the company proposed resolutions.
We voted on 200 shareholder
resolutions, 44% of votes were against
the recommendation proposed by the
company’s Board. The graphs below
illustrate where votes were exercised
against the Board’s recommendation by
region and resolution category by our
fund managers in the year ended
30 June 2019.

Eligible votes exercised that were against
management (by region)

Africa and
Continental
Asia Pacific
Middle East
excluding Japan
Europe

Japan

Latin A m erica

U nited Kingdo m
N orth A m erica

Eligible votes exercised that were against
management (by resolution category)

Board
Structure

Business
Strategy

Capital
Structure

Re m uneration

Social, Ethical or
Environ m ental

In Japan, for example, over 50% of our
votes were against the recommendations
of the Board due to the lack of
independent boards. By category the
highest percentage votes against were
on shareholder proposals regarding
social, ethical and environmental issues
(64%) and Remuneration (40%).

Our engagement with companies
focuses on developing and testing our
investment case for buying or holding a
stock and improving an understanding of
the business and strategy. Separately, we
may hold meetings or calls with a Board
chair, and/or non-executive directors to
discuss particular stewardship matters.
Annually, we have around 300 company
meetings and during the year to 30 June
2019, we engaged with 32 companies on
stewardship related issues.

Our Equity division fund managers
and analysts incorporate ESG research
into their company analysis, helping
to inform them of how these risks
may or may not impact forecasts
and valuations. The team continue
to evaluate additional providers for
global ESG data which will provide a
consistent, up to date source of ESG
data across their investment universe.

When we conduct our analysis on
companies, apart from gaining an
understanding of the business and
financial management, we believe it is
important to identify potential non-
financial risks, such as management’s
behaviour with regard to factors such
as corporate governance, customers,
employees, suppliers and the
environment. We run an ESG analysis
report monthly, which provides a broad
overview of our portfolios from an ESG
perspective, and on a daily basis allows
us to identify companies with potential
related risks to take into account
when analysing. In addition, we run a
fortnightly report showing ESG rating
moves both upwards and downwards,
including reasons for the change. Where
the MSCI ESG rating and/or carbon
emissions score is low, or has moved
materially over recent periods, this is
a signal for further analysis.

The Group’s ESG Committee includes
representatives from different business
divisions in varying geographical areas.
This ensures we are maximising our
knowledge across the Group as well as
developing a comprehensive approach
to ESG which is consistent where
possible, given the different methods
of engagement across the divisions.
Details on the approach by the Group,
the Equities division, and the Solutions
division is considered below.

GROUP E SG A PPROACH
We believe in driving behavioural change,
but that should not be delivered at the
cost of economic returns. We seek to
effect that behavioural change where
we can by influencing the cost of capital
for companies; rewarding the better
ones with support and excluding others,
though we do not exclude companies
based upon their activities or industry
alone. Where appropriate, we pursue
direct engagement or join with others
to apply peer pressure to drive change.
That engagement may take the form of
establishing a dialogue with management
or voting against resolutions proposed
by a company or its board of directors
or the underlying manager.

We believe that companies staffed by
a motivated and effective workforce
that is both meritocratic and diverse
are most likely to effect change in
attitudes to environmental, social
and governance issues. The ability to
innovate is also key; companies that
cannot do so successfully are unlikely
to thrive in the long-term or retain
the employee base that is such an
important input to their success.

For the Equities division, this means
encouraging the companies we invest
in to adopt best practice Corporate
Governance, which in our opinion
are the cornerstone of achieving
responsible and sustainable investment.
For the Solutions division, this means
engagement with underlying managers
to understand and challenge the actions
they are taking on our clients’ behalf.

An integral part of our overall investment
philosophy, as well as our stewardship
responsibility, is understanding ESG risks
and opportunities.

EQUITIE S DI V I S ION E SG A PPROACH
As equities managers, both our PVT (UK
and Global) and ILC (Emerging Markets)
teams believe best practice Corporate
Governance is driving companies
to adopt a responsible approach
to allocating capital and delivering
sustainable returns for all stakeholders.

River and Mercantile Group PLC Annual Report and Accounts 2019

are addressing TCFD with companies
they are invested in and becoming
UN PRI signatories.

As part of our quarterly fiduciary
management reports, we include an
ESG footprint of the equity and fixed
income components of client portfolios
which amalgamates all of the underlying
managers’ positions. We also provide
statistics on our engagement with the
underlying managers of our fiduciary
portfolios in respect of corporate actions
and resolutions. Over the year to 30
June 2019, we voted on 143 separate
resolutions across 32 meetings on behalf
of our fiduciary management clients. This
ensures trustees are able to understand
and challenge the ESG risks in their
portfolio holdings as well as ensuring
effective stewardship.

Over the year we have been developing
an investment strategy with positive
ESG characteristics as an alternative
to the typical industry definition of
quality equity for use in our fiduciary
client portfolios. The strategy provides
systematic exposure to quality
companies across sectors based on
multiple dynamic factors: primarily
growth, stability and personnel factors.
In doing so, we avoid using negative
screens to exclude certain industries
or countries, as we believe high quality,
well-managed companies can be found
almost universally.

We believe a selective approach to
the numerous factors underlying an
ESG score can amplify the quality
characteristics of a company.
In particular, we aim to assess
organisations on their ability to
have adequate people policies and
HR processes, as well as a strong
company culture.

We are currently considering alternative
ways to directly influence portfolios to
be positively ESG aware as we do believe
that, over the long term, having positive
ESG characteristics should benefit the
risk/return profiles of our clients. We
expect this to be a key area of research
and development for next year.

Understanding the exposure of
our equity portfolios to economic
activities affected by the transition to
a low carbon economy is important.
Although the tools for monitoring this
are still in their infancy, we have used
the PRI’s 2° Investing Initiative climate
change scenario analysis tool to assess
the impact of climate change on our
portfolios and for evaluating risks.

Assessing climate change risks is part of
our fundamental research. For example,
in the Energy sector the impact of
regulation, which is likely to increase, and
innovation that will start to reduce the
demand for fossil fuels are important
areas for us to monitor. Regarding
climate change ‘return seeking’
opportunities, within our portfolios
we have exposure to wind farms, wind
turbine manufacture, semiconductor
capital equipment, in particular LED
manufacturing and lowering power
consumption, and smart meters.
We are planning to incorporate the
requirement for companies to disclose
carbon emission information into our
voting policy.

We also believe companies should be
making the FSB Task Force on Climate-
related Financial Disclosures (TCFD) part
of their reporting process.

SOLUTION S DI V I S ION E SG A PPROACH
The Solutions division continues
to be committed to and an active
supporter of the responsible
investment initiative (driven by the UK
Sustainable Investment and Finance
Association and the Association of
Member Nominated Trustees).

As part of our commitment to this,
all consultants have attended ESG
engagement training, which included
the Group’s approach to ESG integration.
Following this, ESG training is being
provided for our client base at trustee
meetings and we are aiming to have
provided this to the vast majority of
our pension scheme clients as part of
trustee board sessions by the end of
the year. We have also run a number
of beliefs sessions with trustee boards.

In the Solutions division, we use ESG
quantitative data along with manager
data to understand and challenge the
actions underlying managers are taking
on our clients’ behalf in addressing
the principles of responsible, ethical
or sustainable investing. This includes
engaging with managers on how they

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River and Mercantile Group PLC Annual Report and Accounts 2019

BOARD OF DIREC TOR S

BACKGROUND AND
EXPERIENCE

J O N AT H A N
D A W S O N

C H A I R M A N

J A M E S
B A R H A M

G R O U P C H I E F
E X E C U T I V E

K E V I N
H AY E S

G R O U P C F O A N D
G L O B A L H E A D O F
S O L U T I O N S

M I K E
F A U L K N E R

G R O U P C I O

Kevin is Group CFO and
Global Head of Solutions.
He is an international
CFO with 25 years’
experience in financial
services. Kevin began his
career at Ernst & Young
and was a Partner in the
New York office covering
financial services audit
and consulting clients. He
moved to Lehman Brothers
where he held various
roles including: Global
Capital Markets Controller,
International CFO for
Europe and Asia, and Head
of Productivity and Process
Improvement. In 2007
Kevin joined Man Group
PLC in London as Group
CFO and Executive Director
on the Group Board. He
was also a trustee of the
Man Group PLC Pension
Plan. Kevin has degrees
in accountancy and law
from Victoria University
in New Zealand and is a
Certified Public Accountant
in the US.

Mike founded P-Solve
(now River and Mercantile
Solutions) in 2001 and
served as its Chief
Executive Officer until the
merger. Under his direction
the business became the
first institutional advisor
in the UK to offer fiduciary
management to pension
schemes. After serving
as the Group’s CEO since
its formation in 2014,
Mike stepped down from
the role in July 2019 to
focus on the Group’s
research, development and
innovation of intellectual
property, with a focus
on a new range of macro
strategies. Mike will step
down from the Board at
the December 2019 AGM.

Mike has 22 years of
consulting and asset
management experience.
He was ranked number
one in the Financial News
category of Europe’s
most influential asset
managers and included
in the overall top 10 in its
FN 100 Most Influential
annual survey in 2011. Mike
is a mathematics graduate
from Imperial College,
London.

James is the Group Chief
Executive of River and
Mercantile Group PLC.
He founded RAMAM in
2006 with the backing of
Pacific Investments and
was its Chief Executive
Officer until the merger
with P-Solve in 2014.
Immediately following the
merger James became
Global Head of Distribution
before becoming Head
of Asset Management
in 2016 whilst retaining
his responsibilities for
RAMAM. James has been
a Group Board Director
since the IPO and was
appointed Deputy Group
CEO with responsibility for
all the Group’s businesses
in September 2018. James
became Group Chief
Executive in July 2019.

James completed his
education at the Royal
Military Academy
Sandhurst and following
service with the Royal
Welch Fusiliers joined
Shandwick Consultants
in 1989. He subsequently
joined James Capel in
1991 and in 1995 was
part of the team that
founded and successfully
floated Liontrust Asset
Management PLC, where
he established and
managed the institutional
business. James joined
Intermediate Capital
Group in 2004 as Sales and
Marketing Director, leaving
to found the RAMAM
business.

Jonathan was appointed
to the Board on 1 October
2017 as Chairman of
the Company. Jonathan
chairs the Nomination
Committee.

Jonathan has extensive
financial services, pensions
and non-executive
experience. A graduate
of the universities of
St Andrews and Cambridge,
Jonathan started his career
in the Ministry of Defence
before joining Lazard, the
investment bank, where
he spent over 20 years. He
left Lazard in 2005 and co-
founded Penfida Limited,
the leading independent
corporate finance advisor
to pension fund trustees.

Jonathan currently serves
as a Non-Executive
Director and Chair of the
Remuneration Committee
of National Grid plc and is
the Chairman of Penfida
Limited.

Most recently Jonathan
served as Senior
Independent Director and
Chair of the Audit and Risk
Committee of Jardine Lloyd
Thompson Group plc.
Jonathan previously served
as Senior Independent
Director and Chair of the
Remuneration Committee
of Next plc. Jonathan
has also chaired three
pension scheme boards of
trustees. Other previous
appointments include,
Non-Executive Director of
Galliford Try plc, National
Australia Group Europe
Limited and Standard Life
Investments (Holdings)
Limited.

COMMITTEE
MEMBERSHIP

– Nomination Committee

(Chair)

Executive Officer of P-Solve

master’s in finance from

School and is a qualified

specialising in financial

With extensive financial

financial services and

financial institutions.

a firm providing strategic,

financial and operational

firms and entrepreneurial

Officer of Baring Asset

Director of Beazley plc and

London’s Energy Efficiency

and Mithras Investment

River and Mercantile Group PLC Annual Report and Accounts 2019

J A C K
B E R R Y

A N G E L A
C R A W F O R D - I N G L E

M I R I A M
G R E E N W O O D

G L O B A L H E A D O F
C O M P L E X C L I E N T S

S E N I O R I N D E P E N D E N T
N O N - E X E C U T I V E
D I R E C T O R

I N D E P E N D E N T
N O N - E X E C U T I V E
D I R E C T O R

J O H N
M I S S E L B R O O K

I N D E P E N D E N T
N O N - E X E C U T I V E
D I R E C T O R

Jack was the Vice-Chief
Executive Officer of P-Solve
(now River and Mercantile
Solutions) until the merger
and is an Executive
Director on the Board of
River and Mercantile PLC.
He has an accountancy
degree from the University
of South Africa with a
master’s in finance from
the London Business
School and is a qualified
Chartered Accountant.
Jack established P-Solve’s
bespoke hedging capability
approach in 2004,
leading work on the use
of derivatives in liability-
driven investments as well
as the use of structured
products for institutional
clients. Jack works with
clients across the Group
and is a key point-of-call
for advice and counsel
for CIOs, trustees and
sponsors on investment
solutions. Jack will step
down from the Board at
the December 2019 AGM.

Angela is a Chartered
Accountant with extensive
audit experience of
multinational and
listed companies.
She was a Partner in
PricewaterhouseCoopers
specialising in financial
services for 20 years
during which time she
led the insurance and
investment management
division and retired in
2008. She is currently a
partner in Ambre Partners,
a firm providing strategic,
financial and operational
advice to private equity
firms and entrepreneurial
companies. She was
appointed as a Non-
Executive Director of
Openwork Holdings
Limited in March 2018.
In previous roles, Angela
served as a Non-Executive
Director of Beazley plc and
Swinton Group Limited.
Angela is the Chair of
the Audit Committee,
the Senior Independent
Director and additionally
sits on the Remuneration,
Nomination and Risk
Committees.

Miriam was appointed
to the Board on 28 May
2019 and is the Chair
of the Company’s
Remuneration Committee
and additionally sits on
the Audit, Nomination
and Risk Committees.
With extensive financial
industry experience, she
was a founding partner of
SPARK Advisory Partners
and has held senior roles
with a number of major
financial institutions.
Miriam currently serves as
the Senior Independent
Director and Chair of the
Remuneration Committee
of Smart Metering Systems
plc, as Non-Executive
Director of Eclipse Shipping
Ltd and as a Partner of
SPARK Advisory Partners.
She is an advisor to
Ofgem and the Mayor of
London’s Energy Efficiency
Fund. In previous roles
she served as a Non-
Executive Director of
Telit Communications plc
and Mithras Investment
Trust plc.

John is the Chair of the Risk
Committee. Additionally
John sits on the Audit,
Remuneration and
Nomination Committees.
John has extensive
financial services and
non-executive experience.
John currently serves as
Chairman of JPMorgan
Chinese Investment Trust
Plc, Chairman of Northern
Trust Global Services SE
and as a Non-Executive
Director and Chairman of
the Risk and Remuneration
Committees of Brown
Shipley & Co. Limited. John
was formerly Chairman of
Aviva Investors and served
as the Chief Operating
Officer of Baring Asset
Management Limited for
11 years.

– Audit Committee (Chair)

– Audit Committee

– Nomination Committee

– Remuneration
Committee

– Risk Committee

– Remuneration

Committee (Chair)

– Remuneration
Committee

– Risk Committee

– Risk Committee (Chair)

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Pacific Investments and

Officer until the merger

experience in financial

Executive Officer until the

New York office covering

financial services audit

first institutional advisor

in the UK to offer fiduciary

roles including: Global

financial services, pensions

St Andrews and Cambridge,

before joining Lazard, the

left Lazard in 2005 and co-

founded Penfida Limited,

corporate finance advisor

the Chairman of Penfida

Certified Public Accountant

in the US.

most influential asset

FN 100 Most Influential

floated Liontrust Asset

River and Mercantile Group PLC Annual Report and Accounts 2019

CORPOR ATE GOVERNANCE REPORT

“ The Board promotes a culture
of integrity and openness, values
diversity and is responsive to the
views of shareholders and wider
stakeholders.”

J O N AT H A N D A W S O N

C H A I R M A N O F T H E B O A R D

Board and Committee member attendance
for the period ended 30 June 2019

Director

Jonathan Dawson

James Barham

Jack Berry

Angela Crawford-Ingle

Mike Faulkner

Kevin Hayes

Robin Minter-Kemp

Jonathan Punter

John Misselbrook

Board
quarterly

Board
ad hoc

4/4

3/4

4/4

15/15

12/15

13/15

9/15

14/15

12/15

4/15

11/15

Audit

n/a

8/8

n/a

8/8

n/a

8/8

Risk

n/a

5/5

n/a

5/5

n/a

5/5

Remun-
eration

Nomin-
ation

n/a

10/10

n/a

10/10

n/a

10/10

3/3

n/a

3/3

1/3

n/a

3/3

n/a

3/3

Miriam Greenwood

(appointed 28 May 2019)

n/a

2/2

n/a

1/1

Where a Director has been appointed or has retired, meeting attendance is shown
against the number of possible meetings they could have attended rather than
the annual number of meetings.

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.

COMPLI A NCE W ITH THE CODE
The Board recognises the key value of
good corporate governance in ensuring
the long-term sustainable success of
the Company.

We recognise further that companies
do not operate in isolation. In order
to succeed in the long term, the
Company and the Board must build
and maintain successful relationships
with a wide range of stakeholders. The
Board promotes a culture of integrity
and openness, values diversity and is
responsive to the views of shareholders
and wider stakeholders.

Accordingly, we are 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 Code is available from the Financial
Reporting Council’s website at www.frc.
org.uk/directors/corporate-governance-
and-stewardship.

The Board has carried out a review of
their compliance with the relevant Code
provisions throughout the year and
confirms that the Company has complied
with the relevant provisions of the Code.

River and Mercantile Group PLC Annual Report and Accounts 2019

Looking forward to the application of
the revised Code
On 24 July 2018, the FRC published the
revised Code (the 2018 Code) which
applied to the Company from 1 July
2019. The 2018 Code is one of the
key elements of the changes to the
UK corporate governance framework
recommended by the government.

The 2018 Code removed the exemption
for smaller companies from compliance
with the requirement that at least half
of the Board, excluding the Chairman,
comprise of independent Non-Executive
Directors. As noted in my Chairman’s
Statement, following the 2019 AGM
the Board will be compliant with this
requirement. The composition of the
Board has been subject to extensive
change over the past two years – a
change of Chairman, the appointment of
two independent NEDs, the retirement
of the interim Chairman and SID, the
appointment of Angela Crawford-Ingle
as SID and the retirement of a NED and
an independent NED. This is in addition
to the change of Executive Director roles
announced in October 2018 and the
appointment of a new CEO announced
on 24 June 2019. A further change to the
composition will take place at the AGM
in December when Mike Faulkner and
Jack Berry will retire from the Board.
Following the 2019 AGM, the Company
will comply with the 2018 Code and also
the Hampton-Alexander review target of
33% female representation on the Board.

Leadership
The Board has provided the Group
with entrepreneurial leadership and is
responsible for the long-term success
of the Group for the benefit of its
shareholders. The Board has regard for
other stakeholders, including employees,
clients, suppliers and wider society.

The roles of the Chairman and the
Group Chief Executive are clearly
established. The Chairman is responsible
for the leadership of the Board, setting
the Board’s agenda and ensuring
constructive relations between Executive
and Non-Executive Directors. The
Chairman also maintains appropriate
contact with major shareholders in
order to understand their concerns, if
any, relating to governance, strategy and
remuneration.

The Group Chief Executive is responsible
for the day-to-day management of the
Company. The Group Chief Executive
has established an Executive Committee
to assist with the management of
the business.

Board composition
As at 30 June 2019, the Board comprised
10 Directors: the Chairman, four
independent NEDs, a NED and four
Executive Directors. Jonathan Punter
(NED) and Robin Minter-Kemp (iNED)
retired from the Board with effect
30 June 2019. With effect 1 July 2019,
the Board comprises three iNEDs, the
Chairman and four Executive Directors.
Angela Crawford-Ingle is the Senior
Independent Director. Following the AGM
the Board will comprise three iNEDs, the
Chairman and two Executive Directors.

As the Company is a smaller company,
as defined in the 2016 Code, it was in
compliance with the requirement B1.2
relating to the number of independent
Directors on the Board for the financial
year ended 30 June 2019. As noted
above, following the 2019 AGM, the
Company will comply with the board
composition requirements of the
2018 Code.

No individual or group of individuals
dominates the Board or its decision-
making.

The NEDs provide constructive challenge
in respect of matters before the Board
and help to develop proposals on
strategy. The Board is satisfied that the
NEDs provide a robust and independent
element on the Board. They bring well-
considered and constructive opinions,
skill and knowledge to Board discussions.
The Chairman holds meetings with the
NEDs without the Executive Directors
present on a regular basis.

All Directors are subject to annual re-
election at the Company’s AGM.

The Nomination Committee keeps the
balance of skills, experience and diversity
under review. The Board is considered
to have an appropriate balance of skills
and experience.

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River and Mercantile Group PLC Annual Report and Accounts 2019

CORPOR ATE GOVERNANCE REPORT CONTINUED

Independence
Angela Crawford-Ingle, Miriam
Greenwood and John Misselbrook have
been determined by the Board to be
independent (the iNEDs). Prior to his
retirement from the Board, Robin Minter-
Kemp was determined by the Board to
be independent.

The Board has determined that
each iNED is independent in both
character and judgement. There are no
relationships or circumstances which
are likely to affect or appear to affect the
iNEDs judgement or independence.

On appointment, the Chairman met the
independence criteria set out in the Code.

Jonathan Punter who was not considered
to be independent by virtue of his
shareholding and directorship in PSG,
a controlling (36.7%) shareholder of the
Company as at 30 June 2019, retired
from the Board on 30 June 2019.

Appointments to the Board
The Board has established a Nomination
Committee to lead the process for
Board appointments and to consider
the balance of skills, experience
and knowledge on the Board. The
Nomination Committee ensures that
there is a formal and rigorous process
for appointments to the Board. Details of
the work of the Nomination Committee
are set out in the Nomination Committee
Report on page 48.

New Directors are given a tailored
induction arranged by the Company
Secretary, which includes meetings
with senior management, including the
Head of Legal, Risk and Compliance
and relevant business heads across the
Company’s operating divisions.

Commitment
The Board requires all Directors to
devote sufficient time to their duties
and to use their best endeavours to
attend meetings.

Each NED’s letter of appointment sets
out the time commitment required
for the role. As part of the Nomination
Committee’s appointment process
other significant commitments of
candidates are considered and any new
appointments or significant interests
are required to be approved by the
Nomination Committee.

Roles and responsibilities
The Board has a formal schedule of
matters reserved for its decision.
Examples of these matters include
the approval of the annual operating
and capital expenditure budgets and
any material changes to them, the
approval of major capital projects and
appointments to and removals from
the Board.

OPER ATION OF THE BOA R D
The Board meets on a scheduled
quarterly basis and held an overnight
offsite strategy day in March. At the
strategy day, the Board received a
number of presentations on key areas
of strategic importance, including the
distribution of products and the Group’s
operations framework. In addition to
the formal schedule of Board meetings,
ad hoc meetings were held to consider
specific items of business as the need
arose. The Board attendance of the
Directors is set out in the table below.

At each quarterly Board meeting, a
report from the Group Chief Executive
and an Operating Businesses Report
are typically tabled. The Chairman of
each Board Committee reports on its
activities since the last Board meeting.

The Chairman, Group Chief Executive
and Company Secretary liaise sufficiently
in advance of each meeting to finalise
the agenda. A comprehensive set of
papers is circulated before Board and
Committee meetings using an online
board pack portal. The Company
Secretary advises the Board on all
governance matters. All Directors have
access to the Company Secretary’s
services and advice.

Committees
The Board has established Nomination,
Remuneration, Audit and Risk
Committees. The composition of
these Committees complies with
the requirements of the Code. The
Company Secretary advises and
supports these Committees.

The Chairman is not a member of
the Remuneration, Audit or Risk
Committees, but attends these meetings
at the invitation of the Chair of the
respective Committees.

River and Mercantile Group PLC Annual Report and Accounts 2019

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: www.riverandmercantile.com.

Performance evaluation
The Executive Directors have been
evaluated 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.

An internal Board and Committee
evaluation process was coordinated by
the Company Secretary. The evaluation
process involved the completion of
anonymous questionnaires collated
by the Company Secretary and a
series of one-to-one meetings with
the Chairman. The evaluation process
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.

Views of shareholders
The Board actively solicits the views
of shareholders through face-to-face
meetings with major shareholders,
investor roadshows and ad hoc contact.
The views of shareholders are reported
back to the Board.

Relationship Agreement
As at 30 June 2019, PSG held 36.7%
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
is able to nominate a NED to the Board
– Jonathan Punter was PSG’s nominated
NED. As noted above, Jonathan Punter
retired from the Board on 30 June 2019.
To date PSG has not indicated any
intention to nominate a replacement NED.

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 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. On 3 July 2019,
PSG reduced its holding in the Company
to 29.58% and are no longer a controlling
shareholder under the Listing Rules.

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). The
Company issued 3,301,365 shares (as at
10 October 2019) to satisfy awards made
under the Company’s Executive PSP
and the exercise of options under the
Company’s SAYE Scheme.

Jonathan Dawson
Chairman of the Board

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River and Mercantile Group PLC Annual Report and Accounts 2019

NOMINATION COMMIT TEE REPORT

“ The Committee ensures that
there is a formal, rigorous
and transparent process for
appointments to the Board.”

J O N AT H A N D A W S O N

C H A I R , N O M I N AT I O N C O M M I T T E E

ROLE A ND R E SPON S IBILITIE S
The Board has established a
Nomination Committee to lead the
process for Board appointments
and to review the composition of
the Board and Board Committees to
ensure they are balanced in terms
of skills, experience and diversity.

The Committee ensures that there
is a formal, rigorous and transparent
process for appointments to the
Board. This includes identifying the
skills and experience required for
a particular role. The Committee
oversees succession planning and the
role changes of Executive Directors
and senior management across the
Group. A full copy of the Committee’s
terms of reference can be found at
www.riverandmercantile.com.

COMMIT TEE MEMBER SHIP
The Committee comprises all
independent Non-Executive Directors in
accordance with the Code. It is chaired
by Jonathan Dawson, the Chairman
of the Board. Other attendees, such
as the CEO and Group HR Director
attend the Committee by invitation. The
Group Company Secretary advises and
supports the Committee. The Committee
is empowered to appoint search
consultants and seek legal advice where
it sees fit to assist with its work.

No individual participates in discussion
or decision-making when the matter
under consideration relates to him
or her.

COMMIT TEE FOCUS FOR F Y 2 019
The Nomination Committee focused
on two key areas in the past year –
Executive Director succession planning
and strategic organisational changes,
culminating in the appointment of James
Barham as Group Chief Executive on
1 July 2019 and the appointment of a new
Chair of the Remuneration Committee,
Miriam Greenwood, following Robin
Minter-Kemp’s decision to retire, which
was announced in January 2019.

Strategic organisational developments –
Executive Directors
In August and September 2018, the
Committee met to consider key strategic
organisational developments and
proposed changes to the roles and
responsibilities of senior management.
The Committee considered each
Executive Director’s current and
proposed role, reviewed the skills,
experience and capabilities of each
Executive Director and evaluated this
against the needs of the Group and its
clients.

As part of this review, the Committee
considered proposed changes to
senior managerial reporting lines. The
Committee’s key focus was ensuring
that the Executive Directors and senior
managers were best positioned to focus
on areas of strategic importance and
to respond to the Group and its clients’
needs. Accordingly, the Committee
recommended the following strategic
changes to the Executive Directors’ roles
and responsibilities:
– James Barham as Deputy CEO, a role
which saw James taking responsibility
for all commercial business lines;
– Kevin Hayes as having responsibility
for the Group’s global Solutions
business;

– Jack Berry as Head of Complex Clients;

and

– Mike Faulkner continuing as CEO and
focusing on accelerating the research
and development of investment
strategies.

These strategic organisational changes
set in motion the Group’s CEO
succession plan, which culminated
at year end with the appointment of
James Barham as Group Chief Executive
and a strategic role change for Mike
Faulkner. The Committee unanimously
recommended these role changes to the
Board. Mike Faulkner and Jack Berry will
step down from the Board at the AGM to
focus on their respective roles as Group
CIO and Global Head of Complex Clients.

River and Mercantile Group PLC Annual Report and Accounts 2019

Recruitment of a Non-Executive
Director and Chair of the Remuneration
Committee
In January 2019, we announced that
Robin Minter-Kemp, the Chair of
Remuneration Committee intended
to retire from the Board on 30
June 2019. The Committee led the
process for the recruitment of a Chair
of the Remuneration Committee.
The Committee appointed Russell
Reynolds to support the search and
interviewed a number of candidates
that produced a shortlist of exceptional
candidates. As required by the Code,
Russell Reynolds does not have
any connection with the Group.

These shortlisted candidates were
interviewed by the Non-Executive
and Executive Directors. Feedback
from the interviews was provided
to the Committee. This process led
to a unanimous conclusion with
the Committee recommending the
appointment of Miriam Greenwood as a
Non-Executive Director and Chair of the
Remuneration Committee.

Jonathan Punter, a Non-Executive
Director, retired from the Board on
30 June 2019, following five years’
service as a Non-Executive Director.
Jonathan’s appointment was subject
to a relationship agreement PSG which
gives PSG the right to nominate a Non-
Executive Director to the Board. To date,
PSG has not indicated any intention to
nominate a replacement Non-Executive
Director to the Board.

COMMITMENT S
The Committee keeps under review
each Director’s external appointments
to ensure they have sufficient time to
dedicate to their duties. As part of the
Committee’s appointment process, other
significant commitments of candidates
are considered. Any new appointments
or significant interests are required to be
approved in advance by the Committee.

A PPOINTMENT S TO THE BOA R D A ND
DI V ER S IT Y
Appointments to the Board are made
on merit and are based on an evaluation
of the skills and relevant sectoral
experience of the candidates. The
Committee recognises that diversity
leads to better decision-making
and improved overall performance.
Diversity is more than gender – as
such the Committee is cognisant
that a combination of demographics,
skills, experience, race, age, gender,
educational and professional
background, and other relevant personal
attributes on the Board is important
in providing a range of perspectives,
insights and challenge needed to
support good decision-making. The
Board has not formally documented
its policy on diversity to date, however
the Committee continues to consider
diversity when reviewing Board
composition. Further information on the
Group’s approach to diversity is set out
on page 37.

Jonathan Dawson
Chair, Nomination Committee

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River and Mercantile Group PLC Annual Report and Accounts 2019

AUDIT COMMIT TEE REPORT

“ The Committee placed an emphasis
on capital, liquidity and profitability
during its review.”

During the year, the Committee focussed
on its responsibility for oversight of
the Group’s financial reporting and its
control environment. As part of this
work the Committee reviewed the
Group’s ICAAP, wind-down plan and
various operational stress scenarios
to support the Board’s conclusions
on the viability statement set out on
page 35. In addition, the Committee
reviewed the structure of Group finance,
significant accounting changes, the
Group whistleblowing policy, developed
its suite of reporting metrics and further
developed the Group’s internal audit
environment.

A N G E L A C R A W F O R D - I N G L E

C H A I R , A U D I T C O M M I T T E E

MEMBER SHIP A ND AT TENDA NCE
Committee membership (meeting
attendance is on page 44)

– Angela Crawford-Ingle (Chair)
– Robin Minter-Kemp (until 30 June 2019)
– John Misselbrook
– Miriam Greenwood (from 28 May 2019)

This is the first report of the
Audit Committee, following
the separation of the Audit
and Risk Committee in May
2018. This was in order to
allow the Risk Committee
to focus on the second line
of defence and the Audit
Committee to focus on
its third line of defence
responsibilities. The three
lines of defence model
which the Group follows
is described in more detail
on page 30.

The separation has allowed the Audit
Committee to dedicate more time to
matters of financial reporting, Group
controls, external and internal audit. The
new structure has further reinforced
the focus on enhancing the Group’s
risk-based compliance oversight. It is
now better able to meet the increasing
regulatory expectation for the Audit
Committee to act as the ‘eyes and ears’
for emerging Group issues.

The Committee is responsible for
assisting the Board in its oversight
responsibilities for the financial reporting
control environment and audit process.
The primary role of the Audit Committee
in relation to financial reporting is to
monitor the integrity of the financial
statements of the Group and any formal
announcements relating to the Group’s
financial performance, and to consider
significant reporting judgements.

The recent appointment of RSM UK
as the Group’s internal audit function
has enhanced the Group’s third line
of defence capabilities. Internal audit
supports the Board and executive
management in protecting the assets
and sustainability of the Group by
providing independent, objective and
timely assurance over the effectiveness
of governance, risk management and
control. The Audit Committee is actively
working alongside RSM UK in planning
the internal audit programme for the
upcoming year.

River and Mercantile Group PLC Annual Report and Accounts 2019

E V ENT S A ND S IGNIFIC A NT M AT TER S
The Committee’s primary areas of focus include:

Financial reporting

– Monitoring the integrity of the financial statements of

Review of judgemental
assertions

Internal audit

External audit

Whistleblowing and
fraud

the Group

– Assessing changes to accounting policies and major

judgemental areas

– Assessing compliance with accounting, legal and

regulatory requirements

– Reviewing key judgemental areas of work completed

by the Group, including:
– Going concern
– ICAAP, including operational stress scenarios
– Group viability modelling and statement
– Wind-down modelling and assertions
– Group liquidity modelling and assertions

– Significant accounting judgements

– Monitoring and reviewing the effectiveness of the

Group’s internal audit function in the context of the
Group’s overall risk management system

– Overseeing the relationship with external auditors
– Reviewing and approval of the annual audit plan
– Reviewing the findings of the external audit
– Reviewing the independence, remuneration, quality
and effectiveness of the services provided by the
external auditors

– Reviewing the adequacy and security of the Group’s
arrangements for its employees and contractors to
raise concerns, in confidence

– Reviewing Group procedures for detecting internal

and external fraud

– Reviewing the Group’s systems and controls for

the prevention of fraud and non-compliance and to
consider appropriate action if required

Outlined below are the key areas of focus
and significant matters addressed by the
Committee during the year:

Financial reporting
A key objective for the Committee is
ensuring that the Group’s financial
reporting is reliable and appropriate
and that the UK Code requirements of
fair, balanced and understandable (FBU)
are met.

The Committee has considered reports
from management and BDO LLP relating
to the Annual and Interim Reports,
and trading updates. Additionally,
management submit reports on
the financial reporting process and
significant accounting matters as
outlined later in this report.

Distributable reserves
In the Interim Report, the Group noted
that a technical matter had arisen
relating to distributable reserves
impacting two dividends and requiring
a general meeting to allow shareholders
to ratify the dividends and rectify
the position. This meeting was duly
convened in May 2019 and the requisite
resolutions were passed with significant
majorities in favour.

The calculation of distributable reserves
is a complex area and the Committee
was closely involved in overseeing the
resolution of the matter. This included
the involvement of the Group’s auditors,
and the appointment of PwC to provide
comfort over the revised calculations of
distributable reserves. A contributory
factor was the reserves arising in
the Company from the merger of the
Group. Consequently, the Committee
recommended a capital restructure

to be considered during the FY2020,
further details on this can be found
in the Financial Review on page 29.
The Committee is satisfied that this
issue has been appropriately resolved
and additional controls have been
implemented to help ensure this cannot
recur in the future.

Review of judgemental assertions
Review of viability, ICAAP and
going concern
During the year particular focus was
placed on the review and challenge of
Group viability, ICAAP and going concern
workings produced by the Group. In
reviewing the Viability statement, the
Committee noted the advantage of not
following a progressive dividend policy
under a stressed scenario and the
impacts of those stresses on liquidity
and variable compensation. It reviewed
the appropriateness of assumptions
within the underlying models and noted
that the rigour of stress testing has been
significantly improved in the year.

One of the key themes during these
reviews was challenge on the Group’s
cash position and liquidity forecasting.
Improved KRIs are now received by
the Committee and the impact of key
payments (e.g. dividends), the impact
of investments, stress scenarios and
model assumptions were challenged
throughout the year. The Committee
notes the Group’s improved reporting
and monitoring capabilities with regards
to liquidity and has requested further
development of this in 2020.

The Committee placed an emphasis on
capital, liquidity and profitability during
its review. It examined the impacts
of stresses on the Group’s ability to
hold capital in excess of its regulatory
requirements and the impact that both
investments and operational events
would have on the Group’s cash position.
Although the Committee concluded that
the Group remains in a strong position,
it agrees with the adage that you need to
‘invest to grow’. As a result, there will be
additional focus on the Group’s liquidity
modelling going forwards, especially
in light of the Group’s investment and
growth plans.

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River and Mercantile Group PLC Annual Report and Accounts 2019

AUDIT COMMIT TEE REPORT CONTINUED

IFRS 15 and 9 accounting changes
During the year there have been several
significant accounting changes which
have come into effect, the main two
affecting the Group have been IFRS 15
and IFRS 9. The Committee is satisfied
with the new approaches taken by the
Group and outlines key changes below:
– IFRS 15 was adopted by the Group

from 1 July 2018 and sets new
guidelines on how revenue should be
recognised. Under IFRS 15, revenue is
recognised when a customer obtains
control of the goods or services. The
Group has adopted IFRS 15, initially
applying this standard recognised at
the date of initial application (1 July
2018). As a result, the comparative
information has not been restated
and is reported under the previous
standards. Whilst IFRS 15 has
introduced a different approach for
determining whether, when and how
revenue is recognised, the application
of these tests to the Group’s contracts
has not resulted in a change of actual
revenue recognised.

– IFRS 9 was adopted by the Group from
1 July 2018. Financial assets are now
classified into one of three categories:
amortised cost, fair value through
profit or loss (FVTPL) or fair value
through other comprehensive income
(FVOCI). Management have applied the
‘Business Model’ and ‘Solely Payments
of Principal and Interest’ tests as
prescribed by IFRS 9 to determine
the correct classification. IFRS 9
represents a significant change in how
financial instruments are disclosed
by the Group and the Committee
has worked closely with both Group
finance and auditors to ensure it is
satisfied with the new disclosures
contained within these results.

S IGNIFIC A NT ACCOUNTING M AT TER S
The Committee has also considered a
number of significant accounting issues
and judgements during the year which
impact this Annual Report, including:

1. 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.
However, the calculation of performance
fees in particular can be more bespoke
and complicated, and accruals for
performance fees can rely on estimates.

The current year saw the implementation
of IFRS 15 ‘Revenue from contracts with
customers’, and the Committee had
previously reviewed technical papers
from management on its implementation
and the fact that it was not expected to
impact on revenue recognition.

Internal audit
As part of their engagement with the
Group, BDO LLP also report on internal
control recommendations that they have
noted during their work. The Committee
reviews these items and monitors
delivery of improvements against them.

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.

2. Accounting for employee and Director
share schemes, and remuneration
deferrals pursuant to UCITS V
The Group has a number of share
schemes, including the EPSP for
Directors, and PSP and DEP for all staff.
The Committee reviewed periodic
reports from management on the EPSP
as the vesting date approached.
The Committee had previously
considered papers from management
on UCITS V and there were no significant
changes during the year.

3. Viability statement
The viability statement relies upon
an assessment of the Group’s ability
to continue in operation and meet
its liabilities as they fall due. This
assessment based on the key risks
which the Group faces. As a result, the
Committee has played a role in its review
and challenge.

4. Impairment of investments and
intangibles
The Group has goodwill and intangibles
on consolidation, and the Company
holds investments in subsidiaries
on an unconsolidated 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.

5. 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.

Provision and development
In last year’s report the Committee
decided to formalise internal audit on an
ongoing basis with the appointment of
a permanent internal audit resource to
provide improved third line assurance
to the Committee and to the Board
going forward.

The Committee decided upon the use
of an outsource provider as opposed to
internal resource as we felt that – for an
organisation of our size – an outsource
model provided the advantage of a
deeper pool of experience and access
to subject matter experts; as compared
with an internal team with limited
resources. We will keep this under review
as the Group grows.

The appointment of an internal auditor
was conducted through a rigorous
tender process. Key outcomes sought
included; a seamless service across the
Group’s global presence; best-in-class
personnel and knowledge of the financial
services industry; and a cost effective,
risk-based approach with a strong
methodology for approaching the work.

I am pleased to report that we have
appointed RSM UK as the Group’s
internal audit function, to be provided
on an outsourced basis and that their
work has already begun. I look forward to
reporting on their first full year of work in
the 2020 Annual Report.

Internal controls – finance
A particular focus this year were the
controls over the risks within the Group,
including the Group finance department.
We receive regular formal updates on
the Group finance department matters,
including key risk indicators. Group
finance has been restructured to better
align resources to key risk areas and has
undertaken a formal review of controls
during the year, which will be ongoing.
The Committee regularly receives
updates on the progress of this work.

River and Mercantile Group PLC Annual Report and Accounts 2019

A NNUA L R EPORT
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 Group’s performance,
business model and strategy.

Angela Crawford-Ingle
Chair, Audit Committee

External audit
Review of independence, objectivity
and effectiveness
The Committee has reviewed auditor
independence, objectivity and
effectiveness at a number of meetings
and is satisfied that the auditors remain
independent and objective.

Whistleblowing
I am the Group’s whistleblowing
champion and the Committee reviews
the operation and effectiveness of the
Group’s ‘whistleblowing’ processes,
systems and controls, by which staff
may, in confidence, raise concerns about
possible wrongdoing in the Group.

The auditors have attended all meetings
and have input into discussions at
those meetings. In doing so, I believe
that they have helped to ensure
that decisions are appropriately
weighted by adding effective robust
and constructive challenge.

Audit and non-audit fees
The Group audit fee payable to BDO
in respect of 2019 was £255,000
(2018: £237,000). Fees for audit
related services are primarily in
respect of the half-year review and
full-year audit for the Group and its
subsidiaries. The increase in these fees
compared to 2018 largely relates to
further developments in accounting
standards. The Committee is satisfied
that the audit fee is commensurate
with permitting BDO to provide a
quality audit and monitors regularly
the level of audit and non-audit fees.

Non-audit fees amounted to £0 (2018:
£0). Further details of the fees paid
to the external auditors for audit and
non-audit work carried out during the
year are set out in note 5 of the Group
financial statements.

The Committee is satisfied that the
non-audit fees do not impair BDO’s
independence.

External auditors appointment
The reappointment of BDO LLP was
approved by shareholders at the 2018
AGM, with 100% of the votes cast being
in favour of the motion. The Committee
has considered the continuing
appointment of BDO LLP as the Group’s
external auditors and is satisfied as to
the scope of the audit. The Committee
has also reviewed BDO’s remuneration.
BDO LLP has been the Group’s auditors
since IPO in 2014, and the Committee
has recommended its reappointment
for the coming year to the Board. Under
the Statutory Audit and third Country
Auditors Regulations part 3, the Group is
required to ensure the audit is subject to
a public tender not later than 2024.

Last year saw the implementation of
an updated policy and procedures
(including the introduction of an
external, independent whistleblowing
resource and helpline). These have
been well assimilated into the Group’s
operations. The Committee is satisfied
that the revised procedures are
appropriate for the Group and there
is nothing to report with regards to
whistleblowing this year.

R EGUL ATORY CH A NGE
While the continued uncertainty
surrounding the UK’s withdrawal from
the EU inevitably presents challenges in
managing and planning for regulatory
changes, there have nevertheless
continued to be areas requiring the
Committee’s attention. This year was the
Group’s first full year under both MiFID
II and GDPR. In addition, it was the first
year implementing several significant
accounting changes (IFRS 15 and 9). The
Committee has also looked at upcoming
changes due to come into effect for the
FY2020, such as IFRS 16 and the new
IFR and EU prudential legislation which
is likely to come into effect regardless of
the Brexit outcome.

Real success lies, not in the
implementation of these changes, but in
our continued adherence and vigilance
in exercising them. We will continue
to demonstrate our commitment to a
culture of compliance and diligence.

MEE TING AT TENDA NCE
The Committee met eight times during
the year. Attendees usually include
the Group’s CFO, Deputy CFO and/or
Financial Controller, the Group’s General
Counsel and the external auditors, BDO
LLP. Other participants are invited as
appropriate and include divisional and
Group COOs, Head of Risk and external
parties in addition to the auditors. The
Committee also usually holds private
sessions with the external auditors and
will also include the internal auditors
in 2020.

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River and Mercantile Group PLC Annual Report and Accounts 2019

RISK COMMIT TEE REPORT

“ Risks to our clients, to our markets
and to our reputation are the
priority for the Committee.”

J O H N M I S S E L B R O O K

C H A I R , R I S K C O M M I T T E E

Membership of the Committee
comprised the independent
Non-Executive Directors:

– John Misselbrook (Chair)
– Angela Crawford-Ingle
– Robin Minter-Kemp (until 30 June 2019)
– Miriam Greenwood (from 28 May 2019)

The Board considers all the members to
have the relevant skills and experience to
be members of the Committee and they
have all attended the quarterly meetings,
with additional ad hoc meetings held
as required. The Committee met five
times in the past year. The meeting
invites other participants as appropriate
and has standing invitations for the
Chairman, Group CEO, Group CFO,
Group CRO, Group General Counsel and
Group COO.

The creation of a separate Risk
Committee by the Board in Q2, 2018
came from the recognition that with the
growing complexity of the Group and the
continuing demands of regulation there
needed to be a specific focus on risk and
regulation at Board level.

Since becoming Chairman of the Risk
Committee, we have had a full agenda
consistent with the Board’s objectives.
We appointed a Chief Risk Officer
(CRO) in August 2018 and have further
strengthened the risk function during
the year.

R I SK FR A ME WOR K
Work has been ongoing to enhance the
risk framework and to improve the clarity
of governance and oversight of risk
within the three lines of defence. Policies
and procedures continue to be reviewed
and improved.

K E Y R E SPON S IBILITIE S
– Assessing the principal risks that arise
from the Group’s business model that
can impact future performance, and to
provide the Board with advice on risk
strategy.

– Oversight of the risk framework.
– Review and recommendation for

annual approval by the Board of the
risk appetite statement, including
the key risk indicators reflecting the
Board’s risk tolerance.

– Reviewing and monitoring the

effectiveness of our processes and
controls in identifying, mitigating and
managing significant strategic, credit,
operational, regulatory, reputational
and liquidity risks.

– Reviewing the Group’s ICAAP process.

The Committee’s full terms of
reference can be found at
www.riverandmercantile.com.

BR E X IT
The Committee has continued to review
the Group’s assessment of the impact
of the different Brexit scenarios on the
Group’s business with an increasing
focus on our ability to manage and
mitigate the risks arising from a no-deal
Brexit. The Group currently has limited
business within the EU27.

IC A A P
Development of the ICAAP is an
important part of the annual risk agenda
and I am pleased with the positive
engagement of all lines of defence in
the comprehensive review of the ICAAP
in 2018 and the further development
that is taking place in 2019. The ICAAP
is an important regulatory document
leading to the Board’s assessment of
our regulatory capital requirement.
Its preparation enables us to focus on
the risks and risk scenarios that the
Group is, and can be, exposed to and
the systems and controls we have in
place to mitigate them.

River and Mercantile Group PLC Annual Report and Accounts 2019

CONDUC T
Creation of the Risk Committee has
assisted the Board in emphasising the
importance we give to good conduct
by our staff in all that we do. After a
difficult year with the outcome of the FCA
competition referral and the dismissal
of a portfolio manager we have taken
further steps to embed good conduct.
However, we are not complacent that this
is a journey and, as the Chairman has
emphasised in his report, will remain a
focus of the Committee.

SMCR
The extension of the SMCR to the asset
management industry from December
2019 underlines the importance the
Board is giving to the risk framework
and conduct. A significant project is
under way to ensure we will meet the
requirements of SMCR by the December
live date.

AUTHOR I SED COR POR ATE DIR EC TOR
(ACD)
The role and responsibility of the ACD in
the governance and oversight of mutual
funds has been very much in the public
domain following the suspension of the
Woodford Equity Income Fund and is
rightly a matter for scrutiny by the FCA.
We took the decision early in 2019 to
appoint an independent ACD, Equity
Trustees Limited, for the River and
Mercantile ICVC. This appointment has
been approved by the regulator and will
take effect during Q4, 2019. We believe
this will further improve the governance
of our range of mutual funds.

LIQUIDIT Y
Liquidity within collective funds is of
importance to the investment manager
and the investors in those funds and
following the issues with the Woodford
funds this has become a focus for
investment managers, investors and
regulators. We have reviewed the
procedures we have in place for the
monitoring and oversight of fund
liquidity and believe they are robust and
consistent with the objectives of the
fund as set out in the fund prospectus.
However, we continue to look at ways
in which we can improve our processes
and to ensure that the liquidity risk in
individual funds, based on the fund’s
investment objectives is properly
understood by our investors.

I would like to thank my colleagues
on the Committee and executive
management for their contributions to
the work of the Committee and insights
into the risk assessment process.

John Misselbrook
Chair, Risk Committee

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River and Mercantile Group PLC Annual Report and Accounts 2019

REMUNER ATION COMMIT TEE

“ Achieving an appropriate balance
between rewarding short-term
performance and longer-term
investment in profitable growth has
been a key focus of the Committee.”

M I R I A M G R E E N W O O D

C H A I R , R E M U N E R AT I O N C O M M I T T E E

Dear Shareholders,

First, I would very much like to thank
Robin Minter-Kemp, on behalf of the
Committee, for his work as Chair of
this Committee for the period from the
Group’s flotation until the end of June
2019. I became Chair on 1 July 2019 so
much of this Report covers the period
when Robin was in post.

I am very aware that I have taken over as
Chair in the context in which the Group’s
Remuneration Report has, in the past
two years, been supported overall, but
subject to minority votes against. As
the Chairman has stated, we take the
views expressed by shareholders very
seriously.

We said in last year’s Report that we
would undertake a further review of
our existing Remuneration Policy during
2019 with a view to presenting a new
remuneration policy for approval at
the Group’s 2019 AGM. However, we
are taking the opportunity afforded
by my appointment and the significant
Executive management changes during
the year, as well as the evolving legal
and governance landscape regarding
executive remuneration, to undertake a
fundamental review of our Remuneration
Policy at its expiry in 2020 with a view
to bringing it before shareholders at
the 2020 AGM. We intend to consult
fully and extensively with shareholders
on the development and structure of
a new Remuneration Policy to align the
policy with the interests of shareholders

and stakeholders and to enable our
Executive leadership team to be
appropriately incentivised to deliver our
strategy over the coming years.

In the interim period, we have taken full
account of the concerns of shareholders
expressed ahead of the 2019 AGM and
within the current Remuneration Policy
have made a number of changes which
go a long way to meeting those concerns,
in particular, on the composition of
variable remuneration for the Executive
Directors where we have removed the
performance fee bonus from variable
pay for the year ended 30 June 2019. As
a consequence, variable pay, excluding
the one-off vesting of the Executive
Performance Share Plan (‘EPSP’) share
awards granted at the time of the IPO,
will be substantially lower than last
year. This, we believe, will go some way
to answering shareholder concerns
surrounding the existing Remuneration
Policy. The Committee carefully
considered the quantum of both variable
pay and the long-term incentive awards
in the context of the performance of the
business and these are clearly reflected
in the Remuneration Report.

this growth, we have decided that the
remuneration ratio cap in our existing
Remuneration Policy of 54% of net
management and advisory fees plus 50%
of performance fees needs to reflect this
business need.

As you will note from the Group Chief
Executive’s Review and in line with our
published interims, we have divided
the business into two key reporting
components, the Core business and
Investments. We have set out clearly
the parts of our business we consider
as Investment. As permitted by the
Remuneration Policy approved by
shareholders, the Committee has
exercised its discretion temporarily
to exclude from the calculation of
the remuneration cap those items
considered to be Investment. This will
permit the investment required to drive
the future growth strategy by allowing
for investment in new teams to support
the profitable growth of the business.
This year we are very close to the cap,
and whilst the Core business remains
within these ratios, planned investments
in key employees in critical markets
around the world have been temporarily
excluded from calculating the
remuneration ratio cap in both FY2019
and FY2020. We will review and consult
on this approach to capping Group wide
remuneration in our new remuneration
policy.

River and Mercantile Group PLC Annual Report and Accounts 2019

A R E A N Y FUT UR E CH A NGE S EN V I S AGED?
Over the period, the Committee
reviewed our Remuneration Policy
approved by shareholders at the 2017
AGM. This time, last year, we noted our
intention to conduct a policy review in
consultation with shareholders, with
the likelihood of submitting a new
remuneration policy proposal at the
2019 AGM. We have, however, now
revised the timescales for this review
given the changes in key roles amongst
the Executive Directors during the
year, and more importantly from a
Remuneration Policy viewpoint, the very
recent change in Remuneration Chair.
We have, therefore, decided to defer
the full remuneration policy review
until the current year. This will allow me,
as your new Committee chair, to have
sufficient time to consult appropriately
with shareholders and take account of
all recent developments in Executive
Director remuneration practices before
we bring a new remuneration policy for
approval at the 2020 AGM.

Accordingly, on behalf of the Committee,
I commend this report to you and ask for
your approval at the AGM in December.

Miriam Greenwood
Chair, Remuneration Committee

Total Executive Director remuneration
including long-term incentive awards
(but excluding the vesting of the one-off
EPSP) is 24% of the maximum under the
Remuneration Policy (and significantly
below the 30% last year). The FY2019
year short-term cash bonus awards
are 21% of the maximum; and the cash
component of variable remuneration is
on average 0.65 times base salary, with
part of this subject to further deferral.

Following detailed consideration of the
Group forecasts and satisfaction of
respective performance objectives for
the financial year, the Committee has
awarded a range of 200% to 400% of
salary in long-term incentive awards to
those to whom an award was granted.
The LTIA require the achievement of an
underpin of basic adjusted underlying
diluted EPS growth before any award can
vest, with the achievement of Business
Performance targets to calculate the
extent to which the LTIA will vest.
Further detail of the LTIA for the financial
year commencing 1 July 2019 and the
performance criteria are set out below.

The LTIA for Executive Directors both
reflects the new roles undertaken (with
James Barham recently appointed
as Group Chief Executive, Mike
Faulkner stepping down as CEO and
being appointed as Group CIO, Kevin
Hayes taking on the Global Head of
Solutions role alongside his existing
CFO responsibilities and Jack Berry
becoming Global Head of Complex
Clients) and the weights incentives
towards future profitable revenue
growth. The Remuneration report
below sets out further detail of the LTIA
and its performance conditions. The
Committee considers the performance
conditions of the LTIA to be significantly
stretching targets for management whilst
motivating and achievable. The structure
of the LTIA is designed to ensure that
forward looking incentives for Executive
Directors support the delivery of a
profitable growth strategy aligned to the
returns to shareholders.

Share awards granted under a pre-IPO
share plan, the EPSP, vested on 26 June
2019. Additionally, the performance
period for share awards granted in 2016
to two Executive Directors ended on 30
June 2019 with the performance criteria
having been achieved for this award.

HOW H AV E THE E X ECUTI V E DIR EC TOR S
BEEN R E WA R DED?
The Remuneration Policy rewards
Executive Directors for both short and
long-term outcomes. We explicitly link
their bonuses both to delivering earnings
growth for our shareholders and to
achieving investment returns for our
clients. In the past, this has included
awarding specific performance fee
bonuses to Executive Directors over and
above the short and long-term variable
pay awards. We have listened to our
shareholders and have decided not to
award performance fees bonuses, to the
Executive Directors, this year.

This report sets out our remuneration
structure which is designed to align the
incentives for Executive Directors to
the value we deliver to our clients and
shareholders. Achieving an appropriate
balance between rewarding short-
term performance and longer-term
investment in profitable growth has
been a key focus of the Committee in
implementing the Remuneration Policy
following its approval at the AGM in
2017. The variable pay of Executive
Directors has enabled the recognition
of exceptional performance whilst
delivering lower compensation for lower
levels of performance. This approach
to rewarding performance has been
implemented across the business and
is firmly embedded in our policy and
culture.

All employees have the opportunity to
be awarded bonus payments, which
they could receive in cash or longer-
term share awards depending on
seniority and level of performance
during the year. In setting employee
bonuses, we follow the same approach
of ensuring alignment of objectives and
remuneration to desirable outcomes,
both from a commercial as well as,
importantly, a conduct perspective,
with a reduction in remuneration where
behavioural outcomes have been below
expectation.

The Executive Directors were assessed
against a number of metrics as set
out in last year’s Annual Report. These
performance metrics included Group
financial metrics, distribution, investment
performance and personal individual
objectives. These were calculated on a
weighted and individual-by-individual
basis and were used to apportion
variable awards. The outcomes were
then reviewed by the Committee with
a further assessment of individual
performance to ensure that the awards
reflected the Committee’s view of
performance, conduct, culture and
leadership contribution to the Group.

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River and Mercantile Group PLC Annual Report and Accounts 2019

REMUNER ATION COMMIT TEE REPORT 2018/19

The Remuneration Committee (the ‘Committee’) reviews and sets the remuneration of the Executive Directors within the
parameters of the Directors’ Remuneration Policy as approved by shareholders at the 2017 AGM (the ‘Remuneration Policy’
or ‘Policy’).

The Committee has a wide remit to consider the remuneration of senior management and employees across the Group.

The Committee is chaired by Miriam Greenwood with Angela Crawford-Ingle and John Misselbrook as members of the Committee.
Robin Minter-Kemp served as the Chair of the Committee during the financial year, retiring on 30 June 2019. The Committee
held ten meetings during the financial year, and Committee attendance is presented on page 44. Other attendees, including the
Chairman, Group Chief Executive, Group HR Director and CFO attend by invitation.

Both the Directors’ Remuneration Policy and the Committee’s terms of reference can be found in the corporate governance section
of the Group’s website www.riverandmercantile.com.

During the year, the Committee has considered a number of key matters, and the most significant are set below:
– Shareholder feedback following the AGM results;
– The current Remuneration Policy, including a review of the Remuneration Policy and the timing of a new remuneration policy;
– The grant and vesting of employee share incentive awards and deferred bonus awards;
– The performance measurement and vesting of awards under the pre-IPO EPSP;
– Remuneration changes for Executive Directors following organisational changes; and
– Executive Director remuneration and the review of bonus payments to all employees.

The Committee’s key responsibilities are:
– To determine and agree the Group’s remuneration philosophy and the principles of its remuneration policy for Executive

Directors and senior management, ensuring that these are in line with the Group’s strategy, objectives, values and long-term
interests and in compliance with regulatory requirements;

– To review, agree and approve an appropriate Directors’ remuneration policy, having regard to the remuneration of all employees

and the views of shareholders and other stakeholders;

– To oversee the setting of Executive Director objectives and assessing the extent to which each Executive Director has met their

individual performance targets;

– To review and set the remuneration of Executive Directors and review the remuneration of senior management and key

employees;

– To review the design of all share incentive plans and deferred bonus arrangements, including the review and approval of share

plan rules;

– To review and approve the grant, performance conditions and vesting of any share incentive awards or deferred bonus awards

for all employees and Executive Directors;

– To determine if any deferred bonus award or share incentive award should be reduced or cancelled, in accordance with the

provisions of the relevant share plan rules;

– To review the Group total compensation ratio and the annual variable compensation pool;
– To review reports from the Chief Risk Officer and Head of Compliance with respect to any conduct and risk outcomes and any

remuneration changes which should reasonably be followed;

– To determine and approve on an annual basis the individuals who may be considered to have a material impact on the risk profile
of the funds managed by the relevant regulated subsidiaries (Code Staff) for the purposes of the FCA remuneration regulations;
and

– To review and approve any major changes to employee benefit structures throughout the Group.

SUMM A RY OF CUR R ENT R EMUNER ATION POLIC Y
Executive Directors’ remuneration is determined in accordance with the Remuneration Policy. There have been no changes to the
Remuneration Policy this year and as such we remain bound by the Policy approved by shareholders at the 2017 AGM.

Executive Director remuneration comprises base salary, pension and other benefits; and variable remuneration in the form of a
cash bonus, a performance fee bonus and long-term incentive awards in either equity or fund units.

The Policy includes an overall Group remuneration ratio cap of 54% of net management and advisory fees, plus 50% of
performance fees, as well as deferrals in respect of performance fee bonuses but also permits the Committee to make
adjustments to the calculation of this cap on a temporary basis.

Malus applies to all awards during the performance assessment and award setting process, and is considered by the Committee
when vesting an award. Clawback will apply to cash variable remuneration, LTIA and performance fee remuneration for a period of
12 months in case of material financial misstatement or serious personal misconduct.

The Policy also requires Executive Directors to acquire and retain at least 200% of base salary in the Company’s shares within five
years of taking office.

River and Mercantile Group PLC Annual Report and Accounts 2019

The following sections set out the remuneration arrangements and outcomes for the year ended 30 June 2019, and how the
Committee intends the Policy to apply during the year ending 30 June 2020.

The following pages have been prepared in accordance with the Companies Act 2006, the Large and Medium-sized Companies
and Groups (Accounts and Reports) Regulations 2008 as amended and the UKLA’s Listing Rules and will be put to an advisory
shareholder vote at the AGM on 9 December 2019.

R E V IE W OF THE FIN A NCI A L A ND NON - FIN A NCI A L PER FOR M A NCE FOR THE Y E A R ENDED 3 0 JUNE 2 019
The Committee reviewed the Group’s Key Performance Indicators and other metrics in assessing the performance of the Executive
Directors against their specific individual performance objectives for 2019.

For the financial year ending 30 June 2019, 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 Policy and their resulting
remuneration outcomes. The same set of broad measures will also be used for the assessment of the Executive Director short
term awards for the year ending 30 June 2020. The measures will all be taken against the budget set for the year, and as per this
year a detailed description of the measures and outcomes will be published in next year’s Annual Report.

Performance metrics
The metrics used to evaluate Executive Director performance were grouped into four areas:

(1) Group financial 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. The three metrics used are as follows:
– Growth in net management and advisory revenue, organically, at a target of 10% per annum (and a range between 5% and 24%;

this was weighted 40% of the Group measures section);

– Growth in adjusted underlying pre-tax margins to >30% over the medium term, by growing remuneration and administration

expenses at a lower rate than net management and advisory fees, with a target of 1% in year (and a measurement range of 0% to
7%); this element had a 30% weighting; and

– Growth in adjusted underlying earnings per share, with a target for the financial year ending 30 June 2019 of 10% (within a range

of 5% to 24%); this element also had a weighting of 30% within the Group Financial metrics section.

(2) Distribution objectives:
This 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. Metrics included:
– Net sales versus opening AUM, with a target of 16% and a measurement range of 10% to 30% – this element was weighted 20%

within the Distribution section;

– Absolute and in-force revenue growth, with a target of 18% and a measurement range of 12% to 32% – with a category weighting

of 40%;

– RIA rate, with a target of 3% and a measurement range of 4% to 0% – with a category weighting of 20%;
– Diversification of distribution channels; and
– Increased penetration of existing distribution channels, including Australia and the US. These last two measures are weighted at

10% each within the Distribution section.

(3) Investment performance objectives:
This measured the specific contribution of individuals to the investment process, including as reflected in AUM/NUM growth
through performance. 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. The two
metrics used were:
– New product launches to broaden investment solutions and increase investment capacity. This was weighted 40% within the

category and scored subjectively as partially achieved; and

– Above benchmark investment performance. This is weighted at 60% of the category, and uses the investment benchmark table

set out in Group CIO’s report, resulting in a category score of below expectation.

(4) Individual objectives:
These measure the delivery of other objectives within the Group, including the ability to deliver talent development and succession
planning effectively, and an assessment of an individual against conduct and other behavioural requirements.
They also measured the success of the individual in achieving their personal objectives set at the start of the year as measured by
the Committee.
– Talent development;
– Client engagement;
– Governance, culture and conduct; and
– Other individual-specific objectives.

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River and Mercantile Group PLC Annual Report and Accounts 2019

REMUNER ATION COMMIT TEE REPORT CONTINUED

Weighting of objectives
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 is weighted according to the following table, subject to overall Committee evaluation of
the individual’s performance in the year.

Mike Faulkner

Jack Berry

James Barham

Kevin Hayes

Performance
condition

Group

financial

Distribution

Investment
performance

Individual
objectives

60%

70%

50%

55%

–

30%

20%

10%

20%

15%

Total

100%

Measures

Weighting
within category

Outcomes

Group measures:
– Organic Growth in net

management and advisory fees
– Growth in Adjusted underlying

pre-tax margin

– Threshold at 5% up to a maximum

40%

– 2.1% therefore threshold not met

score at above 24%

– Threshold at 0% up to a maximum

30%

– -28% therefore threshold not met

of 7%

– Growth in adjusted underlying

– Threshold at 5% up to a maximum

30%

– -11% therefore threshold not met

EPS

of 24%

Distribution Measures:
– Net sales vs opening AUM
– In-force-revenue growth
– Regretted institutional attrition
– Diversification of distribution

channels

– Increased penetration of existing
distribution channels, including
Australia and US

– Threshold at 10% range up 30%
– Threshold 12%, range up to 32%

for maximum payout

– Threshold at 4%, with maximum

payout at 0%

– Qualitative assessment
– Qualitative assessment

Investment Performance Measures:
– New product launches to drive

investment growth

– Above benchmark investment

performance

– Qualitative assessment
– AUM weighted funds above

benchmark performance against
comparators

Individual Objectives measures:
– Talent development
– Client engagement
– Governance
– Culture and conduct

– Individual Executive Directors
scored against each criterion

20%

40%

20%

10%

40%

60%

20%

40%

Overall category score of 0

– 21% so weighted score of 2.7

– 20% so weighted score of 2.3

– 1.7% so weighted score of 2.65

– Expectation met, score 2

Weighted category score of 2.39

– Between threshold and expected,

score 1.5

– Composite core 1.3

Weighted category score of 1.38

Mike Faulkner = 2

Jack Berry = 2

James Barham = 2

Kevin Hayes = 2.6

All scored at expected level, except
for Kevin Hayes who scored above
expectation for client engagement
and culture and conduct

River and Mercantile Group PLC Annual Report and Accounts 2019

This converts to individual scores as follows:

Category weightings

Group
Distribution
Investment performance
Individual

Category results

Group
Distribution
Investment performance
Individual

Weighted results

Group
Distribution
Investment performance
Individual

TOTAL (Short term award) Multiplier of Annual Salary as Bonus

Mike Faulkner

Jack Berry

James Barham

Kevin Hayes

60%
0%
20%
20%

70%
0%
10%
20%

50%
30%
0%
20%

55%
20%
10%
15%

100%

Mike Faulkner

Jack Berry

James Barham

Kevin Hayes

0
2.39
1.38
2

0
2.39
1.38
2.6

Mike Faulkner

Jack Berry

James Barham

Kevin Hayes

0
0
0.28
0.40

0.7

0
0
0.14
0.40

0.5

0
0.72
0
0.40

1.1

0
0.48
0.14
0.39

1.0

Evaluation of individual Executive Director performance
Individual summary – Mike Faulkner
– Effective succession planning with the handover to James Barham of the Group CEO role;
– Development of the Group strategic planning in conjunction with the Deputy CEO;
– Significant innovation in investment research and development leading to the launch of a range of new investment strategies

designed to meet client needs;

– Market leading performance of the recently launched Global Macro strategy;
– Positive investment performance in all divisions since inception. Investment added £0.6bn to AUM/NUM; and
– Performance fees for the 12 months ended 30 June 2019 were £12.5m.

Individual summary – Jack Berry
– Transitioned from his Head of Solutions role into a role focused on driving forward solutions for complex clients; and
– Responsible for delivering significant revenue from our larger clients within the Solutions business and he has been tasked with

playing a key role with all our Fiduciary clients that will be subject to competitive tender over the next two years.

Individual summary – James Barham
– Appointed Deputy CEO at the beginning of the period with continued responsibility for Group distribution;
– Fee earning AUM/NUM increased by 18% in the year to £39.8bn;
– Sales for the period were £6.9bn, including £3bn from Derivative Solutions and £1.5bn from Institutional Equity Solutions;
– Gross inflows for the 12 months were £6.9bn equivalent to 20% of opening AUM/NUM;
– Net inflows for the 12 months were £5.4bn, equivalent to 16% of opening AUM/NUM;
– Equity Solutions performance fees of £2m;
– Established an Australian office and assets in the region grew to AU$2bn;
– Administrative expenses were 24% of management and advisory revenues; and
– Adjusted underlying pre-tax margin was 22%.

Individual summary – Kevin Hayes
– Retained his role as CFO along with taking on responsibility for our Solutions Division;
– Delivered Gross Sales in Solutions circa.£0.8bn ahead of budget;
– Net Sales in Solutions £0.2bn ahead of budget; and
– Net Sales after rebalance in Solutions £0.5bn ahead of budget.

Fixed base remuneration and benefits
On appointment as Group Chief Executive on 1 July 2019 James Barham’s base salary increased to £360,000. There were no other
changes in Executive Director base pay and benefits for the financial year ending 30 June 2019 and none is proposed for the
financial year commencing 1 July 2019.

Executive Director

Mike Faulkner

Jack Berry

James Barham

Kevin Hayes

2018/19

2019/20

Current salary

New salary

Increase

353,000

287,650

325,000

360,000

10.8%

287,650

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River and Mercantile Group PLC Annual Report and Accounts 2019

REMUNER ATION COMMIT TEE REPORT CONTINUED

Cash variable remuneration
In accordance with the Policy, on the basis of the performance outcomes, the following cash bonuses (subject to UCITS V deferrals)
have been awarded for the year ended 30 June 2019:

Executive Director

Mike Faulkner1

Jack Berry

James Barham

Kevin Hayes

Cash bonus £

143,825

343,750

287,650

Notes:
1. Mike Faulkner will be moving to a remuneration structure consistent with that of a portfolio manager and as CIO. Accordingly, Mike Faulkner was not awarded any cash variable

remuneration for this year.

UCITS V deferrals
During the year ended 30 June 2019 Mike Faulkner, James Barham and Kevin Hayes were determined by the Committee to be UCITS
remuneration code staff. This determination was made based on their respective roles as either portfolio manager, in the case
of Mike Faulkner, or their management and oversight of the regulated subsidiaries that manage UCITS funds, in the case of James
Barham and Kevin Hayes.

The UCITS V rules on variable remuneration are set out in the FCA Handbook (SYSC 19E). UCITS V remuneration rules require that
a portion of code staff’s variable remuneration be paid through a combination of upfront and deferred cash, and deferred and
retained UCITS units. Vesting of the UCITS V deferral will not be subject to a performance condition but will be subject to malus
adjustment provisions, which may be exercised at the discretion of the Committee. All UCITS instrument awards are subject to an
additional six month retention period prior to being transferred to the recipient.

As Mike Faulkner has not been awarded any variable remuneration this year, his remuneration is not subject to UCITS V deferrals.

Of the figures for bonus in the single figure of remuneration table above and the LTIA set out below (total variable remuneration),
6% was deferred for three years under the UCITS V rules for James Barham and 6% was deferred for three years under the UCITS V
rules for Kevin Hayes.

Performance fee bonus
The Committee took careful note of shareholder feedback and exercising its discretion made no performance fee bonus payments
to Executive Directors in the financial year ended 30 June 2019.

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 Barham contributes 3% of base salary,
and since 1 July 2017 the Group contributes a sum to his pension that was equivalent to 10% of base pay in previous years.
On promotion to Group Chief Executive this amount was fixed in absolute terms, and therefore now represents 9% of his current
base pay.

Mike Faulkner does not receive either a cash allowance or pension contribution.

The River and Mercantile Group pension scheme, administered by Standard Life, is a Defined Contribution Money Purchase
scheme available to all staff on joining. Other than a small number of employees who retain non-contributory arrangements
from previous situations the vast majority of employees (196) contribute 5% of salary, matched by 5% of Company contributions.
All employees have the option to have their contributions made via a salary sacrifice arrangement.

River and Mercantile Group PLC Annual Report and Accounts 2019

Single figure remuneration
The following table gives the single figure remuneration for Executive Directors who served during the financial years ended 30
June 2019 and 30 June 2018. It includes the cash bonus for the financial year ending 30 June 2019.

Mike Faulkner

Jack Berry

James Barham

Kevin Hayes

Year ended

30 June

Base salary

353,000

Taxable
benefits1

2,470

Annual
bonus2

–

EPSP
shares3

PSP shares
vested4

–

435,505

SAYE
Options5

6,122

337,480

2,681

940,000

1,263,427

Pension6

Total

–

797,097

2,543,588

287,650

2,470

143,825

–

226,238

6,566

28,765

695,514

280,800

2,681

–

2,147,824

28,080

2,459,385

312,500

2,470

343,750

–

6,604

31,250

696,574

275,000

2,681

866,000

1,895,138

287,650

2,470

287,650

–

6,566

275,000

2,681

550,000

2,147,824

27,500

28,765

3,066,319

613,101

27,500

3,003,005

2019

2018

2019

2018

2019

2018

2019

2018

Notes:
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. Details of the framework for assessing annual bonus are set out in the section “Evaluation of 2019
Executive Director performance” on page 61. Annual bonus includes deferred awards pursuant to UCITS V remuneration rules, under the Deferred Equity Plan (‘DEP’). There
are no performance conditions in respect of UCITS deferrals. UCITS deferrals are subject to performance adjustment in accordance with the DEP Rules and the Committee’s
discretion

3. EPSP – This is a pre-IPO LTIA. The 2018 figures have been restated to include the value of the EPSP shares at the end of the performance period (26 June 2018). The holding period
does not contain further performance measures and as such the relevant legislation requires this to be disclosed in 2018. The EPSP shares vested on 26 June 2019. Further detail
of the awards vested, the performance measures used, and the performance achieved is set out below in the section titled “Vested LTIA – EPSP”.

4. PSP shares – this is the gross value of the PSP awards which vested on 16 October 2019. The PSP is an LTIA. These awards were made to Mike Faulkner and Jack Berry in 2016.

James Barham and Kevin Hayes did not receive a PSP award in 2016. Further detail of the awards vested, the performance measures used, and the performance achieved is set
out below in the section titled “Vested LTIA – PSP”.

5. SAYE Scheme – Executive Directors are eligible to participate in the SAYE scheme. The SAYE scheme is available to all UK employees and Executive Directors of the Group. The

SAYE scheme runs for a three year period and allows for a maximum saving of £500 per month in accordance with HMRC requirements. The 2016 SAYE Scheme ended in May 2019
allowing the Executive Directors to exercise their options for shares as reflected in the table above. The 2016 SAYE Scheme options were granted with an exercise price of 186.53p
per share in 2016.

6. Pension contribution at a rate of 10% per annum includes cash allowances and contributions made to self-invested personal pensions.

Vested LTIAs
During the financial year, the award shares granted under the EPSP vested for all of the Executive Directors. Award shares granted
to Mike Faulkner and Jack Berry under the Performance Share Plan in 2016 vested following the announcement of the Group’s
preliminary year-end financial results, with the performance period for these award shares having ended on 30 June 2019.

EPSP
The EPSP was adopted on 2 June 2014 prior to the Company’s IPO. Under the terms of the EPSP, the Executive Directors were
entitled to receive dilutive shares following the completion of a four year performance period, ending on 26 June 2018, plus a
further one year holding period, ending on 26 June 2019. During the holding period, the Committee determined that dividend
equivalents would accrue and be reflected in the total number of vested shares.

The performance condition for vesting was determined by reference to the compound annual total shareholder return over the
performance period, with shares awarded in two tranches (A and B) requiring between a TSR of 12% – 24% and 25% – 30% per
annum respectively. Further details of the performance condition calculation were set out in the remuneration report in the 2018
Annual Report. The table below sets out the number of shares awarded to each Executive Director and the number of shares
vested for each Executive Director.

Executive Director

Mike Faulkner

Jack Berry

James Barham

Kevin Hayes

Total

Notes:
1. Excluding dividend equivalent payments earned during the holding period.

Original A
shares awarded

Original B
shares awarded

Total shares
awarded

Shares
vested

% of total EPSP
award vested1

821,000

1,231,000

2,052,000

501,074

1,396,000

–

1,396,000

851,826

1,231,000

1,231,000 2,462,000

751,610

1,396,000

–

1,396,000

851, 826

4,844,000 2,462,000 7,306,000 2,956,336

23%

57%

29%

57%

38%

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River and Mercantile Group PLC Annual Report and Accounts 2019

REMUNER ATION COMMIT TEE REPORT CONTINUED

PSP Award Shares
On 25 October 2016, Mike Faulkner and Jack Berry were awarded conditional awards of shares under the Group’s Performance
Share Plan. James Barham and Kevin Hayes were not granted share awards in 2016 but received cash bonuses at the time, these
awards having been granted prior to the approval of the Policy in 2017.

The performance condition for the share awards was a compound TSR of 12% per annum by 30 June 2019 when compared with
the closing share price as at 30 June 2016. The performance condition was met during the performance period (actual TSR for the
period was 20.6%) and the Committee has approved the vesting of the shares following the announcement of the Group’s results
on 15 October 2019. The Committee has not exercised any discretion in determining the vesting of the performance condition.

The table below sets out the number of shares awarded and number of shares vested to each Executive Director.

Director/PDMR

Mike Faulkner

Jack Berry

Number of
shares awarded

Number of
shares vested

174,202

90,495

Outstanding LTIA
In 2017 James Barham, Kevin Hayes and Mike Faulkner were awarded conditional share awards under the Group’s Performance
Share Plan (‘2017 LTIA’). The performance condition for the 2017 LTIA is a compound annual TSR of at least 12% per annum over a
three year performance period. The 2017 LTIA will not vest if the TSR for the period is less than 8% with pro-rata vesting if the TSR
is between 8–12%. The 2017 LTIA is not likely currently to vest at the end of the performance period.

In 2018 the Executive Directors were awarded conditional share awards under the Group’s Deferred Equity Plan (‘2018 LTIA’). Under
the 2018 LTIA, the Executive Directors’ awards will only vest in full if growth in the Group’s adjusted underlying diluted earnings per
share (‘aEPS’) of 20% per annum is achieved between 30 June 2018 and 30 June 2021. The 2018 LTIA will not vest if the annualised
aEPS for that period is less than 10% per annum and the awards will vest proportionally on a straight-line basis. Based on current
calculations as at 23 October 2019 between 0–10% of the 2018 LTIA is likely to vest at the end of the performance period.

LONG TER M INCENTI V E AWA R DS FOR THE FIN A NCI A L Y E A R COMMENCING 1 JULY 2 019 ( ‘ LTI A 2 019/ 2 0 ’ )
Award Level for the LTIA 2019/20
The Remuneration Policy provides that the Executive Directors are also eligible for an LTIA of up to 400% of base salary each year.
For the period commencing 1 July 2019 the Remuneration Committee decided to make the following awards:
– An award of 200% of base salary to Jack Berry; and
– An award of 400% of base salary to both James Barham and Kevin Hayes.

For awards above 200%, the Policy requires the satisfaction of pre-grant performance conditions. The pre-grant performance
condition for James Barham and Kevin Hayes was the satisfaction of their respective performance objectives for the financial year
ended 30 June 2019 (see page 59) considered by the Committee as part of the end appraisal process carried out following the end
of the financial year.

This level of award is in line with Policy and provides forward-looking incentives for the Executive Directors to continue to drive
profitable growth for the benefit of shareholders and other stakeholders. The Remuneration Committee are satisfied that
the performance criteria set to achieve vesting of these awards will result in significant shareholder returns, and as such are
appropriate incentives for the Executive Directors.

Mike Faulkner

Jack Berry

James Barham

Kevin Hayes

Nominal value
of LTIA 2019/20
£

Award multiple
of base salary

575,300

1,440,000

1,150,600

200%

400%

Notes:
Following the recent announcement relating to the change in role for Mike Faulkner, who is now appointed CIO and will be dedicated to running specific investment funds within our
Macro business. Mike Faulkner will transition to a remuneration structure consistent with other portfolio managers and reflect the nature of the assets managed. He has, therefore,
not been awarded an LTIA for the period commencing 1 July 2019.

The LTIA 2019/20 is made under the Group’s Deferred Equity Plan (‘DEP’) which was approved by shareholders in 2017 and
provides for the grant of non-dilutive share awards to staff and Executive Directors. The DEP sets out the rules under which awards
are made and provides for performance adjustment and clawback at the discretion of the Committee.

LTIA 2019/20 performance conditions
The LTIA 2019/20 is structured as an award with an underpin based upon a metric of growth in basic underlying adjusted earnings
per share (‘BUAEPS’) and if this is achieved, in aggregate, over a 3 year period, then separate and additional business performance
criteria are measured. Each business performance criterion is assessed on a standalone basis and a portion of the overall award
may vest for each where the required standard is met; all of the additional business performance criteria must be met for the LTIA
2019/2020 to vest in full. If the business performance criterion for a particular measure is not met, no vesting will occur for that
proportion of the LTIA 2019/20 even if the BUAEPS underpin is achieved.

River and Mercantile Group PLC Annual Report and Accounts 2019

In setting the business performance criteria, the Committee has considered the following strategic priorities of the Group which in
combination deliver strong outcomes for shareholders:
– Growth in AUM/NUM as a reflection of the Group’s ability to deliver consistent client outcomes;
– Growth in underlying revenues comprising asset management and advisory revenues to reflect the sustained pricing of our

solutions; and

– Maintenance of long term investment performance of the Group’s investment strategies.

The performance period for the LTIA 2019/20 is for the three financial years measured from 1 July 2019, with a further two year
holding period ending on 30 June 2024.

The LTIA 2019/20 awards will be subject to the requirement of continued employment throughout the 3 year performance period
(as provided in the rules of the DEP). During the holding period, the Executive Directors will be entitled to dividends on any vested
shares reinvested in shares at the ex dividend date.

LTIA 2019/20, including during the holding period, will be subject to reduction at the discretion of the Remuneration Committee for
conduct, risk, reputational or other appropriate and related matters.

Basic underlying adjusted earnings per share
The measure of BUAEPS is defined as: basic underlying adjusted earnings per share, excluding the accounting charge for the LTIA
2019/20. This is measured as the aggregate BUAEPS earned by shareholders over the performance period aligning the vesting
of shares to shareholder returns over the performance period. The underpin is determined as growth in BUAEPS measured over
the three year performance period. If the BUAEPS growth underpin is not achieved the LTIA 2019/20 will not vest, irrespective of
performance under the other criteria.

Additional business performance criteria (the ‘Business Performance’ criteria)
Once the BUAEPS threshold is achieved, standalone Business Performance criteria are then applied to calibrate vesting of the
LTIA 2019/2020. The weightings of the Business Performance criteria are set out below. Each Business Performance criterion is a
standalone criterion, therefore the failure to achieve threshold performance in one Business Performance criterion will not impact
the ability to vest under the other criteria.

James Barham and Kevin Hayes Business Performance criteria
James Barham has been recently appointed as Group Chief Executive responsible for the management of all our operating
businesses. Based on his performance during the last financial year and strong sales and revenue growth, he was granted the
maximum award.

Kevin Hayes continues as Group CFO although during the last financial year he also undertook the role of Global Head of Solutions.
The Solutions division generated 49% of the Group’s total revenue during the year, and the combination of strong investment
performance and recent recruitments along with the completion of the CMA review, provides an improved environment to
accelerate client wins. It also includes the US business which, again, has been an area of recent investment for growth in the form
of the New York office. The importance of future acquisitions has been highlighted to complement continued organic growth and
has been highlighted by the CEO. Kevin will play a critical role in this. He has been granted the maximum award.

The Business Performance criteria are based on:
1. Net Flows in AUM/NUM;
2. Underlying Revenue; and
3. Investment Performance.

The Business Performance criteria will each have a performance threshold requiring growth in excess of the outcome achieved in
FY2019. The specific growth targets for net flows and underlying revenues are commercially sensitive and will be disclosed at the
end of the performance period.

Net Flows is a current indicator of the success of our client engagement, the generation of AUM/NUM through sales to existing
clients or new clients and also retention of AUM/NUM from existing clients. Net flows, as disclosed in the Annual Report, will be
aggregated over the performance period. Vesting will start at a threshold of achieving 75% of the AUM/NUM growth target at which
point 20% of this part of the award will vest. At 100% or more of the AUM/NUM growth target, 100% of the that part of the award
will vest, with pro rata vesting on a straight line basis between 75% and 100% of the AUM/NUM growth target. No vesting for this
part of the award will occur if growth is below 75% of the growth target.

Underlying Revenue measures the Group’s ability to maintain and expand our margins. Underlying Revenue, as disclosed in the
Annual Report, will be aggregated over the performance period. Vesting will start at a threshold of achieving 85% of the Underlying
Revenue growth target at which point 20% of that part of the award will vest. At 100% or more of the Underlying Revenue growth
target, 100% of the that part of the award will vest, with pro rata vesting on a straight line basis between 85% and 100% of the
Underlying Revenue growth target. No vesting for this part of the award will occur if growth is below 85% of the growth target.

Investment Outperformance is an indication of our ability to deliver against our clients’ expectations as measured by our relative
outperformance against the stated benchmarks. As this is a relative performance benchmark, investment performance ahead
of the benchmark indicates positive client outcomes. Investment performance is disclosed in the Annual Report. The investment
performance criteria will be based on the inception to date out-performance as this indicates the longer-term sustainability of the
investment process. The Investment Performance metric will be measured at the end of the 3 year performance period. No vesting
under this part of the award will occur if less than 60% of AUM/NUM has investment performance that is below the inception to
date benchmarks. Vesting at 20% of this part of the award vests will start at a threshold of 60% of AUM/NUM having investment
out performance that is above the inception to date benchmark. 100% of this part of the award will vest at 90% of AUM/NUM
having investment outperformance that is above the inception to date benchmark.

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River and Mercantile Group PLC Annual Report and Accounts 2019

REMUNER ATION COMMIT TEE REPORT CONTINUED

For James Barham and Kevin Hayes, the Net Flows and Underlying Revenue will be calculated at the Group level. Net Flows and
Underlying Revenues will each represent 40% of the total award and in aggregate account for the majority of the award. Investment
Performance is weighted at 20% of the award and measures the longer-term sustainability of the investment franchise. Whilst
important it contains an element of subjectivity and is therefore allocated a lower percentage of the award.

In summary, the Business Performance criteria and the weightings of the Business Performance criteria proposed for James
Barham and Kevin Hayes are:
– Net flows (weighted 40%)
– Underlying Revenues (weighted 40%)
– Investment Performance (weighted 20%)

Jack Berry Business Performance criteria
Jack Berry has been responsible for significant growth in Solutions business and is responsible for a number of key fiduciary
management and advisory client relationships. Following the CMA review of fiduciary management and investment consulting,
a number of our clients may be required to undertake competitive tenders. Jack’s performance criteria are aligned to successful
outcomes across our solutions business during this period. Accordingly, he has been awarded an LTIA at 200% of base salary.

The LTIA 2019/2020 for Jack Berry will be measured against two Business Performance criteria each weighted at 50% of the award:
– Net AUM/NUM retention over the performance period; and
– In-force management fee development over the performance period.

Net AUM/NUM retention will be defined as the total AUM/NUM as at 30 June 2019 of existing UK Solutions clients. Vesting will start
at a threshold of achieving 60% retention at which point 20% of this part of the award will vest. At 75% or higher retention being
achieved, 100% of this part of the award will vest, with pro rata vesting on a straight line basis between the two points. No vesting
for this part of this award will occur if retention is below the threshold.

In-force management fee revenue will be defined as the total management fee revenue as at 30 June 2019 of the existing UK
Solutions clients. Vesting will start at a threshold of achieving 60% retention at which point 20% of this part of the award will vest.
At 75% or higher retention being achieved, 100% of this part of the award will vest, with pro rata vesting on a straight line basis
between the two points. No vesting for this part of the award will occur if retention is below the threshold.

MINIMUM SH A R EHOLDING
The Policy requires that an Executive Director maintains the minimum shareholding in the Group. Executive Directors are required
to acquire and retain the Company’s shares equivalent to at least 200% of base salary. The Executive 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. All current Executive Directors comply with this requirement.

PAY MENT S TO PA S T DIR EC TOR S OR FOR LOS S OF OFFICE
There were no payments to past Directors or for the loss of office during the year.

CHIEF E X ECUTI V E OFFICER ’ S R EMUNER ATION
Mike Faulkner’s cash bonus has decreased from £1,150,000 in the prior year to zero for the current year. His single figure
remuneration set out below includes base salary, cash bonus (nil) and vested LTIA. It excludes the gain on SAYE options exercised.
The total variable remuneration of the Group has decreased by 4.3% from £16.2m to £15.5m over the same period.

Year

2019

2018

2017

2016

2015

Chief Executive
Officer’s single figure
remuneration

Annual bonus
payout against
maximum

797,097

2,543,5884

923,221

309,476

309,079

37%

83%2

21%2

2014 (six months)

7,801,2603

100%

Notes:
1. No shares vested during 2015, 2016, 2017 or 2018.
2.
3. 2014 remuneration includes £7.5m of previously issued shares in the pre IPO Group which converted into shares at the IPO.
4. Restated 2018 figures as EPSP now included in 2018 figure.

Includes share awards not included in single figure remuneration as unvested at year-end.

Long-term incentive vesting
rate against maximum
opportunity

100% PSP

23% EPSP

n/a1

100%

River and Mercantile Group PLC Annual Report and Accounts 2019

CEO Pay Ratio
Although the requirement to disclose the CEO pay ratio does not apply to the Group, as it does not have 250 UK based employees,
it has decided to disclose this on a voluntary basis.

Year

2019

Method

25th Percentile pay ratio

Median Pay ratio

75th Percentile pay ratio

15.6:1

9.2:1

5.1:1

We have adopted method A of calculation. As this is the first year of reporting there is no change in methodology. We believe the
median is representative of our overall reward policies on pay, reward and progression, in that it demonstrates the possibility of
variable cash pay and equity, which are both potentially awarded as staff progress with the business.

Percentage change in CEO remuneration
The table below shows the percentage change in salary, taxable benefits and annual incentive for the CEO, and the average for all
employees within the Group.

CEO annual £

Salary

Taxable benefits

Annual incentive

R EL ATI V E IMPORTA NCE OF SPEND ON PAY

£’m

Total remuneration and benefits including EPSP

Distributions to shareholders with respect to period (pence per share)

Year ended
30 June
2019

Year ended
30 June
2018

Increase/
(decrease)

Average
increase across
all employees

353,000

337,480

4.6%

5.4%

2,470

2,681

(7.9)%

(14.3)%

–

940,000

(100)%

Year ended
30 June
2019

Year ended
30 June
2018

42.3

16.4

39.0

18.6

The Group is continuing to grow and that growth remains dependent on the recruitment and retention of high quality individuals
and, in a competitive market, we need to be able to offer attractive remuneration packages. Our investments in people would,
typically, not become immediately revenue generating, however we believe these investments in key people will enhance our
ability to generate increased return for shareholders in the future. As noted in the Group Chief Executive’s Report, the Group has
undertaken investment required to drive the future growth strategy by investing in new teams to support the profitable growth of
the business. This investment is reflected in the increased spend on remuneration for the year ended 30 June 2019.

NON - E X ECUTI V E DIR EC TOR R EMUNER ATION
The table below shows the total remuneration of the Non-Executive Directors paid during the years ended 30 June 2019 and
30 June 2018. Jonathan Punter’s fees were paid direct to PSG.

NED

Jonathan Dawson2

Angel Crawford-Ingle

John Misselbrook 3

Jonathan Punter

Miriam Greenwood4

Robin Minter-Kemp

Year

2018

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

2019

Notes:
1. Non-Executive additional fees are fees for chairing Board Committees.
2.
3.

Jonathan Dawson was appointed as Chairman on 1 October 2017. As a consequence of this, his fee was pro-rata for the year ended 30 June 2018.
John Misselbrook was appointed as a Non-Executive Director on 16 February 2018, so the fee for 2018 was pro-rated.

4. Miriam Greenwood was appointed as a Non-Executive Director on 28 May 2019, so the fee for 2019 is pro-rated.

Additional fees
for chairing
Committees1

Fee
£

112,500

150,000

57,166

60,500

18,727

42,500

4,940

42,500

–

8,000

–

8,000

–

8,000

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River and Mercantile Group PLC Annual Report and Accounts 2019

REMUNER ATION COMMIT TEE REPORT CONTINUED

NON - E X ECUTI V E DIR EC TOR FEE R E V IE W
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. The Chairman’s fee is
fixed for three years following his appointment. Non-Executive Directors are reimbursed for reasonable business expenses.

DIR EC TOR S ’ SH A R EHOLDING S

Director

James Barham

Jack Berry

Mike Faulkner

Kevin Hayes

Jonathan Dawson

Angela Crawford-Ingle

Miriam Greenwood

Robin Minter-Kemp

John Misselbrook

Jonathan Punter1

Number
of ordinary
shares held at
21 October

2019

Unvested
performance share
awards, subject to a
performance
condition, at
30 June
2019

1,567,373

364,825

1,357,246

4,072,720

788,705

87,267

606,433

363,973

70,000

19,924

7,144

30,000

–

Notes:
1.

Jonathan Punter holds an interest in PSG. PSG is a significant shareholder in the Company (as at 30 June 2019 PSG held 36.7% interest in the Company. Following the year-end,
PSG sold shares and holds 29.58% of the Company’s shares as at 3 July 2019.

The Directors’ shareholding table sets out the shareholding for each person who has served as a director of the Company during
the financial year.

A DV I SOR S
The Committee received independent advice on material matters, including:
– Compensation design advice from Willis Towers Watson;
– General advice from the Company Secretary and HR; and
– Legal advice on remuneration-related matters from Herbert Smith Freehills LLP.

The Committee appointed Willis Towers Watson (‘WTW’) to provide advice to it on remuneration matters in 2017. The Committee
intends to review its advisors in the next financial year and plans to run a competitive selection process. The Committee is satisfied
that the advice received from its advisors is independent and objective. The total cost of the advice received from WTW is £68,983
which was charged on a time spent basis.

POS T- EMPLOY MENT SH A R EHOLDING R EQUIR EMENT S
The Committee notes the requirements of the Corporate Governance Code 2018 (the ‘2018 Code’) relating to post-employment
shareholding requirements for Executive Directors. The 2018 Code applies to the Company in the year commencing 1 July 2019.
The DEP, being the share plan rules under which awards are made for all employees and directors, contains leaver provisions which
are applied by the Committee to all employees in respect of unvested awards. Vested awards are, subject to Committee discretion,
normally released at the end of the holding period with no acceleration.

The Committee intends to review this approach when the next remuneration policy is put forward for a formal shareholder vote,
in the light of market developments at that time.

S TATEMENT OF VOTING AT 2 018 AGM

Resolution

Votes cast
excluding
withheld

Votes for

Votes against

Votes withheld

To approve the Directors’ report on remuneration for the year ended 30 June 2018

74.89%

70.83%

29.17%

–

To approve the Directors’ Remuneration Policy in 2017

83.15%

74.70%

25.30%

15,000

Prior to the 2018 AGM, significant shareholders were consulted regarding the planned resolutions. After the vote further
discussions were held, especially with the largest shareholder who voted against the proposals. The Remuneration Committee has
taken careful note of the views expressed and has, within current Policy, made significant changes to reflect these concerns and
will further be addressing these concerns in the new remuneration policy to be introduced in 2020.

River and Mercantile Group PLC Annual Report and Accounts 2019

COMPLI A NCE A ND R I SK M A N AGEMENT IN R EMUNER ATION
The Chair of the Committee also serves on the Nomination, Audit and Risk Committees and the Chairs of the Audit and Risk
Committees also sit on the Committee.

In determining remuneration, the Committee take account of reports from the Group’s Risk, Legal and Compliance teams, and the
Audit and Risk Committees as to conduct and risk outcomes, and any remuneration changes which should be reasonably followed.

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 DEP provides that, at the discretion of the Committee, deferred awards may be reduced or cancelled
in the event of certain malus scenarios including a material misstatement of the Group’s financial results or misconduct by an
individual. The DEP rules have been amended during the period to provide for the ability of the Committee to clawback awards that
have vested (note this only applies to awards made after 30 June 2018).

GROUP SH A R E PR ICE A ND T SR PER FOR M A NCE

250

200

150

100

Jun 14

Dec 14

Jun 15

Dec 15

Jun 16

Dec 16

Jun 17

Dec 17

Jun 18

Dec 19

Jun 19

R&M Share price
R&M Total shareholder return
MSCI UK Financials share price
MSCI UK Financials total shareholder return

The chart above shows the Company’s share price performance (based on total shareholder return, with dividends reinvested
net of tax) in the period since IPO on 26 June 2014, compared with the movement of the MSCI UK Financials Index. The MSCI UK
Financial Index contains UK listed Financial stocks, including asset managers.

OUTLOOK FOR 2 019/ 2 0
We will be conducting a fundamental review of remuneration to ensure that it fully meets the requirements of a growing business
and applies the most appropriate remuneration policies and follows best practice. We intend to consult extensively with our
shareholders in the design of the new remuneration policy. We are fortunate to have amongst our stakeholders a highly engaged
group and I and my Committee look forward to working with them over the course of the year.

Approved and signed on behalf of the Board.

Miriam Greenwood
Chair, Remuneration Committee

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River and Mercantile Group PLC Annual Report and Accounts 2019

DIREC TOR S’ REPORT

The Directors present their report and the Group’s audited financial statements for
the year ended 30 June 2019.

PR INCIPA L AC TI V ITIE S A ND BUS INE S S R E V IE W
The Company’s principal activity is to act as a holding company for a group of
investment advisory and management companies. The Company is a public limited
company incorporated in England and Wales under registered number 04035248.
The Group operates principally in the United Kingdom and has a trading subsidiary
in the United States of America. One of the Group’s trading subsidiaries is registered
as a foreign registered entity in Australia. A review of the business is set out in the
Strategic Report on pages 1 to 42, which is incorporated by reference into this report.

BOA R D OF DIR EC TOR S
The Directors of the Company at 30 June 2019 are set out below. Their biographies are
set out in the Governance section on pages 42 to 43.

Director

James Barham

Jack Berry

Angela Crawford-Ingle

Jonathan Dawson

Mike Faulkner

Kevin Hayes

Robin Minter-Kemp1

John Misselbrook

Jonathan Punter1

Miriam Greenwood

Date of appointment

27 March 2014

30 June 2009

29 May 2014

1 October 2017

30 June 2009

15 April 2014

12 May 2014

16 February 2018

30 June 2009

28 May 2019

1. Robin Minter-Kemp and Jonathan Punter retired from the Board, effective 30 June 2019.

In accordance with the Company’s
Articles of Association and best practice
set out in the UK Code (both 2016 and
2018), all continuing Directors will offer
themselves for re-election at the AGM,
with the exception of Miriam Greenwood,
who will be standing for election, as this
is the first AGM since her appointment
and Mike Faulkner and Jack Berry who
will not be standing for re-election.

DIR EC TOR S ’ INTER E S T S
Directors’ interests in the shares of the
Company are disclosed in the Directors’
Remuneration Report on page 56. No
Director had a material interest in any
significant contract (other than a service
contract) with the Company at any time
during the year.

S TATEMENT OF DIR EC TOR S ’
R E SPON S IBILITIE S
This statement, which is included later in
this section, is deemed to form part of
this Directors’ Report.

CONFLIC T S OF INTER E S T
A Director has a statutory duty 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. Where a
conflict of interest or potential conflict
of interest is identified, only Directors
that are not involved in the conflict or
potential conflict may participate in any
discussions or authorisation process.

DIR EC TOR S ’ INDEMNITIE S A ND
IN SUR A NCE
The Company maintains appropriate
insurance cover in respect of litigation
against Directors and officers.

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 2019 and up to the signing of
the Annual Report.

DIR EC TOR S ’ SERV ICE AGR EEMENT S
Each Executive Director has a written
service agreement, which may be
terminated by either party on not less
than 12 months’ notice in writing.

NON - E X ECUTI V E DIR EC TOR S ’ LE T TER S
OF A PPOINTMENT
Each Non-Executive Director has a
written letter of appointment for a term
of three years. Three months’ notice in

writing is required to be served by either
party to terminate the appointment of
a Non-Executive Director.

The role and responsibilities of each
Non-Executive Director are clearly
set out and include the duties of a
Director as set out in the Companies
Act. These duties do not include any
management function, but set out that
the Non-Executive Director is expected
to support and challenge management.
The Non-Executive Director letters of
appointment are available for inspection
at the Company’s registered office during
business hours and at the AGM.

COMPEN S ATION FOR LOS S OF OFFICE
There are no agreements in place
between the Company and any Director
or employee for loss of office in the event
of a takeover.

CH A NGE OF CONTROL
The Company does not have agreements
with any Director or employee that
would provide compensation for loss
of office or employment resulting from
a change in a control following a takeover
bid, except that provisions of the
Company’s share schemes may cause
awards granted under such schemes
to vest in those circumstances.

M A N AGEMENT R EPORT
For the purposes of Disclosure and
Transparency Rule 4.1.8, this Directors’
Report combined with the Strategic
Report comprises the Management
Report.

DI V IDENDS
The Directors have proposed a final
dividend of 5.0 pence per ordinary
share (2018: 5.5 pence) of which 2.4
pence is a special dividend relating
to net performance fees. Payment of
this dividend is subject to approval by
shareholders at the Company’s 2019
AGM and, if approved, will be paid on
27 December 2019 to shareholders on
the register at the close of business
on 29 November 2019.

C A PITA L S TRUC T UR E A ND VOTING
R IGHT S
As at 30 June 2019, there were
85,296,176 ordinary shares of 0.003
pence each. Each share in issue is listed
on the Official List maintained by the FCA
in its capacity as the UK Listing Authority.
The Company issued 3,200,830 ordinary
shares to satisfy awards granted under
the EPSP and to satisfy options under
the Group’s SAYE scheme.

The Company has one class of ordinary
shares, which carry the right to attend,
speak and vote at general meetings of
the Company. Further detail regarding
the exercise of voting rights at the AGM
are set out in the Notice of AGM.

River and Mercantile Group PLC Annual Report and Accounts 2019

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. The Company is not
aware of any agreements between
shareholders that may result in
restrictions on the transfer of shares or
on voting rights.

The Company has not been granted the
authority to buy back its own shares.
Accordingly, no shares have been bought
back by the Company during the period.
The Company does not hold any shares
in treasury.

CONTROLLING SH A R EHOLDER
As at 30 June 2019, PSG held 36.7% of
the Company’s ordinary shares. As such,
PSG were deemed to be a controlling
shareholder under the Listing Rules
for the period ending 30 June 2019.
Accordingly, the Company has entered
into a relationship agreement with PSG
as required by the Listing Rules. This
agreement is further detailed in the
Corporate Governance Report in the
Relationship Agreement section on
page 71.

Subsequent to the period, PSG sold
6,059,618 ordinary shares and hold
29.58% of the Company’s ordinary
shares and are no longer considered
to be a controlling shareholder of
the Company.

SH A R E S HELD IN A N EB T
Shares are held on trust for the benefit
of Group’s staff in the Company’s EBT
in order to satisfy awards under the
Company’s share award plans, further
details of which are set out in the
Remuneration Committee Report.

During the period, the Company changed
its EBT trustee provider and as such, the
EBT is now operated by Apex Financial
Services (Trust Company) Limited.
During the reporting period, the trustee
of the EBT purchased 820,615 shares.
As at 6 September 2019, the EBT held
2.8% of the total issued share capital of
the Company.

The 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.

AUDITOR S
BDO LLP, the external auditors of
the Company, have advised of their
willingness to continue in office and a
resolution to reappoint them will be
proposed at the forthcoming AGM.
The Audit Committee report considers
the independence of the auditors on
pages 50 to 53.

AUDIT INFOR M ATION
As far as each Director is aware, there is no relevant information that has not been
disclosed to the Company’s auditors. Furthermore, each of the Directors believes
that all reasonable steps have been taken to make them aware of any relevant audit
information and to establish that the Company’s auditors have been made aware of
that information.

SUB S TA NTI A L SH A R EHOLDING S
As at 6 September 2019, the Company had received the notifications of control of 3%
or more over the Company’s total voting rights and capital in issue in accordance with
DTR 5 as set out below:

PSG

Aberdeen Standard Investments

Miton Asset Management

Unicorn Asset Management

Legal & General Investment Management

Aviva Investors

Sir John Beckwith

Mike Faulkner

DI SCLOSUR E OF INFOR M ATION UNDER
LI S TING RULE 9. 8 . 4 R
The sections which apply to the Group are:

4 – Details of long-term incentive
schemes, which can be found in the’
Remuneration Committee Report on
page 56.

10,11,14 – Details of a contract
of significance with a controlling
shareholder and 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
47. Note that following the year end, PSG
decreased their holding and as such are
not a controlling shareholder, however
a Relationship Agreement remains
in place.

12 – Arrangements under which a
shareholder has agreed to waive
dividends. See section above ‘Shares
held in an EBT. The other sections are
not applicable to the Group.

GOING CONCER N
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 35 for further details.

POLITIC A L DON ATION S
The Group made no political donations
or contributions during the year
(2018: £nil).

Number of
ordinary shares

% of total issued
share capital

25,242,703

29.58

6,494,849

5,669,357

5,100,000

4,675,663

4,760,982

4,252,163

3,980,393

7.61

6.64

5.97

5.48

5.13

4.98

4.66

E V ENT S A F TER THE R EPORTING PER IOD
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.

FIN A NCI A L IN S TRUMENT S
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 102
to 106 and this information accordingly
is incorporated into this report by
reference.

FUT UR E DE V ELOPMENT S
Details on the likely future developments
for the Group can be found in the Group
Chief Executive’s Review on page 6.

IMPORTA NT E V ENT S A FFEC TING THE
COMPA N Y S INCE THE END OF THE Y E A R
On 1 July 2019, James Barham’s
appointment as Group Chief Executive
and Mike Faulkner’s appointment
as Chief Investment Officer became
effective. On 3 July 2019, the Company
was advised that PSG had sold 6,059,618
ordinary shares, as a result of which PSG
are no longer a controlling shareholder
of the Company under the Listing Rules.
Jack Berry and Mike Faulkner will retire
from the Board following the AGM on
9 December 2019.

GR EENHOUSE G A S EMI S S ION S
Details on the greenhouse gas emissions
of the Group can be found on page 38.

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River and Mercantile Group PLC Annual Report and Accounts 2019

DIREC TOR S’ REPORT CONTINUED

COR POR ATE GOV ER N A NCE S TATEMENT
DTR 7.2.1 requires that the Group’s
disclosures on corporate governance be
included in the Directors’ Report. This
information is presented on page 44 in
the Corporate Governance Report and
is incorporated by reference into this
Directors’ Report and is deemed to form
part of this report.

EMPLOY EE ENG AGEMENT
The Group holds regular all-employee
town hall meetings, which are recorded
and made available to employees who
are unable to attend or are based
outside of the UK. These town hall
meetings provide employees with
information about the performance of
the Group and other matters of concern
to employees. Employees are able to
ask members of senior management
and Executive Directors questions at
town hall meetings. During the period,
the Group undertook an employee
engagement survey. The results of which
were reviewed by senior management
and the Board in an aggregated
and anonymised form. The Group
encourages employee participation in
its SAYE scheme, which it has run on
annual basis for the past three years.
Further details of the Group’s approach
to its employees are set out on pages
36 to 38 in the People section. This
disclosure is made on a voluntary basis
as this requirement does not yet apply to
the Group.

INTER N A L CONTROL A ND R I SK
M A N AGEMENT
Details of how the Board monitor
the Group’s internal control and risk
management approach can be found
in the Risk Management section of the
Strategic Report on page 30.

A NNUA L GENER A L MEE TING
The AGM will be held at Macquarie
Capital Limited, 28 Ropemaker Street,
11th Floor, EC2Y 9HD on 9 December
2019, starting at 9am. The Notice of
Meeting convening the AGM will be
circulated to all shareholders at least
20 working days before the AGM
and will set out the details of the
resolutions to be proposed at the
AGM. The Notice of Meeting will be
available on the Company’s website
at www.riverandmercantile.com.

A PPROVA L OF A NNUA L R EPORT
The Corporate Governance Report,
the Strategic Report and the Directors’
Report were approved by the Board on
31 October 2019.

By order of the Board.

Sally Buckmaster
Group Company Secretary

River and Mercantile Group PLC Annual Report and Accounts 2019

DIREC TOR S’ RESPONSIBILITIES

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;

– present information, including

accounting policies, in a manner that
provides relevant, reliable, comparable
and understandable information;

– 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 Directors’ Report, a Strategic
Report and Directors’ Remuneration
Report which comply with the
requirements of the Companies
Act 2006.

The Directors confirm that the financial
statements comply with the above
requirements.

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. The Board is
satisfied that the assets of the Company
are safeguarded and protected from
fraud and other irregularities.

W EB S ITE PUBLIC ATION
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.

DIR EC TOR S ’ R E SPON S IBILITIE S
PUR SUA NT TO DTR4
The Directors confirm to the best of their
knowledge:
– The financial statements have been

prepared in accordance with 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 Company and Group;
– The Strategic Report contained in this
Annual Report includes a fair review of
the development and performance of
the business and the financial position
of the Company and the Group,
together with a description of the
principal risks and uncertainties that
they face; and

– 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 Company’s
performance, business model and
strategy.

This Responsibility Statement
was approved by the Board on
31 October 2019.

By order of the Board.

Sally Buckmaster
Group Company Secretary

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River and Mercantile Group PLC Annual Report and Accounts 2019

INDEPENDENT AUDITOR ’ S REPORT TO THE MEMBER S
OF RIVER AND MERC ANTILE GROUP PLC

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 2019 which comprise the consolidated income statement, the consolidated statement of
comprehensive income, the consolidated and company statements of financial position, the consolidated and company statements
of changes in shareholders’ equity, the consolidated and company statements of cash flows and 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

2019 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.

B A S I S 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 and the Parent Company 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.

CONCLUS ION S R EL ATING TO PR INCIPA L R I SK S , GOING CONCER N A ND V I A BILIT Y S TATEMENT
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 that describe the principal risks and explain how they are being managed or mitigated;
– the directors’ confirmation n 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 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;

– 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 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.

K E Y AUDIT M AT TER S
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, including 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.

River and Mercantile Group PLC Annual Report and Accounts 2019

Key Audit Matter

How we addressed the matter in our audit

Revenue recognition (note 3 to the Annual Report)
The Group’s revenue is made up of distinct revenue streams,
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
a 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.

We responded to this risk by performing the following
procedures:
– We recalculated a sample of management fees recognised
in the year based on assets under management (AUM)/
notional under management (NUM) information prepared by
management and rates prevalent in the respective investment
management agreements (IMAs). We traced the sample
through to invoice and subsequent cash receipt or to debtors
and accrued income where relevant.

– We agreed a sample of AUM and NUM to custodian statements
and independent 3rd party sources, for example Bloomberg.
– 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 accounting standards.

– We considered whether the investment management

agreement mandates have been complied with by selecting a
sample of days at random and reviewing for breaches on those
days.

– We developed expectations of contracts that would give rise
to a performance fee by considering underlying performance
against the terms of the contract and compared our
expectations against the performance fee income recognised
in the accounts.

– 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 fees through

consideration of a sample of on-going advisory projects and
the recognition of retained fees.

– We compared a sample of invoices raised after the year-end to
the accrued income balance to check where appropriate they
were recognised in the income statement for the year.

Key observations:
As a result of performing the above procedures, we did not find
any material misstatements in relation to revenue recognition.

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River and Mercantile Group PLC Annual Report and Accounts 2019

INDEPENDENT AUDITOR ’ S REPORT TO THE MEMBER S
OF RIVER AND MERC ANTILE GROUP PLC CONTINUED

Key Audit Matter

How we addressed the matter in our audit

Impairment of goodwill and intangibles and related
disclosures (note 9 to the Annual Report)
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 and also in the calculations of recoverable amounts.
These judgements are made in respect of the underlying
assumptions used to calculate the recoverable amounts
considered in the impairment review of goodwill, and include
revenue growth rates, revenue multiples, ongoing expenses
such as the remuneration ratio and the discount factor
applied to present value of the balances.

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 IMA
Intangibles and the RAMAM LLP cash-generating unit (CGU)
in respect of goodwill. 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. We
consulted with BDO valuations specialists to determine
whether the discount factor represented an appropriate
weighted average cost of capital for the Group.

– We reviewed the fair value less costs of disposal model

prepared by management in order to calculate the recoverable
amount of the Cassidy CGU. We re-performed the calculation
of the recoverable amount. We challenged the key assumptions
applied by management, including the revenue multiple
used and the estimated costs to sell. We consulted with BDO
valuations specialists to determine whether the revenue
multiples used represented an appropriate benchmark.

– We 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 confirmed the adequacy of disclosures in the financial

statements regarding the impairment assessment performed
by management against the requirements of the accounting
standards.

Key observations:
As a result of performing the above procedures, we did not find
any material misstatements in relation to possible impairment of
goodwill and intangibles and the related goodwill and intangibles
disclosures.

River and Mercantile Group PLC Annual Report and Accounts 2019

OUR A PPLIC ATION OF M ATER I A LIT Y
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We
consider materiality to be the magnitude by which misstatements, including omission, could influence the economic decisions of
reasonable users that are taken on the basis of the financial statements. Misstatements below these levels will not necessarily be
evaluated as immaterial as we also take into account of the nature of identified misstatements, and the particular circumstances of
their occurrence, when evaluating their effect on the financial statements as a whole.

Materiality measure

Purpose

Key considerations and benchmarks

Quantum (£)

Financial statement
materiality (5% profit
before tax)

Assessing whether the financial
statements as a whole present a
true and fair view

Lower level of materiality applied
in performance of the audit when
determining the nature and extent of
testing applied to individual balances
and classes of transactions

Assessing whether the financial
statements as a whole present a
true and fair view

A principal consideration for
members of the Parent company in
assessing the financial performance
of the Group

– Financial statement materiality
– Risk and control environment
– History of prior errors

£830,000 (30 June 2018:
£866,000)

£623,000 (30 June 2018:
£650,000)

A principal consideration for
members of the Parent company in
assessing the financial performance
of the Group

£420,000 (30 June 2018:
£650,000)

Assessing whether the financial
statements as a whole present a
true and fair view

A principal consideration for
members of the significant
components in assessing the
financial performance of the Group

£420,000 (30 June 2018:
£650,000

Performance
materiality (75% of
financial statement
materiality)

Parent company
financial statement
materiality (a
proportion of Group
materiality)

Significant component
materiality (a
proportion of Group
materiality)

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £17,000 (2018:
£17,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

A N OV ERV IE W OF THE SCOPE OF OUR AUDIT
Our audit approach was developed by obtaining an understanding of the Group’s activities 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 the five significant components were performed by the Group audit team,
being BDO LLP. In respect of two other components, based in the US, which contribute 2% of Group net assets (30 June 2018: 2%),
the Group audit team performed a review 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 above
as well as aggregation risk. All significant components of the Group have conterminous year ends, with the exception of River
and Mercantile Asset Management LLP, which has a year end of 31 March. A full scope audit of River and Mercantile Asset
Management LLP was performed by the Group audit team for the year ended 31 March 2019 and additional audit procedures
were performed to cover the three month period to 30 June 2019, as well as the correct allocation of financial information to the
Group’s reporting period.

Capability of the audit to detect irregularities, including fraud
We gained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates,
and considered the risk of acts by the Group which were contrary to applicable laws and regulations, including fraud. These
included but were not limited to compliance with Companies Act 2006, IFRSs as adopted by the European Union, the Financial
Conduct Authority’s regulations and the Listing Rules.

We designed audit procedures to respond to the risk, recognising that the risk of not detecting a material misstatement due to
fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example,
forgery, misrepresentations or through collusion.

We focused on laws and regulations that could give rise to a material misstatement in the financial statements. Our tests included,
but were not limited to:
– agreement of the financial statement disclosures to underlying supporting documentation;
– enquiries of management;
– review of correspondence with the regulator;
– review of minutes of Board meetings throughout the period; and
– considering the effectiveness of the control environment in monitoring compliance with laws and regulations.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members
including internal specialists and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.

There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and
regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. As
in all of our audits we also addressed the risk of management override of internal controls, including testing journals and evaluating
whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud.

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River and Mercantile Group PLC Annual Report and Accounts 2019

INDEPENDENT AUDITOR ’ S REPORT TO THE MEMBER S
OF RIVER AND MERC ANTILE GROUP PLC CONTINUED

OTHER INFOR M ATION
The directors are responsible for the other information. The other information comprises the information included in the annual
report and accounts, other than the financial statements and our auditor’s report thereon. 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.

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 – 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 – 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 – 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.

OPINION S ON OTHER M AT TER S PR E SCR IBED BY THE COMPA NIE S AC T 2 0 0 6
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

– the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

M AT TER S ON W HICH W E A R E R EQUIR ED TO R EPORT BY E XCEP TION
In the light of the knowledge and understanding of the Group and 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.

R E SPON S IBILITIE S OF DIR EC TOR S
As explained more fully in the directors’ responsibilities statement, 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 R E SPON S IBILITIE S FOR THE AUDIT OF THE FIN A NCI A L S TATEMENT S
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.

River and Mercantile Group PLC Annual Report and Accounts 2019

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.

OTHER M AT TER S W HICH W E A R E R EQUIR ED TO A DDR E S S
Following the recommendation of the audit committee, we were appointed by the Board of Directors to audit the financial
statements for the period ended 30 June 2014 and subsequent financial years. The period of total uninterrupted engagement is six
years, covering the period ending 30 June 2014 and subsequent years ending to 30 June 2019.

The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company 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.

USE OF OUR R EPORT
This report is made solely to the Parent 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 Parent 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 Parent Company’s members as a body, for our audit work, for
this report, or for the opinions we have formed.

Leigh Treacy (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London

31 October 2019

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

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River and Mercantile Group PLC Annual Report and Accounts 2019

CONSOLIDATED INCOME S TATEMENT

Revenue
Net management fees
Advisory fees
Performance fees

Total revenue

Administrative expenses
Depreciation
Amortisation

Total operating expenses

Remuneration and benefits
Fixed remuneration and benefits
Variable remuneration

Total remuneration and benefits
EPSP costs/(credit)

Total remuneration and benefits including EPSP

Total expenses

Gain on disposal of fair value investments
Other gains and losses

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:
Statutory basic (pence)
Statutory diluted (pence)

Note

Year ended
30 June
2019
£’000

Year ended
30 June
2018
£’000

55,546
10,038
12,519

53,963
10,235
10,575

78,103

74,773

5
8,21
8,9

15,647
199
4,369

14,074
156
4,595

20,215

18,825

6
6,7

26,145
15,519

41,664
635

22,940
16,210

39,150
(123)

42,299

39,027

62,514

57,852

20
841

458
1,063

16,450

18,442

339
(1)

50
(40)

16,788

18,452

4,403
(610)

3,896
(586)

12,995

15,142

16.22
15.61

18.83
18.08

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 2019

CONSOLIDATED S TATEMENT 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
2019
£’000

Year ended
30 June
2018
£’000

12,995

15,142

(21)
–
–
–
–

21
472
(95)
(458)
92

Total comprehensive income for the year attributable to owners of the parent

12,974

15,174

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

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E
G

R
E
P
O
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T

G
O
V
E
R
N
A
N
C
E

F
I

N
A
N
C

A
L

S
T
A
T
E
M
E
N
T
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A
D
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I
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I

O
N
A
L

N
F
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A
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I

O
N

River and Mercantile Group PLC Annual Report and Accounts 2019

CONSOLIDATED S TATEMENT OF FINANCIAL POSITION

Assets
Cash and cash equivalents
Investment management balances
Investments held at fair value through profit or loss
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
Provisions
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

Note

30 June
2019
£’000

30 June
2018
£’000

16
17
18

19
20
13
21
9

22
23
13

25
24

24,046
22,277
5,387
–
4,412
25,505
1,034
606
30,753

24,029
13,116
–
5,165
7,856
19,696
2,443
601
35,025

114,020

107,931

22,278
621
23,775
–
2,483

13,147
2,054
22,373
1,209
3,153

49,157

41,936

64,863

65,995

256
15,136
45,472
(6,251)
10,250

246
14,688
49,372
(4,981)
6,670

64,863

65,995

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 on 31 October 2019.

James Barham
Group Chief Executive

Kevin Hayes
Group Chief Financial Officer

River and Mercantile Group PLC Annual Report and Accounts 2019

CONSOLIDATED S TATEMENT OF C A SH 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
Other gain and losses
Gain on disposal of available-for-sale investments
Disposal of investments held at fair value

Operating cash flow before movement in working capital
(Increase)/decrease in operating assets
Increase/(decrease) in operating liabilities

Cash generated from operations
Tax paid

Net cash generated from operating activities

Cash flow from investing activities
Purchase of intangible assets
Purchase of property, plant and equipment
Interest received
Investment in available-for-sale investments
Proceeds from disposal of available-for-sale investments
Proceeds from disposal of investments held at fair value
Purchase of investments held at fair value
Proceeds of disposal in investments

Net cash generated from/(used in) investing activities

Cash flow from financing activities
Interest paid
Dividends paid
Purchase of own shares
Share issue

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
2019
£’000

Year ended
30 June
2018
£’000

Note

9
21

15
24

16,450

18,442

4,369
199
1,545
(841)
–
(394)

21,328
(11,478)
9,724

19,574
(4,685)

4,595
156
2,364
(1,063)
(458)
–

24,036
41,988
(43,234)

22,790
(4,953)

14,889

17,837

–
(196)
50
–
–
414
(10)
15

273

(328)
(504)
23
(10,043)
5,362
–
–
–

(5,490)

(1)
(13,869)
(1,694)
408

(1)
(17,456)
(1,665)
–

(15,156)

(19,122)

(6,775)

24,029
11

30,759
45

24,046

24,029

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

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E
G

R
E
P
O
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G
O
V
E
R
N
A
N
C
E

F
I

N
A
N
C

A
L

S
T
A
T
E
M
E
N
T
S

A
D
D

I
T
I

O
N
A
L

N
F
O
R
M
A
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I

O
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River and Mercantile Group PLC Annual Report and Accounts 2019

CONSOLIDATED S TATEMENT OF CHANGES
IN SHAREHOLDER S’ EQUIT Y

Balance as at 30 June 2017

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 on share-based payment expense
Disposal of shares in respect of award vesting
Purchase of own shares by EBT

Total transactions with owners:

Balance as at 30 June 2018

Comprehensive income for the year:
Profit for the year
Other comprehensive income

Total comprehensive income for the year

Transactions with owners:
Dividends
Share-based payment expense
Deferred tax on share-based payment expense
Realised tax in respect of award vesting
Share payment in respect of award vesting
Disposal of shares in respect of award vesting
Purchase of own shares by EBT
Reserves transfer upon transition to IFRS 9
Transfer to retained earnings
Shares issued in respect of award vesting
Foreign exchange adjustments

Total transactions with owners:

Balance as at 30 June 2019

Share
capital
£’000

246

Share
premium
£’000

Other
reserves
£’000

Own shares
held by EBT
£’000

Retained
earnings
£’000

Total
£’000

14,688

49,340

(4,766)

8,859

68,367

–
–
–

–

–
–
–
–
–

–

–
–
–

–

–
–
–
–
–

–

–
35
(3)

–
–
–
–
–

–

–
–
–

–

–
–
–
1,450
(1,665)

15,142
–
–

15,142

(17,456)
2,364
(789)
(1,450)
–

15,142
35
(3)

15,174

(17,456)
2,364
(789)
–
(1,665)

(215)

(17,331)

(17,546)

246

14,688

49,372

(4,981)

6,670

65,995

–
–

–

–
–
–
–
–
–
–
–
–
10
–

–
–

–

–
–
–
–
–
–
–
–
–
448
–

448

–
(21)

(21)

–
–
–
–
–
–
–
(12)
(3,867)
–
–

–
–

–

12,995
–

12,995
(21)

12,995

12,974

–
–
–
–
–
424
(1,694)
–
–
–
–

(13,869)
1,545
(1,350)
1,165
(369)
(424)
–
12
3,867
–
8

(13,869)
1,545
(1,350)
1,165
(369)
–
(1,694)
–
–
458
8

(3,879)

(1,270)

(9,415)

(14,106)

256

15,136

45,472

(6,251)

10,250

64,863

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

Transfer to retained earnings is in respect of a reclassification of capital contribution reserve which arose from forgiveness of a
dividend by the Group’s then parent, PSG (£3,867,000).

River and Mercantile Group PLC Annual Report and Accounts 2019

NOTES TO THE CONSOLIDATED FINANCIAL S TATEMENTS

1. BA SIS OF PR EPA R ATION
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS),
International Accounting Standards, International Financial Reporting Interpretation Committee interpretations, and with those
parts of the Companies Act 2006 applicable to groups reporting under IFRS as issued by the International Accounting Standards
Board and adopted by the European Union (IFRS) that are relevant to the Group’s operations and effective for accounting periods
beginning on 1 July 2018.

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

Accordingly, the Group and Company financial statements have been prepared on a going concern basis using the historical cost
convention, except for the measurement at fair value of certain financial instruments that are held at fair value.

B A S I S OF CON SOLIDATION
The consolidated financial statements include the Company and the entities it controls (its subsidiaries). Subsidiaries are
considered to be controlled where the Group has exposure to variable returns from the subsidiary, the power to affect those
variable returns and power over the subsidiary itself. Control is reassessed whenever facts and circumstances indicate that there
may be a change in any of these elements of control.

Subsidiaries are consolidated from the date that the Group gains control, and de-consolidated from the date that control is lost.

The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the
statement of financial position, the subsidiaries’ identifiable assets, liabilities and contingent liabilities are initially recognised
at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of
comprehensive income from the date on which control is obtained. The consolidated financial statements are based on the
financial statements of the individual companies drawn up using the standard Group accounting policies.

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

The Employee Benefit Trust is included in the consolidated financial statements of the Group. The trust purchases shares pursuant
to the non-dilutive equity awards granted to employees. These purchases and the operating costs of the trust are funded by the
Company. The trust is controlled by independent trustees and its assets are held separately from those of the Group.

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

THE GROUP ’ S R EL ATION SHIP W ITH FUND ENTITIE S
The Group entities act as the investment managers to funds and segregated managed accounts, and River and Mercantile Asset
Management LLP (RAMAM) is the Authorised Corporate Director (ACD) of River and Mercantile Funds ICVC (collectively ‘Investment
Management Entities’ (IMEs)).

Considering all significant aspects of the Group’s relationship with the IMEs, the Directors are of the opinion that although the
Group manages the investment resources of the IMEs, the existence of: termination provisions in the Investment Management
Agreements (IMAs) which allow for the removal of the Group as the investment manager; the influence exercised by investors in
the control of their IME and the arm’s length nature of the Group’s contracts with the IMEs; and independent Boards of Directors of
the IME, the Group does not control the IME and therefore the assets, liabilities and net profit are not consolidated into the Group’s
financial statements.

FOR E IGN CUR R ENCIE S
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 River and
Mercantile LLC which is based in the US.

Monetary items which are denominated in foreign currencies are translated at the rates prevailing at the reporting date. All
resulting exchange differences are recognised in the income statement. Non-monetary items are measured at the rates prevailing
on the date of the transaction and are not subsequently retranslated.

The functional currency of River and Mercantile LLC is US Dollars and is translated into the presentational currency as follows:
– assets and liabilities are translated at the closing rate at the date of the respective statement of financial position;
– income and expenses are translated at the daily exchange rate for the date on which they are incurred; and
– all resulting exchange differences are recognised in other comprehensive income.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign
entity and translated at the closing rate. Exchange differences arising are recognised in other comprehensive income.

A DOP TION OF NE W S TA NDA R DS A ND INTER PR E TATION S A FFEC TING THE R EPORTED R E SULT S OR THE FIN A NCI A L POS ITION
This is the first set of the Group’s financial statements where IFRS 9 and IFRS 15 have been applied. These new standards were
adopted from 1 July 2018 and have not had a significant impact on the amounts reported in these financial statements.

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F
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River and Mercantile Group PLC Annual Report and Accounts 2019

NOTES TO THE CONSOLIDATED FINANCIAL S TATEMENTS
CONTINUED

1. BA SIS OF PR EPA R ATION continued
IFR S 9 FIN A NCI A L IN S TRUMENT S
IFRS 9 has impacted the presentation of the financial statements as described in note 28.

IFR S 15 R E V ENUE FROM CONTR AC T S W ITH CUS TOMER S
Under IFRS 15, revenue is recognised when a customer obtains control of the goods or services. The Group has adopted IFRS 15,
initially applying this standard recognised at the date of initial application (1 July 2018). As a result, the comparative information
has not been restated and is reported under the previous standards. Whilst IFRS 15 has introduced a different approach for
determining whether, when and how much revenue is recognised, the application of these tests to the Group’s contracts has not
resulted in a change to the revenue amounts recognised.

The Group recognises revenue under three categories (net management fees, advisory fees and performance fees) which have
different features regarding how economic factors affect their amount, timing and uncertainty. These categories are unchanged on
adoption of IFRS 15.

Effective for annual periods beginning on or after 1 January 2018, IFRS 15 establishes a single, principles-based revenue recognition
model to be applied to all contracts with customers. Revenue recognition is now to be based on the principle of when control of
a good or service transfers to a customer. Specifically, IFRS 15 introduces a five-step approach to revenue recognition: (1) identify
the contract(s) with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price;
(4) allocate the transaction price to the performance obligations in the contract; and (5) recognise revenue when (or as) the entity
satisfies a performance obligation.

The Group has considered the terms of its existing IMAs and assessed the timing of management and performance fee
recognition. IFRS 15 includes specific requirements in respect of variable fee income such that it is only recognised where the
amount of revenue would not be subject to significant future reversals. Management and performance fees are both considered
variable revenue, because they are charged against Assets under Management (AUM), which is subject to change. As such,
whilst performance obligations are satisfied over time, due to their variable nature, fees are recognised at the end of any given
measurement period, subject to the contractual arrangements of existing IMAs, when there is no longer uncertainty with regards
to the fees earned.

The Group has not identified any material changes to existing revenue recognition principles, and therefore no adjustments have
been made on transition. No judgements or changes to judgements were made as a result of application of this standard. The
adoption of IFRS 15 does not have a material impact on the Group’s financial statements.

Advisory revenues are recognised upon the satisfaction of performance conditions for any given engagement. This means Advisory
revenues are recognised over time. Advisory work conducted is specific to the client and does not have alternative use to the
Group. In addition, the Group has an enforceable right to payment for work performed to date on any given project. The Group
uses an ‘input’ method for recognising revenues. There are three types of advisory work conducted by the Group; consultancy,
projects and advisory retainers. All three types of revenue qualify for this treatment.

Consultancy work is accrued based upon the percentage completion of the work as measured by their input into it. For project
fees, they are recognised by assessing the amount of work undertaken in the period, in order arrive at the revenue accrual.
Advisory retainers which provide an ongoing level of service throughout the year also pass another test for recognition over time,
being that the customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity
performs. These are also measured using the input method, with the passage of time being the best measure of performance as
permitted by IFRS 15 B19.

This is in line with how revenue has historically been recognised by the Group and there has been no change to the way advisory
fees are recognised as a result of IFRS 15 adoption.

FUT UR E ACCOUNTING DE V ELOPMENT S
IFRS 16 Leases (IFRS 16) and IFRIC 23 Uncertainty over Income Tax Treatments (IFRIC 23) have been issued but were not required
to be adopted by the Group in these financial statements. The expected impact of these standards when they become effective is
described below:

IFRS 16 Leases
IFRS 16 replaces IAS 17 Leases and becomes effective for reporting periods beginning on or after 1 January 2019. It provides a
single accounting method for lessees, requiring the recognition of an asset and a lease liability representing the right of use of the
underlying asset over the term of a lease.

The Group has opted to apply the modified retrospective approach, where the cumulative effect of adopting IFRS 16 will be
recognised as an adjustment to the opening balance of retained earnings as at 1 July 2019. This approach accounts for leases
as if the new standard had always been applied by the Group. Comparative information will not be restated.

The Group has reviewed its current lease arrangements and assessed the impact on transitioning to IFRS 16 to its financial
statements. The recognition of a right of use asset and lease liability will increase total asset and total liabilities by £3,297,000
and £3,682,000 respectively.

River and Mercantile Group PLC Annual Report and Accounts 2019

1. BA SIS OF PR EPA R ATION continued
The adjustment to opening reserves will be £232,000. The lease liability is measured using an appropriate discount rate for the
Group from the date of the initial application of the standard. The rental expenses relating to the Group’s property portfolio
recognised as office facility costs will now be split as the straight-line depreciation cost of the capitalised asset and the unwinding
of the lease liability charged to office facility costs (note 5) and finance costs respectively. Management estimates the future annual
cost of the IFRS 16 depreciation of the ROU and unwind of the lease liability as £1,012,000 for 2020, in contrast to the cost under
the previous IAS 17 regime of £1,022,000.

IFRIC 23 uncertainty over income tax treatments
The interpretation clarifies how to apply the recognition and measurement requirements in IAS 12 Income taxes where there
is uncertainty over income tax treatments. The Group does not have any instances where income tax treatment is considered
uncertain and so does not expect the application of IFRIC 23 to have a material impact on the Group.

2 . SIGNIFIC A NT JUDGEMENT S A ND ES TIM ATES
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 or Notional under Management

(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. See note 23.

– The accounting for share-based remuneration. This involves judgements relating to forfeiture rates and business outcomes and

estimates of future share prices for National Insurance cost, which are described in note 7.

– The accounting for the contingent consideration in respect of the acquisition of the Emerging Markets Industrial Life Cycle (ILC)

team (note 11). This involvements judgements relating to the likely useful life of intangibles and estimates as to revenue and cost
growth over time.

– The accounting for UCITS V deferred remuneration, which involves estimates of forfeiture rates.

3 . R E V ENUE

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

Year ended
30 June
2019
£’000

Year ended
30 June
2018
£’000

18,790
13,379
11,270
12,107

18,400
11,777
14,521
9,265

55,546

53,963

5,295
4,743

5,443
4,792

10,038

10,235

65,584

64,198

10,553
1,966

8,167
2,408

12,519

10,575

78,103

74,773

NE T M A N AGEMENT FEE S
Net management fees represent the fees charged pursuant to an IMA. Net management fees are reported net of rebates to
clients are charged as a percentage of the client’s AUM or NUM. The fees are generally accrued based on a contractual daily fee
calculation and billed to the client either monthly or quarterly. During the year ended 30 June 2019, rebates totalling £2,835,000
(2018: £3,176,000) were paid in respect of Equity Solutions and DAA Fund management fees.

A DV I SORY FEE S
Advisory fees represent fees charged under Investment Advisory Agreements (IAA) and are typically charged on a fixed retainer
fee basis or through a fee for the delivery of a defined project. Fees are accrued monthly and charged when the work has been
completed.

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A
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I
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I

O
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A
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N
F
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A
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I

O
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River and Mercantile Group PLC Annual Report and Accounts 2019

NOTES TO THE CONSOLIDATED FINANCIAL S TATEMENTS
CONTINUED

3 . R E V ENUE continued
PER FOR M A NCE FEE S
Performance fees are fees paid under the IMAs for generating excess investment performance either on an absolute basis subject
to a high water mark, or relative to a benchmark. Performance fees are calculated as a percentage of the investment performance
generated and may be subject to deferral and continued performance objectives in future periods. Performance fees are
recognised in income when it is probable that the fee will be realised and there is a low probability of a significant reversal in future
periods. This occurs once the end of the performance period has been reached. The client is invoiced for the performance fee at
the end of the performance period which is generally annually, either on the anniversary of their IMA or on a calendar year basis.

CONTR AC T B A L A NCE S
The timing of client revenue recognition, billings and cash collections results in either trade receivables or accrued income on the
Statement of Financial Position. For both management fees, advisory fees and performance fees, amounts are billed pursuant to
an IMA/IAA with clients, in arrears.

There were £38,000 (2018: £36,000) contract liabilities as at the year ended 30 June 2019.

4 . DI V ISION A L A ND GEOGR A PHIC A L R EPORTING
The business operates through four divisions, however, these are not considered to be segments for the purposes of IFRS 8 on
the basis that decisions made by the Board are made at an overall Group level. The information received by the Board supports
this decision-making, with income statements, balance sheets, forecasts and budgets presented at a Group level. Despite this, the
Directors feel that it is useful to the understanding of the results of operations to include certain information.

The net revenue for the year ended 30 June 2019 and 30 June 2018 together with the year-end AUM and NUM, reflect the activities
of the respective divisions.

Net management and advisory fees
Fiduciary Management division
Derivative Solutions division
Equity Solutions division
Advisory division

Total

Year ended 30 June 2019

Year ended 30 June 2018

Net
revenue
£’000

Fee earning
AUM/NUM
£’m

Net
revenue
£’000

Fee earning
AUM/NUM
£’m

18,790
13,379
23,377
10,038

12,864
21,683
5,267
n/a

18,400
11,777
23,786
10,235

10,642
18,622
4,579
n/a

65,584

39,814

64,198

33,843

In addition, performance fees of £10.5m (2018: £8.2 m) were earned by the Fiduciary Management division and £2m (2018: £2.4m)
earned by the Equity Solutions division.

No single client accounts for more than 10% of the revenue of the Group (2018: none).

On a geographic basis the majority of the revenues are earned in the UK. The Group has an advisory, derivatives, fiduciary
management and equity solutions business in the US and net revenue earned in the US for the year ended 30 June 2019 was £6.1m
(2018: £5.7m). The AUM/NUM of the US business was £918m (2018: £903m).

Non-current assets held by the US business include £1.5m (2018: £1.5m) of goodwill.

5. A DMINIS TR ATI V E E X PENSES

Marketing
Travel and entertainment
Office facilities
Technology and communications
Professional fees
Research
Governance expenses
Fund administration
Other staff costs
Insurance
Irrecoverable VAT
Other costs

Total administrative expenses

Year ended
30 June
2019
£’000

Year ended
30 June
2018
£’000

883
825
2,751
5,012
1,576
1,334
570
1,290
543
555
93
215

892
662
2,502
4,862
1,400
736
538
902
295
335
300
650

15,647

14,074

River and Mercantile Group PLC Annual Report and Accounts 2019

5. A DMINIS TR ATI V E E X PENSES continued
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

Year ended
30 June
2019
£’000

Year ended
30 June
2018
£’000

104
99
52

255

99
89
49

237

6 . R EMUNER ATION A ND BENEFIT S
Fixed remuneration represents contractual base salaries, RAMAM member drawings and employee benefits. The Group operates a
defined contribution plan under which the Group pays contributions to a third party.

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

Variable remuneration also includes a charge of £964,000 (2018: £2,320,000) relating to the amortisation of the Group’s non-
dilutive share awards and credit of £132,000 (2018: charge of £465,000) 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

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

Year ended
30 June
2019

Year ended
30 June
2018

69
58
28
31
14
55

71
56
24
23
12
31

255

217

Year ended
30 June
2019
£’000

Year ended
30 June
2018
£’000

Note

36,208
3,420
937
1,099

32,601
3,811
826
1,912

41,664

39,150

26,145
15,519

22,940
16,210

41,664

39,150

7
7

452
183

635

452
(575)

(123)

DIR EC TOR S ’ R EMUNER ATION
The aggregate remuneration and fees payable to Executive and Non-Executive Directors for the year ended 30 June 2019 was
£3,082,000 (2018: £4,294,000). Fees payable for the year ended 30 June 2019 to Directors of PSG totalled £26,000 (2018: £43,000).

Information regarding the aggregate single figure remuneration of the Executive Directors (which includes the highest paid Director
of £2,801,000 (2018: £11,072,000)) is included in the Remuneration Committee Report.

S
T
R
A
T
E
G

R
E
P
O
R
T

G
O
V
E
R
N
A
N
C
E

F
I

N
A
N
C

A
L

S
T
A
T
E
M
E
N
T
S

A
D
D

I
T
I

O
N
A
L

N
F
O
R
M
A
T
I

O
N

River and Mercantile Group PLC Annual Report and Accounts 2019

NOTES TO THE CONSOLIDATED FINANCIAL S TATEMENTS
CONTINUED

6 . R EMUNER ATION A ND BENEFIT S continued
K E Y M A N AGEMENT R EMUNER ATION
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
Long-term employee benefits
Post-employment benefits
Share-based payment expense

Year ended
30 June
2019
£’000

Year ended
30 June
2018
£’000

8,316
280
101
302

8,999

8,601
771
111
2,112

11,595

Details of share awards granted to Executive Directors for future performance periods are included in the Remuneration
Committee Report in the Annual Report.

7. SH A R E - BA SED PAY MENT S
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.

E X ECUTI V E PER FOR M A NCE SH A R E PL A N
As reported in the prior year’s Annual Report, after completion of the Executive Performance plan share award performance
period 57% of the Performance Condition A awards and none of the Performance Condition B awards were eligible for vesting
following a one-year holding period. The eligible awards received dividends on a reinvestment basis during the holding period.
As a result of the completion of the holding period during the year ended 30 June 2019 the award shares vested on 26 June 2019.

The fair value of the Performance Condition A awards was 38 pence per share. The total fair value of Performance Condition A was
£1,840,000. 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 2019 (2018: £452,000), which is treated as a non-cash adjusting item.

The Directors expect that vesting shares will be subject to applicable employer’s National Insurance at the date of vesting. An
accrual for this cost has been calculated based on the current rate of National Insurance, the number of the vesting shares and
the share price at the reporting date. The movement in the accrual in the year ended 30 June 2019 was a charge of £183,000 (2018:
credit of £575,000) and is included in EPSP costs.

PER FOR M A NCE SH A R E PL A N
The Group’s Performance Share Plan and Deferred Equity Plan (collectively PSP) allows for the grant of: nil cost options; contingent
share awards; or forfeitable share awards.

The fair value of the awards has been estimated using Black-Scholes modelling.

The grant date has not been confirmed for the 2019 awards. For the purposes of these financial statements the awards made in
respect of 2019 have been assessed using the share price as at 30 June 2019, being £2.72.

River and Mercantile Group PLC Annual Report and Accounts 2019

7. SH A R E - BA SED PAY MENT S continued
The key features of the awards are:

Financial year of award

Grant date award value £’000
Scheme 1 – Employees
Scheme 2 – Employees
Scheme 3 – Employees
Scheme 4 – Employees
Scheme 5 – Employees
Scheme 6 – Executive Directors

Number of shares granted ’000
Scheme 1 – Employees
Scheme 2 – Employees
Scheme 3 – Employees
Scheme 4 – Employees
Scheme 5 – Employees
Scheme 6 – Executive Directors

Maximum term at grant date
Scheme 1 – Employees
Scheme 2 – Employees
Scheme 3 – Employees
Scheme 4 – Employees
Scheme 5 – Employees
Scheme 6 – Executive Directors

Vesting conditions (see key below)
Scheme 1 – Employees
Scheme 2 – Employees
Scheme 3 – Employees
Scheme 4 – Employees
Scheme 5 – Employees
Scheme 6 – Executive Directors

2015

2016

2017

2018

2019

701
144
–
225
–
–

303
64
–
97
–
–

1,971
100
407
–
–
585

892
45
184
–
–
265

713
–
466
–
–
950

229
–
150
–
–
304

94
–
1,622
612
155
3,586

29
–
514
196
48
1,114

4 years
4 years
n/a
4 years
n/a
n/a

5 years
4 years
4 years
n/a
n/a
5 years

4 years
n/a
4 years
n/a
n/a
4 years

4 years
n/a
4 years
3 years
4 years
4 years

1, 2 and 3 1, 2 and 3 1, 2 and 3 1, 2 and 3
n/a
1
1 and 4
none
1 and 5

n/a
1
n/a
n/a
1 and 2

1 and 2
1
n/a
n/a
1 and 2

1 and 2
n/a
1 and 4
n/a
n/a

131
–
274
612
–
3,166

41
–
101
190
–
1,164

3 years
n/a
3 years
3 years
n/a
5 years

1 and 4
n/a
1
1 and 4
n/a
1 and 6

1. Remain employed throughout vesting period, subject to malus and good leaver provisions.

2. Achievement of specified total shareholder return target within a range.

3. Straight-line between minimum and maximum divisional AUM/NUM and revenue targets.

4. Achievement of specified revenue targets within a range.

5. Achievement of specified adjusted underlying EPS targets and personal objectives.

6. Achievement of specified adjusted underlying EPS targets and business performance criteria.

S
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R
A
T
E
G

R
E
P
O
R
T

G
O
V
E
R
N
A
N
C
E

F
I

N
A
N
C

A
L

S
T
A
T
E
M
E
N
T
S

A
D
D

I
T
I

O
N
A
L

N
F
O
R
M
A
T
I

O
N

River and Mercantile Group PLC Annual Report and Accounts 2019

NOTES TO THE CONSOLIDATED FINANCIAL S TATEMENTS
CONTINUED

7. SH A R E - BA SED PAY MENT S continued
The following table sets out the movement in awards recognised in the income statement during the year and the key inputs into
the fair values of awards:

Financial year of award

ʼ000s

2015

2016

2017

2018

2019

Grant date award value £’000
Grant date share price £
Number of shares outstanding at 30 June 2017
Number of shares granted during the year
Number of shares forfeited during the year
Exercised during the year
Number of shares outstanding at 30 June 2018
Number of shares granted during the year
Number of shares forfeited during the year
Exercised during the year
Vesting profile adjustments

1,070
2.31
464
–
(222)
(82)
160
–
–
(160)
–

3,063
2.21
1,386
–
(48)
(500)
838
–
–
(70)
–

2,130
3.12
683
–
–
–
683
–
(72)
(29)
(16)

Number of shares outstanding at 30 June 2019

–

768

566

668
3.14
–
213
–
–
213
–
–
(102)
(6)

105

1,133
3.12
–
363
–
–
363
–
(7)
(42)
–

4,268
3.22
–
1,325
–
–
1,325
–
(13)
–
(43)

743
3,440
3.22 2.72 est
–
–
–
–
–
1,265
–
–
–

–
–
–
–
–
231
(9)
–
–

314

1,269

222

1,265

Fair value assumptions:
Exercise price
Risk free rate

Share price volatility
Dividend yield
Number of shares expected to vest ʼ000

£nil

0.94% 0.94%
or

1.00%

£nil

£nil
1.00% 1.00% 1.00% 1.00% 1.00% 1.00%

£nil

26.08% 27.40% 27.90% 28.20% 28.20% 28.80% 28.80% 30.83%
5%
696

5%
387

5%
301

5%
701

5%
147

5%
413

5%
99

5%
–

The volatility for awards granted in the year has been calculated based upon the annualised daily return on the Group’s share price
from IPO to year end. All awards exercise at the end of the vesting period subject to the approval of the Remuneration Committee.
As at the reporting date 504,000 of the awards were exercisable (2018: 311,000).

8 . DEPR ECI ATION A ND A MORTIS ATION
Depreciation charges primarily relate to IT and communications equipment, and leasehold improvements. The property, plant and
equipment, and the depreciation accounting policies are described in note 21.

The amortisation charge primarily relates to the IMA intangibles and recognised as part of the acquisition of RAMAM and the
ILC team as described in notes 9 and 11. The RAMAM and ILC team IMA intangibles are amortised over their expected useful
life of between five and ten years based on an analysis of the respective client channels. The amortisation is not deductible for
tax purposes. At the date of the RAMAM acquisition a deferred tax liability was recognised and is being charged to the income
statement tax expense in line with the amortisation of the related IMAs. At the date of the acquisition no deferred tax liability was
recognised in respect of the ILC team IMAs as the US business has brought forward tax losses.

9. INTA NGIBLE A S SE T S
BUS INE S S COMBIN ATION S A ND GOODW ILL
All business combinations are accounted for using the acquisition method. The cost of a business combination is the aggregate
of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed and equity instruments issued by
the acquirer. The fair value of a business combination is calculated at the acquisition date by recognising the acquired entity’s
identifiable assets, liabilities and contingent liabilities that satisfy the recognition criteria, at their fair values at that date. The
acquisition date is the date on which the acquirer effectively obtains control of the acquired entity. The cost of a business
combination in excess of fair value of net identifiable assets or liabilities acquired, including intangible assets identified, is
recognised as goodwill. Any costs incurred in relation to a business combination are expensed as incurred.

Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the Group’s
interest in the fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree.

Goodwill is not amortised but is reviewed for impairment annually, or more frequently when there is an indication of impairment.
For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the Group’s cash
generating units (CGUs) expected to benefit from the synergies of the combination. Each CGU to which the goodwill is allocated
represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. If the
recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the
carrying value of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying
amount of each asset in the unit. An impairment loss recognised is not reversed in a subsequent period.

IDENTIFI A BLE INTA NGIBLE A S SE T S
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.

River and Mercantile Group PLC Annual Report and Accounts 2019

9. INTA NGIBLE A S SE T S continued
IMPA IR MENT OF INTA NGIBLE A S SE T S , E XCLUDING GOODW ILL
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.

Goodwill
£’000

Customer lists
and IMAs
£’000

Software
£’000

Total
£’000

Cost:
At 30 June 2017
Additions
Exchange difference

At 30 June 2018
Exchange difference

At 30 June 2019

Accumulated amortisation and impairment:
At 30 June 2017
Amortisation charge
Exchange difference

At 30 June 2018
Amortisation charge
Exchange difference

At 30 June 2019

Net book value:
At 30 June 2018

At 30 June 2019

15,331
328
(64)

15,595
47

36,510
1,969
12

38,491
65

15,642

38,556

395
38
(15)

418
–
–

418

14,172
4,520
(2)

18,690
4,348
15

23,053

15,177

19,801

15,224

15,503

79
–
5

84
–

–
37
–

37
21
–

51,920
2,297
(47)

54,170
112

54,282

14,567
4,595
(17)

19,145
4,369
15

23,529

35,025

30,753

IMPA IR MENT R E V IE W
Goodwill includes £13.2m (2018: £13.2m) in respect of RAMAM and £1.5m (2018: £1.5m) in respect of Cassidy Retirement Group Inc.
(Cassidy).

The Directors estimated the recoverable amount of the RAMAM goodwill based upon the value in use of the business. The value
in use was measured using internal budgets and forecasts to generate a five-year view. The key assumptions used were: revenue
based on internally approved budget in year one, an 8% revenue growth rate for the next four years; no growth after this point;
and a pre-tax discount rate of 12%. Estimates were made concerning remuneration and administrative costs, based upon current
levels and expected changes.

Sensitivity analysis was performed on the key inputs of the valuation, being the growth and discount rates and future cash flows.
A fall of greater than 10% in projected revenue or a change in the discount rate higher than 39% is required to indicate impairment.

The Directors estimated the recoverable amount of the Cassidy goodwill using a net realisable value. This value was measured
using the revenues of the CGU and third-party data concerning comparable revenue multiples paid for recent acquisitions of
similar businesses.

The key assumptions included in the estimate were: the costs of disposal; and the assumption that the multiples observed in other
businesses would be comparable. Sensitivity analysis was performed on the valuation. A reduction in the revenue multiple of
greater than 50% would be required to indicate impairment.

S
T
R
A
T
E
G

R
E
P
O
R
T

G
O
V
E
R
N
A
N
C
E

F
I

N
A
N
C

A
L

S
T
A
T
E
M
E
N
T
S

A
D
D

I
T
I

O
N
A
L

N
F
O
R
M
A
T
I

O
N

River and Mercantile Group PLC Annual Report and Accounts 2019

NOTES TO THE CONSOLIDATED FINANCIAL S TATEMENTS
CONTINUED

10. OTHER G A INS A ND LOS SES

Gain on bargain purchase
Loss on disposal of fixed assets
Gain on disposal of subsidiary
Gain on purchase of UCITS
Investments held at FVTPL
Fair value of contingent consideration

Total other gains and losses

Year ended
30 June
2019
£’000

Year ended
30 June
2018
£’000

Note

–
(12)
15
21
441
376

841

1,043
(8)
28
–
–
–

1,063

11. G A IN ON BA RG A IN PURCH A SE
As reported in the prior year’s Annual Report the Group became the investment manager of the ILC funds. The contractual
agreements entered into between the parties constituted a business combination under IFRS 3.

The business combination resulted in a bargain purchase transaction due to the fair value of assets acquired and liabilities
assumed exceeding the fair value of consideration payable. The Group recognised a gain in ‘other gains and losses’ in the
consolidated income statement for the year ended 30 June 2018.

Fair value of contingent consideration on acquisition
Upfront consideration payable

Total consideration
Fair value of assets acquired and liabilities assumed:
Intangible assets – investment management agreements

Total assets and liabilities

Negative goodwill from bargain purchase

Year ended
30 June
2018
£’000

819
107

926

1,969

(1,043)

The contingent consideration is calculated based on a percentage of revenue generated by an IMA and measured at fair value
at each reporting date. The contingent consideration balance is recognised within ‘trade and other payables’ in the consolidated
statement of financial position and changes in fair value are recognised in the income statement.

Contingent consideration:
Balance as at 1 July 2018
Paid during the year
Fair value adjustment

Balance as at 30 June 2019

Total
£’000

819
(50)
(376)

393

12 . FIN A NCE INCOME
Finance income is recognised in the period to which it relates on an accruals basis.

Finance income comprises £50,000 of bank interest (2018: £23,000), £80,000 of interest earned from a loan to Palisades
(2018: £23,000) and £209,000 of foreign exchange gain (2018: £4,000).

13 . CUR R ENT A ND DEFER R ED TA X
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.

River and Mercantile Group PLC Annual Report and Accounts 2019

13 . CUR R ENT A ND DEFER R ED TA X continued
The most significant deferred tax items are the deferred tax liability established against the IMA intangible asset arising from the
acquisition of RAMAM and the deferred tax asset recognised in respect of the share-based payment expenses. The amortisation
of the IMA intangible asset is not tax deductible for corporate tax purposes therefore the deferred tax liability is released into the
consolidated income statement to match the amortisation of the IMA intangible. At each reporting date the Group estimates the
corporation tax deduction that might be available on the vesting of EPSP shares and the corresponding adjustment to deferred
tax is recognised in the income statement and equity.

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
2019
£’000

Year ended
30 June
2018
£’000

4,365
38

4,403
(610)

3,793

4,377
(481)

3,896
(586)

3,310

The total tax charge assessed for the year is higher (2018: lower) than the average standard rate of corporation tax in the UK.
The differences are explained below:

Profit before tax
Profit before tax multiplied by the average rate of corporation tax in the UK of 19% (2018: 19%)

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

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

Deferred tax assets
At beginning of year
Charge to the income statement:
– share-based payment expense
Debit to equity:
– share-based payment expense
– recycling of deferred tax on shares vested

At end of year

Deferred tax liabilities
At beginning of year
(Charge)/credit to the income statement:
– amortisation of intangibles
– movement on investments held at fair value
Credit to equity:
– movement on fair value of available-for-sale investments

At end of year

Year ended
30 June
2019
£’000

16,788
3,190

Year ended
30 June
2018
£’000

18,452
3,506

875
(753)
(135)
(3)
619

537
(851)
(191)
(285)
594

3,793

3,310

Year ended
30 June
2019
£’000

Year ended
30 June
2018
£’000

2,443

3,421

(59)

(189)

(291)
(1,059)

(789)
–

1,034

2,443

3,153

3,969

(752)
82

–

(851)
–

2,483

3,153

S
T
R
A
T
E
G

R
E
P
O
R
T

G
O
V
E
R
N
A
N
C
E

F
I

N
A
N
C

A
L

S
T
A
T
E
M
E
N
T
S

A
D
D

I
T
I

O
N
A
L

N
F
O
R
M
A
T
I

O
N

River and Mercantile Group PLC Annual Report and Accounts 2019

NOTES TO THE CONSOLIDATED FINANCIAL S TATEMENTS
CONTINUED

14 . E A R NINGS PER SH A R E
The basic and diluted earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the
weighted average number of ordinary shares of the Company in issue during the year.

Vesting EPSP awards (note 7) have a dilutive effect on the equity holders of the Company. Following the end of the holding period
57% of EPSP Performance Condition A shares vested on 26 June 2019 and are recognised as shares in issue – basic. In 2018
2,644,000 shares were considered dilutive as 57% of EPSP Performance Condition A shares were expected to vest.

The dilution effect of the EPSP awards is considered in the calculation of diluted earnings per share.

Additionally, the Group operates a save-as-you-earn (SAYE) scheme for employees. The SAYE Scheme allows employees to
contribute towards a share option scheme over a three year period. At the end of the scheme the employees have the option to
either receive shares in River and Mercantile Group PLC or cash. The potential dilutive effect of this scheme is also considered
in the calculation of diluted earnings per share.

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:
Earnings per share
Basic (pence)
Diluted (pence)

Reconciliation between weighted average number of shares in issue

Weighted average number of shares in issue – basic
Dilutive effect of shares granted under SAYE
Dilutive effect of shares granted under EPSP

Weighted average number of shares in issue – diluted

Year ended
30 June
2019

Year ended
30 June
2018

12,995
80,121
83,244

15,142
80,410
83,740

16.22
15.61

18.83
18.08

Year ended
30 June
2019
’000

80,121
335
2,788

Year ended
30 June
2018
’000

80,410
686
2,644

83,244

83,740

The weighted average number of shares in issue has reduced as a result of purchases of own shares by the EBT (note 24).
At 30 June 2019, the EBT held 2,354,000 shares (2018: 1,806,000). The weighted average number held by the EBT during the
year was 1,761,000 (2018: 1,685,000).

A DJUS TED PROFIT
Adjusted profit comprises adjusted underlying profit and performance fee profit.

Adjusted underlying profit represents net management and advisory fees less associated remuneration, administrative expenses,
depreciation, amortisation of software and finance income and expense.

River and Mercantile Group PLC Annual Report and Accounts 2019

14 . E A R NINGS PER SH A R E continued
Performance fee profit represents performance fees, less the associated remuneration costs plus the gain on disposal of
investments held at fair value.

Adjusted underlying profit
Net management and advisory fees
Administrative expenses
Underlying remuneration at 54% (2018: 53%)
Amortisation of software
Depreciation
Net finance income

Adjusted underlying profit before tax
Taxes

Adjusted underlying profit after tax

Adjusted underlying pre-tax margin

Performance fee profit
Performance fees
Less remuneration at 50% (2018: 50%)
Gain on disposal of investments held at fair value
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

R ECONCILI ATION TO S TAT UTORY PROFIT

Profit before tax
Adjustments:
Amortisation of acquired intangible assets and IMAs
Other gains and losses
EPSP costs/(credits)

Adjusted profit before tax

A DJUS TED E A R NING S PER SH A R E

Adjusted profit after tax
Weighted average shares (ʼ000)
Weighted average diluted shares (ʼ000)
Adjusted EPS:
Basic (pence)
Diluted (pence)
Adjusted underlying EPS:
Basic (pence)
Diluted (pence)

Year ended
30 June
2019
£’000

Year ended
30 June
2018
£’000

65,584
(15,647)
(35,405)
(21)
(199)
338

14,650
(3,507)

64,198
(14,074)
(33,862)
(37)
(156)
10

16,079
(3,165)

11,143

12,914

22%

25%

12,519
(6,260)
20
–

6,279
(1,194)

5,085

10,575
(5,288)
–
458

5,745
(1,092)

4,653

20,929
16,228

21,824
17,567

Year ended
30 June
2019
£’000

Year ended
30 June
2018
£’000

16,788

18,452

4,347
(841)
635

4,558
(1,063)
(123)

20,929

21,824

Year ended
30 June
2019
£’000

16,228
80,121
83,244

20.26
19.50

13.91
13.39

Year ended
30 June
2018
£’000

17,567
80,410
83,740

21.85
20.98

16.06
15.42

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G
O
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N
A
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C
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F
I

N
A
N
C

A
L

S
T
A
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E
M
E
N
T
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A
D
D

I
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I

O
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A
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N
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I

O
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River and Mercantile Group PLC Annual Report and Accounts 2019

NOTES TO THE CONSOLIDATED FINANCIAL S TATEMENTS
CONTINUED

15. DI V IDENDS
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:

2017 second interim
2017 final
2018 first interim
2018 second interim
2018 final
2019 first interim

Ordinary
(pence)

Special
(pence)

Total
(pence)

Year ended
30 June
2019
£’000

Year ended
30 June
2018
£’000

5.3
3.2
5.4
4.2
3.2
4.3

2.8
2.8
2.2
1.3
2.3
2.0

8.1
6.0
7.6
5.5
5.5
6.3

–
–
–
4,422
4,424
5,023

6,526
4,835
6,095
–
–
–

13,869

17,456

16 . C A SH A ND C A SH EQUI VA LENT S
Cash and cash equivalents comprise cash in hand and demand deposits. At year end, all cash balances were held by banks with
credit ratings as detailed below.

Bank

Barclays Bank
Lloyds Bank
First Republic Bank

30 June
2019
£’000

18,728
5,043
275

30 June
2018
£’000

Credit rating

Rating body

16,119 A2/Positive
Aa3
7,583
A1
327

Moody’s
Moody’s
Moody’s

Total cash and cash equivalents

24,046

24,029

17. IN V ES TMENT M A N AGEMENT BA L A NCES

Investment management receivables
Investment management payables

30 June
2019
£’000

22,277
22,278

30 June
2018
£’000

13,116
13,147

As ACD of River and Mercantile Funds ICVC (the Fund) the Group is required to settle transactions between investors and the
depositary of the Fund. The Group is exposed to the short-term liquidity requirements to settle with the depositary of the Fund
before receiving payments from the investor. The credit risk associated with the investment management balances is discussed in
note 28.

The investment management balances are initially recognised at fair value, based upon the values given by the administrator of
the ICVC of the contractually agreed subscription or redemption values, and are subsequently recognised at amortised cost using
the effective interest method. Due to their short-term nature (typically less than a week), amortised cost closely approximates fair
value. The Group applies the IFRS 9 three staged model to measuring expected credit losses (ECLs) for investment management
balances at an amount equal to 12 months ECLs. The ECLs on investment management balances are calculated based on actual
historic credit loss experienced over the preceding three to five years on the total balance of non-credit impaired investment
management balances, and also the future likelihood of default. Taking into consideration the Group’s historical experience, and
their current credit exposures in light of future probabilities of default, the Group does not expect to incur any credit losses and
has recognised any impairment losses in the current year under IFRS 9 (2018: nil).

18 . IN V ES TMENT S HELD AT FA IR VA LUE
The Group uses capital to invest in its own fund products as seed investments. The investments are recognised as a financial asset
in the balance sheet and changes to the fair value are recognised in the income statement. Investments held at fair value relate
to seeding in the Global Macro Fund. The fair value of the Group’s investment in the Global Macro Fund was derived from the fair
value of the underlying investments, some of which are not traded in an active market and therefore the investment is classified as
Level 2 under IFRS 13 Fair Value Measurement. The Global Macro Fund is an unlisted equity vehicle based in Ireland.

The introduction of IFRS 9 has resulted in a change in accounting treatment in respect of investments. Investments held at fair
value were all previously held as available-for sale assets. All available-for-sale assets had gains or losses recognised through other
comprehensive income until realised. In accordance with IFRS 9, all such assets have been reclassified as FVTPL. See note 28 for
further disclosures on the reclassification.

River and Mercantile Group PLC Annual Report and Accounts 2019

18 . IN V ES TMENT S HELD AT FA IR VA LUE continued
The movement in the carrying value of the investments is analysed below:

At 30 June 2017
Additions
Movement in fair value
Disposals

At 30 June 2018
Reclassified on initial application of IFRS 9
Additions
Movement in fair FVTPL
Foreign exchange movement
Disposals

At 30 June 2019

Available-
for-sale
investments
£’000

Investments
held at FVTPL
£’000

12
10,043
472
(5,362)

5,165
(5,165)
–
–

–

–
–
–
–

–
5,165
10
441
165
(394)

5,387

19. FEE R ECEI VA BLES
Fee receivables are initially recorded at fair value and subsequently measured at amortised cost using the effective interest
method. The Group applies the IFRS 9 simplified approach to measuring ECLs for fee receivables at an amount equal to lifetime
ECLs. The ECLs on fee receivables are calculated based on actual historic credit loss experienced over the preceding three to five
years on the total balance of non-credit impaired fee receivables and also the future likelihood of default.

The Group considers a fee receivable to be credit impaired when one or more detrimental events have occurred, such as significant
financial difficulty of the client or it becoming probable that the client will enter bankruptcy or other financial reorganisation. As the
majority of fee receivables are fees deducted from the net asset value by fund administrators from the respective funds off which
they are calculated the credit risk is considered very low. Taking into consideration the Group’s historic experience, and their
current credit exposures in light of future probabilities of default, the Group does not expect to incur any credit losses and has
not recognised any impairment losses in the current year under IFRS 9 (2018: nil). The Directors are satisfied with the credit quality
of counterparties.

Fees receivable

As at 30 June 2019, the lifetime expected loss provision for fee receivables is as follows:

£’000

Expected loss rate
Fee receivables balance
Loss provision

Current

0%
3,544
–

30–60 days
past due

61–90 days
past due

91–365 days
past due

0%
786
–

0%
43
–

0%
39
–

Movements in the impairment allowance for fee receivables are as follows:

Opening provision for impairment
Increase during the year
Receivable written off during the year

Closing provision for impairment

The average credit period on fee receivables is 32 days (2018: 37 days).

2 0. OTHER R ECEI VA BLES

Accrued income
Prepayments
Other debtors

30 June
2019
£’000

4,412

More than
365 days
past due

50%
–
–

30 June
2019
£’000

38
7
(45)

–

30 June
2018
£’000

7,856

Total

4,412
–

30 June
2018
£’000

55
30
(47)

30 June
2019
£’000

18,186
1,494
5,825

25,505

30 June
2018
£’000

13,620
1,292
4,784

19,696

Other debtors include a receivable in respect of the settlement of shares sold to cover Executive Directors’ employment taxes
following the vesting of the EPSP awards of £3,693,000 (2018: £nil) and a further £0.1m relates to relocation expenses. In addition,
included within other receivables is an ACD debtor of £1,083,000 (2018: £1,378,000).

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G
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A
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F
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A
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N
T
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A
D
D

I
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I

O
N
A
L

N
F
O
R
M
A
T
I

O
N

100

River and Mercantile Group PLC Annual Report and Accounts 2019

NOTES TO THE CONSOLIDATED FINANCIAL S TATEMENTS
CONTINUED

2 0. OTHER R ECEI VA BLES continued
The Group applies the IFRS 9 simplified approach to measuring ECLs to other debtors. The Group does not expect to incur any
credit losses and has not recognised any impairment losses in the current year under IFRS 9 (2018: nil).

The Group’s policy on financial instruments can be found in note 28.

21. PROPERT Y, PL A NT A ND 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 30 June 2017
Additions
Disposals
Reclassification

At 30 June 2018
Additions
Disposals
Exchange difference

At 30 June 2019

Accumulated depreciation:
At 30 June 2017
Disposals
Reclassification
Depreciation charge

At 30 June 2018
Disposals
Depreciation charge

At 30 June 2019

Net book value:
At 30 June 2018

At 30 June 2019

2 2 . TR A DE A ND OTHER PAYA BLES

Trade payables
VAT payable
Remuneration accruals
Other accruals and payables
Contract liabilities

The Group’s policy on financial instruments can be found in note 28.

Office
equipment
£’000

Leasehold
improvements
£’000

690
197
(330)
16

573
64
(85)
5

557

649
(330)
9
37

365
(85)
71

351

208

206

367
307
(243)
(16)

415
132
–
3

550

145
(233)
(9)
119

22
–
128

150

393

400

Total
£’000

1,057
504
(573)
–

988
196
(85)
8

1,107

794
(563)
–
156

387
(85)
199

501

601

606

30 June
2019
£’000

771
1,029
17,459
4,478
38

30 June
2018
£’000

978
861
13,353
7,145
36

23,775

22,373

101

River and Mercantile Group PLC Annual Report and Accounts 2019

2 3 . PROV ISIONS
As reported in the prior year’s Annual Report, the Group recognised a liability in respect of a FCA competition matter and
operational error, which were both settled during the year.

Balance as at 1 July 2018
Paid during the year

Balance as at 30 June 2019

2 4 . SH A R E C A PITA L
The Company had the following share capital at the reporting dates:

Allotted, called up and fully paid: Ordinary shares of £0.003 each

Opening balance at 1 July 2018
Shares issued in respect of EPSP award vesting
Shares issued in respect of SAYE award vesting

Balance as at 30 June 2019

Total
£’000

1,209
(1,209)

–

246,286
8,869
733

Number

82,095,346
2,956,336
244,494

85,296,176

255,888

The ordinary shares carry the right to vote and rank pari passu for dividends.

The share premium account arises from the excess paid over the nominal value of the shares issued.

During the year, the Group’s EBT purchased Group shares in relation to non-dilutive share awards (note 7). The shares held are
measured at cost.

Opening balance at 1 July 2018
Acquisition of shares by the EBT
Disposal of shares in respect of award vesting

Balance as at 30 June 2019

2 5. OTHER R ESERV ES

Available-for-sale reserve (including deferred tax)
Foreign exchange reserve
Capital redemption reserve
Merger reserve
Capital contribution reserve

£’000

4,981
1,694
(424)

6,251

30 June
2018
£’000

13
400
84
44,433
4,442

30 June
2019
£’000

–
379
84
44,433
576

45,472

49,372

The foreign exchange reserve represents the cumulative foreign exchange differences arising on US Dollar denominated
businesses in the Group as well as currency differences on goodwill and fair value adjustments on the acquisition of foreign
subsidiaries. On disposal of the US Dollar denominated business, the associated cumulative foreign exchange differences are
recycled through the consolidated income statement.

The capital contribution reserve arose from a historical acquisition whereby the Group’s then parent, PSG, settled part of the
consideration in its own shares £576,000. There was a reclassification to retained earnings for a capital contribution reserve item
that arose from forgiveness of a dividend by the Group’s then parent, PSG (£3,867,000).

The merger reserve arose on the acquisition of RAMAM in March 2014.

S
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G

R
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O
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G
O
V
E
R
N
A
N
C
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F
I

N
A
N
C

A
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S
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E
M
E
N
T
S

A
D
D

I
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I

O
N
A
L

N
F
O
R
M
A
T
I

O
N

102

River and Mercantile Group PLC Annual Report and Accounts 2019

NOTES TO THE CONSOLIDATED FINANCIAL S TATEMENTS
CONTINUED

2 6 . OPER ATING LE A SES
Office facilities are leased under operating leases. The rental cost is charged to the consolidated income statement on a straight-
line basis over the lease term. Rent rebates are accounted for over the period of the lease term.

The future aggregate minimum lease payments under all non-cancellable operating leases, net of rent rebates are as follows:

No later than one year
Later than one year and no later than five years
Later than five years

30 June
2019
£’000

1,386
2,590
122

4,098

30 June
2018
£’000

1,268
3,099
352

4,719

2 7. R EL ATED PA RT Y TR A NS AC TIONS
Related parties to the Group are:
– Key management personnel.
– PSG who held 36.7% of the issued share capital of the Group. On 3 July 2019, PSG reduced their holding in the Group to 29.5%.

S IGNIFIC A NT TR A N S AC TION S W ITH P SG

Administrative charges from PSG:
Office facilities

Total administrative charges

Year ended
30 June
2019
£’000

Year ended
30 June
2018
£’000

435

1,010

During the period, the Company replaced a share certificate relating to PSG’s ownership of 31,302,321 shares in the Company. PSG
provided the Company with an indemnity in respect of the replacement.

Effective on 28 February 2019, the lease agreement relating to 11 Strand with PSG was surrendered. The Group paid PSG £75,000
in respect of dilapidations.

2 8 . FIN A NCI A L INS TRUMENT S
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 derecognised when the contractual rights to
the cash flows from the financial asset expire or when the contractual rights to those assets are transferred. Financial liabilities are
derecognised when the obligation specified in the contract is discharged, cancelled or expires.

The basis of classification for financial assets under IFRS 9 is different from that under IAS 39. Financial assets are classified into
one of three categories: amortised cost, FVTPL or FVOCI. Management have applied the ‘Business Model’ and ‘Solely Payments of
Principal and Interest’ tests as prescribed by IFRS 9 to determine the correct classification.

The table below explains the previous measurement categories under IAS 39 and the new measurement categories under IFRS 9
for each class of the Group’s financial assets as at 30 June 2019.

FIN A NCI A L A S SE T S HELD AT FA IR VA LUE A S AT 3 0 JUNE 2 019

Financial assets

Cash and cash equivalents
Investment management balances
Fee receivables
Other receivables

Total

Fair value assets

Total

Total financial assets

Classification under IAS 39

£’000

Classification under IFRS 9

£’000

Loans and receivables
Loans and receivables
Loans and receivables
Loans and receivables

Available-for-sale

24,046
22,277
4,412
24,011

74,746

5,387

80,133

Amortised cost
Amortised cost
Amortised cost
Amortised cost

FVTPL

24,046
22,277
4,412
24,011

74,746

5,387

80,133

As permitted under IFRS 9, the Group has chosen not to restate comparatives on adoption and, therefore, the above changes have
been applied at the date of initial application.

The basis of classification for financial liabilities under IFRS 9 remains unchanged from under IAS 39.

103

River and Mercantile Group PLC Annual Report and Accounts 2019

2 8 . FIN A NCI A L INS TRUMENT S continued
FIN A NCI A L A S SE T S AT F V TPL
Financial assets are classified as FVTPL on application of the ‘Business Model’ and ‘Solely Payments of Principal and Interest’ test as
disclosed on previous page.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in the income
statement.

TR A DE A ND OTHER R ECE I VA BLE S
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method, less expected credit loss. Interest income is recognised by applying the effective interest rate, except for short-
term trade and other receivables when the recognition of interest would be immaterial.

The impairment provision on financial assets measured at amortised cost (such as trade and other receivables) has been
calculated in accordance with IFRS 9’s expected credit loss model, which differs from the incurred loss model previously required
by IAS 39.

C A SH A ND C A SH EQUI VA LENT B A L A NCE S
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.

TR A DE A ND OTHER PAYA BLE S
Trade and other payables are initially measured at their fair value and are subsequently measured at their amortised cost using the
effective interest method. Interest expense is recognised by applying the effective interest rate, except for short-term trade and
other payables when the recognition of interest would be immaterial.

C ATEGOR IE S OF FIN A NCI A L IN S TRUMENT S
Financial instruments held by the Group are categorised under IFRS 9 as follows:

Financial assets
Cash and cash equivalents
Investment management balances
Fee receivables
Other receivables

Total financial assets held at amortised cost
Investments held at FVTPL

Total Investments held at FVTPL

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

Trade and other payables exclude deferred income.

30 June
2019
£’000

30 June
2018
£’000

24,046
22,277
4,412
24,011

74,746
5,387

5,387

24,029
13,116
7,856
18,404

63,405
5,165

5,165

80,133

68,570

30 June
2019
£’000

30 June
2018
£’000

22,278
23,737

13,147
22,336

46,015

35,483

46,015

35,483

The Directors consider the carrying amounts of the loan and receivables financial assets and financial liabilities carried at
amortised cost to be a reasonable approximation to their fair values based upon their nature and the relatively short period of
time between the origination of the instruments and their expected realisation.

FA IR VA LUE OF FIN A NCI A L A S SE T S A ND LI A BILITIE S
The following provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, and
held as FVTPL and revalued on a recurring basis, grouped into levels 1 to 3:
– Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or

liabilities. The Group does not hold financial instruments in this category.

– Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are

observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). The Group’s seeding of
funds is held within this category.

– Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are
not based on observable market data (unobservable inputs). The Group’s contingent consideration of the ILC team is held within
this category. This contingent consideration is measured at fair value at the reporting date. Based on a discount rate of 12% and
an assumed AUM growth of 10% per annum, the fair value of the contingent consideration payable is £393,000 (2018: £798,000).

S
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O
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N
A
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C
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F
I

N
A
N
C

A
L

S
T
A
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E
M
E
N
T
S

A
D
D

I
T
I

O
N
A
L

N
F
O
R
M
A
T
I

O
N

104

River and Mercantile Group PLC Annual Report and Accounts 2019

NOTES TO THE CONSOLIDATED FINANCIAL S TATEMENTS
CONTINUED

2 8 . FIN A NCI A L INS TRUMENT S continued
As at 1 July 2018, the available-for-sale investments previous held at fair value through other comprehensive have been reclassified
as equity investments classified as FVTPL, following the IFRS 9 transition.

FIN A NCI A L R I SK M A N AGEMENT
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.

CR EDIT R I SK M A N AGEMENT
Credit risk refers to the risk that a counterparty defaults on their contractual obligations resulting in financial loss to the Group.
The carrying amount of financial assets at amortised cost recorded in the financial statements represents the Group’s maximum
exposure to credit risk. The Group holds no collateral as security against any financial asset. Credit risk arises principally from the
Group’s fee receivables, investment management balances, other receivables and cash balances. The Group manages its credit risk
through monitoring the aging of receivables and the credit quality of the counterparties with which it does business.

The aging of outstanding fee receivables at the reporting date is given in note 19. The Group had no single fee receivable balance at
year-end that is material to the Group (2018: none).

The banks with whom the Group deposits cash and cash equivalent balances are monitored, including their credit ratings (note 16).

The Group bears risk in relation to the investment management balances held in respect of the River and Mercantile Funds ICVC. If
any debtor failed to pay, the Group would redeem the underlying fund units in respect of that debtor, however, it would be subject
to risk that the value of the underlying fund units had fallen. The maximum theoretical risk exposure is the full £22.3m (2018:
£13.1m) value of the receivables multiplied by the percentage decrease in the underlying ICVC position during the period between
default and redemption. In order to mitigate the risk of losses arising from late receipt, the Group will seek specific indemnity from
counterparties in certain cases. Management monitor the performance and aging of the investment management positions and
take recovery action as appropriate.

M A R K E T R I SK – FOR E IGN CUR R ENC Y R I SK M A N AGEMENT
The Group’s foreign currency risk arises where adverse movements in foreign exchange rates impact the value of the assets and
liabilities held in currencies other than the local entities functional currency. The carrying amount of the Group’s foreign currency
exposures are shown below in GBP:

Fee receivables
Cash and cash equivalents
Payables
Other assets
Investments held at fair value
Available-for-sale assets

Total

30 June
2019
£’000

25
249
(1,026)
1,653
5,261
–

6,162

30 June
2018
£’000

479
820
(2,973)
1,564
–
5,046

4,936

A 10% fluctuation in the exchange rate between foreign currencies and UK Pounds sterling on the outstanding foreign currency
denominated monetary items at year-end balances would result in a gain or loss of £616,000 (2018: £494,000).

Foreign exchange risk arising from transactions denominated in foreign currencies are monitored and where appropriate the
currency required to settle the transaction may be purchased ahead of the settlement date.

M A R K E T R I SK – INTER E S T R ATE R I SK M A N AGEMENT
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.

105

River and Mercantile Group PLC Annual Report and Accounts 2019

2 8 . FIN A NCI A L INS TRUMENT S continued
LIQUIDIT Y R I SK M A N AGEMENT
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. This risk relates to the
Group’s prudent liquidity risk management and implies maintaining sufficient cash reserves to meet the Group’s working capital
requirements. Management monitors forecasts of the Group’s liquidity and cash and cash equivalents on the basis of expected
cash flow.

The Group is cash generative before the payment of dividends and has cash and cash equivalent balances that support the
Group’s working capital requirements. The fee receivable invoicing cycle is generally quarterly; as a result working capital balances
are maintained to meet the ongoing expenses of the business during the quarterly cycles. The Group’s capital expenditure
requirements have not been significant and have been limited to office and IT equipment.

Prior to significant cash outflows (or entering into commitments which would result in significant cash outflows), including
dividends, the Group undertakes liquidity and capital analysis.

The Group has entered into operating leases over its premises. Note 26 discloses the future aggregate minimum lease payments at
the Balance Sheet date, net of rebates over the life of the contracts.

At 30 June 2019, the Group had cash and cash equivalents of £24.0m (2018: £24.0m).

As ACD of River and Mercantile Funds ICVC (the Fund), some of the operating cash balance of RAMAM is held in an ACD operating
account into which the management fees from the ICVC are paid on a monthly basis. Of the ACD operating account balance at each
year end, the proportion not attributable to client fund transactions can be utilised by RAMAM within a 24-hour notice period and
thus the account is considered liquid. At 30 June 2019, £1.5m (2018: £2.8m) of the cash and cash equivalents balance related to the
ACD account.

LIQUIDIT Y G A P A N A LYS I S
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 2019
Assets
Cash and cash equivalents
Investment management balances
Fee income receivables
Other receivables

Total financial assets

Liabilities
Investment management balances
Trade and other payables

Total financial liabilities

Net liquidity surplus/(deficit)

As at 30 June 2018
Assets
Cash and cash equivalents
Investment management balances
Fee income 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

> 12 months
£’000

24,046
–
–
–

–
22,277
4,412
19,100

24,046

45,789

–
–

–

22,278
21,218

43,496

24,046

2,293

–
–
–
4,855

4,855

–
2,075

2,075

2,780

–
–
–
56

–
444

444

(388)

On demand
£’000

< 3 months
£’000

3–12 months
£’000

> 12 months
£’000

24,030
–
–
–

–
13,116
7,856
18,374

24,030

39,346

–
–

–

24,030

13,147
19,266

32,413

6,933

–
–
–
30

–
80

–
–
–
–

–

–
2,990

2,990

(50)

(2,990)

S
T
R
A
T
E
G

R
E
P
O
R
T

G
O
V
E
R
N
A
N
C
E

F
I

N
A
N
C

A
L

S
T
A
T
E
M
E
N
T
S

A
D
D

I
T
I

O
N
A
L

N
F
O
R
M
A
T
I

O
N

106

River and Mercantile Group PLC Annual Report and Accounts 2019

NOTES TO THE CONSOLIDATED FINANCIAL S TATEMENTS
CONTINUED

2 8 . FIN A NCI A L INS TRUMENT S continued
C A PITA L M A N AGEMENT
The Group operates its subsidiaries as self-sufficient entities, which are expected to be able to meet their funding requirements
without recourse to the parent.

The Group’s capital structure consists of equity (share capital and share premium), other reserves and its retained earnings; capital
is managed on a consolidated and individual entity basis to ensure that each entity is able to continue as a going concern. Three
of the Group’s subsidiaries are regulated entities (one in the UK, one in the US and one in both the UK and the US). The Group
scrutinises its capital adequacy using the Pillar 2 and ICAAP frameworks which are regulated by the FCA to maintain adequate
capital requirements. The Group has complied with its regulatory capital required throughout the period covered by these financial
statements.

2 9. ULTIM ATE CONTROLLING PA RT Y A ND SUBSIDI A RY UNDERTA K INGS
The Group became publicly listed on 26 June 2014 and remains publicly listed.

SUB S IDI A RY UNDERTA K ING S
The following subsidiaries have been included in the consolidated financial information of the Group:

Name

River and Mercantile Investments Limited1
River and Mercantile US Holdings Limited1

River and Mercantile LLC1, 2
River and Mercantile Holdings Limited
River and Mercantile Asset Management LLP1
River and Mercantile Group Services Limited1,2

River and Mercantile Group Trustees Limited1,2

River and Mercantile Group Employee Benefit Trust

Country of
incorporation
of registration

Proportion of
voting rights/
ordinary share
capital held %

UK
UK

US
UK
UK
UK

100
100

100
100
100
100

100

Indirect holding.

1.
2. Exempt from audit requirements.

Registered office address

Nature of business

130 Turner St, Waltham, MA 02453
30 Coleman St, London, EC2R 5AL
30 Coleman St, London, EC2R 5AL
30 Coleman St, London, EC2R 5AL

30 Coleman St, London, EC2R 5AL
Investment management
30 Coleman St, London, EC2R 5AL Holding company for the
US business
Actuarial and consulting
Holding company
Investment management
Dormant service
company
Dormant service
company
Employee Benefit Trust

30 Coleman St, London, EC2R 5AL

12 Castle Street, St Helier, Jersey,
JE2 3RT

RAMAM has a non-coterminous year end, reporting at 31 March on a standalone basis. This was the existing year-end date as at
acquisition and no change is expected.

3 0. E V ENT S A F TER THE R EPORTING DATE
Since the end of the financial year, the Directors are not aware of any other matter or circumstance not otherwise dealt with in this
report or the financial statements that has significantly or will significantly affect the operations of the Group, the results of those
operations or the state of affairs of the Group.

The Board of Directors have declared a second interim dividend of 5.1 pence per share, of which 1.6 pence is a special dividend and
relates to net performance fees. The second interim dividend will be paid on 22 November 2019 to shareholders on the register as
at 25 October 2019. The ex-dividend date is 24 October 2019.

The Board of Directors have also proposed a final dividend for the year ended 30 June 2019, subject to approval by shareholders
at the Group’s AGM on 9 December 2019, of 5.0 pence per share, of which 2.4 pence is a special dividend and relates to net
performance fees.

107

River and Mercantile Group PLC Annual Report and Accounts 2019

COMPANY S TATEMENT OF FINANCIAL POSITION

Assets
Cash and cash equivalents
Other receivables
Deferred tax asset
Property, plant and equipment
Intangible assets
Investments

Total assets

Liabilities
Payables

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 £15,810,000 (2018: £11,990,000).

Note

30 June
2019
£’000

30 June
2018
£’000

2
3
4
5
6
7

9
10
11

11,104
12,947
736
314
26
58,762

7,815
11,053
2,074
246
47
57,645

83,889

78,880

9,254

7,902

74,635

70,978

256
15,136
44,517
14,726

246
14,688
48,384
7,660

74,635

70,978

S
T
R
A
T
E
G

R
E
P
O
R
T

G
O
V
E
R
N
A
N
C
E

F
I

N
A
N
C

A
L

S
T
A
T
E
M
E
N
T
S

A
D
D

I
T
I

O
N
A
L

N
F
O
R
M
A
T
I

O
N

108

River and Mercantile Group PLC Annual Report and Accounts 2019

COMPANY S TATEMENT OF C A SH FLOWS

Cash flow from operating activities
Loss before interest, tax and dividends from subsidiaries

Adjustments for:
Depreciation of property, plant and equipment
Amortisation of intangible assets
EBT funding
Share-based payment expense
Other gains and losses

Operating cash flow before movement in working capital
Increase in operating assets
Increase in operating liabilities

Cash used in operations
Taxation received/(paid)

Net cash used in operations

Cash flow from investing activities
Purchases of property, plant and equipment
Interest received
Dividends received from subsidiaries

Net cash generated from investing activities

Cash flow from financing activities
EBT funding settled
EBT disposal of shares
Dividends paid
Repayment of intercompany loan receivables
Share issue

Net cash used in financing activities

Net increase/(decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Year ended
30 June
2019
£’000

Year ended
30 June
2018
£’000

(7,409)

(9,061)

122
21
2,079
429
21

(4,737)
(5,230)
649

(9,318)
1,206

80
37
1,773
1,657
–

(5,514)
(5,435)
1,539

(9,410)
(92)

(8,112)

(9,502)

(190)
36
23,200

(307)
31
21,500

23,046

21,224

(2,200)
–
(13,869)
4,016
408

(1,728)
95
(17,456)
–
–

(11,645)

(19,089)

3,289

(7,367)

7,815

15,182

11,104

7,815

109

River and Mercantile Group PLC Annual Report and Accounts 2019

COMPANY S TATEMENT OF CHANGES IN
SHAREHOLDER S’ EQUIT Y

Balance as at 30 June 2017

Comprehensive income for the year:
Profit for the year

Total comprehensive income for the year

Transactions with owners:
Dividends
Share-based payment expense
Disposal of EBT shares
Deferred tax on share-based payment expense

Total transactions with owners:

Balance as at 30 June 2018

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 on share-based payment expense
Realised tax in respect of award vesting
Transfer to retained earnings
Share issue in respect of award vesting

Total transactions with owners:

Balance as at 30 June 2019

Capital
£’000

Share
Premium
£’000

Other

reserves
£’000

Retained
earnings
£’000

Total
£’000

246

14,688

48,384

11,215

74,533

–

–
–
–
–

–

–
–
–
–

–

–
–
–
–

–

11,990

(17,456)
2,360
95
(544)

(15,545)

246

14,688

48,384

7,660

70,978

–

–
–
–
–
–
10

–

–
–
–
–
–
448

448

–

15,810

–
–
–
–
(3,867)
–

(13,869)
1,450
(1,272)
1,080
3,867
–

(13,869)
1,450
(1,272)
1,080
–
458

(3,867)

(8,744)

(12,153)

256

15,136

44,517

14,726

74,635

Transfer to retained earnings is in respect of a reclassification of capital contribution reserve which arose from forgiveness of a
dividend by the Group’s then parent, PSG (£3,867,000).

S
T
R
A
T
E
G

R
E
P
O
R
T

G
O
V
E
R
N
A
N
C
E

F
I

N
A
N
C

A
L

S
T
A
T
E
M
E
N
T
S

A
D
D

I
T
I

O
N
A
L

N
F
O
R
M
A
T
I

O
N

110

River and Mercantile Group PLC Annual Report and Accounts 2019

NOTES TO THE COMPANY FINANCIAL S TATEMENTS

1. BA SIS OF PR EPA R ATION
The Company’s financial statements have been prepared in accordance with International Financial Reporting Standards,
International Accounting Standards and interpretations, International Financial Reporting Interpretation Committee
interpretations, and with those parts of the 2006 Act applicable to companies reporting under IFRS as issued by the International
Accounting Standards Board as adopted by the European Union (IFRS) that are relevant to its operations and effective for
accounting periods beginning on 1 July 2018.

PR INCIPA L PL ACE OF BUS INE S S
The Company’s principal place of business is the same as its registered office.

R E SULT FOR THE Y E A R
The profit after tax for the year ended 30 June 2019 was £15,810,000 (2018: £11,990,000). This includes a charge of £2,079,000
relating to funding provided to the Group’s EBT (2018: £1,773,000).

In accordance with s408 of the Companies Act 2006 a separate income statement has not been presented for the Company. There
are no items of comprehensive income other than the result for the year and therefore no statement of comprehensive income has
been prepared for the Company.

FOR E IGN CUR R ENCIE S
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.

EMPLOY EE S
The Company had an average of 49 employees during the year (2018: 34). Total remuneration costs were £8,384,000
(2018: £10,100,000).

DI V IDENDS
See note 15 of the consolidated financial statements.

2 . C A SH A ND C A SH EQUI VA LENT S
Cash and cash equivalents comprise cash in hand and at bank, cash at agents, demand deposits, and other short-term highly liquid
investments that have maturities of three months or less from inception, are readily convertible to a known amount of cash and are
subject to an insignificant risk of changes in value. Below is a table detailing the credit rating of the banks with which the Company
holds its cash, and the balance held at year-end.

Bank

Barclays Bank

3 . OTHER R ECEI VA BLES

Taxes and social security
Prepayments and accrued income
Amounts owed from Group undertakings
Other debtors

30 June
2019
£’000

30 June
2018
£’000

Credit rating

Rating body

11,104

7,815

A2/Positive

Moody’s

30 June
2019
£’000

202
779
8,116
3,850

30 June
2018
£’000

226
552
10,223
52

12,947

11,053

Amounts owed from Group undertakings represent balances incurred in the course of trade and are payable on demand.

The Company applies the IFRS 9 simplified approach to measuring ECLs to accrued income and three staged model to measuring
ECLS to the remaining other receivables. The Group does not expect to incur any credit losses and has not recognised any
impairment losses in the current year under IFRS 9 (2018: nil).

111

River and Mercantile Group PLC Annual Report and Accounts 2019

4 . TA X
The Company’s accounting policy in respect of tax is the same as that of the Group as detailed in note 13 of the consolidated
financial statements.

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 charge/(credit)

Year ended
30 June
2019
£’000

Year ended
30 June
2018
£’000

–
(28)

(28)
65

28
444

472
13

485

The tax assessed for the year is lower (2018: lower) than the average standard rate of corporation tax in the UK. The differences are
explained below:

Profit before tax
Profit before tax multiplied by the average rate of corporation tax in the UK of 19% (2018: 19%)
Effects of:
Income not assessable to tax
Group relief
Other timing differences
Adjustment in respect of prior years

Total tax credit

Deferred tax assets:
At beginning of year
(Charge)/credit to the income statement – share-based payment expense
(Charge)/credit to equity – share-based payment expense

At year end

Year ended
30 June
2019
£’000

15,848
3,011

(4,408)
1,331
75
28

Year ended
30 June
2018
£’000

12,013
2,282

(4,085)
1,802
42
444

485

30 June
2019
£’000

30 June
2018
£’000

2,074
(66)
(1,272)

736

2,629
(11)
(544)

2,074

5. PROPERT Y PL A NT A ND 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 30 June 2018
Additions

At 30 June 2019

Accumulated depreciation:
At 30 June 2018
Depreciation charge

At 30 June 2019

Net book value:
At 1 July 2018

At 30 June 2019

Office
equipment
£’000

Leasehold
improvements
£’000

73
63

136

10
19

107

243
127

370

60
103

163

183

207

Total
£’000

316
190

506

70
122

192

246

314

S
T
R
A
T
E
G

R
E
P
O
R
T

G
O
V
E
R
N
A
N
C
E

F
I

N
A
N
C

A
L

S
T
A
T
E
M
E
N
T
S

A
D
D

I
T
I

O
N
A
L

N
F
O
R
M
A
T
I

O
N

112

River and Mercantile Group PLC Annual Report and Accounts 2019

NOTES TO THE COMPANY FINANCIAL S TATEMENTS CONTINUED

6 . INTA NGIBLE A S SE T S
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 30 June 2018

At 30 June 2019

Accumulated amortisation and impairment:
At 30 June 2018
Amortisation charge

At 30 June 2019

Net book value:
At 1 July 2018

At 30 June 2019

7. IN V ES TMENT S IN SUBSIDI A R IES

At start of year
Additions – share-based payments in subsidiaries
At end of year

Software
£’000

Total
£’000

37
21

30 June
2019
£’000

57,645
1,117
58,762

30 June
2018
£’000

56,941
704
57,645

The Company’s investments in subsidiaries are stated at cost less provision for any impairment incurred. The Company has a 100%
holding in River and Mercantile Holdings Limited.

8 . PAYA BLES

Taxes and social security
Amounts owed to Group undertakings
Trade payables
Accruals and deferred income

30 June
2019
£’000

–
–
563
8,691

9,254

30 June
2018
£’000

329
715
555
6,303

7,902

Amounts owed to Group undertakings represent balances incurred in the course of trade and are payable on demand.

9. SH A R E C A PITA L
Full details of the Company’s share capital can be found in note 24 of the consolidated financial statements.

10. SH A R E PR EMIUM
Full details of any movements in share premium can be found in the Company statement of changes in equity.

11. OTHER R ESERV ES
A reconciliation of the movements in reserves can be found in the Company statement of changes in equity. Details on the nature
of the other reserves in the Company can be found in note 25 of the consolidated financial statements.

A breakdown of other reserves is detailed below.

Merger reserve
Capital contribution reserve
Capital redemption reserve

30 June
2019
£’000

44,433
–
84

30 June
2018
£’000

44,433
3,867
84

44,517

48,384

As at 30 June 2019, the Company had £10,800,000 of distributable reserves (2018: £11,527,000).

There was a reclassification to retained earnings for a capital contribution reserve item that arose from forgiveness of a dividend by
the Group’s then parent, PSG (£3,867,000).

113

River and Mercantile Group PLC Annual Report and Accounts 2019

12 . FIN A NCI A L INS TRUMENT S
A discussion of the financial risks and associated financial risk management, which applies to all of the companies in the Group,
can be found in note 28 of the consolidated financial statements, along with the Group’s accounting policy in respect of financial
instruments.

The table below explains the previous measurement categories under IAS 39 and the new measurement categories under IFRS 9
for each class of the Group’s financial assets as at 30 June 2019.

FIN A NCI A L A S SE T S HELD AT FA IR VA LUE A S AT 3 0 JUNE 2 019

Financial assets

Cash and cash equivalents
Other receivables

Total

Total financial assets

Classification under IAS 39

£’000

Classification under IFRS 9

£’000

Loans and receivables
Loans and receivables

11,104
12,168

23,272

Amortised cost
Amortised cost

11,104
12,168

23,272

As permitted under IFRS 9, the Group has chosen not to restate comparatives on adoption and, therefore, the above changes have
been applied at the date of initial application.

The basis of classification for financial liabilities under IFRS 9 remains unchanged from under IAS 39.

The financial assets and liabilities of the Company are categorised under IFRS 9 as follows:

Financial assets held at amortised cost
Cash and cash equivalents
Other receivables

Total financial assets held at amortised cost

Other receivables exclude prepayments.

Financial liabilities held at amortised cost
Payables

Total financial liabilities

30 June
2019
£’000

30 June
2018
£’000

11,104
12,168

7,815
10,501

23,272

18,316

30 June
2019
£’000

9,254

30 June
2018
£’000

7,902

CR EDIT R I SK M A N AGEMENT
Credit risk refers to the risk that the counterparty defaults on their contractual obligations resulting in financial loss to the
Company. The carrying amount of financial assets at amortised cost recorded in the financial statements represents the
Company’s maximum exposure to credit risk. The Company held no collateral as security against any financial asset. Credit risk
arises principally from the Company’s intercompany and cash balances. The Company manages its credit risk through monitoring
the credit quality of the counterparties with which cash is held and the Company’s subsidiaries resources.

The banks with whom the Company deposits cash and cash equivalent balances are monitored, including their credit ratings
(note 2).

M A R K E T R I SK – INTER E S T R ATE R I SK M A N AGEMENT
The Company has minimal exposure to interest rate risk. The Company has no external borrowings and cash deposits with banks
earn a floating rate of interest. Interest income is not significant in either year.

LIQUIDIT Y G A P A N A LYS I S
The table opposite 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 opposite 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.

S
T
R
A
T
E
G

R
E
P
O
R
T

G
O
V
E
R
N
A
N
C
E

F
I

N
A
N
C

A
L

S
T
A
T
E
M
E
N
T
S

A
D
D

I
T
I

O
N
A
L

N
F
O
R
M
A
T
I

O
N

114

River and Mercantile Group PLC Annual Report and Accounts 2019

NOTES TO THE COMPANY FINANCIAL S TATEMENTS CONTINUED

12 . FIN A NCI A L INS TRUMENT S continued

As at 30 June 2019
Assets
Cash and cash equivalents
Other receivables

Total financial assets

Liabilities
Payables

Total financial liabilities

Net liquidity surplus

As at 30 June 2018
Assets
Cash and cash equivalents
Other receivables

Total financial assets

Liabilities
Payables

Total financial liabilities

Net liquidity surplus

On demand
£’000

< 3 months
£’000

3–12 months
£’000

> 12 months
£’000

11,104
–

11,104

–

–
6,864

6,864

8,823

–
5

374

–
5,299

5,299

11,104

(1,959)

(369)

5,242

On demand
£’000

< 3 months
£’000

3–12 months
£’000

> 12 months
£’000

7,815
–

7,815

–

7,815

–
10,501

10,501

7,521

2,980

–
–

–

381

(381)

–
–

–

13 . DIR EC TOR S ’ R EMUNER ATION
Details of the individual Directors’ remuneration are shown in the Remuneration Committee Report.

14 . R EL ATED PA RTIES
The Company entered into the following transactions with related parties:

Related party

River and Mercantile Investments Limited
(subsidiary undertaking)

River and Mercantile LLC
(subsidiary undertaking)

River and Mercantile Holdings Limited
(immediate subsidiary undertaking)

Type of transaction

Management recharges
Intercompany balances

Intercompany balances

River and Mercantile Asset Management LLP
(subsidiary undertaking)

Management recharges
Intercompany balances

Transaction
recharge value

Balance
owed/(owing)

30 June
2019
£’000

8,063
–

31
–

–

1,195
–

30 June
2018
£’000

7,394
–

175
–

–

861
–

30 June
2019
£’000

–
2,498

–
449

30 June
2018
£’000

–
794

–
354

4,729

8,035

–
440

–
323

River and Mercantile Group PLC is the ultimate parent undertaking, River and Mercantile LLC and River and Mercantile Asset
Management LLP are fellow subsidiaries and River and Mercantile Holdings Limited is the immediate parent undertaking.

Details of related party transactions with PSG can be found in note 27 of the consolidated financial statements.

15. OTHER INFOR M ATION
The Company has taken the exemption under s408(2) of the Companies Act 2006 to not present their remuneration separately in
these financial statements.

A second interim dividend in respect of the year of 5.1 pence per share has been declared, of which 1.6 pence is a special dividend
relating to net performance fees. The Directors have proposed a final dividend in respect of the year of 5.0 pence per share, of
which 2.4 pence is a special dividend relating to net performance fees.

The Company has not entered into any significant commitments or contingent liabilities after the balance sheet date.

115

River and Mercantile Group PLC Annual Report and Accounts 2019

GLOSSARY

ACD – Authorised corporate director

AGM – Annual general meeting

AUM – Assets under management

Buy-in – 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.

Buy-out – 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.

CEO – Chief Executive Officer

CFO – Chief Financial Officer

CGU – Cash generating unit

CIO – Chief Investment Officer

CMA – Competition and Markets
Authority

DAA – Dynamic Asset Allocation

DB – Defined benefit

DC – Defined contribution

DEP – Deferred Equity Plan

EBT – Employee Benefit Trust

ED – Executive Director

EMAR – Emerging Market Absolute
Return

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

FCA – Financial Conduct Authority

FRC – Financial Reporting Council

FVOCI – Fair value through other
comprehensive income

ICVC – Investment company of variable
capital

RAMAM – River and Mercantile Asset
Management LLP

IFRS – International Financial Reporting
Standards

RAMIL – River and Mercantile
Investments Limited

Redemptions in transition –
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.

RIA – regretted institutional attrition

RMMIC – River and Mercantile Micro Cap
Investment Company

ROW – Rest of the world

RWAA – Revenue weighted asset
allocation

SAYE Scheme – Save As You Earn
Scheme

SID – Senior Independent Director

SMCR – Senior Managers and
Certification Regime

TCFD – Task Force on Climate-related
Financial Disclosures

TRS – Total Return Swap

TSR – Total shareholder return

UCITS – Undertakings for the collective
investment of transferable securities

YoY – Year-on-year

ILC – Industrial life cycle

IMA – Investment management
agreement

IME – Investment Management Entities

IPO – Initial public offering

ISA – International Standards on Auditing
(UK)

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

LTIA – Long-term incentive awards

LTIP – Long-term incentive plan

Mandated AUM/NUM – Represent 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.

MiFID – Markets in Financial Instruments
Directive

MiFIR – Markets in Financial Investments
Regulation

NAV – Net asset value

NED – Non-Executive Director

FVTPL – Fair value through profit or loss

NUM – Notional under management

GDPR – General Data Protection
Regulation

GLOMA Fund – A sub-fund of River and
Mercantile Investments ICAV

GLOMA Strategy – Strategy that
underlies the GLOMA Fund

IAA – Investment advisory agreement

ICAAP – Individual Capital Adequacy
Assessment Process

PMI – Purchasing Managers’ Index

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

S
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E
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R
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P
O
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G
O
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A
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F
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A
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A
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S
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A
D
D

I
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I

O
N
A
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N
F
O
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A
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I

O
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116

River and Mercantile Group PLC Annual Report and Accounts 2019

SHAREHOLDER INFORMATION AND ADVISOR S

COMPA N Y NUMBER
04035248

R EGI S TER ED OFFICE
30 Coleman Street
London
EC2R 5AL

Tel: 020 3327 5100

GROUP COMPA N Y SECR E TA RY
Sally Buckmaster

W EB S ITE
www.riverandmercantile.com

A NNUA L GENER A L MEE TING
9 December 2019 at 9.00 am
Macquarie Capital (Europe) Limited
Ropemaker Place
28 Ropemaker Street
11th Floor
London
EC2Y 9HD

DI V IDENDS
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 2019.

Amount
5.0 pence per ordinary share.

E X- DI V IDEND DATE
28 November 2019

R ECOR D DATE
29 November 2019

PAY MENT DATE
20 December 2019

R EGI S TR A R S
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA

SH A R EHOLDER HELPLINE
0371 384 2030
(+44 121 415 7047)
www.shareview.co.uk

AUDITOR S
BDO LLP
55 Baker Street
London
W1U 7EU

COR POR ATE BROK ER A ND A DV I SOR
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London
EC4 M7LT

Macquarie Capital (Europe) Limited
Ropemaker Place
28 Ropemaker Street
London
EC2Y 9HD

SH A R E LI S TING
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.

BLOOMBERG
0994474D:LN

I S IN
GB00BLZH7X42

SEDOL CODE
BLZH7X4

TICK ER
RIV

30 Coleman Street
London
EC2R 5AL