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9
C O N T E N T S
H I G H L I G H T S
Strategic Report
00 Highlights
04 Chairman’s Letter
05 Chief Executive’s Review
12 Chief Investment
Officer’s Report
14 Our Market Share
15 Market Trends
16 Business Model
18 Our Strategy For Growth
20
22 Risk Management
24
Principal Risks
26 Chief Financial
Key Performance Indicators
Officer’s Report
Corporate Governance
28 Board of Directors
30
Corporate
Governance Statement
32 Directors’
35
39
Remuneration Report
Directors’ Report
Independent
Auditor’s Report
Financial Statements
44 Consolidated Statement of
45
46
Total Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement
of Changes In Equity
47 Consolidated Statement
of Cash Flows
71
48 Notes to the Consolidated
Financial Statements
Company Statement of
Financial Position
Company Statement of
Changes in Equity
Notes to the Company
Financial Statements
73
72
G R O U P R E V E N U E ( £ M )
A D J U S T E D O P E R A T I N G P R O F I T * ( £ M )
£17.5m
+12.9%
£7.3m
+12.3%
A D J U S T E D E P S * ( P )
P R O P O S E D F I N A L D I V I D E N D ( P )
10.0p
+9.9%
5.6p
+27.3%
P R O F I T B E F O R E T A X ( £ M )
A U M ( £ B N )
£6.1m
+69.4%
£6.1bn
+24.5%
Financial Highlights
— Tatton’s discretionary assets under management (“AUM”)
increased 24.5% to £6.1bn (2018: £4.9bn)
— AUM net inflows increased to £1.1bn averaging over £90m per month
— Group revenue increased 12.9% to £17.5m (2018: £15.5m)
— Adjusted Operating Profit* up 12.3% to £7.3m (2018: £6.5m)
— Adjusted Operating Profit* margin 41.7% (2018: 42.1%)
— Reported profit before tax increased to £6.1m (2018: £3.6m), after charging
exceptional items of £0.5m and share-based payment charges of £0.9m
— Final dividend increased by 27.3% to 5.6p, giving a full year dividend of 8.4p
— Fully diluted adjusted EPS* increased by 9.9% to 10.0p (2018: 9.1p)
— Strong financial position, with cash of £12.2m (2018: £10.6m)
Operational Highlights
— Tatton launched its new in-house administration portal ensuring scalability and
supporting future growth
— Tatton completed a project to transfer Authorised Corporate Director (“ACD”)
delivering efficiencies for the Group and decreased the fund operating costs
for end investors
— Tatton increased its member firms by 30.5% to 445 (2018: 341) and number of
accounts to 58.500 (2018: 48.800)
— Paradigm Mortgage Services (“PMS”), the Group’s mortgage and protection
distribution business, increased gross lending via its channels by 23.5% to
£8.4bn (2018: £6.8bn)
— Paradigm Mortgage Services increased the number of mortgage firms by 14.1%
to 1,392 (2018: 1,220)
— Paradigm Consulting, the Group’s compliance services business, increased new
members by 6.0% to 390 (2018: 368)
* See page 70 for details of alternative performance measures.
TAT T O N A S S E T M A N A G E M E N T P L C
A L L T H E B U S I N E S S E S I N T H E TAT T O N A S S E T M A N A G E M E N T
G R O U P A R E F O C U S E D O N H E L P I N G I F A S T O G R O W .
W E H E L P T H E M T O R E A L I S E T I M E A N D C O S T E F F I C I E N C I E S ,
R E D U C I N G T H E B U R D E N O F C O M P L I A N C E A N D A P P LY I N G
T H E B E N E F I T S O F T E C H N O L O G Y I N N O V AT I O N A N D L E A D I N G
E D G E P R A C T I C E S .
W E U S E O U R S C A L E A N D K N O W L E D G E T O A D D V A L U E T O
A D V I S E R S . B Y D O I N G T H I S , W E E N A B L E I F A S T O F O C U S O N W H E R E
T H E Y C A N A D D T H E G R E AT E S T V A L U E T O T H E I R C L I E N T S .
“
We enable
IFAs to prosper,
we make their life
simpler, so they
can focus on their
clients and build
a better business
“
P A U L H O G A R T H
C h i e f E x e c u t i v e O f f i c e r
Tatton Asset Management Annual Report and Accounts 2019
01
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS AT A G L A N C E
O U R B U S I N E S S
G R O U P R E V E N U E
T a t t o n A s s e t M a n a g e m e n t
p r o v i d e s o n - p l a t f o r m o n l y
d i s c r e t i o n a r y f u n d m a n a g e m e n t ,
r e g u l a t o r y , c o m p l i a n c e a n d
b u s i n e s s c o n s u l t i n g s e r v i c e s ,
a n d a w h o l e o f m a r k e t m o r t g a g e
p r o v i s i o n , t o d i r e c t l y a u t h o r i s e d
F i n a n c i a l A d v i s e r s a c r o s s t h e U K .
We h a ve t h r e e o p e r a t i n g d i v i s i o n s :
Ta t t o n I n v e s t m e n t M a n a g e m e n t ,
P a r a d i g m C o n s u l t i n g a n d P a r a d i g m
M o r t g a g e S e r v i c e s .
G R O U P R E V E N U E
£17.5m
+12.9%
A D J U S T E D O P E R A T I N G P R O F I T
£7.3m
+12.3%
£ 2 . 7 M
2019
£ 8 . 7 M
£ 6 . 1 M
£ 2 . 4 M
£ 6 . 3 M
2018
£ 6 . 8 M
Tatton Investment Management
Paradigm Consulting
Paradigm Mortgage Services
02
Tatton Asset Management Annual Report and Accounts 2019
H O W W E A R E S T R U C T U R E D
TAT T O N A S S E T M A N A G E M E N T
P L C ( “ TA M ” O R “ G R O U P ” )
TAT T O N I N V E S T M E N T
M A N A G E M E N T
An investment manager providing discre-
tionary fund management to the clients of
investment advisers through wrap-platform
technology. It manages over £6.1 billion of
assets for the private clients from 445 UK
Financial Adviser firms.
Advisers benefit by being able to offer their
clients full discretionary asset manage-
ment whilst retaining complete control
of those relationships, together with the
ability to manage their clients’ portfolios
through existing platform arrangements.
P A R A D I G M C O N S U LT I N G
P A R A D I G M M O R T G A G E S
Paradigm Consulting is a leading provider
of support services, such as compliance,
and other related products/services to
directly authorised Financial Advisers
in the UK since its foundation in 2007.
Paradigm Mortgage Services is one of
the UK’s leading mortgage distributor
businesses, with membership of over 1,300
directly authorised firms, representing
c.3,500 regulated advisers.
In a highly regulated, fast changing
industry, Paradigm Consulting is setting
new standards in service, strategic and
technical solutions, ensuring its adviser
partners have access to the best propo-
sitions from across the financial market.
Paradigm Mortgage Services provides
access to a whole of market lending panel
as well as a wide range of mortgage and
related support services, such as special-
ist lending distributors, conveyancing
partners and general insurance via Para-
digm Protect.
— 445 firms
— Representing over 58,500 client accounts
— £6.1bn Assets Under Management
— 390 member firms
— Representing over 1,100 individual Inde-
pendent Financial Advisers (“IFAs”)
— 1,392 members
— £8.4 billion gross lending
(“AUM”)
Challenger model for Discretionary
Fund Management (“DFM”)
— On-platform only
— Complementary in-house fund range
— Low cost
IFA support services
— Financial Conduct Authority (“FCA”)
Compliance services
— Technical support
— Business consultancy
Adviser support services
— Mortgage aggregation
— Protection
— Other insurance aggregation
Percentage of revenue
Percentage of revenue
Percentage of revenue
50.0%
34.6%
15.4%
Tatton Asset Management Annual Report and Accounts 2019
03
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS C H A I R M A N ’ S L E T T E R
Our
focus:
organic
growth
The financial year ended 31 March 2019
has seen the Group make further progress
against the backdrop of a complex and chal-
lenging market environment. Despite these
headwinds the Group has delivered double
digit percentage organic growth in both
revenue and profit and continued to see
strong net inflows in Assets Under Manage-
ment (“AUM”).
adjusted earnings per share is an increase
of 9.9% to 10.0p (2018: 9.1p). Basic earnings
per share was 8.7p (2018: 4.1p).
Tatton Investment Management, our on
platform discretionary asset manager
increased AUM by 24.5% to £6.1 billion
(2018: £4.9 billion) with strong net inflows
of £1.1 billion. Paradigm Consulting, the
Group’s IFA adviser and support services
business increased members by 6.0% to
390 and Paradigm Mortgage Services,
the Group’s mortgage services business
continues to grow well with membership
increasing by 14.1% to 1,392.
S T R AT E G Y
The Group’s strategic objectives are
unchanged. We retain our focus on organic
growth through the provision of products
and services that are designed to enable
Independent Financial Advisers (“IFAs”) to
better advise their clients, and we continue
to invest in both people and technology
that will steadily grow the business by
enhancing our support for IFAs.
R E S U LT S
The Group achieved another year of
growth, with revenues increasing by
12.9% to £17.5 million (2018: £15.5 million).
Adjusted Operating Profit increased by
12.3% to £7.3 million (2018: £6.5 million)
and profit before tax, after incurring excep-
tional costs and share-based payment
charges was £6.1 million (2018: £3.6 million).
The resulting impact on fully diluted
Challenging market conditions continue to
create opportunities and threats in diverse
areas and we are alert to the chance of
augmenting the business through acqui-
sition. We have evaluated several oppor-
tunities during the period under review
but remain disciplined in ensuring that
any possibility is complementary and
strategically aligned to the existing model,
and is earnings enhancing.
* Alternative performance measures detailed on p70
04
Tatton Asset Management Annual Report and Accounts 2019
O U R P E O P L E
As always, our grateful thanks go to all our
staff within the business for their hard work
and ability to deliver the right outcomes
for our customers which ultimately leads to
our success as a business. We continue to
invest in new talent to support our growth
and remain committed to developing all
our people across all functions to achieve
their goals.
B O A R D A N D C O R P O R AT E
G O V E R N A N C E
Tatton Asset Management remains commit-
ted to the highest standards of corporate
governance. The Board and its commit-
tees are key to guiding the Company and
leading its strategy and we are determined
to ensure that we have the right skill set
to steer the Group forward. In a business
evolving at pace, we maintain a governance
structure that underpins and encourages
growth, while ensuring effective controls
and safeguards are in place.
D I V I D E N D S
Given the Group’s performance this year
and the Board’s confidence in the imme-
diate outlook, the Board is proposing a
final dividend of 5.6p per share, bringing
the total ordinary dividend for the year to
8.4p per share, an increase of 27.3%, and is
1.2 times covered by adjusted earnings per
share. The Board operates a progressive
dividend policy and targets a payout ratio
in the region of 70% of annual adjusted
earnings per share over the medium term.
O U T L O O K
The Group is strategically well positioned,
and we continue to reinforce our status
with strong organic growth. As we enter
the new financial year, we look to build on
the success achieved to date and deliver
continued sustainable growth through
further investment, efficient operations
and customer service, as well as delivering
continued returns to our shareholders
through a progressive dividend policy.
We are confident regarding the future
opportunities for the Group and remain
optimistic over our ability to deliver further
progress in the coming year.
R O G E R C O R N I C K
Chairman
C H I E F E X E C U T I V E ’ S B U S I N E S S R E V I E W
We’re in an
unrivalled position
to capitalise
on market
opportunities
P A U L H O G A R T H
Chief Executive Officer
C H I E F E X E C U T I V E ’ S B U S I N E S S R E V I E W C O N T I N U E D
I am very pleased to present the Annual
Report of our second year as a listed entity.
The last twelve months have been a period
when the impact of political changes for all
in the UK is yet to be fully comprehended
and the long-term impact entirely fore-
seen. To make a distinction with Brexit
where the outcome remains unclear, the
direction of travel of financial regulation
could not be any clearer. Transparency,
with a focus on customer outcomes and
an obligation to demonstrate value is
paramount. Financial services firms and
investment managers are now compelled to
regularly report all costs to clients to help
demonstrate the value they add. Tatton is
ideally positioned to take full advantage
since these changes are entirely in line with
our values, business model, and products
and services.
The strategy of our Group has not changed.
We are committed and excited by the
opportunity of growing our business as
a service provider of choice to directly
authorised Financial Intermediaries across
all of their major products and services.
As we have stated before, we champion
the Independent Financial Advice sector
because it is the most competitive part of
the financial services sector, yet also the
most fragmented and since Retail Distribu-
tion Review (“RDR”) and Mortgage Market
Review (“MMR”) the least supported in UK
financial intermediation. Working closely
with Financial Advisers is of mutual benefit
since we gain an insight into the market
that allows us to develop products and
services in line with the needs of advisers
and their clients that are fit for current and
future regulatory expectations.
M A R K E T O V E R V I E W
As we reported in our inaugural Annual
Report, the market for financial advice is
continuing to grow. It is widely accepted
that the role of the state in retirement
provision will be limited to a State Pension,
further work place pension auto-enrolment
will help but flexible working practices and
career changes mean that consumers,
of all financial circumstances, can find
planning for retirement and investing to
gain financial peace of mind daunting.
TAT T O N A S S E T S U N D E R M A N A G E M E N T
( £ B N )
8
7
6
5
4
3
2
1
0
April
2013
April
2014
April
2015
April
2016
April
2017
April
2018
April
2019
Tatton Assets under Management
tunity for financial advice, and financial
services firms are adopting a number of
strategies to meet this market demand.
Last year we reported on how adoption
of technological solutions is being used to
meet consumer need, either to enhance
the benefits of face to face intermediated
advice or to provide artificial intelligence
led robo-advice.
In the last twelve months, robo-advice busi-
nesses are struggling with low uptake from
consumers. Contrary to their experience,
many IFA businesses are thriving. Tatton is
a business that has always believed in the
benefits of independent intermediated
advice and we are very encouraged by
how the IFA market is adapting to regu-
latory change and the related increase
in costs, delivering value to their clients
while maintaining profitable businesses.
We know from dialogue with IFAs that the
imposition of regulatory change creates
operational challenges in back office
systems, compliance and increases the
burden on management time. It is refresh-
ing and encouraging that the industry
is moving toward what we have been
advocating since our creation, a focus
on using technology to lower costs and
increasing business efficiency, without
reducing service standards.
G R O W T H I N R E V E N U E
12.9%
C L I E N T A C C O U N T S
58,500
A U M
£6.1bn
created by the MiFID II regime, in particular
all the charges and expenses levied within
investment portfolios. Our research has
revealed that for investors and advisers
using traditional off-platform discretion-
ary asset management firms, this level
of disclosure will be enlightening, and
unfortunately place pressure on the fees
they charge for the stewardship of their
clients’ finances.
Rather than an obstacle to IFAs’ businesses
we see increased fee disclosure as an oppor-
tunity for the IFA to actively manage costs
for their clients and demonstrate how
they are adding value. The opportunity
for the Group as a provider of two of the
core functions for an IFA business adapt-
ing to these changes is clear: compliance
consultancy and low cost outsourced
investment fulfilment.
The complexity of financial planning for
consumers is creating a vibrant oppor-
The most significant change to the financial
advice sector is the increased disclosure
06
Tatton Asset Management Annual Report and Accounts 2019
F O C U S I N G O N G R O W T H
By giving
IFAs the best
investment
management
products at a
sector leading
price point
Tatton Investment Management combine
a range of platform offerings designed
around our clients with market leading
discretionary portfolio management
services. Our cost model delivers the
lowest annual fees in the sector which is a
significant factor in the speed of growth
of our IFA client numbers as well as AUM.
Tatton Asset Management Annual Report and Accounts 2019
07
C H I E F E X E C U T I V E ’ S B U S I N E S S R E V I E W C O N T I N U E D
F O C U S I N G O N G R O W T H
By developing as the
premier distributor
for directly
authorised firms
and IFAs, they
can provide the
best mortgage and
protection solutions
to their clients
Paradigm Mortgage Services provides
a wide range of mortgage and related
support services, such as Mortgage aggre-
gation, General Insurance, specialist
lending placement and related products
& services. Our membership of 1,392
directly authorised firms employing
c.3,500 regulated advisers gain access
to a whole of market lender panel.
We provide members with extensive
support for regulatory changes via bulle-
tins and factsheets, as well as giving
them access to our highly-commended
mortgage helpdesk.
08
Tatton Asset Management Annual Report and Accounts 2019
F R O M I N I T I AT I O N T O I M P L E M E N TAT I O N
2. Our approach allows us to
identify opportunities and use them
in appropriate portfolios
4. We rebalance when
necessary or when opportune,
not just automatically
6. We complete portfolio construction
by identifying the representatives in
each asset class
S T A G E 1 :
Core Beliefs
S T A G E 2 :
Strategic Asset
Allocation
S T A G E 3 :
Benchmark
Portfolios
S T A G E 4 :
Tactical Asset
Allocation
S T A G E 5 :
Fund Research
S T A G E 6 :
Portfolio
Construction
and Risk
Management
S T A G E 7 :
Execution and
Monitoring
1.
Investment excellence
has three elements:
generating
returns; risk
management; and
competitive fees
3. We stay within
our clients’ risk
parameters and
manage costs,
a compelling
combination
for investors
5. Our analytical
approach
ensures we
make decisions
on which assets
should or
shouldn’t be held
7. Outcomes
matter: we focus
on delivering
consistent
and superior
investment returns
by identifying the
direction of travel
of economic and
capital markets
Whilst it is pleasing that we do not have to
adapt our business to the new regulatory
regime, this is not the position for many
advice firms. It is clear that the creation and
management of investment portfolios
for clients for many IFAs is becoming
unfeasible. Research from the lang cat ltd
has shown that an adviser managing their
own clients’ portfolios has to produce
over 140 pages of reporting per client
per quarter in the simple day to day
management of a client’s portfolios.
It is no surprise that more Financial
Advisers are therefore seeking to outsource
investment fulfilment to on-platform
discretionary providers that can meet
their clients’ investment requirements,
without adding significant additional
cost now revealed through the MiFID II
regime rules.
For Tatton, we are not only able to manage
the transition to a new investment service
from a compliance and business support
function, but also provide award winning
discretionary asset management. We make
it easier for IFAs to change their businesses
and adopt a fit for future purpose invest-
ment fulfilment function. As we reported
last year this is a virtuous circle: the Group
benefits by supporting and facilitating a
better, more efficient supply of financial
advice to satisfy increasing consumer
demand for professional financial advice.
O U R S E R V I C E S
We have not stood still in our second year
as an AIM listed entity. Our independence,
robust financial position and operationally
transparent business have allowed us to
maintain our Group strategy and enhance
our products and services. As a Group we
create significant benefits through market
intelligence gained by developing and
maintaining deep, strategic relationships
with our Financial Adviser firms which is
reflected in the changes we have made
to our Group businesses.
We make life simpler
for IFAs, so they can
focus on their clients
and build a better
business
TAT T O N I N V E S T M E N T
M A N A G E M E N T
This year has been one of consolidated
expansion for Tatton. We have been able
to significantly increase the number of
new IFA firms working with us and our
experience shows we can expect greater
allocations from their clients over time.
New engagement with adviser firms is
also being reflected in our new pipeline
which remains strong.
We now have 445 (2018: 341) adviser
firms and over 58,500 (2018: 48,800)
client accounts with an average portfo-
lio size of £104,000, further evidence of
the attraction of making competitively
priced high quality investment prod-
ucts available to the clients of Financial
Advisers. AUM has grown from £4.9 billion
to £6.1 billion in the year.
Our focus for the next year will be to enhance
and evolve our product offering. There are
significant market opportunities where we
can apply our values and way of working
with advisers and their clients, providing
the same value as we have demonstrated
with our Model Portfolio Service range
of strategies.
To extend our reach into other areas, we
will seek to strategically partner with other
leading UK Financial Advice firms and fulfil
their need for a centralised investment
proposition. We are also developing the
means to develop third party investment
management functions for existing smaller
sized Discretionary Fund Managers.
I am pleased to report that the Tatton Blended
Funds are gaining traction in the market and
now have a combined £71.7 million of assets
Tatton Asset Management Annual Report and Accounts 2019
09
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS C H I E F E X E C U T I V E ’ S B U S I N E S S R E V I E W C O N T I N U E D
under management. They remain some of
least expensive multi-asset, multi-manager
funds in the market.
Tatton is ideally positioned as a business
to benefit significantly from the market
dynamics created by regulatory changes
and the cost pressure this places on some
of our competitors.
P A R A D I G M M O R T G A G E S
As many people attempting to sell their
homes know, the UK housing market has
been directly affected by the uncertainty
of Brexit. In an enhanced and significantly
more rigorous regulatory environment,
the role of Financial Advisers in helping
those moving with investing in and
securing the best mortgage deal is
therefore heightened and remains an
opportunity for Paradigm Mortgages.
I am very pleased, therefore, that despite
difficult market conditions Paradigm
Mortgages has grown its membership
by 14.1% and its lending volume by
23.5% over the past twelve months and
has increased revenues to reflect this
growth. The benefit to Financial Advisers
and the carried benefit to their clients of
aggregating mortgage lending and life
insurance is clear. As a scalable business,
I am confident that Paradigm Mortgages
is ideally placed to enhance its growth,
particularly when confidence in the UK
housing market is restored following an
eventual Brexit resolution.
P A R A D I G M C O N S U LT I N G
The changes to how Financial Advisers
manage their businesses and outsource their
core functions is reflected in the changes
we have made at the start of 2019 to Para-
digm Consulting and its model. This change
has created challenges at the same time
as opportunities but ultimately has made
Paradigm Consulting more adaptable.
While member numbers have increased in the
year, revenue has decreased to £6.0 million
(2018: £6.8 million) due to lower levels of
additional consultancy and reduced flows
on the Paradigm wrap platform.
Board members of the Group companies
delivering solutions to advisers’ needs and
providing bespoke consultancy support
to help firms effectively manage the risk
of an ever changing regulatory landscape.
The introduction of a wider range of services,
as well as new fee propositions, means that it
now has the model and capability to benefit
from the changes to how Financial Adviser
firms engage with compliance provision.
Rebranding as a consultancy practice in
January 2019, the business’ focus is firmly on
its core competency of regulatory support.
Developing close and value adding relation-
ships with firms that subscribe for support
on an ongoing basis sits at the very heart
of the business, with the remodelling of
the business now also allowing for ad-hoc
work to be undertaken, providing flexibility
for firms that prefer to pay more for the
convenience of utilising outsourced guid-
ance as and when this is needed.
Through a combination of new face to face
and remote consultancy programmes, live
events, enhanced technical support and
up to the minute regulatory reporting, the
consultancy services made available are
designed to effectively support advisers in
creating even greater efficiencies in their
business, allowing them time to properly
focus and interact with their clients.
The business has always maintained close
relationships with its Financial Adviser
firms, championing the world of face to
face financial advice, listening closely and
Moving forwards as Paradigm Consulting,
the recent changes made to the model
place the business in a stronger position to
extend its reach into the adviser community,
with the aim of helping a larger number of
10
Tatton Asset Management Annual Report and Accounts 2019
firms to manage regulatory risk effectively
by adopting highly regarded consultancy
guidance and support in a way which suits
them best.
O U T L O O K
The outlook for the Group is positive. We are
a young business, with a model built on
years of experience and understanding of
the Financial Advice sector. I am therefore
pleased that the way Financial Advisers
build their businesses and how they are
regulated is now very much aligned with
our business model and vision.
The insight we gain through our Financial
Adviser clients is an integral part of how
our businesses will grow. Our benefit is
created by improving and increasing the
day to day business and long-term security
of Financial Advisers, a sector we remain
committed to serve.
As we maintain our growth and perfor-
mance we have created a platform from
which we continue to execute our strategy.
We have a simple lean operating model
that gives the IFA and their clients the
best investment management products
at a sector leading price point and we will
continue to focus on their needs while
ensuring we create value for our share-
holders. With a strong balance sheet we
will invest for growth, ensuring we have the
right blend of skills and talent to ensure we
capitalise on the opportunities that exist in
our markets. As we continue into 2019 we
are confident of making further progress.
F O C U S I N G O N G R O W T H
Providing industry
leading knowledge
and technical
support in order to
help IFAs comply
whilst allowing
them to focus
on growing
their business
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
The ever-changing regulatory backdrop
means that IFAs need help with one-off
and ongoing compliance projects as
well as assistance with technology and
operational issues. Through Paradigm
Consulting we offer expert advice and
support to help IFAs build and main-
tain a solid regulatory foundation; the
necessary backbone for any successful
financial services business.
Tatton Asset Management Annual Report and Accounts 2019
11
STRATEGIC REPORT
C H I E F I N V E S T M E N T O F F I C E R ’ S R E P O R T
AUM inflows grew by 16.2% over the year,
while the core proposition is expanded
to enhance future growth potential.
For the preceding two financial years, global
capital markets were relatively benign.
But even though that calm backdrop has
ended, Tatton Investment Management
(“Tatton”) has continued to increase its rate
of business growth. Assets under manage-
ment increased by 24.5% to £6.1 billion
(2018: £4.9 billion). Of the £1.2 billion increase,
£1.1 billion was a result of net cash inflows,
which amounts to a 16.0% increase compared
with the previous financial year.
From an industry perspective, 2018 was
marked not only by a return of volatile capi-
tal markets but also decisive regulatory
change. The introduction of MiFID II has
significantly increased regulatory burdens
for both the investment and private client
advice industries. But Tatton was one of the
few beneficiaries of the change. MiFID II
forced the UK adviser community to pay
more attention to portfolio charges arising
from performance drag. That made our
low cost and highly transparent charging
model more attractive.
P R O P O S I T I O N D E V E L O P M E N T S
A N D B U S I N E S S I N V E S T M E N T S
In FY 2018, Tatton launched the VT Tatton
Blended Funds range, a unitised version
of our hybrid active/tracker portfolios.
In doing so, we have made our cost effi-
cient Model Portfolio Service (“MPS”)
service available on those investment
Tatton
accelerates
business
growth
L O T H A R M E N T E L
Chief Investment Officer
12
Tatton Asset Management Annual Report and Accounts 2019
platforms and product wrappers that
cannot accommodate segregated DFM
structures. This consists of three UK
Non-UCITS Retail Schemes funds to
which fund administrator Valu-Trac were
appointed as outsourced ACD. To achieve
identical returns to the segregated platform
portfolios without extensive seed monies,
Tatton had to temporarily subsidise the
£0.2 million fixed cost element following
the fund’s launch. This went above and
beyond the usual costs of new fund launches
but established a flawless early tracking of
the portfolios by the VT Tatton Blended
Funds. This allowed us to point potential
investors to the five-year track record of
Tatton’s investment process rather than
having to establish a separate returns track
record for the new range.
Tatton also appointed Valu-Trac as ACD
for the other existing Tatton fund ranges.
By the end of the financial year, all ranges
surpassed a total of £2 billion in assets under
management. The benefits are already being
felt through improved efficiency and reduced
fund charges. During the second half of the
financial year, we incurred a one-off project
and transitioning costs of £0.3 million to
successfully deliver the project.
In response to the rising popularity of
Tatton’s Balanced Ethical portfolio, the
single portfolio option was extended to a
full risk profiled range which, since launch,
has attracted much adviser, client and media
interest. While growing rapidly towards the
£100 million mark from a standing start,
we suspect that Tatton’s exclusive risk-pro-
filed ethical portfolios also attracted more
clients to Tatton in general, as initial interest
in the Ethical/Environmental Social and
Governance fund portfolios led adviser
firms towards Tatton’s services.
A major business focus was the step up in
sales and marketing activity. This was driven
forward by the hiring of a national sales
director and a head of communications and
marketing in early 2018. Beyond various
road shows to potential and existing Tatton
using firms, this has also provided us with an
enhanced penetration approach to national
IFA networks.
At the beginning of 2019, we revealed an
extension to our existing platform based
DFM services through the introduction of
a platform only Bespoke Portfolio Service
(“BPS” ) proposition. This complimentary
service aims to cater for individual client
requirements which cannot be fulfilled
through the MPS proposition. There is a
substantial business opportunity in this
market segment, due to the cost effec-
tiveness of transactions in the platform
model and the increasing cost transpar-
ency pressures on the traditional wealth
management providers. In February, we
were delighted to announce that one of the
UK’s foremost BPS industry experts, Claire
Bennison (formerly Brooks Macdonald),
had joined to lead this development.
2 0 1 8 / 1 9 C A P I TA L M A R K E T S
A N D R E T U R N S
Investment portfolio returns for the 2018
calendar year proved challenging across
the industry, as the sudden and rapid drying
up of central bank liquidity provision led
to a substantial stock market correction
in the last quarter of 2018. The global
economy, however, only suffered a slow-
down and stock markets recovered almost
as rapidly in the first quarter of 2019 as
they did after a similar episode in the first
quarter of 2016.
While Tatton’s portfolios across all risk
profiles ended the calendar year with
some losses in absolute terms, these were
reduced through some of the tactical
asset allocation calls the investment team
made in particular, the equity underweight
position versus benchmark during most
of the year and the temporary removal
of all emerging market exposure from all
portfolios barring the highest risk global
equity strategies.
The outcome was that the liquidity-induced
market correction hit active managers’
stock selection strategies particularly hard,
as they suffered substantial outflows while
tracker ETF funds enjoyed significant inflows.
Despite identical asset allocation positions,
Tatton’s active fund-based portfolios there-
fore underperformed the tracker-based
portfolios and gave back some of the relative
performance gains from 2017. This is now
the second time we have observed this
active versus passive performance cycle.
And judging from experience, we expect
it to be transitory once more.
I N V E S T M E N T P O R T F O L I O R E T U R N S
1 A P R I L 2 0 1 8 – 3 1 M A R C H 2 0 1 9
Tatton* Fund Performance (%) – core produce set (1/4/2018–31/03/2019, after
DFM charge and fund costs)
Tatton Active Tatton Tracker Tatton Hybrid Tatton Ethical
IA Sector**
Defensive
Cautious
Balanced
Active
Aggressive
Global Equity
2.4
2.7
2.6
2.5
2.5
4.8
3.0
3.7
4.0
4.0
4.3
7.4
2.7
3.2
3.3
3.3
3.4
6.1
3.6
4.5
5.2
5.9
6.6
7.0
2.4
2.9
3.7
4.4
3.3
3.3
S I N C E L A U N C H 1 / 2 0 1 3
Tatton* Fund Performance (%) – core produce set (1/1/2013–31/03/2019,
annualised, after DFM charge and fund costs)
Defensive
Cautious
Balanced
Active
Aggressive
Tatton Active Tatton Tracker Tatton Hybrid
IA Sector**
4.8
6.6
7.8
9.0
9.7
5.1
6.4
7.6
8.9
10.1
5.0
6.6
7.8
9.1
9.8
4.0
5.2
6.2
7.2
7.2
* Tatton – Tatton Investment Management Limited, the regulated subsidiary of the Group.
** IA – Investment Association managed fund peer group with comparable asset allocation characteristics.
Ethical portfolios performed particularly
strongly; however, this was to a large extent
structural, due to their greater allocation
to US and tech stocks as a consequence
of the specificity of the ethical investment
universe and its concentration in the US
and tech sector.
default levels (due to the unprecedented
accommodative monetary policy) there
are justified concerns that a central bank
policy mistake of tightening too much or
too early could lead to a far more severe
and a more global credit default cycle than
has historically been observed.
For the financial year ahead, our busi-
ness development efforts will focus on
establishing an increasing amount of
distribution partnerships with national
adviser networks and further extending
our service offering. This will be done
through our MPS complementing fund
ranges, gaining a solid foothold in the
BPS market and enhancing our platform
MPS DFM with “at retirement” cash flow
management drawdown option.
O U T L O O K
We expect volatile market conditions to
continue as central banks will continue
to try and gradually normalise monetary
intervention levels back to the historical
average. In this environment, risk asset
markets are reacting increasingly strongly
to any hints of credit markets deterioration.
This is likely to be the consequence of a
higher perceived vulnerability of risk asset
markets to the next corporate default
cycle. After a decade of extraordinarily low
We believe that Tatton’s highly disciplined
active/passive investment approach is well
positioned to deal with the challenges and
harness the opportunities ahead without
exposing clients any more to volatility risk
than they established and agreed with their
financial advisers as acceptable. The Q1
2016 and Q4 2018 market corrections have
also shown us that our communications
materials are effective in soothing client
worries – and therefore key to preventing
end clients from mistiming the market.
The combination of both proposition
elements should lead to better long term
client investment outcomes than experi-
enced before or elsewhere. This should
continue to support the longevity of our
adviser and client relationships that has
been just as instrumental to our strong
business growth of the past six years as the
cost effectiveness we are best known for.
L O T H A R M E N T E L
Chief Investment Officer
Tatton Asset Management Annual Report and Accounts 2019
13
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS O U R M A R K E T S H A R E
TAT T O N I N VE S T M E N T M AN A G E M E N T
T O T A L O N - P L A T F O R M
F U N D S U N D E R
M A N A G E M E N T ( “ F U M ” )
£ 5 2 1 b n 1
O N - P L AT F O R M
D F M F U M
£ 41 . 6 b n 2
TAT T O N
A U M
£ 6 .1 b n
Market trends: 1
4
5
7
P A R A D IG M C O N S U LT I N G
T O T A L N U M B E R
O F I F A F I R M S
1 3 , 6 9 0
N U M B E R
O F D I R E C T LY
AU T H O R I S E D
I FA F I R M S
5 , 5 1 2 3
N U M B E R O F
CO N S U LT I N G
M E M B E R S
3 9 0
Market trends: 1
2
3
5
7
P A R A D IG M M O R T G A G E S
T O T A L G R O S S
L E N D I N G
£ 2 70 b n 4
I N T E R M E D I A RY
G R O S S L E N D I N G
£ 1 97 b n
PA R A D I G M
M O R T G AG E S
GROSS LENDING
£ 8 . 4 b n
Market trends: 2
3
6
7
1. Total FUM: ‘UK Adviser Platform Guide’ Platform, September 2018
2. On-platform DFM FUM: ‘UK Fund Distribution: Model Portfolios on Platform’ Platform, July 2018
3. Number of IFA firms: ‘The Financial Adviser Market: In Numbers’, PIMFA, September 2018
4. Total Gross Lending: UK Finance
14
Tatton Asset Management Annual Report and Accounts 2019
M A R K E T T R E N D S
1
G R O W I N G S T R E N G T H
O F T H E I F A S E C T O R
The IFA sector continues to grow in
strength. While the number of firms
remains broadly static the demand for
independent advice continues to increase
as the mass affluent look to make complex
decisions around retirement planning,
inheritance planning and pension consol-
idation. Robo-advice is yet to make the
impact that was predicted with clients still
preferring the direct contact and advice
from qualified IFAs who can help them
develop a better understanding of their
financial life and build powerful relation-
ships that go well beyond the transactional
nature of many digital financial services.
Our response
We help and support the IFA to deliver the
best solutions for their client by offering
investment solutions in addition to expert
advice and support with FCA regulatory
policy and compliance to help IFAs build a
solid foundation to provide better value and
even better advice, results and outcomes
for their clients.
2
I M P A C T O F R E G U L AT O R Y
C H A N G E
The market demand for financial advice
is growing however, the ability of Finan-
cial Advisers to meet this demand has
been challenged partly due to increased
regulatory pressures, such as MiFID II
and General Data Protection Regulation.
The need to comply with increasing regu-
lation means firms face significant cost
and resource challenges.
Our response
Within our Paradigm Consulting and Mort-
gages divisions, we have the expertise
and capabilities to adapt efficiently to
new regulation and to provide support,
training and other consultancy services
to our existing and new firms. All of the
Group businesses support and facilitate
a better, more efficient supply of financial
advice to satisfy increasing consumer
demand for professional advice.
3
I M P A C T O F I F A I N D U S T R Y
C O N S O L I D AT I O N
The last few years have seen a number of
acquisitions and mergers in the IFA market.
With the core reason for sale remaining
retirement and the average age of the
IFA nearing 50, succession planning is
high on the agenda. As such, the trend of
consolidation looks set to continue with
potential acquirers driven by geograph-
ical expansion, economies of scale , the
opportunity for vertical integration and
diversification continuing to drive Merger
and Acquisition (“M&A”) activity.
Our response
The Group continues to access the pipeline
of opportunities from existing relationships
while growing the number of new firms
across all parts of its business.
4
C L I E N T S A R E D E M A N D I N G
M O R E C H O I C E , V A L U E
F O R M O N E Y A N D F E E
T R A N S P A R E N C Y
Clients want a choice of investment options
so they can choose what best suits their
circumstances. In addition, they want a
clear understanding of how much they
are paying so they can determine which
option provides the best value for money.
Following the introduction of MiFID II,
clients can more easily view the cost of
the services they receive.
Our response
Tatton offers a range of funds and portfolios,
available across a number of platforms
to give clients more choice in how they
invest. We can clearly demonstrate the
value of our investment propositions and
provide transparent pricing.
5
G R O W I N G S T R E N G T H
O F P L AT F O R M M A R K E T
The platform market is fast growing and
becoming an increasingly attractive
method for managing investments. In 2017,
there were £521 billion of assets under
administration on investment platforms1.
Following the FCA’s Investment Platforms
Market Study in March 2019, it should
become easier for consumers to choose
or switch platforms through clearer infor-
mation regarding charging structures
and the reduction or removal of exit fees.
Our response
Tatton adopts a platform agnostic
discretionary portfolio management
service as a centralised investment
proposition for Financial Advisers. Tatton’s
products are available across 11 major
platforms, increasing access to discre-
tionary asset management.
6
A P P E T I T E F O R
L E N D I N G
The Big Six lenders are dominating the
mainstream space where they are pricing
for market share and the next 12 months
show no sign of abatement with overall
lending volumes remaining relatively flat.
However, the remainder of the market is
showing growth and innovation of products
that are suited to the intermediary market.
Our response
By increasing our membership each month
and adding new lenders who are looking
to develop a quality lending base to our
panel on a regular basis, we have been
able to outperform the market these past
three years and this strategy means we
can maintain this going forward.
7
G ROWI N G CO N S U M E R
E N GAG E M E NT I N MANAG E -
MENT OF FINANCIAL AFFAIRS
In the UK, as we face a growing ageing
population the cost of funding retirement
has increased. Government and companies
have limited pension provision, meaning
that individuals have had to become more
self-reliant in planning for their long-term
needs. A sustained period of low inter-
est rates has led investors to seek other
means of growing their capital through the
use of long-term investments alongside
cash savings.
Our response
As a Group we have an increasing IFA
customer base, which we support through
the provision of financial advice and wealth
management services to their clients.
Through the improving recognition of
the Tatton brand, we are able to offer a
diversified product range. We continue
to develop and launch new investment
products and focus on delivering strong
investment performance.
Tatton Asset Management Annual Report and Accounts 2019
15
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
B U S I N E S S M O D E L
We s u c c e e d b e c a u s e w e w o r k
c l o s e l y w i t h I FA s t o u n d e r s t a n d
w h a t t h e y a n d t h e i r c l i e n t s n e e d ;
t h i s a l s o h e l p s u s t o d e v e l o p
o u r m a r k e t i n s i g h t t o s u p p o r t
t h e f u t u r e d e v e l o p m e n t o f t h e
o v e r a l l G r o u p o f f e r.
O U R I N P U T S
H O W W E C R E AT E V A L U E
PA R A D I G M
CO N S U LT I N G
C O M P L I A N C E A D V I C E A N D
S U P P O R T T O I F A S
— 3 9 0 M E M B E R F I R M S
— O V E R 1 , 1 1 0 A D V I S E R S
R E L AT I O N S H I P W I T H I F A S
We provide high quality investment
management, consultancy and mort-
gage related services which empower
IFAs to support their clients. We establish
long-lasting relationships to support IFAs
in building bigger, better businesses.
R E G U L AT O R Y K N O W L E D G E
Our Paradigm Consulting team has vast
regulatory experience and technical knowl-
edge. We offer first class support to IFAs
where there is increased demand for advice
in an increasingly regulated industry.
TA L E N T E D P E O P L E
We recruit, develop and retain high
calibre people with relevant expertise
to implement our Group strategy.
C A P I TA L A L L O C AT I O N
Capital is retained for both regulatory
requirements and investment needs.
The Board considers possible M&A
opportunities that align with our wider
strategic objectives.
T E C H N O L O G Y
The Group invests in technology through
both operational and capital expendi-
ture. Investment priorities are determined
where technology supports the Group in
delivering its long-term growth strategy.
B R A N D R E C O G N I T I O N
The recognition of our brand has continued
to improve. The Group invests in cost-ef-
fective marketing and the Board is devel-
oping its branding strategy to improve
recognition and awareness.
C L I E N T
F I N A N C I A L
G O A L S
I FA
PA R A D I G M
M O R T G AG E S E R V I C E S
C L I E N T M O R T G A G E S
A N D I N S U R A N C E
— 1 , 3 9 2 M E M B E R F I R M S
— £ 8 . 4 B N G R O S S L E N D I N G
16
Tatton Asset Management Annual Report and Accounts 2019
A U M
£6.1bn
A D J U S T E D O P E R A T I N G
P R O F I T *
£7.3m
O U R O U T P U T S
S H A R E H O L D E R S
The Group has a cash-generative busi-
ness model and strong profit margins in a
growth market. The value generated from
the business is issued to shareholders as
dividends or reinvested in the business to
drive future growth. We have a progressive
dividend policy, see page 35.
C L I E N T S
We help clients achieve their long-term
goals through providing a quality service
and by managing their wealth through our
range of funds and portfolios.
I F A S
We provide IFAs with support in an increas-
ingly regulated environment and access to
whole of market lenders and distributors.
E M P L O Y E E S
Our employees support our clients and
deliver shareholder value. In return we
offer our employees challenging and
rewarding careers where they can learn
and develop.
S O C I E T Y
The services provided by the Group to
IFAs and their clients allow individuals to
save and invest with confidence. The Group
pays its taxes in full and on time and we
conduct our tax affairs in a clear, fair and
transparent way.
TAT T O N I N V E S T M E N T
M A N AG E M E N T
C L I E N T I N V E S T M E N T
P R O D U C T S
— 4 4 5 F I R M S
— 5 8 , 5 0 0 C L I E N T A C C O U N T S
— £ 6 . 1 B N A U M
Our business model is
underpinned by:
— Our Strategy, pages 18-19
— Our Risk Management
Framework, pages 22-23
— Our high standards of
Corporate Governance,
pages 30-31
* Alternative performance measures are detailed on page 70
Tatton Asset Management Annual Report and Accounts 2019
17
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS O U R S T R AT E G Y F O R G R O W T H
Our vision is:
to be the partner
of choice for all the
needs of Independent
Financial Advisers,
supplying the tools
and investment
management that
allow them to meet
the needs of their
clients whilst growing
their businesses too.
P A U L H O G A R T H
Chief Executive Officer
The Group continues to deliver increas-
ing AUM new customer acquisition and
improving financial results against the
backdrop of a complex and challenging
market environment.
We are focused on organic growth through
the provision of products and services
that an IFA requires to service its clients,
and continue to invest in both people and
technology as we develop our business
model. The Group is strategically well
positioned, and we continue to reinforce
our business with strong organic growth.
To augment our organic growth we will look
to make acquisitions that will contribute to
our strategic goals and the Group is opti-
mistic regarding the future opportunities
for the business, and remains confident
in our ability to deliver further progress.
O U R S T R AT E G Y
D E S C R I P T I O N
2 0 1 9 A C H I E V E M E N T S
2 0 2 0 O B J E C T I V E S
1 Deepen the IFA
relationships to grow AUM
S t r e n g t h e n i n g e x i s t i n g c l i e n t
— AUM has increased by 24.5% to
— Continued investment in our client
r e l a t i o n s h i p s a n d b u i l d i n g
£6.1bn from £4.9bn in the prior year
relationships through our people
n e w l o n g - t e r m r e l a t i o n s h i p s ,
— We continued to develop rela-
and technology
d e l i v e r i n g s u s t a i n a b l e v a l u e
tionships with Paradigm clients
— Broaden our proposition and
f o r b o t h t h e c l i e n t s a n d s h a r e-
who account for £4.6bn (March
service portfolio
h o l d e r s
2018: £3.9bn), while continuing to
— Maintain the market leading service
add new clients which now account
cost proposition
for £1.5bn (March 2018: £1.0bn)
2
Organic growth – Increase share
of our respective markets
F u r t h e r p e n e t r a t e o u r m a r k e t s
— Tatton Investment firms increased
— We look to maintain double digit
a d d i n g “ n e w ” f i r m s i n Ta t t o n
by 37% to 445, Paradigm Consulting
percentage growth across each of
a n d n e w m e m b e r s i n P a r a d i g m
firms increased by 6% to 390, Para-
the three businesses through invest-
C o n s u l t i n g / M o r t g a g e s
digm Mortgages firms increased by
ments in new sales
14% to 1,392
3 M&A activity remains part of
the Group’s growth strategy
4 Migration of asset “back books”
5 Strategic Partnerships
We c o n t i n u e t o l o o k t o
c o m p l e m e n t o u r s t r o n g
o r g a n i c g r o w t h t h r o u g h
t a r g e t e d a c q u i s i t i o n s t h a t w i l l
f i t s t r a t e g i c a l l y a n d b e e a r n-
i n g s e n h a n c i n g
— The Group’s balance sheet is healthy
— We considered a number of poten-
and we are well positioned to take
tial transactions in the financial year
advantage of future opportunities
ending 31 March 2019 and remain
active with a pipeline of opportuni-
ties that have the potential to fit our
wider strategic objectives
E x i s t i n g c l i e n t s u s i n g Ta t t o n ’ s
— We have continued to develop rela-
— Secure access to current asset
D F M s e r v i c e h a v e a b a c k b o o k
tionships with individual and groups
pipeline through continued rela-
o f a s s e t s t h a t w e l o o k t o
of IFAs who understand the strength
tionship development and leading
m i g r a t e o v e r t o Ta t t o n i n t h e
of the Tatton brand and the quality
service delivery
m e d i u m t e r m
of the service we offer
A g r e e m e n t s p u t i n p l a c e t o
— The Group has developed a number
— Continue to develop strategic alli-
d e v e l o p s t r a t e g i c p a r t n e r -
s h i p / a l l i a n c e s a s a n a d d i -
of strategic partnerships in the
ances that align objectives and
financial year ended 31 March 2019
deliver the best outcomes for
t i o n a l d i s t r i b u t i o n c h a n n e l t o
generating access to c.£300 million
the client
i n c r e a s e a s s e t s o n t h e Ta t t o n
of assets
D F M s e r v i c e
18
Tatton Asset Management Annual Report and Accounts 2019
O U R S T R AT E G Y
D E S C R I P T I O N
2 0 1 9 A C H I E V E M E N T S
2 0 2 0 O B J E C T I V E S
1 Deepen the IFA
relationships to grow AUM
S t r e n g t h e n i n g e x i s t i n g c l i e n t
r e l a t i o n s h i p s a n d b u i l d i n g
n e w l o n g - t e r m r e l a t i o n s h i p s ,
d e l i v e r i n g s u s t a i n a b l e v a l u e
f o r b o t h t h e c l i e n t s a n d s h a r e-
h o l d e r s
— AUM has increased by 24.5% to
£6.1bn from £4.9bn in the prior year
— We continued to develop rela-
tionships with Paradigm clients
who account for £4.6bn (March
2018: £3.9bn), while continuing to
add new clients which now account
for £1.5bn (March 2018: £1.0bn)
— Continued investment in our client
relationships through our people
and technology
— Broaden our proposition and
service portfolio
— Maintain the market leading service
cost proposition
2
Organic growth – Increase share
of our respective markets
F u r t h e r p e n e t r a t e o u r m a r k e t s
a d d i n g “ n e w ” f i r m s i n Ta t t o n
a n d n e w m e m b e r s i n P a r a d i g m
C o n s u l t i n g / M o r t g a g e s
— Tatton Investment firms increased
— We look to maintain double digit
by 37% to 445, Paradigm Consulting
firms increased by 6% to 390, Para-
digm Mortgages firms increased by
14% to 1,392
percentage growth across each of
the three businesses through invest-
ments in new sales
3 M&A activity remains part of
the Group’s growth strategy
4 Migration of asset “back books”
5 Strategic Partnerships
We c o n t i n u e t o l o o k t o
c o m p l e m e n t o u r s t r o n g
o r g a n i c g r o w t h t h r o u g h
t a r g e t e d a c q u i s i t i o n s t h a t w i l l
f i t s t r a t e g i c a l l y a n d b e e a r n-
i n g s e n h a n c i n g
— The Group’s balance sheet is healthy
and we are well positioned to take
advantage of future opportunities
— We considered a number of poten-
tial transactions in the financial year
ending 31 March 2019 and remain
active with a pipeline of opportuni-
ties that have the potential to fit our
wider strategic objectives
E x i s t i n g c l i e n t s u s i n g Ta t t o n ’ s
D F M s e r v i c e h a v e a b a c k b o o k
o f a s s e t s t h a t w e l o o k t o
m i g r a t e o v e r t o Ta t t o n i n t h e
m e d i u m t e r m
— We have continued to develop rela-
— Secure access to current asset
tionships with individual and groups
of IFAs who understand the strength
of the Tatton brand and the quality
of the service we offer
pipeline through continued rela-
tionship development and leading
service delivery
A g r e e m e n t s p u t i n p l a c e t o
d e v e l o p s t r a t e g i c p a r t n e r -
s h i p / a l l i a n c e s a s a n a d d i -
t i o n a l d i s t r i b u t i o n c h a n n e l t o
i n c r e a s e a s s e t s o n t h e Ta t t o n
D F M s e r v i c e
— The Group has developed a number
of strategic partnerships in the
financial year ended 31 March 2019
generating access to c.£300 million
of assets
— Continue to develop strategic alli-
ances that align objectives and
deliver the best outcomes for
the client
Tatton Asset Management Annual Report and Accounts 2019
19
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS K E Y P E R F O R M A N C E I N D I C AT O R S
1
Financial KPIs
G R O U P
R E V E N U E
( £ M )
A D J U S T E D
O P E R AT I N G
P R O F I T * ( £ M )
F U L LY D I L U T E D
A D J U S T E D E P S *
( P )
P R O P O S E D
F I N A L D I V I D E N D
( P )
R E T U R N O N
C A P I TA L
E M P L O Y E D ( % )
£17.5m
+ 1 2 . 9 %
£7.3m
+ 1 2 . 3 %
10.0p
+ 9 . 9 %
5.6p
+ 2 7. 3 %
47.8%
- 0 . 6 %
.
5
7
1
5
.
5
1
3
7
.
.
5
6
.
0
0
1
1
.
9
9
.
1
1
.
5
4
.
5
6
6
5
.
.
4
4
1
.
8
4
.
8
7
4
2017
2018
2019
2017
2018
2019
2017
2018
2019
2017
2018
2019
2017
2018
2019
a
/
n
a
/
n
Description
Revenue generated by the
Group for the financial year.
Description
Adjusted Operating Profit
generated by the Group*.
Comment
Revenue has grown
by 12.9% driven by the
increase in AUM and
number of member firms
receiving the Tatton and
Paradigm services.
Comment
The high level of repeatable
revenue and low level
of operational gearing
has delivered increased
profits and maintains
strong margins.
Adjusted Operating
Profits* increased by 12.3%
to £7.3 million delivering
Adjusted Operating Profit
margin of 41.7%.
Description
Final proposed dividend
per share.
Comment
Dividends represent an
important part of return
to shareholders.
A final proposed dividend
of 5.6p gives a full year
dividend of 8.4p.
Target
Continue to grow Dividends
per share in line with the
Group’s dividend policy,
detailed on page 35.
Description
Return on Capital Employed
is calculated by dividing the
Group’s Adjusted Operating
Profit* by its capital
employed (total assets less
current liabilities).
Comment
The Group is capital light
and makes efficient use of
the capital employed to
generate strong returns
and create value for
our shareholders.
Description
Adjusted profit after tax*
divided by the weighted
average number of fully
diluted ordinary shares.
Comment
An important measure of
performance as it shows
profitability reflecting the
effects of any new share
issuance and determining
the value delivered
to shareholders.
Strong growth across the
Group has delivered strong
growth in fully diluted
adjusted EPS* up 9.9% to
10.0p.
Target
Continue to grow EPS
through the scalability
of the business
model and continued
strategic execution.
* Alternative performance measures are detailed on page 70
20
Tatton Asset Management Annual Report and Accounts 2019
2
Non-financial KPIs
A U M
( £ B N )
A S S E T N E T
I N F L O W S
( £ B N )
TAT T O N
I N V E S T M E N T
M A N A G E M E N T
F I R M S
P A R A D I G M
C O N S U LT I N G
M E M B E R S
P A R A D I G M
M O R T G A G E S
M E M B E R S
£6.1bn
+ 2 4 . 5 %
£1.1bn
+ 1 0 . 0 %
445
+ 3 0 . 5 %
390
+ 6 . 0 %
.
9
4
9
3
.
1
.
6
0
1
.
1
6
9
0
.
0
0
.
1
5
4
4
0
9
3
8
6
3
2
5
3
1
4
3
7
3
2
1,392
+ 1 4 . 1 %
2
9
3
,
1
0
2
2
,
1
9
6
0
,
1
2017
2018
2019
2017
2018
2019
2017
2018
2019
2017
2018
2019
2017
2018
2019
Description
Total AUM at the end of
the year.
Comment
AUM has increased by
£1.2 billion or 24.5% this
year, increasing by over
£90 million per month
on average.
Description
Strong growth in new
clients has helped drive
increase in net inflows.
Description
Number of investment
management firms at the
end of the financial year.
Description
The year end
number of Paradigm
Consulting members.
Description
Number of Paradigm
Mortgages members at the
end of the year.
Comment
Despite challenging market
conditions during the year,
net inflows for the year have
been strong at £1.1 billion.
Comment
Strong growth in the
number of firms using
the Tatton Investment
Management DFM service.
Comment
Steady growth in new
members maintained.
Comment
Strong growth in new
members has helped drive
growth throughout
the business
Tatton Asset Management Annual Report and Accounts 2019
21
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
R I S K M A N A G E M E N T
E f f e c t i v e r i s k m a n a g e m e n t
i s e s s e n t i a l f o r t h e f i n a n c i a l
s t r e n g t h a n d r e s i l i e n c e o f t h e
G r o u p . T h e R i s k M a n a g e m e n t
F r a m e w o r k e n s u r e s t h a t t h e
b u s i n e s s i d e n t i f i e s e x i s t i n g a n d
e m e r g i n g r i s k s t o d e l i v e r i n g t h e
G r o u p s t r a t e g y a n d c o n t i n u e s t o
d e v e l o p a p p r o p r i a t e m i t i g a t i o n
t o p r o t e c t o u r s t a k e h o l d e r s .
BOARD
E X E C U T I V E M A N A G E M E N T
R I S K M A N A G E M E N T
A U D I T A N D R I S K
C O M M I T T E E
S E N I O R
M A N A G E M E N T
C O M P L I A N C E
F U N C T I O N S
P H I L O S O P H Y A N D C U LT U R E
The Board encourages a strong risk
culture throughout the business. It believes
an embedded risk culture enhances the
effectiveness of risk management and
decision making across the Group.
The Board is responsible for setting
the right tone and, through our senior
management team, encouraging appro-
priate behaviours and collaboration on
managing risk across the business.
The Board encourages a strong risk culture
throughout the business so that employees
are able to identify, assess, manage and
report against the risks the Group faces.
The Group has a whistleblowing proce-
dure where employees can raise concerns
anonymously either internally or externally.
R I S K M A N A G E M E N T
F R A M E W O R K
The Board is ultimately responsible for
the Group’s risk management and internal
control systems, and for determining the
Group’s risk appetite. A risk management
framework has been developed by the
Board to ensure that all potential areas of
risk to the business are identified, assessed
and regularly reviewed and monitored.
We continue to focus on embedding the
ownership of risks within relevant divisions
and teams whilst ensuring that the appro-
priate oversight and escalation process is
in place. This is delivered through moving
towards a three lines of defence model
(see opposite).
We carry out a robust assessment of the
principal risks facing the Group, including
those that would threaten our business
model, future performance, solvency or
liquidity. We categorise these risks into
risk groups covering potential impacts to
clients, revenue, capital and reputation.
The three risk groups are:
— Industry risks
— Operational risks
— Financial risks
G O V E R N A N C E
Our internal governance structure includes
departmental management reviews with
dedicated risk registers, where each depart-
ment is responsible for overseeing key
investment, operational and corporate
functions. The Group’s Audit and Risk
Committee serves as the focal point for
risk management activities, reviewing and
challenging specific risks to the Group,
and reviewing the effectiveness of frame-
works in place to manage those risks.
It also ensures that the principal risks of
the Group are considered.
The Audit and Risk Committee met four
times in the year and its members are:
— Chris Poil, Chairman (and Non-Executive
Board Director)
— Roger Cornick (Non-Executive Chair-
man of the Board)
Other Executive Directors and senior
management are invited to attend as
appropriate, including:
— Paul Hogarth (CEO)
— Paul Edwards (CFO)
— Helen O’Neill (COO of Tatton Invest-
ment Management)
22
Tatton Asset Management Annual Report and Accounts 2019
R I S K M A N A G E M E N T P R O C E S S E S
Regular
Board
reviews
Departmental
reviews
Executive
risks
Principal
risks identified
and reported
to Board
Update
to risk
registers
Mitigating
action
agreed
Review
by Audit
and Risk
Committee
4 . R E P O R T
1 . I D E N T I F Y
R I S K
M A N A G E M E N T
P H I L O S O P H Y
A N D C U LT U R E
3 . M O N I T O R
A N D
C O N T R O L
2 . A S S E S S
Departmental
reviews
Risk-
scoring for
likelihood
& impact
Existing
and
emerging
risks
Operational
business
reviews
Allocate
each risk
to a named
owner
The Board and senior management are
actively involved in a continuous risk
assessment process as part of our risk
management framework. Day to day,
our risk assessment process consid-
ers both the impact and likelihood of
risk events which could materialise,
affecting the delivery of the strategic
goals and the annual business plans.
A top-down and bottom-up approach
ensures that our assessment of key
risks is challenged and reviewed on
a regular basis. The Board and Audit
and Risk Committee receive regular
reports and information from senior
management, operational business
units and compliance functions.
T H R E E L I N E S O F D E F E N C E
1
2
3
First line of defence
R I S K M A N A G E M E N T W I T H I N
T H E B U S I N E S S
Business operations and senior management are
responsible for identifying and managing risks
by developing and maintaining effective internal
controls to mitigate risk.
Second line of defence
R I S K O V E R S I G H T
A N D C H A L L E N G E
The Audit and Risk Committee, the Board and
those involved in Compliance functions maintain
a level of independence from the first line.
These Committees and other functions provide
oversight and challenge.
Third line of defence
I N D E P E N D E N T
A S S U R A N C E
The Group does not have an internal audit function
however, there are other external bodies which
provide some independent assurance. Third party
companies are used for testing areas such as
IT security and for HR and Health and Safety.
External audits highlight any identified deficiencies
in internal controls. Regulators set requirements
for specific controls in our regulated entity, Tatton
Investment Management Limited.
R I S K A P P E T I T E
The Audit and Risk Committee regularly
reviews the Group’s risk registers and miti-
gating processes to ensure that these are
considered acceptable to the risk appetite
and attitude of the Board.
The Board’s strategic objectives and
expectations are that the business will
continue to grow; however, the Board
remains committed to having a balanced
appetite for risk, ensuring that our internal
controls mitigate risk to appropriate levels.
R I S K R E P O R T I N G
Identified risks that have a sufficiently high
likelihood of potential material impact
on the Group are reflected in the Group
Risk Management Dashboard, to ensure
they receive an appropriately high level of
senior management and Board attention.
The Board takes action where these risks
are deemed to be outside the Group’s
risk tolerance.
The following section shows our assess-
ment of the top risks that we face, along
with how the significance of the risk has
changed during the year. All our signif-
icant risks fall into the industry, opera-
tional and financial categories. While the
named top risks have not changed since
last year, these risks are not static; new
and emerging risks are considered and
assessed by the Board throughout the
year for inclusion in this list.
Tatton Asset Management Annual Report and Accounts 2019
23
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS P R I N C I P A L R I S K S
1
Industry risks
Key
Risk increase
Risk decrease
No change to risk
R I S K
I M P A C T
M I T I G AT I O N
Adverse macro-economic, political
and market factors
Economic, political and market forces, particularly
those impacting the UK equity markets, which
are beyond the Group’s control could adversely
affect the value of AUM from which the Group
derives revenues.
— Downturns in the market and resultant falls
in AUM or other income will have a negative
impact on the Group’s revenue and profit
— The Group has an experienced investment
management team with a strong track record
— Investment strategies are continually
monitored by the Investment Committee
— A prudent approach to investment strategy
means that a significant proportion of AUM
is made up of lower risk appetite portfolios
which typically have a market fall correlation
of less than 50%
Changing competitive environment
The market environment in which the Group
operates is highly competitive with fast changing
characteristics and trends.
— Loss of competitive advantage such
— Broad service offering providing diversified
that AUM and client number targets are
adversely impacted. This would have a
negative impact on profitability
revenue streams
— Highly competitive pricing points across a
range of services
Regulatory risk
Changes to legislation and regulation, or changes
to interpretation and enforcement of existing
legislation and regulation may adversely impact the
Group’s operations and competitive advantages.
— Regulatory censure and/or fine
— Related negative publicity could reduce
customer confidence and affect ability to
generate net inflows
— Poor conduct could have a negative impact
on customer outcomes, impacting the Group’s
ability to achieve strategic objectives
— Complaints and claims from third parties and
clients in connection with the Group’s regulatory
responsibilities could have an adverse impact
on the Group’s financial condition
— Deep industry experience and strong client
relationships resulting in a loyal customer base
— Strong brand and excellent reputation
— Regulatory advice is a core business stream
for the Group meaning that a strong culture
of compliance exists throughout the Group
— The Group delivers strong regulatory and
compliance support through dedicated
compliance teams and systems
— The Group’s strong financial position
provides a safeguard should changes to
regulatory capital requirements occur
Termination of the UK’s European
Union membership
The UK exiting the European Union could have
a material adverse impact on the fiscal and legal
framework in which the Group operates, and
impact the UK’s economic performance in the
long term.
— Uncertainty in the market or adverse impact
— Strategic focus on the UK investment
on the UK economic performance may
reduce customer transactional activity and/
or cause the value of AUM to reduce
market means the Group is less exposed to
any negative impact on London as a global
financial centre
— Geographical diversification of all client
investment portfolios
Change to UK tax law
Changes to UK tax law could adversely impact
the performance and attractiveness of long-term
saving and investment through pensions and
other wrap products.
— Savings and investment in pensions and
other wrap products may reduce, so
reducing AUM and the Group’s revenue
— Cross-party political desire to encourage
long-term savings to provide for ageing
population
— Changes to tax law can increase the
demand for professional advice to ensure
tax effectiveness of long-term savings and
investments
2
Operational risks
Failure of a third party platform provider
The Group manages its investments through third
party platform providers. Operational failure or
cessation of trade of a major platform could have a
material adverse impact on the Group’s reputation,
operations, financial performance and growth.
— Negative impact on customer outcomes
due to website unavailability, delays in
receiving and/or processing customer
transactions or interruptions to settlement
and reconciliation processes
— Financial impact through increased
operational losses
— Regulatory fine and/or censure
— Due diligence is performed when selecting
key suppliers
— The Group is covered by third party
indemnities for business-critical services
— Third party relationships are subjected to
a high level of ongoing oversight, including
due diligence and a risk-based approach,
from the Group’s internal compliance
function. This gives assurance that third
party platform providers meet the Group’s
high standards.
24
Tatton Asset Management Annual Report and Accounts 2019
Key
Risk increase
Risk decrease
No change to risk
2
Operational risks continued
R I S K
I M P A C T
M I T I G AT I O N
Failure of investment strategy
The risk that investment strategies fail to maintain
an acceptable level of performance resulting in a
decline in revenues and a decline in the value of
assets from which revenues are derived.
— Negative impact on achievement of AUM
— The Group has an experienced
and client number strategic targets
— Poor client outcomes that also prevent the
investment management team with
a strong track record
achievement of our growth targets
— Investment strategies are continually
— Reputational damage
monitored by senior management, the
investment committee and the Board.
Loss or failure of key IFA client
The Group has several major IFA clients. A change
in relationship or termination of business with any
of these, and the Group being unable to replace
them in a timely fashion, could have a material
adverse impact.
— Negative impact on achievement of
AUM, operating profit and client number
strategic targets
— Reputational damage
Failure to recruit and retain quality personnel
The Group operates in a competitive market
for talent and failure to recruit and retain key
personnel could adversely impact the Group’s
operational performance.
— Inability to service client needs
— Reputational damage
System failure, cyber security and
data protection
The risk that operations are impacted or that data
loss or data breach occurs due to system error,
malfunction or malicious external breach.
— Related negative publicity could damage
customer and market confidence in the
business, affecting our ability to retain and
attract new customers
— Information security breaches could
result in fine/censure from regulators, the
Information Commissioner’s Office and FCA
3
Financial risks
Counterparty credit risk
A counterparty to a financial obligation may
default on repayments.
— Unintended market exposure
— Customer detriment
— Increased future capital requirements
Liquidity risk
The Group may be unable to meet financial
liabilities as they become due because of a shortfall
in cash or other liquid assets or inability to obtain
sufficient funding.
— Reputational damage
— Potential customer detriment
— Financial loss
— Unable to meet obligations as they fall due
— The Group has a clearly defined business
development strategy which continues to
enhance the Group’s service offering
— Client engagements are proactively
managed through dedicated client
managers who have in-depth knowledge of
the IFA industry and expert regulatory and
compliance knowledge
— Recruitment programmes are in place to
attract suitable staff
— The success of the Group’s listing has
increased our ability to attract and retain
high calibre candidates
— Staff share schemes are now in place to
incentivise staff and encourage long-
term retention
— Experienced in-house team of IT
professionals supported by reputable and
established third party suppliers
— IT disaster recovery procedures in place
— Data Protection Officer appointed for GDPR
— Penetration testing conducted regularly
— The Group trades only with reputable, credit
worthy third parties
— Receivable balances are reviewed regularly
for non-collection and any doubtful balances
are provided against
— Cash-generative business
— Appropriate banking facilities in place
— Active cash flow forecasting and liquidity
management to ensure availability of liquid
funds at short notice
— The Group maintains a cash surplus above
regulatory and working capital requirements
Bank default
The risk a bank could default
— Financial loss
— Unable to meet obligations as they fall due
— The Group only uses banks with strong
credit ratings
— Banking relationships are reviewed regularly
Concentration risk
Risk arising from lack of diversification in business
activity or geography
— Over-reliance on one business activity could
— Range of business services offered is broad,
lead to financial underperformance
providing diversified revenue streams
— Active recruitment is ongoing within the
Group’s sales functions in order to grow
AUM across a broader client base
Tatton Asset Management Annual Report and Accounts 2019
25
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS C H I E F F I N A N C I A L O F F I C E R ’ S R E P O R T
O V E R V I E W
I am pleased to report that the Group
has continued to make progress and
has delivered another year of double
digit organic growth in both revenue
and Adjusted Operating Profits*.
The performance has been achieved
against the backdrop of an unsettled
environment with strong performances
from both Tatton Investment Management
and Paradigm Mortgages, with Paradigm
Consulting addressing the challenges
in its market.
RECORD REVENUE AND PROFITS
Revenue – Reported revenue increased by
12.9% to £17.5 million (2018: £15.5 million);
Tatton revenue increased by 38.1% to
£8.7 million (2018: £6.3 million) supported by
the continued growth of AUM that ended the
year at £6.1 billion (2018: £4.9 billion) of which
net inflows of £1.1 billion accounted for the
majority of the growth. Paradigm Mortgages
continues to make progress growing its
member firms and increasing its share
of the mortgage completion market
which delivered a 12.5% increase in
revenue to £2.7 million (2018: £2.4 million).
Paradigm Consulting revenue was down
by 11.8% to £6.0 million (2018: £6.8 million)
and, while the number of new firms
using Paradigm increased, the average
revenue per firm came under pressure
from lower levels of additional consultancy
delivered in the year and reduced flows on
the Paradigm wrap platform.
We
continue
to focus
on growth
and long-
term value
creation
P A U L E D W A R D S
Chief Financial Officer
* Adjusted for separately disclosed items of excep-
tional costs and share-based payment charges.
26
Tatton Asset Management Annual Report and Accounts 2019
Profit – The Group delivered Adjusted
Operating Profit* of £7.3 million (2018: £6.5
million), an increase of 12.3% and the margin
was 41.7% (2018: 42.1%). Tatton continues to
invest, updating IT systems and its new online
portal and investing in additional commer-
cial sales and marketing resource to drive
and support future growth; it contributed
Adjusted Operating Profit* of £4.6 million
(2018: £3.0 million) and improved its margin
to 53.0% (2018: 47.8%). Tatton’s continued
strong growth has ensured it is now the
largest part of the Group, contributing 50%
of the revenue and 63% of the Adjusted
Operating Profit*, a trend that is expected to
continue. The contribution is before one-off
costs totalling £0.5 million relating to the
set-up of new blended funds at the begin-
ning of the financial year of £0.2 million,
and, following a careful selection and dili-
gence process, project costs of £0.3 million
related to changing its Authorised Corporate
Director. Paradigm Mortgages’ Adjusted
Operating Profit* contributed £1.6 million
(2018: £1.4 million), improving the margin to
58.2% (2018: 57.9%). Paradigm Consulting
contributed Adjusted Operating Profit*
of £3.0 million (2018: £3.6 million) with its
margin decreasing to 49.5% (2018: 52.7%).
Total Group Operating Profit was £5.9 million
(2018: £3.6 million) after charging excep-
tional costs of £0.5 million and share-based
payments of £0.9 million. Operating Profit
has been adjusted for these items to give
better clarity of the underlying performance
of the Group. The Alternative Performance
Measures (“APMs”) are consistent with how
the business performance is planned and
reported within the internal management
reporting to the Board. Some of these
measures are also used for the purpose
of setting remuneration targets.
Return on Capital Employed is 47.8% (31 March
2018: 48.1%). The Group is capital light and
makes efficient use of the capital employed
to generate strong returns and create value
for our shareholders.
E X C E P T I O N A L C O S T S
Exceptional costs of £0.5 million (2018:
£2.0 million) were incurred by the Group
in the year and are detailed above and in
note 6 to the Group financial statements.
N E T F I N A N C E I N C O M E
The Group remains cash positive and has
received cash interest of £0.2 million from
outstanding loan notes. It is anticipated
that the loan notes will be redeemed in the
new financial year.
E A R N I N G S P E R S H A R E
Basic earnings per share increased to 8.7p
(2018: 4.1p). Adjusted earnings per share*
increased by 14.6% to 11.0p (2018: 9.6p)
and fully diluted the increase was 9.9% to
10.0p (2018: 9.1p).
C A S H F L O W
The Group continued to see healthy cash
generation. Net cash generated from oper-
ating activities before exceptional costs was
£8.0 million (2018: £5.6 million), 110% of
Adjusted Operating Profit*. Exceptional costs
totalled £0.5 million and net cash generated
from operating activities was £6.1 million
(2018: £2.3 million). Income tax paid was
in line with the prior year at £1.4 million
(2018: £1.4 million) and dividends paid in the
year totalled £4.0 million (2018: £1.6 million).
The Group made intangible and tangible
asset investments of £0.6 million and ended
the year with cash on the balance sheet of
£12.2 million (2018: £10.6 million).
D I V I D E N D S A N D C A P I TA L
A L L O C AT I O N
The Board is recommending a final dividend
of 5.6p. When added to the interim dividend
of 2.8p this gives a full year dividend of 8.4p.
This proposed dividend reflects both our cash
performance in the period and our underlying
confidence in our business. Dividend cover
(being the ratio of earnings per share before
exceptional items and share-based payment
charges) is 1.2 times. If approved at the Annual
General Meeting the final dividend will be
paid on 12 July 2019 to shareholders on the
register on 14 June 2019. Our objective is
to maximise long-term shareholder returns
through a disciplined deployment of cash.
To support this, we have adopted a cash
allocation policy that allows for: investment
in capital projects that support growth;
regular returns to shareholders from our
free cash flow; acquisitions to supplement
our existing portfolio of business; and an
efficient balance sheet appropriate to the
Company’s investment requirements.
S TAT E M E N T O F F I N A N C I A L
P O S I T I O N
The Group continues to strengthen its balance
sheet and net assets increased to £15.3 million
(2018: £13.6 million). Tangible and intangible
assets (excluding goodwill) increased in line
with the investments made this year in both
systems and infrastructure and totalled
£0.6 million (2018: £0.1 million), and goodwill
totalled £4.9 million (2018: £4.9 million).
N E W R E P O R T I N G S TA N D A R D S
During the year, the Group adopted the
new reporting standards IFRS 15 ‘Revenue
from Contracts with Customers’ and IFRS 9
‘Financial Instruments’. The adoption of IFRS
15 has not resulted in any changes to the way
the Group accounts for revenue or costs of
sales. There have been no amendments to
any of the measurement categories for, or
carrying amounts of, the Group’s financial
instruments following adoption of IFRS 9.
IFRS 16 ‘Leases’ is effective for the Group
from 1 April 2019. The detailed assessment
of the impact on the Group’s performance
has been completed. The Group plans on
adopting the modified retrospective approach
with the right-of-use asset equal to the lease
liability at transition date. The Group’s
assessment is that it will recognise
right-of-use assets and lease liabilities of
approximately £0.6 million on 1 April 2019
with net assets remaining unchanged.
R I S K M A N A G E M E N T A N D T H E
Y E A R A H E A D
Risk is managed closely and is spread
across our businesses and managed to
individual materiality. Our key risks have
been referenced in this Annual Report
primarily on pages 24 and 25. We choose
key performance indicators that reflect our
strategic priorities of investment, growth
and profit. These KPIs are part of our day
to day management of the business and
in the year ahead we will focus on growth
and value creation. In this way we aim to
deliver continued value to shareholders
The Strategic Report found on pages 1
to 27 has been approved and authorised
for issue by the Board of Directors and
signed on their behalf on 3 June 2019 by:
P A U L E D W A R D S
Chief Financial Officer
G R O U P R E V E N U E
( £ M )
£17.5m
+ 1 2 . 9 %
.
5
7
1
5
.
5
1
9
.
1
1
2017
2018
2019
D I S C R E T I O N A R Y
A U M ( £ B N )
£6.1bn
+ 2 4 . 5 %
1
.
6
.
9
4
9
3
.
2017
2018
2019
R E T U R N O N C A P I TA L
E M P L O Y E D ( % )
47.8%
- 0 . 6 %
1
.
8
4
.
8
7
4
a
/
n
2017
2018
2019
Tatton Asset Management Annual Report and Accounts 2019
27
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
B O A R D O F D I R E C T O R S
R O G E R C O R N I C K
C H A I R M A N
P A U L H O G A R T H
C H I E F E X E C U T I V E O F F I C E R
P A U L E D W A R D S
C H I E F F I N A N C I A L O F F I C E R
Skills, competence and experience:
Roger is the Tatton Asset Management’s
Non-Executive Chairman. From January
2009 to September 2016, Roger was Chair-
man of Aberdeen Asset Management
having joined the Board in January 2004.
Prior to joining Aberdeen, Roger was with
Perpetual plc for over twenty years.
Skills, competence and experience:
Paul is the Chief Executive Officer of Tatton
Asset Management, as well as Senior Part-
ner at Paradigm Consulting, Chairman
at Tatton Capital Group and Founder of
Perspective Financial Group Limited.
Skills, competence and experience:
Paul is the Chief Financial Officer of
Tatton Asset Management plc. He is also
Finance Director of Paradigm Consulting
Limited and Tatton Investment Manage-
ment Limited.
Prior to joining Tatton Asset Management
plc Paul was the Group Finance Direc-
tor of Scapa Group Plc for six years and
NCC Group Plc for ten years. He has also
held several other senior roles in a broad
range of listed and private companies.
Until recently Paul was also the Chair of
the Hallé Pension Trustees having spent
five years in the role.
Paul has over 30 years’ experience in
financial services, the majority of which
were at the centre of IFA distribution.
Paul was the Co-Founder of Bankhall
in 1987, and built Bankhall Investment
Associates from scratch to sale in May
2001 at which point 25% of the IFA sector
utilised at least part of the Bankhall service
proposition. After leaving Bankhall he
went on to establish Paradigm Partners
Ltd which launched in April 2007 and has
since grown to become one of the UK’s
top 5 distribution businesses.
Paul has a BA in Economics from Heri-
ot-Watt University in Edinburgh.
B O A R D C O M P O S I T I O N
L E N G T H O F T E N U R E O F
D I R E C T O R S
Executive 3
Directors
Non-
Executive 2
Less than a year
One to three years
Three to six years
More than six years
1
4
–
–
28
Tatton Asset Management Annual Report and Accounts 2019
L O T H A R M E N T E L
D I R E C T O R & C H I E F
I N V E S T M E N T O F F I C E R
C H R I S P O I L
N O N - E X E C U T I V E & H E A D O F
A U D I T A N D R I S K
R O B E R T H U N T
C H I E F E X E C U T I V E O F F I C E R
O F M O R T G A G E S
Skills, competence and experience:
Chris is Tatton Asset Management’s Senior
Independent Non-Executive Director.
Previously he served as Head of UK Equi-
ties at ING Baring Asset Management.
Prior to joining ING he was a Director of
Mercury Asset Management. Chris has
previously been a Non-Executive Director
of Ignite Group Ltd, Novus Leisure Ltd
and Byron Ltd.
Skills, competence and experience:
Lothar is the Chief Investment Officer
of Tatton Asset Management. He is also
Chief Executive Officer for Tatton Invest-
ment Management.
Prior to setting up Tatton Investment
Management in 2012, Lothar was the Chief
Investment Officer of Octopus Investments
from 2008, where he built a multi manager
fund business that he grew to £1.6 billion.
He has also held senior positions with
N M Rothschild, Threadneedle, Barclays
Wealth and Commerzbank Asset Manage-
ment. Lothar began his career in Germany
as a performance and risk analyst and
later designing and launching the Barclays
Multi Manager funds.
Lothar was educated in Germany and
holds a postgraduate degree in Business
and Economics (Diplom Ökonom) from
Ruhr-Universität Bochum.
Skills, competence and experience:
Robert is the Chief Executive of Para-
digm Mortgage Services LLP and a Board
member of the Society of Mortgage Profes-
sionals (“SMP”) acting as a respected
figurehead and representative of mortgage
clubs. He has over thirty years experience
of working within financial intermediaries.
Prior to setting up Paradigm Mortgages in
2007, Robert was the key accounts director
at Santander (formerly Abbey National) for
thirteen years. Before joining Santander,
he had various management roles at Hill
Samuel Asset Management Group in which
he worked for eleven years. Robert has
now led Paradigm Mortgages to win the
Mortgage Strategy’s Best Mortgage Club
Award for two consecutive years.
In 1987 Robert joined the Royal Air Force
where he studied electronic engineering
for five years.
C O M M I T T E E M E M B E R S H I P S
Nominations Committee
Remuneration Committee
Audit and Risk Committee
Board Director
Tatton Asset Management Annual Report and Accounts 2019
29
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS C O R P O R AT E G O V E R N A N C E S TAT E M E N T
I N T R O D U C T I O N
The Board is committed to achieving
high standards of corporate governance,
integrity and business ethics. Under the AIM
Rules, the Group is not required to comply
with the provisions of the UK Corporate
Governance Code (the “Code”). While the
Code has not been applied in full, the
Board has continued working towards
full compliance over the coming years.
This year the Group has taken into consid-
eration the guidance for smaller quoted
companies on the Code produced by the
Quoted Companies Alliance and taken
steps to apply the principles of the Code
in so far as it can be applied practically,
given the current size of the Group and
the nature of its operations.
L E A D E R S H I P A N D
R O L E O F T H E B O A R D
The Board is responsible for the long-term
success of the Group and is ultimately
accountable for the Group’s strategy,
risk management and performance.
The Board’s primary roles are to provide
entrepreneurial leadership to the Group
within a framework of prudent and effective
control which enables risk to be assessed
and managed, and to set the Group’s
strategic objectives and ensure that the
necessary resources are made available
so that those objectives can be met.
The Board also sets the Group’s values and
standards and is responsible for ensuring
that its obligations to its shareholders and
other stakeholders, including employees,
suppliers, customers and the community,
are understood and met.
The Board comprises three Executive
Directors, a Non-Executive Chairman and
a Non-Executive Director. The names,
biographical details and Committee
memberships of the Board are set out
on pages 28 and 29 of this report.
Responsibilities of each Board member
have been clearly established and there
is a clearly defined division of responsibil-
ity between the Chairman and the Chief
Executive. The Chairman is responsible for
leading the Board, ensuring that sharehold-
ers are adequately informed with respect
to the Group’s affairs and that there are
efficient communication channels between
management, the Board and shareholders.
The Chief Executive is responsible for
innovation, managing the strategy of the
Group and leading the senior management
team in developing and implementing the
strategy to maximise shareholder value.
B O A R D C O M M I T T E E S
N O M I N AT I O N S C O M M I T T E E
The Nominations Committee is responsible
for Board recruitment and succession
planning, to ensure that the right skill sets
are present in the Boardroom.
R E M U N E R AT I O N C O M M I T T E E
The Remuneration Committee is responsible
for determining all elements of remuner-
ation for the Executive Directors and for
reviewing the appropriateness and rele-
vance of the Group’s remuneration policy.
A U D I T A N D R I S K C O M M I T T E E
The Audit and Risk Committee’s main
responsibilities are to challenge manage-
ment, monitor the integrity of the Group’s
financial statements, review internal and
external audit activity and monitor the
effectiveness of risk management and
internal controls.
B OA R D E F F E C T I V E N E S S ,
C O M P O S I T I O N A N D
I N D E P E N D E N C E O F T H E B OA R D
During the year, and up until the date of
signing this report, the Board comprised a
Non-Executive Chairman, a Non-Executive
Director and three Executive Directors.
The Board has determined that all the
Non-Executive Directors are independent
in character and judgement and neither
represent a major shareholder group
nor have any involvement in the day to
day management of the Company or its
subsidiaries. The Non-Executive Directors
continue to complement the Executive
Directors’ experience and skills, bringing
independent judgement and objectivity
to enhance shareholder value.
The skills and experience of the Non-Ex-
ecutive Directors are wide and varied
and they provide constructive challenge
in the Boardroom. The composition of
the Board is intended to ensure that its
membership represents a mix of back-
grounds and experience that will optimise
the quality of deliberations and decision
making. We consider diversity in the
composition to be an important factor
in the effectiveness of the Board and,
in searching for prospective Directors,
we consider the existing skill set of the
Board and areas we have identified for
development to meet future needs and
address succession planning.
The Board composition of Non-Executive
and Executive Directors has remained the
same during the financial year.
Although not members of the Commit-
tees, the Executive Directors attend meet-
ings of the Audit and Risk Committee,
Remuneration Committee and Nomina-
tions Committee as invited attendees,
when appropriate.
30
Tatton Asset Management Annual Report and Accounts 2019
known as the Whistleblowing Policy)
to enable anonymous reporting of
complaints. In addition, the Board has
also received external reports in relation
to cyber security and uses a range of
measures to manage this risk, including
the use of cyber security policies and
procedures, security protection tools
and ongoing detection and monitoring
of threats.
The Board routinely reviews the effec-
tiveness of the systems of internal control
and risk management to ensure controls
react to changes in the Group’s operations.
Approved and authorised for issue by the
Board of Directors and signed on their
behalf by:
PA U L E DWA R D S
Chief Financial Officer
3 June 2019
M E E T I N G S A N D AT T E N D A N C E
The following table sets out attendance of each Director at Board meetings held
during the 12 months to the year ended 31 March 2019:
Remuneration
Nominations
Audit
Board
Committee
Committee
Committee
Number of meetings held
Roger Cornick
Chris Poil
Paul Hogarth
Lothar Mentel
Paul Edwards
8
8
8
8
8
8
P E R F O R M A N C E
The Board conducts a formal annual
review of the performance of individ-
ual Directors, to monitor and improve
effectiveness. The performance of the
Chief Executive is undertaken by the
Non-Executive Chairman. In addition to
individual reviews, the Board considers
its overall performance as a body and the
performance of its Committees. The review
has confirmed that the performance of
the Board and its Committees is effective
and appropriate.
D E V E L O P M E N T A N D T R A I N I N G
The Chairman is responsible for ensuring
Directors’ continuing professional devel-
opment and every Director is entitled
to receive training and development rele-
vant to their responsibilities and duties.
The Directors take advantage of relevant
seminars and conferences and receive
training and advice on new regulatory
requirements and relevant current devel-
opments from the Company and profes-
sional advisers.
C O M M U N I C AT I O N
W I T H S H A R E H O L D E R S
The Board is committed to maintaining
an ongoing dialogue with the Company’s
shareholders. The principal methods of
communication with private investors
remain the Annual Report and financial
statements, the Interim Report, the Annual
General Meeting and the Group’s website
(www.tattonassetmanagement.com).
2
2
2
2
–
2
-
–
–
–
–
–
4
4
4
3
–
4
At the Company’s Annual General Meeting,
all Directors will be available to respond
to questions from shareholders present.
The Annual General Meeting provides a
forum for constructive communication
between the Board and shareholders.
In addition, throughout the year, the
Executive Directors, and separately the
Chairman, meet with investors to discuss
matters relevant to the Company.
I N T E R N A L C O N T R O L
A N D R I S K M A N A G E M E N T
The Board is ultimately responsible for the
Group’s system of internal control and for
reviewing its effectiveness. Such systems
are designed to manage rather than elimi-
nate risks and can only provide reasonable,
not absolute, assurance against material
misstatement or loss.
An ongoing process has been estab-
lished to promote and communicate an
appropriate risk culture within the Group
and to identify, evaluate and manage
significant risks faced by each part
of the Group. This process has been
in place throughout the year under
review and includes key risks (finan-
cial and operational) facing the Group.
The process has also included the review
and circulation of the Group Open
Door Policy and procedure (previously
Tatton Asset Management Annual Report and Accounts 2019
31
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
D I R E C T O R S ’ R E M U N E R AT I O N R E P O R T
R E M U N E R AT I O N P O L I C Y
R E M U N E R AT I O N P O L I C Y F O R
E X E C U T I V E D I R E C T O R S
The policy of the Remuneration
Committee is to set basic salaries at a
level which is competitive with that
of comparable businesses. The same
principles are applied to directors’ fixed
remuneration, pension contributions
and benefits as are applied to those of
employees throughout the organisation.
The main principles of the senior executive
remuneration policy are set out below:
— Attract and retain high calibre executives
in a competitive market, and remuner-
ate executives fairly and responsibly.
— Motivate delivery of our key business
strategies and encourage a strong
and sustainable performance orien-
tated culture.
— Align the business strategy and achieve-
ment of planned business objectives.
— Take into consideration the views
of shareholders and best prac-
tice guidelines.
The Committee believes that the level of
remuneration for Executive Directors is
commensurate with the corporate and
personal performance of the Executive
Directors for the financial year ended
31 March 2019.
E X T E R N A L A P P O I N T M E N T S
It is the policy of the Group, which is
reflected in the contract of employment,
that no Executive Director may accept
any Non-Executive directorships or other
appointments without the prior approval
of the Board. Any outside appointments
are considered by the Nominations
Committee or the Board to ensure that
they would not give rise to a conflict of
interest. It is the Group’s policy that remu-
neration earned from any such appoint-
ment may be retained by the individual
Executive Director.
R E M U N E R AT I O N P O L I C Y F O R
T H E C H A I R M A N A N D
N O N - E X E C U T I V E D I R E C T O R S
The Chairman and other Non-Executive
Directors are appointed under a letter
of appointment. The letters of appoint-
ment cover such matters as duties, time
commitment and other business interests.
The Remuneration Committee determines
the remuneration for the Chairman and
Non-Executive Directors within the limits
set in the Company’s Articles of Association.
The fee for the Chairman’s role takes into
account the time commitment required
for the role, the skills and experience
of the individual and market practice in
comparable companies. The Chairman’s
fee is currently set at £90,000 per annum.
The Non-Executive Director fees policy is
to pay a basic fee for membership of the
Board, with additional fees for the Senior
Independent Director and chairmanship
of a Committee to take into account the
additional responsibilities and time commit-
ments of these roles. The Non-Executive
Directors’ fee is currently set at £70,000
per annum.
S E R V I C E C O N T R A C T S
It is the Group’s policy for all Executive
Directors to have contracts of employ-
ment that contain a termination notice
period of not less than twelve months.
All Executive Director appointments
continue until terminated by either party
on giving not less than twelve months’
notice to the other party.
Non-Executive Directors do not have
service contracts. A letter of appointment
provides for an initial period of twelve
months and continues until terminated
by either party giving three months’ prior
written notice to expire at any time on
or after the initial twelve-month period.
S I N G L E T O TA L F I G U R E O F R E M U N E R AT I O N F O R E A C H D I R E C T O R ( A U D I T E D )
Directors’ remuneration payable in respect of the year ended 31 March 2019 was as follows:
Pension
related benefits
Bonus
Other taxable
benefits 1
Basic salary
and fees 2, 3
£342,000
£295,950
£245,667
£883,617
£90,000
£70,000
£160,000
–
£14,437
–
£14,437
–
–
–
£1,043,617
£14,437
–
–
–
–
–
–
–
–
£1,560
£1,022
£836
£3,418
Total
£343,560
£311,409
£246,503
£901,472
–
–
–
£90,000
£70,000
£160,000
£3,418
£1,061,472
Director
Paul Hogarth
Lothar Mentel
Paul Edwards
Sub-total
Non-Executives
Roger Cornick
Chris Poil
Sub-total
Total
Notes
1 The benefit package of each Executive Director includes the provision of life insurance and private health cover under Group schemes.
2 Paul Hogarth and Lothar Mentel have received additional basic salary in lieu of provision of a company car.
3 Paul Hogarth and Paul Edwards have received additional basic salary in lieu of pension contributions.
32
Tatton Asset Management Annual Report and Accounts 2019
C O M P O N E N T S O F
R E M U N E R AT I O N ,
S A L A R I E S A N D F E E S
Salaries for Executive Directors are deter-
mined by the Remuneration Committee.
The level of salary broadly reflects the
value of the individual, their role, skills
and experience. Salaries are reviewed
annually in April taking account of market
levels, corporate performance and indi-
vidual performance.
Fees to Non-Executive Directors are
determined by the Board, having regard
to fees paid to other Non-Executive
Directors in other UK quoted companies,
the responsibilities of the individual
Non-Executive Director and the time
committed to the Company.
P E N S I O N P R O V I S I O N
Where an Executive Director has not
reached their maximum lifetime allowance,
the Group will pay minimum contributions
into a personal pension plan nominated by
each Executive Director at a rate between
5% and 10% of their basic salary, If the
maximum lifetime allowance has been
reached the Director will receive the
equivalent in basic salary.
O T H E R B E N E F I T S
Executive Directors are entitled to bene-
fits commensurate with their position,
including consideration for a discretionary
performance-related annual bonus scheme,
private medical cover, life assurance and
car allowances.
S H O R T-T E R M I N C E N T I V E S
Performance-based bonuses are assessed
on a discretionary basis.
L O N G -T E R M I N C E N T I V E S
The long-term incentive plan for Execu-
tives is designed to reward execution of
strategy and growth in shareholder value
over a multiple-year period. Long-term
performance measurement discourages
excessive risk taking and inappropriate
short-term behaviours and encourages
Executive Directors to take a long-term
view by aligning their interests with those
of shareholders. Where possible, and to
the limits applied by the legislation, the
long-term incentive plan benefits from
the tax advantages under an Enterprise
Management initiative (“EMI”) scheme.
S H A R E S AV E P L A N
The Share save plan is an “all-employee”
save as you earn (“SAYE”) share option plan
which gives eligible participating employees
the opportunity to acquire ordinary shares in
the Company using savings of up to £500
per month or such other amount permitted
under the relevant legislation governing
“tax-approved” savings-related share
option plans.
TAT T O N A S S E T M A N A G E M E N T
L O N G - T E R M I N C E N T I V E P L A N
The Directors have adopted the Tatton
Asset Management plc EMI plan which
became effective on admission and which
was extended in August 2018. The EMI
plan is a share option plan under which all
eligible employees (including Executive
Directors) may be granted options over
shares on a tax-advantaged basis, under
the provisions of Schedule 5 of the Income
Tax (Earnings and Pensions) Act 2003
(“Schedule 5”). Non-qualifying options
may also be granted under the EMI plan.
P E R F O R M A N C E C O N D I T I O N S
Options granted under the LTIP are only
exercisable subject to the satisfaction
of performance conditions which will
determine the proportion of the option
that will vest at the end of the three-year
performance period. The performance
conditions used in determining the number
of options that will vest are split between
trading earnings per share (“EPS”) growth
and total shareholder return (“TSR”).
The Committee currently believes these
are fair and appropriate conditions for
rewarding participants as they align their
interests with those of shareholders and,
being measured over a three-year period,
align the reward with the Group’s strategy
for growth by encouraging longer-term
profitable growth.
When determining the trading EPS growth,
the shares will be fully diluted and the
impact of exceptional items as determined
by the Board will be disregarded to ensure
that they do not artificially impact the
EPS measurement. The option will vest
in respect of growth in EPS over the
three-year performance periods, commenc-
ing 1 April 2017 for the options granted in
2017 and commencing 1 April 2018 for the
options granted in the extension of the
EMI plan in 2018. If the EPS growth falls
between the thresholds for EPS growth,
the proportion of the option subject to
the EPS measure that vests will be deter-
mined on a straight-line basis. The options
granted in 2017 will vest in respect of
growth in TSR from the date of IPO to
31 March 2020. The options granted in
the extension of the EMI plan in 2018 will
vest in respect of growth in TSR over the
three-year performance period commenc-
ing 1 April 2018. If the Compound Annual
Growth Rate (“CAGR”) of TSR falls between
the thresholds for CAGR, the proportion
of the option subject to the TSR meas-
ure that vests will be determined on a
straight-line basis.
C L A W B A C K
Vested and unvested LTIP awards are
subject to a formal malus and claw-
back mechanism.
G R A N T O F E Q U I T Y S H A R E
O P T I O N S U N D E R T H E LT I P
At 31 March 2019, the Company had
granted options to certain of its Exec-
utive Directors and senior managers to
acquire (in aggregate) up to 5.4% of its
share capital. The maximum entitlement
of any individual was 2.6%.
T E R M S O F A W A R D S
Options may be granted over newly issued
shares, treasury shares or shares purchased
in the market. To satisfy exercised options,
shares may be purchased in the market or
new shares subscribed from the Company.
At 31 March 2019 the Company held no
shares in treasury (2018: nil).
U N A P P R O V E D S H A R E S C H E M E
Options issued under the long-term Incen-
tives are intended to be qualifying options
for EMI purposes. If they are not qualify-
ing options (for example, because they
exceed the statutory limit at the date of
grant) then they will take effect as unap-
proved options which cannot benefit from
the preferential tax treatments afforded
to options granted pursuant to an
EMI scheme.
Tatton Asset Management Annual Report and Accounts 2019
33
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS D I R E C T O R S ’ R E M U N E R AT I O N R E P O R T C O N T I N U E D
D I R E C T O R S ’ I N T E R E S T S I N S H A R E O P T I O N S
Outstanding share options granted to Executive Directors are as follows:
At 31 March
Granted
Exercised
Forfeited
At 31 March
Date of Grant
Price
Number
the year
the year
the year
Exercise
2018
during
during
during
Paul Hogarth
Lothar Mentel
Paul Edwards
Total
7 July 2017
7 August 2018
7 July 2017
7 August 2018
7 August 2018
£1.89
£0.00
£1.89
£0.00
£0.00
503,168
–
1,118,150
–
–
–
330,000
–
330,000
765,000
1,621,318 1,425,000
–
–
–
–
–
–
2019
Number
503,168
330,000
1,118,150
330,000
765,000
–
–
–
–
–
– 3,046,318
T O TA L S H A R E H O L D E R
R E T U R N S F R O M A D M I S S I O N
O N A I M T O 3 1 M A R C H 2 0 1 9
The Company’s share price in the period
from admission on AIM on 7 July 2017 to
31 March 2019 increased from £1.56 to
£2.09 and market capitalisation grew from
£87,215,720 million to £116,595,118 million,
with £5.26 million returned to shareholders
by way of dividend.
The graph below shows the Company’s
total shareholder returns (“TSR”) compared
to the FTSE AIM All-Share Index in the
period from admission on AIM to 31 March
2019. TSR is defined as share price growth
plus reinvested dividends. The Directors
consider the FTSE AIM All-Share Index
to be the most appropriate index against
which the TSR of the Company should
be measured.
D I R E C T O R S ’ I N T E R E S T S
The beneficial interests of the Directors and their connected persons in the ordinary
share capital of the Company at 31 March 2019 were as follows:
No. of ordinary
Percentage
shares
shareholding (%)
10,484,632
865,988
49,500
128,205
32,051
18.754
1.549
0.089
0.229
0.057
Paul Hogarth
Lothar Mentel
Paul Edwards
Christopher Poil
Roger Cornick
On behalf of the Board:
C H R I S P O I L
Chairman of the Remuneration Committee
3 June 2019
140
130
120
110
100
90
80
29/03/2018
31/07/2018
31/08/2018
30/09/2018
31/10/2018
30/10/2018
31/01/2019
28/02/2019
31/03/2019
Tatton
FTSE AIM All-Share Total Return
Source: Morningstar Direct
34
Tatton Asset Management Annual Report and Accounts 2019
D I R E C T O R S ’ R E P O R T
The Directors are pleased to present their report together with the audited consol-
idated financial statements for the year ended 31 March 2019.
R E V I E W O F T H E B U S I N E S S A N D F U T U R E D E V E L O P M E N T S
A review of the business and future developments can be found in the Chairman’s
statement and the Chief Executive’s statement on pages 4 and 5 to 10 respectively.
P R I N C I P A L A C T I V I T I E S
Tatton Asset Management plc is a holding company whose shares are listed on the
AIM market of the London Stock Exchange and is domiciled and incorporated in
the UK. It has three core operating subsidiaries as follows:
Subsidiary name
the Company Principal activities of subsidiary
% owned by
Tatton Investment
Management
Limited (“Tatton”)
Paradigm Partners
Limited
(“Paradigm
Consulting”
or “PPL”)
Paradigm
Mortgage Services
Limited (“PMS”)
100% Provides discretionary fund overlay services
to IFAs
100% Provides compliance consultancy and
technical support services to IFAs
100% Provides mortgage and insurance product
distribution services
R E S U LT S A N D D I V I D E N D S
Group profit before tax was £6.1m
(2018: £3.6m), up 69.4% on the prior
year due to strong revenue growth.
Adjusted operating profit* was £7.3m
(2018: £6.5m) giving an adjusted oper-
ating margin* of 41.7% (2018: 42.1%).
Operating profit after the effect of share-
based payments and exceptional items
is £5.9m (2018: £3.6m).
An interim dividend in respect of the period
ended 30 September 2018 of 2.8p per share
was paid to shareholders on 14 December
2018. The Directors recommend a final
dividend of 5.6p per share. This has not
been included within the Group finan-
cial statements as no obligation existed
at 31 March 2019. If approved, the final
dividend will be paid on 12 July 2019 to
ordinary shareholders whose names are
on the register at the close of business
on 14 June 2019.
The Company operates a progressive
dividend policy is to grow dividends in
line with the Group’s adjusted earnings,
with a target payout ratio in the region of
70% of annual adjusted diluted earnings
per share.
The policy is intended to ensure that
shareholders benefit from the growth
of the Group, and it aligns with the stra-
tegic objective of growing our dividend.
The Board recognises the importance of
dividends to shareholders and the bene-
fit of providing sustainable shareholder
returns. The target payout ratio has been
adopted to provide sufficient flexibility for
the Board to remunerate shareholders for
their investment whilst recognising that
there may at times be a requirement to
retain capital within the Group.
In determining the level of dividend in any
year, the Directors follow the dividend
policy and also consider a number of
other factors that influence the proposed
dividend, including:
— the level of retained distributable
reserves in the Company;
— availability of cash resources; and
— future cash commitments and invest-
ment plans, in line with the Company’s
strategic plan.
A LT E R N AT I V E
P E R F O R M A N C E M E A S U R E S
We use a number of performance meas-
ures to assist in presenting information
in this statement in a way which can be
easily analysed and understood. We use
such measures consistently and reconcile
them as appropriate and they are used by
management in evaluating performance.
See note 22.
S H A R E C A P I TA L
As at 31 March 2019 there were 55,907,513
fully paid ordinary shares of 20p amount-
ing to £11,181,503.
Details of the issued share capital are
shown in note 15 to the Company financial
statements on page 75. The Company has
one class of ordinary shares which carry no
right to fixed income. Each ordinary share
carries the right to one vote at General
Meetings of the Company.
There are no specific restrictions on the size
of a holding or on the transfer of shares,
which are both governed by the general
provisions of the Articles of Association and
prevailing legislation other than: certain
restrictions may be imposed from time to
time by laws and regulations pursuant to
the Listing Rules of the Financial Conduct
Authority (“FCA”), whereby certain Direc-
tors, officers and employees of the Group
require the approval of the Group to deal
in ordinary shares of the Company.
The Directors are not aware of any
other agreements between holders of
the Company’s shares that may result in
restrictions on the transfer of securities
or on voting rights.
No person has any special rights of control
over the Company’s share capital and all
issued shares are fully paid.
S H A R E O P T I O N S
Details of the Company’s share capital
and options over the Company’s shares
under the Company’s employee share
plans are given in note 19 to the Group
financial statements.
* Alternative performance measures detailed
on p70
Tatton Asset Management Annual Report and Accounts 2019
35
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS D I R E C T O R S ’ R E P O R T C O N T I N U E D
S I G N I F I C A N T S H A R E H O L D E R S
At 3 June 2019, the Company had been notified of the following interests representing 3% or more of its issued
share capital:
Shareholder
Paul Hogarth and connected parties
Paradigm Partners Trust
Funds and accounts under management by direct and indirect investment management
subsidiaries of BlackRock, Inc.
Liontrust Investment Partners LLP
Chelverton Asset Management Limited
Legal & General Investment Management Limited
Accounts managed on a discretionary basis by Lombard Odier Investment Managers Group
Kames Capital plc
Rathbone Investment Management
Shares held
10,484,632
1,851,088
8,565,567
6,737,020
3,557,000
3,340,223
2,714,085
2,426,336
1,759,213
Percentage
holding
18.80%
3.31%
15.32%
12.05%
6.36%
5.97%
4.85%
4.34%
3.15%
P U R C H A S E O F O W N S H A R E S
At the forthcoming Annual General Meet-
ing, the Directors will seek shareholders’
approval, by way of special resolution, for
the grant of an authority for the Company
to make market purchases of its own shares.
The authority sought will relate to up to
approximately 10% of the issued share
capital and will continue until the Company’s
Annual General Meeting. The Directors
consider that the grant of the power for
the Company to make market purchases of
the Company’s shares would be beneficial
for the Company and accordingly they
recommend this special resolution to share-
holders. The Directors would only exercise
the authority sought if they believed such
a purchase in the interests of shareholders
generally. The minimum price to be paid
will be the shares’ nominal value of 20p
and the maximum price will be no more
than 5% above the average middle market
quotations for the shares on the five days
before the shares are purchased.
TA K E O V E R D I R E C T I V E
The Company has only one class of ordi-
nary share and these shares have equal
voting rights. The nature of individual
Directors’ holdings is disclosed on page
34. There are no other significant holdings
of any individual.
B O A R D O F D I R E C T O R S
The names of the present Directors and
their biographical details are shown on
pages 28 and 29.
At the Annual General Meeting, to be held
on 4 July 2019, Roger Cornick will offer
himself for re-election.
D I R E C T O R S ’ I N T E R E S T S
Directors’ emoluments, interests in the
shares of the Company and options to
acquire shares are disclosed in the Direc-
tors’ Remuneration Report on pages 32.
Paul Hogarth is also the beneficial owner
of Paradigm House, the Group’s registered
address and the trading premises of PPL.
A P P O I N T M E N T A N D
R E P L A C E M E N T O F
D I R E C T O R S
With regard to the appointment and
replacement of Directors, the Company
is governed by its Articles of Associa-
tion (the “Articles”), the UK Corporate
Governance Code, the Companies Act
2006 and related legislation. The Articles
themselves may be amended by special
resolution of the shareholders. The powers
of Directors are described in the Articles
which can be found on the Group’s website
(www.tattonassetmanagement.com).
C O N F L I C T S O F I N T E R E S T
There are procedures in place to deal
with any Directors’ conflicts of interest
arising under section 175 of the Compa-
nies Act 2006.
D I R E C T O R S ’ I N D E M N I T Y
All Directors and Officers of the Company
have the benefit of the indemnity provi-
sion contained in the Company’s Articles.
The provision, which is a qualifying third-
party indemnity provision, was in force
throughout the last financial year and
is currently still in force. The Group also
purchased and maintained throughout the
financial period Directors’ and Officers’
liability insurance in respect of itself and its
Directors and Officers, although no cover
exists in the event Directors or Officers
are found to have acted fraudulently
or dishonestly.
36
Tatton Asset Management Annual Report and Accounts 2019
P R I N C I P A L R I S K S
A report on principal risks, risk manage-
ment and internal controls is included on
pages 22 to 25.
E M P L O Y E E S
The Group is committed to the principle
of equal opportunities in employment and
to ensuring that no applicant or employee
receives less favourable treatment on the
grounds of gender, marital status, age,
race, colour, nationality, ethnic or national
origin, religion, disability, sexuality, or
unrelated criminal convictions.
The Group applies employment policies
which are believed to be fair and equita-
ble and which ensure that entry into, and
progression within, the Group is determined
solely by application of job criteria and
personal ability and competency.
The Group aims to give full and fair consid-
eration to the possibility of employing
disabled persons wherever suitable oppor-
tunities exist. Employees who become
disabled are given every opportunity to
continue their positions or be trained for
other suitable positions.
The Group provides a Group Personal
Pension plan which is open to all employees.
The Group operates an Enterprise
Management Incentive scheme and a
Group Sharesave scheme, details of which
are provided in the Directors’ Remunera-
tion Report and the financial statements.
F I N A N C I A L I N S T R U M E N T S
The Group’s financial instruments at
31 March 2019 comprise cash and cash
equivalents and receivable and paya-
ble balances that arise directly from its
daily operations.
Cash flow is managed to ensure that suffi-
cient cash is available to meet liabilities.
The Group is not reliant on income gener-
ated from cash deposits.
The Group has one operating subsidiary
(Tatton) which is supervised in the UK by
the FCA. The Group must comply with the
regulatory capital requirements set by the
FCA and manages its regulatory capital
through continuous review of Tatton’s
capital positions and requirements, which
are reported to the Board monthly.
P O S T B A L A N C E S H E E T
D AT E E V E N T S
There have been no post balance
sheet events.
P O L I T I C A L D O N AT I O N S
The Group made no political donations or
contributions during the year (2018: £nil).
A N N U A L G E N E R A L M E E T I N G
( “ A G M ” )
The AGM of the Company will be held
at the offices of DWF LLP, Manchester
on 4 July 2019. A notice convening the
meeting will be sent to shareholders on
10 June 2019.
A U D I T O R
Deloitte LLP were the Group’s independent
auditor during the year and have confirmed
their willingness to continue in office.
A resolution to reappoint Deloitte LLP
as auditors to the Group and to author-
ise the Directors to set their remunera-
tion will be proposed at the 2019 Annual
General Meeting.
Each of the persons who is a Director at
the date of approval of this Annual Report
confirms that:
— so far as the Director is aware, there is
no relevant audit information of which
the Company’s auditor is unaware; and
— the Director has taken all the steps that
he/she ought to have taken as a Director
in order to make himself/herself aware
of any relevant audit information and to
establish that the Company’s auditor
is aware of that information.
C O R P O R AT E G O V E R N A N C E
A full review of corporate governance
appears on pages 30 to 31.
S TAT E M E N T O F D I R E C T O R S ’
R E S P O N S I B I L I T I E S /
D I S C L O S U R E S T O T H E
A U D I T O R
As far as the Directors are aware,
there is no relevant information of
which the Group’s independent auditors
are unaware. The Directors have taken all
the steps that they ought to have taken
as Directors to make themselves aware
of any relevant audit information and to
establish that the Company’s independent
auditors are aware of that information.
R E L AT E D P A R T I E S
Details of related party transactions
are given in note 21 to the Group finan-
cial statements.
G O I N G C O N C E R N
The financial statements have been
prepared on a going concern basis.
Details of the Group’s business activities,
results, cash flows and resources, together
with the risk it faces and other factors
likely to affects it future development,
performance and position are set out in
the Strategic Report. In addition, note
2.2 to the financial statements provides
further details.
B A S I S O F P R E P A R AT I O N O F
T H E F I N A N C I A L S TAT E M E N T S
Having given due consideration to the
risks, uncertainties and contingencies
disclosed in the financial statements and
accompanying reports the Directors believe
the business is well placed to manage its
business risk successfully. The Group’s
financial projections show the Group should
continue to be cash generative and that
the Group will have sufficient resources
to continue its operations. Accordingly,
the Directors continue to adopt the going
concern basis of preparation of the finan-
cial statements.
The Directors are responsible for prepar-
ing the Annual Report and the financial
statements in accordance with applicable
law and regulations.
Tatton Asset Management Annual Report and Accounts 2019
37
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS D I R E C T O R S ’ R E P O R T C O N T I N U E D
Company law requires the Directors to
prepare such financial statements for each
financial year. Under that law the Directors
are required to prepare the Group financial
statements in accordance with International
Financial Reporting Standards (“IFRSs”)
as adopted by the European Union and
Article 4 of the International Accounting
Standards (“IAS”) Regulation and have
elected to prepare the Parent Company
financial statements in accordance with
Financial Reporting Standard 101 ‘Reduced
Disclosure Framework’. Under company
law the Directors must not approve the
financial statements unless they are satis-
fied that they give a true and fair view
of the state of affairs of Company and
of the profit or loss of the Company for
that period.
In preparing the Parent Company financial
statements, the Directors are required to:
— select suitable accounting policies and
then apply them consistently;
— make judgements and accounting esti-
mates that are reasonable and prudent;
— state whether applicable Financial
Reporting Standard 101 ‘Reduced
Disclosure Framework’ has been
followed, subject to any mate-
rial depar tures disclosed and
explained in the financial statements; and
— prepare the financial statements on the
going concern basis unless it is inap-
propriate to presume that the Company
will continue in business.
In preparing the Group financial statements,
IAS 1 requires that Directors:
— properly select and apply account-
ing policies;
— present information, including account-
ing policies, in a manner that provides
relevant, reliable, comparable and
understandable information;
— provide additional disclosures when
compliance with the specific require-
ments in IFRSs are insufficient to enable
users to understand the impact of
particular transactions, other events
and conditions on the entity’s financial
position and financial performance; and
— make an assessment of the Company’s
ability to continue as a going concern.
The Directors are responsible for keep-
ing 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. 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 Directors are responsible for the main-
tenance and integrity of the corporate
and financial information included on
the Company’s website. Legislation in the
United Kingdom governing the prepa-
ration and dissemination of financial
statements may differ from legislation
in other jurisdictions.
D I R E C T O R S ’
R E S P O N S I B I L I T Y S TAT E M E N T
W E C O N F I R M T H AT T O T H E
B E S T O F O U R K N O W L E D G E :
— the financial statements, prepared in
accordance with the relevant finan-
cial reporting framework, give a true
and fair view of the assets, liabilities,
financial position and profit or loss of
the Company and the undertakings
included in the consolidation taken
as a whole;
— the Strategic Report includes a fair
review of the development and perfor-
mance of the business and the position
of the Company and the undertakings
included in the consolidation taken as
a whole, together with a description of
the principal risks and uncertainties
that they face; and
— the Annual Report and financial state-
ments, taken as a whole, are fair, balanced
and understandable and provide the
information necessary for shareholders
to assess the Company’s performance,
business model and strategy.
The Directors’ Report has been approved
and authorised for issue by the Board of
Directors and signed on their behalf by:
PA U L H O G A R T H
Chief Executive Officer
3 June 2019
PA U L E DWA R D S
Chief Financial Officer
3 June 2019
38
Tatton Asset Management Annual Report and Accounts 2019
I N D E P E N D E N T A U D I T O R ’ S R E P O R T T O T H E M E M B E R S O F TAT T O N A S S E T M A N A G E M E N T P L C
R E P O R T O N T H E A U D I T O F
T H E F I N A N C I A L S TAT E M E N T S
O P I N I O N
In our opinion:
— the financial statements have
been prepared in accordance with
the requirements of the Companies
Act 2006.
United Kingdom Accounting Standards,
including FRS 101 “Reduced Disclosure
Framework” (United Kingdom Generally
Accepted Accounting Practice).
— the financial statements of Tatton
Asset Management plc (the ‘parent
Company’) and its subsidiaries (the
‘Group’) give a true and fair view of the
state of the Group’s and of the parent
Company’s affairs as at 31 March 2019
and of the Group’s profit for the year
then ended;
— the Group financial statements have
been properly prepared in accordance
with International Financial Reporting
Standards (IFRSs) as adopted by the
European Union;
— the parent Company financial state-
ments have been properly prepared
in accordance with United Kingdom
Generally Accepted Accounting Prac-
tice, including Financial Reporting
Standard 101 “Reduced Disclosure
Framework”; and
We have audited the financial statements
which comprise:
— the consolidated statement of total
comprehensive income;
— the consolidated and parent Company
balance sheets;
— the consolidated and parent Company
statements of changes in equity;
— the consolidated statement of
cash flows; and
— the related notes 1 to 25.
The financial reporting framework that
has been applied in the preparation of
the Group financial statements is appli-
cable law and IFRSs as adopted by the
European Union. The financial report-
ing framework that has been applied in
the preparation of the parent Company
financial statements is applicable law and
B A S I S F O R O P I N I O N
We conducted our audit in accordance
with International Standards on Audit-
ing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those stand-
ards 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 Financial Reporting
Council’s (the ‘FRC’s’) Ethical Standard
as applied to listed 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.
S U M M A R Y O F O U R A U D I T A P P R O A C H
Key audit
matters
Materiality
Scoping
Significant
changes in
our approach
The key audit matters that we identified in the current year were:
— Share based payments
— Related parties
The materiality that we used for the Group financial statements was £308,000 which was determined on the
basis of 5% of income before tax.
Audit work to respond to the risks of material misstatement was performed directly by the Group audit
engagement team. Our testing covered all Group subsidiaries, which were subject to audit testing at their
own respective materiality levels, capped at Group materiality.
We have changed our basis for materiality compared with the prior year in which it was determined on 2% of
revenue. We have changed the basis of materiality to align with industry practice. We have also removed the
Group reconstruction key audit matter, this is due to the accounting treatment being historical.
C O N C L U S I O N S R E L AT I N G T O G O I N G C O N C E R N
We are required by ISAs (UK) to report in respect of the following matters where:
— the directors’ use of the going concern basis of accounting in preparation of the financial state-
ments is not appropriate; or
— the directors have not disclosed in the financial statements any identified material uncertainties
that may cast significant doubt about the Group’s or the parent Company’s ability to continue
to adopt the going concern basis of accounting for a period of at least twelve months from the
date when the financial statements are authorised for issue.
We have nothing
to report in respect
of these matters.
Tatton Asset Management Annual Report and Accounts 2019
39
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS I N D E P E N D E N T A U D I T O R ’ S R E P O R T T O T H E M E M B E R S O F TAT T O N A S S E T M A N A G E M E N T P L C
C O N T I N U E D
K E Y A U D I T M AT T E R S
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not
due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy,
the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Our key audit matters for the current year have remained the same with the only change from the previous year being that
‘Group Reconstruction Accounting’ is no longer a key audit matter.
S H A R E - B A S E D P AY M E N T S
Key audit
matter
description
The Group has four ongoing share schemes and our significant risk has been pinpointed to the 2018 EMI scheme,
given the size of the income statement charge and the level of sensitivity to a change in key assumptions. The
2018 EMI scheme has two performance conditions; being total shareholder return (TSR) accounting for 25%
of the pay-out, and earnings per share (EPS) growth accounting for 75% of the pay-out, over the three year
vesting period.
TSR growth is a market condition, which means that the number of options expected to vest is embedded in
the fair value of the option, determined by the Group using a Monte Carlo model at the grant date. EPS growth
is a non-market condition, which means that the number of options expected to vest should be adjusted to
the extent that the relevant measure of performance is expected to be met, determined by the Group using a
Black Scholes model. The EPS growth condition should be reassessed at each reporting period.
The key judgements we have identified are: the number of options expected to vest, exercise price, risk free
rate, yield %, volatility and leavers. The most sensitive, and our significant risk of misstatement, is the level of
options expected to vest under the EPS performance condition of the EMI scheme. The accounting treatment
of share-based payments is included in the critical judgements and share-based payments notes.
To address our share-based payment key audit matter we have:
— evaluated the design and implementation of key controls around share-based payments;
— challenged the EPS growth assumptions, through recalculation and extrapolation of historic growth rates; and
— challenged the EPS growth assumptions through reviewing analyst growth forecasts.
As a result of the above procedures we concur that Management’s accounting treatment of the share-based
payment schemes is consistent with IFRS 2 Share-based Payment.
How the
scope of
our audit
responded
to the key
audit matter
Key
observations
40
Tatton Asset Management Annual Report and Accounts 2019
R E L AT E D P A R T I E S
Key audit
matter
description
How the
scope of
our audit
responded
to the key
audit matter
Due to the significant number of related parties which the TAM Group has, and potential for transactions not
to be disclosed under IFRS, we have identified a significant risk relating to related party transactions. We have
pinpointed this risk to the completeness, accuracy and adequacy of disclosure of related party transactions
with known related party entities outside of the Group. The related parties accounting policy note is detailed
in note 1, and the disclosure in note 21.
To address our related party key audit matter we have:
— performed analytics on the journals population to identify any transactions with related parties which have
not been disclosed in the financial statements. This work was performed using Spotlight, our analytics
software tool;
— performed analytics on the bank statements, to identify any transactions with related parties which have
not been disclosed in the financial statements;
— obtained supporting documentation for a sample of identified transactions;
— compared the results of our testing to the disclosures included within the financial statements;
— obtained the rationale for a sample of transactions; and
— evaluated the design and implementation of key controls around identification of related party transactions.
As a result of the procedures above we concur that Management’s related party disclosures are appropriate
and accurately reflect the transactions undertaken during the year.
Key
observations
O U R A P P L I C AT I O N O F M AT E R I A L I T Y
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the
scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality
Basis for
determining
materiality
Rationale for
the benchmark
applied
Group financial statements
£308,000 (2018: £300,000)
5% of income before tax. This basis is different to the
previous year which was 2% of revenue.
Parent Company financial statements
£242,040 (2018: £240,000)
Parent Company materiality equates to 1.6% of net
assets, which is capped at 80% of Group materiality.
We have determined materiality based on income
before tax as it is a profit driven business PBT is
considered the most relevant benchmark for users
of the financial statements.
The main operation of the parent Company is to
hold the investments in the subsidiaries. We have
therefore selected net assets as the benchmark for
determining materiality.
Income
before tax
£6m
Group materiality
£308,000
Component materiality range
£121,020 to £272,295
Reporting threshold
£15,400
Income before tax
Group materiality
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £15,400
(2018: £15,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of
the financial statements.
A N O V E R V I E W O F T H E S C O P E O F O U R A U D I T
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls,
and assessing the risks of material misstatement at the Group level.
Tatton Asset Management Annual Report and Accounts 2019
41
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
I N D E P E N D E N T A U D I T O R ’ S R E P O R T T O T H E M E M B E R S O F TAT T O N A S S E T M A N A G E M E N T P L C
C O N T I N U E D
Our Group audit focused on the four principal trading entities within the Group’s three reportable segments and four holding
companies including the parent Company. The Group audit team performed full scope audits on all entities directly, which
account for 100% of the group’s profit before tax and revenue. We have used levels of materiality for the four trading entities
that ranged from £14,000–£272,295 (2018: £60,000–£140,000). At the parent entity level consolidation procedures have
been completed.
O T H E R I N F O R M AT I O N
The directors are responsible for the other information. The other information comprises the information
included in the annual report Chairman’s Letter, the Chief Executive Officer’s Review, the Strategic Report,
the Chief Investment Officer’s Report, Principal Risks and Uncertainties, the Directors’ Report, the Corporate
Governance Report and the Directors’ Remuneration Report, 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
this other information, we are required to report that fact.
We have
nothing
to report
in respect
of these
matters.
R E S P O N S I B I L I T I E S O F D I R E C T O R 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 abil-
ity 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.
A U D I T O R ’ S R E S P O N S I B I L I T I E S F O R T H E A U D I T O F T H E F I N A N C I A L S TAT E M E N T 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.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
42
Tatton Asset Management Annual Report and Accounts 2019
R E P O R T O N O T H E R L E G A L A N D R E G U L AT O R Y R E Q U I R E M E N T S
O P I N I O N S O N O T H E R M AT T E R S P R E S C R I B E D B Y T H E C O M P A N I E S A C T 2 0 0 6
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 state-
ments 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.
In the light of the knowledge and understanding of the Group and of the parent Company and their environment obtained in
the course of the audit, we have not identified any material misstatements in the Strategic Report or the Directors’ Report.
M AT T E R S O N W H I C H W E A R E R E Q U I R E D T O R E P O R T B Y E X C E P T I O N
A D E Q U A C Y O F E X P L A N AT I O N S R E C E I V E D A N D A C C O U N T I N G R E C O R D S
Under the Companies Act 2006 we are required to report to you if, in our opinion:
— we have not received all the information and explanations we require for our audit; or
— 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 are not in agreement with the accounting records
and returns.
D I R E C T O R S ’ R E M U N E R AT I O N
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures
of directors’ remuneration have not been made.
We have nothing
to report in respect
of these matters.
We have nothing
to report in respect
of this matter.
U S E O F O U R R E P O R T
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
P E T E R B I R C H F C A ( S E N I O R S TAT U T O R Y A U D I T O R )
For and on behalf of Deloitte LLP
Statutory Auditor
Leeds, UK
3 June 2019
Tatton Asset Management Annual Report and Accounts 2019
43
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS C O N S O L I D AT E D S TAT E M E N T O F T O TA L C O M P R E H E N S I V E I N C O M E
F O R T H E Y E A R E N D E D 3 1 M A R C H 2 0 1 9
Revenue
Administrative expenses
Adjusted operating profit (before separately disclosed items)¹
– Share-based payment costs
– Exceptional items
Total administrative expenses
Operating profit
Finance income/(costs)
Profit before tax
Taxation charge
Profit for the year on continuing operations
Loss related to disposal of discontinued operations
Profit attributable to shareholders
Earnings per share – Basic
Earnings per share – Diluted
Adjusted earnings per share – Basic2
Adjusted earnings per share – Diluted2
1 Adjusted for exceptional items and share-based payments. See note 22.
2 Adjusted for exceptional items and share-based payments and the tax thereon. See note 22.
Year ended
Year ended
31-Mar
2019
(£’000)
17,518
(10,210)
7,308
(874)
(509)
(11,593)
5,925
187
6,112
(1,255)
4,857
–
4,857
8.69p
7.92p
10.99p
10.02p
Note
6
6
7
8
9
9
9
9
31-Mar
2018
(£’000)
15,507
(8,981)
6,526
(986)
(1,964)
(11,931)
3,576
(26)
3,550
(1,110)
2,440
(164)
2,276
4.07p
3.85p
9.64p
9.12p
All revenue, profit and earnings are in respect of continuing operations.
There were no other recognised gains or losses other than those recorded above in the current or prior year and
therefore a Statement of Other Comprehensive Income has not been presented.
The notes on pages 48 to 70 form part of these financial statements.
44
Tatton Asset Management Annual Report and Accounts 2019
C O N S O L I D AT E D B A L A N C E S H E E T
F O R T H E Y E A R E N D E D 3 1 M A R C H 2 0 1 9
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Deferred income tax assets
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Corporation tax
Total current liabilities
Non-current liabilities
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity attributable to equity holders of the Company
Share capital
Share premium account
Other reserve
Merger reserve
Retained earnings
Total equity
Note
11
12
13
16
14
15
16
18
31-Mar
2019
(£’000)
4,917
223
349
104
5,593
2,508
12,192
14,700
20,293
(4,521)
(484)
(5,005)
–
–
(5,005)
15,288
11,182
8,718
2,041
(28,968)
22,315
15,288
31-Mar
2018
(£’000)
4,917
–
104
–
5,021
2,452
10,630
13,082
18,103
(3,922)
(605)
(4,527)
(15)
(15)
(4,542)
13,561
11,182
8,718
2,041
(28,968)
20,588
13,561
The notes on pages 48 to 70 form part of these financial statements.
The financial statements on pages 44 to 47 were approved by the Board of Directors on 3 June 2019 and were signed on
its behalf by:
PA U L E DWA R D S
Director
Company registration number: 10634323
Tatton Asset Management Annual Report and Accounts 2019
45
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
C O N S O L I D AT E D S TAT E M E N T O F C H A N G E S I N E Q U I T Y
F O R T H E Y E A R E N D E D 3 1 M A R C H 2 0 1 9
At 1 April 2017
Profit and total
comprehensive income
Dividends
Share-based payments
Adjustments related to merger
accounting
Issue of share capital
At 31 March 2018
Profit and total
comprehensive income
Dividends
Share-based payments
Deferred tax on
share-based payments
At 31 March 2019
Note
9
19
9
19
Share
capital
(£’000)
11,182
Share
premium
(£’000)
Other
reserve
(£’000)
Merger
reserve
(£’000)
Retained
earnings
(£’000)
8,718
2,133
(18,960)
–
Total
equity
(£’000)
3,073
–
–
–
–
–
–
–
–
–
–
598
(1,564)
846
–
–
–
1,678
(1,230)
140
2,276
(2,794)
986
28
–
(20,008)
10,000
20,000
–
20
10,000
11,182
8,718
2,041
(28,968)
20,588
13,561
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,857
(4,025)
765
4,857
(4,025)
765
130
130
11,182
8,718
2,041
(28,968)
22,315
15,288
The other reserve and merger reserve were created on 19 June 2017 when the Group was formed, where the difference
between the Company’s capital and the acquired Group’s capital has been recognised as a component of equity being the
merger reserve. Both the other reserve and the merger reserve are non-distributable.
46
Tatton Asset Management Annual Report and Accounts 2019
C O N S O L I D AT E D S TAT E M E N T O F C A S H F L O W S
F O R T H E Y E A R E N D E D 3 1 M A R C H 2 0 1 9
Operating activities
Profit for the year
Adjustments:
Income tax expense
Finance (income) / costs
Depreciation of property, plant and equipment
Amortisation of intangible assets
Share-based payment expense
Share of profit from joint venture
Changes in:
Trade & other receivables
Trade & other payables
Exceptional costs
Cash generated from operations before exceptional costs
Cash generated from operations
Income tax paid
Net cash from operating activities
Investing activities
Purchase of intangible assets
Purchase of property, plant and equipment
Net cash used in investing activities
Financing activities
Proceeds from the issue of shares
Stamp duty paid on share transfer
Interest received/(paid)
Dividends paid
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Net cash and cash equivalents at end of period
The notes on pages 48 to 70 form part of these financial statements.
31-Mar
2019
(£’000)
31-Mar
2018
(£’000)
Note
4,857
2,276
7
13
12
6
6
1,255
(187)
91
43
874
–
78
491
509
8,011
7,502
(1,366)
6,136
(266)
(336)
(602)
–
–
53
(4,025)
(3,972)
1,562
10,630
12,192
1,110
26
53
–
986
(31)
(544)
(188)
1,964
5,652
3,688
(1,374)
2,314
–
(82)
(82)
10,000
(10)
(26)
(1,556)
8,408
10,640
(10)
10,630
Tatton Asset Management Annual Report and Accounts 2019
47
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
1 G E N E R A L I N F O R M AT I O N
Tatton Asset Management plc (“the Company”) is a public company limited by shares. The address of the registered office
is Paradigm House, Brooke Court, Lower Meadow Road, Wilmslow, SK9 3ND. The registered number is 10634323.
The Group comprises the Company and its subsidiaries. The Group’s principal activities are discretionary fund
management, the provision of compliance and support services to independent financial advisers (IFAs), the provision
of mortgage adviser support services and the marketing and promotion of Tatton Oak funds.
News updates, regulatory news and financial statements can be viewed and downloaded from the Group’s website,
www.tattonassetmanagement.com. Copies can also be requested from: The Company Secretary, Tatton Asset Management
plc, Paradigm House, Brooke Court, Lower Meadow Road, Wilmslow, SK9 3ND.
The Company has taken advantage of the exemption in section 408 of the Companies Act 2006 not to present its own
income statement.
2 A C C O U N T I N G P O L I C I E S
The principal accounting policies applied in the presentation of the annual financial statements are set out below.
2 . 1 B A S I S O F P R E P A R AT I O N
The consolidated financial statements of the Group have been prepared in accordance with International Financial
Reporting Standards (“IFRSs”) as adopted for use in the European Union and International Financial Reporting
Interpretations Committee (“IFRIC”) interpretations issued by the International Accounting Standards Board (IASB) and
the Companies Act 2006. The financial statements of the Company have been prepared in accordance with UK Generally
Accepted Accounting Practice, including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (“FRS 101”).
The consolidated financial statements have been prepared on a going concern basis and prepared on the historical
cost basis.
The consolidated financial statements are presented in sterling and have been rounded to the nearest thousand (£’000).
The functional currency of the company is sterling.
The preparation of financial information in conformity with IFRSs requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Although these estimates are based on management’s best
knowledge of the amount, event or actions, actual events may ultimately differ from those estimates.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented
in the consolidated financial statements.
2 . 2 G O I N G C O N C E R N
These financial statements have been prepared on a going concern basis. The Directors have prepared cash flow
projections and are satisfied that the Group has adequate resources to continue in operational existence for the
foreseeable future. The Group’s forecasts and projections, which take into account reasonably possible changes in trading
performance, show that the Group will be able to operate within the level of its current facilities. The Directors have
considered the risks associated with Brexit, including considering the effect on clients’ wealth, attitude towards savings and
investment and changes in government policy. The Directors do not consider that the impact of Brexit will affect the Group
continuing as a going concern. Accordingly, the Directors continue to adopt the going concern basis in preparing these
financial statements.
2 . 3 B A S I S O F C O N S O L I D AT I O N
On 23 February 2017, the Company was incorporated under the name Tatton Asset Management Limited. On 19 June 2017,
Tatton Asset Management Limited acquired the entire share capital of Nadal Newco Limited via a share for share exchange
with the shareholders of Nadal Newco Limited. On 19 June 2017, Tatton Asset Management Limited was re-registered as a
public company with the name Tatton Asset Management plc.
48
Tatton Asset Management Annual Report and Accounts 2019
2 A C C O U N T I N G P O L I C I E S C O N T I N U E D
2 . 4 S U B S I D I A R I E S
The Group’s financial statements consolidate those of the Parent Company and all of its subsidiaries as at 31 March 2019.
The parent controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary
and has the ability to affect those returns through its power over the subsidiary. All subsidiaries have a reporting date of
31 March.
All transactions between Group companies are eliminated on consolidation, including unrealised gains and losses on
transactions between Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation,
the underlying asset is also tested for impairment from a Group perspective. Amounts reported in the financial statements
of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by
the Group.
Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from
the effective date of acquisition, up to the effective date of disposal, as applicable.
2 . 5 S TA N D A R D S I N I S S U E N O T Y E T E F F E C T I V E
The following IFRS and IFRIC interpretations have been issued but have not been applied by the Group in preparing
the historical financial information, as they are not as yet effective. The Group intends to adopt these Standards and
Interpretations when they become effective, rather than adopt them early.
— IFRS 16 ‘Leases’, effective date 1 January 2019.
— IFRIC 23 ‘Uncertainty over Income Tax Treatments’, effective date 1 January 2019.
— Annual improvements to IFRS 2015–2017 cycle – Relating to IFRS 3 ‘Business Combinations’, IFRS 11 ‘Joint Arrangements‘,
IAS 12 ‘Income Taxes‘ and IAS 23 ‘Borrowing Costs’, effective date 1 January 2019.
A number of IFRS and IFRIC interpretations are also currently in issue which are not relevant for the Group’s activities and
which have not therefore been adopted in preparing the annual financial statements.
IFRS 16, which was endorsed by the EU on 9 November 2017, provides a comprehensive model for the identification of
lease arrangements and their treatment in the financial statements for both lessors and lessees. IFRS 16 will supersede the
current lease guidance including IAS 17 ‘Leases’ and the related interpretations when it becomes effective for accounting
periods beginning on or after 1 January 2019. The date of initial application of IFRS 16 for the Group will be 1 April 2019.
IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer.
Distinctions of operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee
accounting, and are replaced by a model where a right-of-use asset and a corresponding liability have to be recognised for
all leases by lessees (i.e. all on balance sheet) except for short-term leases and leases of low value assets.
The right-of-use asset is measured initially at cost and measured subsequently at cost (subject to certain exceptions) less
accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is
measured initially at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability
is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. Furthermore, the
classification of cash flows will also be affected because operating leases under IAS 17 are presented as operating cash
flows, whereas under the IFRS 16 model the lease payments will be split into a principal and interest portion, which will be
presented as operating and financing cash flows respectively.
Furthermore, extensive disclosures are required by IFRS 16. The Group has reviewed all of the Group’s leasing arrangements
in light of the new lease accounting rules in IFRS 16. The standard will affect primarily the accounting for the Group’s
operating leases. As at the reporting date, the Group has non-cancellable operating lease commitments of £778,000.
The Group’s preliminary assessment is that it will recognise right-of-use assets and lease liabilities of £0.6 million on 1 April
2019 with zero impact on net assets. Net current assets will be £26,000 lower due to the presentation of a portion of the
liability as a current liability. The Group’s activities as a lessee are not material and hence the Group does not expect any
significant impact on the financial statements. The impact of IFRS 16 on the profit and loss account in 2019 is not expected
to be significant.
The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial
statements of the Group in future periods, with the exception of IFRS 16.
Tatton Asset Management Annual Report and Accounts 2019
49
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S C O N T I N U E D
2 A C C O U N T I N G P O L I C I E S C O N T I N U E D
2 . 6 A P P L I C AT I O N O F N E W S TA N D A R D S
IFRS 9 ‘Financial Instruments’
The Group has applied IFRS 9 from 1 April 2018. The Group has elected not to restate comparatives on initial application of
IFRS 9.
With respect to the classification and measurement of financial assets, the number of categories of financial assets under
IFRS 9 has been reduced compared to IAS 39. Under IFRS 9 the classification of financial assets is based both on the
business model within which the asset is held and the contractual cash flow characteristics of the asset. There are three
principal classification categories for financial assets that are debt instruments: (i) amortised cost, (ii) fair value through
other comprehensive income (“FVTOCI”) and (iii) fair value through profit or loss (“FVTPL”).
Equity investments in scope of IFRS 9 are measured at fair value with gains and losses recognised in profit or loss unless
an irrevocable election is made to recognise gains or losses in other comprehensive income. Under IFRS 9, derivatives
embedded in financial assets are not bifurcated but instead the whole hybrid contract is assessed for classification.
Under IFRS 9, financial assets can be designated as at FVTPL to mitigate an accounting mismatch. In respect to
classification and measurement of financial liabilities changes in the fair value of a financial liability designated as at FVTPL
due to credit risk are presented in other comprehensive income unless such presentation would create or enlarge an
accounting mismatch in profit or loss.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses (ECLs) for trade receivables at an
amount equal to lifetime ECLs. The ECLs on trade receivables are calculated based on actual historic credit loss experience
on the total balance of non-credit impaired trade receivables.
The Group considers a trade 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
reorganization. When a trade receivable is credit impaired, it is written off against trade receivables and the amount of the
loss is recognised in the income statement. Subsequent recoveries of amounts previously written off are credited to the
income statement. In line with the Group’s historical experience, and after consideration of current credit exposures, the
Group does not expect to incur any credit losses and has not recognised any ECLs in the current year (2018: nil).
See note 2.15 for further detail on financial instruments.
There have been no changes to accounting treatment or disclosures as a result of the implementation of IFRS 9.
IFRS 15 ‘Revenue from Contracts with Customers’
IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with
customers. IFRS 15 supersedes the previous revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction
Contracts and the related interpretations and became effective for the Group from 1 April 2018. The Group has adopted the
modified retrospective approach without restatement of comparatives.
The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those
goods or services. Specifically, the Standard introduces a five-step approach to revenue recognition:
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation.
Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the
goods or services underlying the particular performance obligation is transferred to the customer.
There have been no changes to accounting treatment or disclosures as a result of the implementation of IFRS 15.
No judgements or changes in judgements were made as a result of application of this standard.
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Tatton Asset Management Annual Report and Accounts 2019
2 A C C O U N T I N G P O L I C I E S C O N T I N U E D
2 . 7 R E V E N U E
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for
services provided in the normal course of business, net of discounts, VAT and other sales-related taxes. Revenue is reduced
for estimated rebates and other similar allowances. Revenue is recognised when control is transferred and the performance
obligations are considered to be met.
The Group’s revenue is made up of the following principal revenue streams:
— Fees charged to IFAs for compliance consultancy services, which is recognised on an accruals basis.
— Fees for providing investment platform services. Revenue is accrued daily based on the Assets Under Influence held on
the relevant investment platform.
— Fees for discretionary fund management services in relation to on-platform investment Assets Under Management
(“AUM”). Revenue is recognised daily based on the AUM.
— Fees for mortgage related services including commissions from mortgage and other product providers and referral fees
from strategic partners. Commission is recognised on an accruals basis.
— Fees for marketing services provided to providers of mortgage and investment products, which is recognised on an
accruals basis.
2 . 8 S E P A R AT E LY D I S C L O S E D I T E M S
Separately disclosed items are those which reflect costs and income that do not relate to the Group’s normal business
operations and which in management’s judgement are considered material individually or in aggregate (if of a similar type)
due to their size or frequency. Separate disclosure enables a full understanding of the Group’s financial performance.
2 . 9 I N T E R E S T I N C O M E A N D I N T E R E S T E X P E N S E
Finance income is recognised as interest accrued (using the effective interest method) on funds invested outside the
Group. Finance expense includes the cost of borrowing from third parties and is recognised on an effective interest rate
basis, resulting from the financial liability being recognised on an amortised cost basis.
2 . 1 0 I M P A I R M E N T
Assets which have an indefinite useful life are not subject to amortisation and are tested for impairment at each Statement
of Financial Position date. Assets subject to depreciation and amortisation are reviewed for impairment whenever events or
circumstances indicate that the carrying amount may not be recoverable. Impairment losses on previously revalued assets
are recognised against the revaluation reserve as far as this reserve relates to previous revaluations of the same assets.
Other impairment losses are recognised in the income statement based on the amount by which the carrying value exceeds
the recoverable amount. The recoverable amount is the higher of the fair value less the costs to sell, and the value in use.
Impairment losses recognised in respect of cash-generating units (“CGUs”) are allocated first to reduce the carrying
amount of any goodwill allocated to CGUs and then to reduce the carrying amount of other assets in the unit on a pro
rata basis.
2 . 1 1 I N TA N G I B L E A S S E T S
Following initial recognition, intangible assets are held at cost less any accumulated amortisation and any provision
for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount
by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s
fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (CGUs).
Intangible assets acquired separately are measured on initial recognition at cost.
Tatton Asset Management Annual Report and Accounts 2019
51
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S C O N T I N U E D
2 A C C O U N T I N G P O L I C I E S C O N T I N U E D
2 . 1 1 I N TA N G I B L E A S S E T S C O N T I N U E D
Computer software licences acquired are capitalised at the cost incurred to bring the software into use and are amortised
on a straight-line basis over their estimated useful lives, which are estimated as being five years. Costs associated with
developing or maintaining computer software programs that do not meet the capitalisation criteria under IAS 38 are
recognised as an expense as incurred.
Gains and losses arising from derecognition of an intangible asset are measured as the difference between the net disposal
proceeds and the carrying value of the asset. The difference is then recognised in the income statement.
An assessment is made at each reporting date as to whether there is any indication that an asset in use may be impaired.
If any such indication exists and the carrying values exceed the estimated recoverable amount at that time, the assets are
written down to their recoverable amount. The recoverable amount is measured as the greater of fair value less costs to sell
and value in use. Non-financial assets that have suffered impairment are reviewed for possible reversal of the impairment at
each reporting date.
The Directors have reviewed the intangible assets as at 31 March 2019 and have concluded there are no indicators of
impairment (2018: none).
2 . 1 2 P R O P E R T Y, P L A N T A N D E Q U I P M E N T
Property, plant and equipment assets are stated at cost net of accumulated depreciation and accumulated provision for
impairment. Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of
each part of an item of property, plant and equipment. Principal annual rates are as follows:
— Computer, office equipment and motor vehicles – 20-33% straight line.
— Furniture, fixtures, and equipment – 20% straight line.
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with
the effect of any changes in estimate accounted for on a prospective basis.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected
to arise from the continued use of the asset. The gain or loss arising on disposal or scrappage of an asset is determined as
the difference between the sales proceeds and the carrying amount of the asset and is recognised in income.
2 . 1 3 B U S I N E S S C O M B I N AT I O N S
Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill
is allocated to each of the Group’s CGUs expected to benefit from the synergies of the combination. CGUs to which
goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit
may be impaired. If the recoverable amount of the CGUs is less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount 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 for goodwill is not
reversed in a subsequent period.
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in
a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets
transferred to the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued
by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at
the acquisition date, except that: deferred tax assets or liabilities and assets or liabilities related to employee benefit
arrangements are recognised and measured in accordance with IAS 12 ‘Income Taxes’ and IAS 19 ‘Employee Benefits’
respectively; and assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 ‘Non-current
Assets Held for Sale and Discontinued Operations’ are measured in accordance with that Standard.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests
in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the
acquisition-date amounts of the identifiable assets and liabilities assumed. If, after reassessment, the net of the acquisition-
date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred,
the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in
the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.
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Tatton Asset Management Annual Report and Accounts 2019
2 A C C O U N T I N G P O L I C I E S C O N T I N U E D
2 . 1 3 B U S I N E S S C O M B I N AT I O N S C O N T I N U E D
When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from
a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value
and included as part of the consideration transferred in a business combination. Changes in fair value of the contingent
consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding
adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information
obtained during the measurement period (which cannot exceed one year from the acquisition date) about facts and
circumstances that existed at the acquisition date.
The subsequent accounting for changes in fair value of the contingent consideration that do not qualify as measurement
period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified
as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity.
Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates at fair value
with the corresponding gain or loss being recognised in profit or loss.
When a business combination is achieved in stages, the Group’s previously held interest in the acquired entity is
remeasured to its acquisition-date fair value and the resulting gain or loss, if any, is recognised in profit or loss.
Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other
comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were
disposed of.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the
combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete.
Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are
recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that,
if known, would have affected the amounts recognised as of that date.
2 . 1 4 C A S H A N D C A S H E Q U I VA L E N T S
Cash and cash equivalents comprise cash at bank and call deposits. Bank overdrafts that are repayable on demand and
form an integral part of the Group’s cash management are included as a component of cash and bank balances for the
purpose only of the Consolidated Statement of Cash Flows.
2 . 1 5 F I N A N C I A L I N S T R U M E N T S
Financial assets and financial liabilities are recognised in the Group’s Statement of Financial Position when the Group
becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to
the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair
value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as
appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial
liabilities at fair value through profit or loss are recognised immediately in profit or loss.
All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under
a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned,
and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value
through profit or loss. Transaction costs directly attributable to the acquisition of financial assets classified as at fair value
through profit or loss are recognised immediately in profit or loss.
Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash
and bank balances, loans and borrowings, and trade and other payables.
Trade receivables
Trade receivables do not carry interest and are stated at amortised cost as reduced by appropriate allowances for
estimated irrecoverable amounts. They are recognised when the Group’s right to consideration is only conditional on the
passage of time. Allowances incorporate an expectation of lifetime credit losses from initial recognition and are determined
using an expected credit loss approach.
Tatton Asset Management Annual Report and Accounts 2019
53
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S C O N T I N U E D
2 A C C O U N T I N G P O L I C I E S C O N T I N U E D
2 . 1 5 F I N A N C I A L I N S T R U M E N T S C O N T I N U E D
Trade and other payables
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the
effective interest method, where applicable or required. These amounts represent liabilities for goods and services
provided to the Group prior to the end of the financial period, which are unpaid.
Interest-bearing borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at
amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in
profit or loss over the period of the borrowings using the effective interest method.
The Group does not hold or issue derivative financial instruments for trading purposes.
Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value
of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is
included in the Statement of Financial Position as a finance lease obligation.
Lease payments are apportioned between finance expense and reduction of the lease obligation so as to achieve a
constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit
or loss.
2 . 1 6 TA X AT I O N
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the
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. The Group’s liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the Statement of Financial Position date.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets
and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and
is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable
temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised
if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in
a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the
accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences and it is probable that the temporary difference
will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated
with such investments and interests are only recognised to the extent that it is probable that there will be sufficient
taxable profits against which to utilise the benefits of the temporary difference and they are expected to reverse in the
foreseeable future.
The carrying amount of deferred tax assets is reviewed at each Statement of Financial Position date and reduced to
the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to
be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset
is realised based on tax laws and rates that have been enacted or substantively enacted at the Statement of Financial
Position date. Deferred tax is charged or credited in the income statement, except when it relates to items charged or
credited in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner
in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets
and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off the current tax assets against
current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to
settle its current tax assets and liabilities on a net basis.
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Tatton Asset Management Annual Report and Accounts 2019
2 A C C O U N T I N G P O L I C I E S C O N T I N U E D
2 . 1 6 TA X AT I O N C O N T I N U E D
Current and deferred tax for the year
Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other
comprehensive income or directly in equity, in which case the current and deferred tax are also recognised in other
comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial
accounting for a business combination, the tax effect is included in the accounting for the business combination.
2 . 1 7 R E T I R E M E N T B E N E F I T C O S T S
The Group pays into personal pension plans for which the amount charged to income in respect of pension costs and
other post-retirement benefits is the amount of the contributions payable in the year. Payments to defined contribution
retirement benefit scheme are recognised as an expense when employees have rendered service entitling them to the
contributions. Differences between contributions payable and paid are accrued or prepaid. The assets of the plans are
invested and managed independently of the finances of the Group.
2 . 1 8 P R O V I S I O N S
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event,
it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount
of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation
at the Statement of Financial Position date, taking into account the risks and uncertainties surrounding the obligation.
Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is
the present value of those cash flows (when the effect of the time value of money is material). When some or all of
the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is
recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable
can be measured reliably.
2 . 1 9 E Q U I T Y, R E S E R V E S A N D D I V I D E N D P AY M E N T S
Share capital represents the nominal value of shares that have been issued. Retained earnings include all current and prior
period retained profits or losses.
Dividend distributions payable to equity shareholders are included in other liabilities when the dividends have been
approved in a general meeting prior to the reporting date.
2 . 2 0 S H A R E - B A S E D P AY M E N T S
The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are
measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based
payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will
eventually vest. Fair value is measured by use of the Black-Scholes model or Monte Carlo model as appropriate.
2 . 2 1 O P E R AT I N G S E G M E N T S
The Group comprises the following four operating segments which are defined by trading activity:
— Tatton – discretionary fund management services.
— Pardigm Consulting – the provision of compliance and support services to IFAs.
— Pardigm Mortgages – the provision of mortgage adviser support services.
— Central – central overhead costs.
The Board is considered to be the chief operating decision maker.
Tatton Asset Management Annual Report and Accounts 2019
55
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S C O N T I N U E D
2 A C C O U N T I N G P O L I C I E S C O N T I N U E D
2 . 2 2 S I G N I F I C A N T J U D G E M E N T S , K E Y A S S U M P T I O N S A N D E S T I M AT E S
In the process of applying the Group’s accounting policies, which are described above, management have made
judgements and estimations about the future that have an effect on the amounts recognised in the financial statements.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the
revision and future periods if the revision affects both current and future periods. Changes for accounting estimates would
be accounted for prospectively under IAS 8.
Share-based payments
Given the significance of share-based payments as form of employee remuneration for the Group, share-based payments
have been included as a significant accounting estimate. The principal estimations relate to:
— forfeitures (where awardees leave the Group as ‘bad’ leavers and therefore forfeit unvested awards); and
— the satisfaction of performance obligations attached to certain awards.
These estimates are reviewed regularly and the charge to the income statement is adjusted appropriately (at the end of
the relevant scheme as a minimum). The sensitivity analysis carried out shows that if it was considered that 100% of the
options would vest, the charge for the year would increase by £248,000.
There are no other judgements or assumptions made about the future, or any other major sources of estimation
uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the
carrying amounts of assets and liabilities within the next financial year.
2 . 2 3 A LT E R N AT I V E P E R F O R M A N C E M E A S U R E S
In reporting financial information, the Group presents alternative performance measures, (“APMs”) which are not defined
or specified under the requirements of IFRSs. The Group believes that these APMs provide users with additional helpful
information on the performance of the business. The APMs are consistent with how the business performance is planned
and reported within the internal management reporting to the Board. Some of these measures are also used for the
purpose of setting remuneration targets. The APMs used by the Group are set out on page 70 including explanations of
how they are calculated and how they can be reconciled to a statutory measure where relevant.
3 C A P I TA L M A N A G E M E N T
The Group’s objectives when managing capital are i) to safeguard the Group’s ability to continue as a going concern so
that it can continue to provide returns for shareholders and benefits for other stakeholders; ii) to maintain a strong capital
base and utilise it efficiently to support the development of its business; and iii) to comply with the regulatory capital
requirements set by the FCA. Capital adequacy and the use of regulatory capital are monitored by the Group’s management
and Board. There is one active regulated entity in the Group: Tatton Investment Management Limited, regulated by the FCA.
Regulatory capital is determined in accordance with the requirements of the Capital Requirements Directive IV prescribed
in the UK by the FCA. The Directive requires continual assessment of the Group’s risks in order to ensure that the higher of
Pillar 1 (Minimum Capital Requirements) and Pillar 2 (Supervisory Review) requirements is met.
Pillar 1 imposes a minimum capital requirement on investment firms which is calculated as the higher of the sum of the
credit and market risk capital requirements and the fixed overheads requirement (“FOR”). The FOR equates to 25% of the
fixed overheads reported in the most recent audited financial statements.
Pillar 2 requires investment firms to assess firm-specific risks not covered by the formulaic requirements of Pillar 1, the
objective of this being to ensure that investment firms have adequate capital to enable them to manage their risks. The Group
completes its assessment of regulatory capital requirements using its Internal Capital Adequacy Assessment Process
(“ICAAP”) under Pillar 2, which is a forward looking exercise that includes stress testing on major risks, such as a significant
market downturn, and identifying mitigating action.
As required by the FCA, Tatton Investment Management Limited holds capital based on a multiple of Pillar 1 and maintains
a significant surplus over this requirement at all times.
The Group manages its retained earnings, share capital and share premium which totalled £15.1 million as at 31 March 2019
(2018: £13.6 million). Surplus regulatory capital was maintained throughout the year at both a consolidated Group level and
individual regulated entity level. There were no changes in the Group’s approach to capital management during the year.
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Tatton Asset Management Annual Report and Accounts 2019
4 S E G M E N T R E P O R T I N G
Information reported to the Board of Directors as the chief operating decision maker for the purposes of resource
allocation and assessment of segmental performance is focused on the type of revenue. The principal types of revenue
are discretionary fund management, the provision of compliance and support services to independent financial advisers
(“Paradigm Consulting”), the provision of mortgage adviser support services (“Paradigm Mortgages Services”) and the
marketing and promotion of the Tatton Investment Management funds (“Tatton”).
The Group’s reportable segments under IFRS 8 are therefore Tatton, Paradigm Consulting, Paradigm Mortgage Services,
and “Central” which contains the Operating Group’s central overhead costs.
The principal activity of Tatton is that of Discretionary Fund Management (“DFM”) of investments on-platform.
The principal activity of Paradigm Consulting is that of provision of support services to IFAs.
The principal activity of Paradigm Mortgage Services is that of a mortgage and protection distributor.
For management purposes, the Group uses the same measurement policies used in its financial statements.
The following is an analysis of the Group’s revenue and results by reportable segment:
P E R I O D E N D E D 3 1 M A R C H 2 0 1 9
Revenue
Administrative expenses
Adjusted Operating Profit*
Share-based payments
Exceptional charges
Operational profit
Finance (costs)/income
Profit/(loss) before tax
P E R I O D E N D E D 3 1 M A R C H 2 0 1 8
Revenue
Administrative expenses
Adjusted Operating Profit*
Share-based payments
Exceptional charges
Operating profit
Finance costs
Profit/(loss) before tax
Tatton
(£’000)
8,732
(4,104)
4,628
(34)
(496)
4,098
–
4,098
Tatton
(£’000)
6,325
Paradigm
Consulting
(£’000)
6,049
(3,053)
2,996
–
(13)
2,983
198
3,181
Paradigm
Consulting
(£’000)
6,780
(3,302)
(3,207)
3,023
–
–
3,023
–
3,023
3,573
(846)
–
2,727
(19)
2,708
Paradigm
Mortgage
Services
(£’000)
2,689
(1,124)
1,565
–
–
1,565
(13)
1,552
Paradigm
Mortgage
Services
(£’000)
2,366
(996)
1,370
–
–
1,370
(9)
Central
(£’000)
48
(1,929)
(1,881)
(840)
–
(2,721)
2
(2,719)
Central
(£’000)
36
(1,476)
(1,440)
(140)
(1,964)
(3,544)
2
1,361
(3,542)
Group
(£’000)
17,518
(10,210)
7,308
(874)
(509)
5,925
187
6,112
Group
(£’000)
15,507
(8,981)
6,526
(986)
(1,964)
3,576
(26)
3,550
All turnover arose in the United Kingdom.
*Alternative performance measures are detailed on page 70.
Tatton Asset Management Annual Report and Accounts 2019
57
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S C O N T I N U E D
5 O P E R AT I N G P R O F I T
The operating profit and the profit before taxation are stated after charging:
Operating lease rentals – land and buildings
Operating lease rentals – equipment and vehicles
Amortisation of intangible assets
Depreciation: property, plant and equipment
Separately disclosed items (note 6)
Services provided to the Group’s auditor:
Audit of the statutory consolidated and Company financial statements of Tatton Asset
Management plc
Audit of subsidiaries
Other fees payable to auditor:
Other taxation advisory services
Non-audit services
31-Mar
2019
(£’000)
252
–
43
91
1,383
33
40
38
10
31-Mar
2018
(£’000)
210
9
–
53
2,950
31
37
225
443
Total audit fees were £73,000 (2018: £68,000). Total non-audit fees payable to the auditor were £48,000 (2018: £668,000).
Non-audit service costs in financial year ended 31 March 2018 relate mainly to the IPO in 2017.
6 S E P A R AT E LY D I S C L O S E D I T E M S
IPO costs
Project set-up costs related to transferring Authorised Corporate Director
New fund set-up costs
Total exceptional items
Share-based payments
Total separately disclosed items
31-Mar
2019
(£’000)
13
293
203
509
874
31-Mar
2018
(£’000)
1,964
–
–
1,964
986
1,383
2,950
Separately disclosed items included within administrative expenses reflects costs and income that do not relate to the
Group’s normal business operations and that are considered material (individually or in aggregate if of a similar type) due
to their size of frequency.
During the financial year ended 31 March 2019, the Group incurred exceptional one-off costs of £496,000 which related
to the funds in Tatton Investment Management Limited (“Tatton”). Tatton transferred its Authorised Corporate Director
who acts on behalf of the Company to administer the funds and this transfer incurred significant project management
charges. In addition, Tatton launched new funds in the year and incurred material set-up costs as part of the process; both
are included within exceptional items and separately disclosed items within administrative expenses in the Consolidated
Statement of Total Comprehensive Income.
Various legal and professional costs incurred in relation to the IPO of the Group in July 2017 are shown as part of separately
disclosed items within administrative expenses in the Consolidated Statement of Total Comprehensive Income.
58
Tatton Asset Management Annual Report and Accounts 2019
7 F I N A N C E C O S T S
Bank interest (expense)/income
Other interest (expense)/income
Bank charges
8 TA X AT I O N
Current tax expense
Current tax on profits for the period
Adjustment for under-provision in prior periods
Deferred tax expense
Share-based payments
Origination and reversal of temporary differences
Total tax expense
31-Mar
2019
(£’000)
2
214
(29)
187
31-Mar
2019
(£’000)
1,318
(74)
1,244
(19)
30
1,255
31-Mar
2018
(£’000)
(1)
–
(25)
(26)
31-Mar
2018
(£’000)
1,107
–
1,107
–
3
1,110
The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the
UK applied to profit for the year are as follows:
Profit before taxation
Tax at UK corporation tax rate of 19% (2018: 19%)
Expenses not deductible for tax purposes
Capital allowances in excess of deprecation
Adjustments in respect of previous years
Differences in tax rates
Share-based payments
Chargeable gains
Total tax expense
31-Mar
2019
(£’000)
6,112
1,161
25
–
(74)
(2)
145
–
1,255
31-Mar
2018
(£’000)
3,550
675
279
(5)
–
–
–
161
1,110
The UK corporation tax rate reduced from 20% to 19% with effect from 1 April 2017 and will reduce to 17% with effect from
1 April 2020. This will reduce the Company’s future current tax credit/charge accordingly. The deferred tax liability as at
31 March 2019 has been calculated based on a rate of 17% based on when the Company expects the deferred tax liability
to reverse.
Tatton Asset Management Annual Report and Accounts 2019
59
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S C O N T I N U E D
9 E A R N I N G S P E R S H A R E A N D D I V I D E N D S
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted
average number of ordinary shares during the year.
For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of
all dilutive potential ordinary shares. The dilutive shares are those share options granted to employees where the exercise
price is less than the average market price of the Company’s ordinary shares during the year.
N U M B E R O F S H A R E S
Basic
Weighted average number of shares in issue
Diluted
Share options
Weighted average number of shares (diluted)
Earnings attributable to ordinary shareholders
Basic and diluted profit for the period
Share-based payments – IFRS2 option charges
Exceptional costs – see note 6
Tax impact of adjustments
Adjusted basic and diluted profits for the period and attributable earnings
Earnings per share (pence) – Basic
Earnings per share (pence) – Diluted
Adjusted earnings per share (pence) – Basic
Adjusted earnings per share (pence) – Diluted
2019
2018
55,907,513
55,907,513
6,019,151
61,313,712
4,394,259
59,121,943
31-Mar
2019
(£’000)
4,857
874
509
(97)
6,143
8.69
7.92
10.99
10.02
31-Mar
2018
(£’000)
2,276
986
1,964
–
5,226
4.07
3.85
9.64
9.12
D I V I D E N D S
The Directors consider the Group’s capital structure and dividend policy at least twice a year ahead of announcing results
and do so in the context of its ability to continue as a going concern, to execute the strategy and to invest in opportunities
to grow the business and enhance shareholder value.
During the year, Tatton Asset Management plc paid the final dividend related to the year ended 31 March 2018 of
£2,460,000, representing a payment of 4.4p per share. In addition, the Company paid an interim dividend of £1,565,000
(2018 £1,230,000) to its equity shareholders. This represents a payment of 2.8p per share (2018: 2.2p per share).
The Company’s dividend policy is described in the Directors’ report on page 35. At 31 March 2019 the Company’s
distributable reserves were £22.3 million (2018: £20.6 million).
60
Tatton Asset Management Annual Report and Accounts 2019
1 0 S TA F F C O S T S
Wages, salaries and bonuses
Social security costs
Pension costs
Share-based payments
The average monthly number of employees during the year was as follows:
Administration
Key management
31-Mar
2019
(£’000)
4,389
648
110
874
6,021
31-Mar
2019
74
3
77
31-Mar
2018
(£’000)
3,788
510
86
986
5,370
31-Mar
2018
72
3
75
K E Y M A N A G E M E N T C O M P E N S AT I O N
The remuneration of the statutory Directors who are the key management of the Group is set out below in aggregate for
each of the key categories specified in IAS 24 ‘Related Party Disclosures’.
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Share-based payments
31-Mar
2019
(£’000)
884
14
3
587
1,488
31-Mar
2018
(£’000)
989
20
–
67
1,076
In addition to the remuneration above, the Non-Executive Chairman and Non-Executive Directors have submitted invoices
for their fees as follows:
Total fees
The remuneration of the highest paid Director was:
Total
31-Mar
2019
(£’000)
160
31-Mar
2019
(£’000)
343
31-Mar
2018
(£’000)
118
31-Mar
2018
(£’000)
474
The highest paid Director did not exercise any share options in the period. There were 330,000 share options granted to
the highest paid Director in the year.
Tatton Asset Management Annual Report and Accounts 2019
61
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S C O N T I N U E D
1 1 G O O D W I L L
Cost and carrying value at 31 March 2018 and 31 March 2019
Goodwill
(£’000)
4,917
The goodwill of £4.9 million relates to £2.9 million arising from the acquisition in 2014 of an interest in Tatton Oak Limited
by Tatton Capital Limited consisting of the future synergies and forecast profits of the Tatton Oak business and £2.0 million
arising from the acquisition in 2017 of an interest in Tatton Capital Group Limited. None of the goodwill is expected to be
deductible for income tax purposes.
I M P A I R M E N T L O S S A N D S U B S E Q U E N T R E V E R S A L
Goodwill is subject to an annual impairment review based on an assessment of the recoverable amount from future trading.
Where, in the opinion of the Directors, the recoverable amount from future trading does not support the carrying value of
the goodwill relating to a subsidiary company an impairment charge is made. Such impairment is charged to the Statement
of Total Comprehensive Income.
I M P A I R M E N T T E S T I N G
For the purpose of impairment testing, goodwill is allocated to the Group’s operating companies which represents the
lowest level within the Group at which the goodwill is monitored for internal management accounts purposes.
Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating units (“CGUs”) or group of
units that are expected to benefit from that business combination. The Directors test goodwill annually for impairment, or
more frequently if there are indicators that goodwill might be impaired. The Directors have considered the carrying value of
goodwill at 31 March 2019 and do not consider that it is impaired.
G R O W T H R AT E S
The value in use is calculated from cash flow projections based on the Group’s forecasts for the year ended 31 March 2019
which are extrapolated for a further four years. The Group’s latest financial forecasts, which cover a three year period, are
reviewed by the Board.
D I S C O U N T R AT E S
The pre-tax discount rate used to calculate value is 8.3% (2018: 8.3%). The discount rate is derived from a benchmark
calculated from a number of comparable businesses.
C A S H F L O W A S S U M P T I O N S
The key assumptions used for the value in use calculations are those regarding discount rate, growth rates and expected
changes in margins. Changes in prices and direct costs are based on past experience and expectations of future changes in the
market. The growth rate used in the calculation reflects the average growth rate experienced by the Group for the industry.
The headroom compared to the carrying value of goodwill as at 31 March 2019 is £223 million. From the assessment
performed, there are no reasonable sensitivities that result in the recoverable amount being equal to the carrying value of
the goodwill attributed to the CGU.
62
Tatton Asset Management Annual Report and Accounts 2019
1 2 I N TA N G I B L E A S S E T S
Cost
Balance at 31 March 2017, 31 March 2018 and 1 April 2018
Additions
Balance at 31 March 2019
Accumulated amortisation and impairment
Balance at 31 March 2017, 31 March 2018 and 1 April 2018
Charge for the period
Balance at 31 March 2019
Net book value
As at 1 April 2017 and 31 March 2018
As at 31 March 2019
Computer
software
(£’000)
Total
(£’000)
–
266
266
–
(43)
(43)
–
223
–
266
266
–
(43)
(43)
–
223
All amortisation charges are included within administrative expenses in the Consolidated Statement of Total
Comprehensive Income.
1 3 P R O P E R T Y , P L A N T A N D E Q U I P M E N T
Cost
Balance at 1 April 2017
Additions
Balance at 31 March 2018 and 1 April 2018
Additions
Balance at 31 March 2019
Accumulated depreciation and impairment
Balance at 1 April 2017
Charge for the period
Balance at 31 March 2018 and 1 April 2018
Charge for the period
Balance at 31 March 2019
Net book value
As at 1 April 2017
As at 31 March 2018
As at 31 March 2019
Computer, office
equipment and
Fixtures and
motor vehicles
(£’000)
fittings
(£’000)
Total
(£’000)
353
82
435
72
507
(278)
(53)
(331)
(66)
(397)
75
104
110
214
–
214
264
478
(214)
–
(214)
(25)
(239)
–
–
239
567
82
649
336
985
(492)
(53)
(545)
(91)
(636)
75
104
349
All depreciation charges are included within administrative expenses in the Consolidated Statement of Total
Comprehensive Income.
Tatton Asset Management Annual Report and Accounts 2019
63
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S C O N T I N U E D
1 4 T R A D E A N D O T H E R R E C E I V A B L E S
Trade receivables
Amounts due from related parties
Prepayments and accrued income
Other receivables
Loan notes
31-Mar
2019
(£’000)
313
107
1,763
191
134
2,508
31-Mar
2018
(£’000)
172
50
1,602
227
401
2,452
All trade receivable amounts are short term. All of the Group’s trade and other receivables have been reviewed for
indicators of impairment, and where necessary, a provision for impairment provided. The carrying value is considered a fair
approximation of their fair value. The value of the impairment charged to the income statement is £nil: (2018: £nil).
The amounts due from related parties are net of provisions. At 31 March 2017, Paradigm Mortgage Services LLP made
full provision of £1,251,000 against the recoverability of amounts due from Jargon Free Benefits LLP. Also, as at 31 March
2017, Paradigm Partners Limited made full provision of £350,000 against the recoverability of amounts due from Amber
Financial Investments Limited, an entity controlled by Paul Hogarth.
The carrying value of the provisions as at 31 March 2019 was £1,601,000 (2018: £1,601,000). There has been no movement in
the carrying value during the year.
Trade receivable amounts are all held in sterling.
1 5 T R A D E A N D O T H E R P AYA B L E S
Trade payables
Amounts due to related parties
Accruals
Deferred income
Other payables
31-Mar
2019
(£’000)
414
386
1,382
165
2,174
4,521
31-Mar
2018
(£’000)
277
32
1,261
216
2,136
3,922
The carrying values to trade payables, amounts due to related parties, accruals and deferred income are considered
reasonable approximation of fair value.
Trade payable amounts are all held in sterling.
1 6 D E F E R R E D TA X AT I O N
Asset/(liability) at 1 April 2017
Income statement (charge)/credit
Asset/(liability) at 31 March 2018
Income statement (charge)/credit
Equity (charge)/credit
Asset/(liability) at 31 March 2019
Deferred capital
Share-based
allowances
£’000
payments
£’000
(12)
(3)
(15)
(30)
–
(45)
–
–
–
19
130
149
Total
£’000
(12)
(3)
(15)
(11)
130
104
64
Tatton Asset Management Annual Report and Accounts 2019
1 7 F I N A N C I A L I N S T R U M E N T S
The Group’s treasury activities are designed to provide suitable, flexible funding arrangements to satisfy the Group’s
requirements. The Group uses financial instruments comprising borrowings, cash and items such as trade receivables
and payables that arise directly from its operations. The main risks arising from the Group’s financial instruments are
interest rate risks, credit risks and liquidity risks. The Board reviews policies for managing each of these risks and they are
summarised below.
The Group finances its operations through a combination of cash resource and other borrowings. Short term flexibility is
satisfied by overdraft facilities in Paradigm Partners Limited which are repayable on demand.
Fair value estimation
IFRS 7 requires disclosure of fair value measurements of financial instruments by level of the following fair value
measurement hierarchy:
— Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
— Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly
(that is, as prices) or indirectly (that is, derived from prices) (level 2).
— Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
Due to the short-term nature of the loan notes, the carrying value is a reasonable approximation of their fair value.
The loan notes are repayable on demand, carry an interest rate of 6% and are classified as level 1.
All financial assets are categorised as Loans and receivables and are classified as level 1. All financial liabilities are
categorised as Financial liabilities measured at amortised cost and are also classified as level 1.
I N T E R E S T R AT E R I S K
The Group finances its operations through a combination of retained profits and bank overdrafts. The Group has an
exposure to interest rate risk, as the overdraft facility is at an interest rate of 3.2% above the base rate. At 31 March 2019,
total borrowings were £nil (2018: £nil).
C R E D I T R I S K
Credit risk is the risk that a counterparty will cause a financial loss to the Group by failing to discharge its obligation to
the Group. The financial instruments are considered to have a low credit risk due to the mitigating procedures in place.
The Group manages its exposure to this risk by applying Board approved limits to the amount of credit exposure to any
one counterparty, and employs strict minimum credit worthiness criteria as to the choice of counterparty thereby ensuring
that there are no significant concentrations. The Group does not have any significant credit risk exposure to any single
counterparty or any group of counterparties having similar characteristics. The maximum exposure to credit risk for
receivables and other financial assets is represented by their carrying amount.
The Group’s maximum exposure to credit risk is limited to the carrying amount of financial assets recognised at 31 March,
as summarised below:
Classes of financial assets – carrying amounts:
Cash and cash equivalents
Trade and other receivables
2019
12,192
2,508
14,700
2018
10,630
2,452
13,082
The Group continuously monitors defaults of customers and other counterparties, identified either individually or by
the Group, and incorporates this information into its credit risk controls. The Group’s policy is to deal only with credit
worthy counterparties.
The Group’s management consider that all of the above financial assets that are not impaired or past due for each of the
31 March reporting dates under review are of good credit quality.
Tatton Asset Management Annual Report and Accounts 2019
65
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S C O N T I N U E D
1 7 F I N A N C I A L I N S T R U M E N T S C O N T I N U E D
C R E D I T R I S K C O N T I N U E D
At 31 March the Group had certain trade receivables that had not been settled by the contractual date but were not
considered to be impaired. The amounts at 31 March, analysed by the length of time past due, are:
Not more than 3 months
More than 3 months but not more than 6 months
More than 6 months but not more than 1 year
More than 1 year
Total
2019
241
72
–
–
313
2018
116
3
–
–
119
Trade receivables consist of a large number of customers within the UK. Based on historical information about customer
default rates, management consider the credit quality of trade receivables that are not past due or impaired to be
good. The Group has rebutted the presumption in paragraph 5.5.11 of IFRS 9 that credit risk increases significantly when
contractual payments are more than 30 days past due.
The credit risk for cash and cash equivalents is considered negligible, since the counterparties are reputable banks with
high quality external credit ratings.
L I Q U I D I T Y R I S K
Liquidity risk is the risk that companies within the Group will encounter difficulty in meeting obligations associated with
financial liabilities. To counter this risk, the Group operates with a high level of interest cover relative to its net asset
value and no debt. In addition, it benefits from strong cash flow from its normal trading activities. The Group manages its
liquidity needs by monitoring scheduled debt servicing payments for long-term financial liabilities as well as forecast cash
inflows and outflows due in day to day business. The data used for analysing these cash flows is consistent with that used
in the contractual maturity analysis below.
The totals for each category of financial instruments, measured in accordance with IFRS 9 (2018: IAS 39) and IFRS 7 as
detailed in the accounting policies to this historical financial information, are as follows:
At 31 March 2019, the Group’s non-derivative financial liabilities have contractual maturities (including interest payments
where applicable) as summarised below:
At 31 March 2019
Trade and other payables
Total
Current
Non-current
Within 6 months
6 to 12 months
1 to 5 years
4,356
4,356
–
–
–
–
This compares with the maturity of the Group’s non-derivative financial liabilities in the previous reporting period
as follows:
At 31 March 2018
Trade and other payables
Total
Current
Non-current
Within 6 months
6 to 12 months
1 to 5 years
3,706
3,706
–
–
–
–
Later than
5 years
–
–
Later than
5 years
–
–
The above amounts reflect the contractual undiscounted cash flows, which may differ to the carrying values of the liabilities
at the reporting date.
66
Tatton Asset Management Annual Report and Accounts 2019
1 8 E Q U I T Y
Authorised, called up and fully paid
£0.20 ordinary shares
31-Mar
2019
31-Mar
2018
(number)
(number)
55,907,513
55,907,513
55,907,513
55,907,513
Each share in Tatton Asset Management plc carries one vote and the right to a dividend. Of the shares in issue, 49,497,257
were issued in June 2017 prior to the IPO in order to acquire the three trading divisions and the remaining 6,410,256 were
issued at the IPO in July 2017.
As noted above, the 55,907,513 ordinary shares were issued in the prior period.
1 9 S H A R E - B A S E D P AY M E N T S
During the year, a number of share-based payment schemes and share options schemes have been utilised by the
Company, described under (19.1) Current Schemes, below. There were two schemes, PPL ESS and PPL D Options, which
closed prior to the IPO of Tatton Asset Management plc in July 2017.
1 9 . 1 C U R R E N T S C H E M E S
(i) Tatton Asset Management plc EMI Scheme (“TAM EMI Scheme”)
On 7 July 2017 the Group launched an EMI share option scheme relating to shares in Tatton Asset Management plc to
enable senior management to participate in the equity of the Company. A total of 3,022,733 options with a weighted
average exercise price of £1.83 were granted during the period, each exercisable in July 2020. No options were exercised
or expired in the period. 111,815 options were forfeited in the period. A total of 4,631,056 options remain outstanding at
31 March 2019, none of which are currently exercisable. The range of exercise prices for the options outstanding at the end
of the period is detailed in 19.2.
The options granted in 2017 vest in July 2020 and the options granted in 2018 vest in August 2021 provided certain
performance conditions and targets, set prior to grant, have been met. If the performance conditions are not met, the
options lapse.
Within the accounts of the Company, the fair value at grant date is estimated using the appropriate models including both
Black-Scholes methodology and Monte Carlo modelling methodologies. Share price volatility has been estimated using
the historical share price volatility of the Company, the expected volatility of the Company’s share price over the life of the
option and the average of the volatility applying to a comparable group of listed companies.
Year ended 31 March 2019
Outstanding at 1 April 2018
Granted during the period
Forfeited during the period
Exercised during the period
Outstanding at 31 March 2019
Exercisable at 31 March 2019
Year ended 31 March 2018
Outstanding at 1 April 2017
Granted during the period
Forfeited during the period
Exercised during the period
Outstanding at 31 March 2018
Exercisable at 31 March 2018
Number of share
Weighted
options granted
average price
(number)
3,022,733
1,720,138
(111,815)
–
4,631,056
–
–
3,022,733
–
–
3,022,733
–
(£)
1.89
–
1.89
–
1.19
–
–
1.89
–
–
1.89
–
(ii) Tatton Asset Management plc Sharesave Scheme (“TAM Sharesave Scheme”)
On 7 July 2017 and 5 July 2018 the Group launched all-employee Sharesave Schemes for options over shares in Tatton
Asset Management plc, administered by Yorkshire Building Society. Employees are able to save between £10 and £500
per month over a three-year life of each scheme at which point they each have the option to either acquire shares in the
Company or receive the cash saved.
Tatton Asset Management Annual Report and Accounts 2019
67
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S C O N T I N U E D
1 9 S H A R E - B A S E D P AY M E N T S C O N T I N U E D
1 9 . 1 C U R R E N T S C H E M E S C O N T I N U E D
Over the life of the 2017 Sharesave scheme it is estimated that, based on current saving rates, 195,671 share options will be
exercisable at an exercise price of £1.70. Over the life of the 2018 Sharesave scheme it is estimated that, based on current
saving rates, 74,274 share options will be exercisable at an exercise price of £1.90. No options have been exercised or
expired in the year and 9,132 options have been forfeited in the year.
Within the accounts of the Company, the fair value at grant date is estimated using the Black-Scholes methodology for
100% of the options. Share price volatility has been estimated using the historical share price volatility of the Company, the
expected volatility of the Company’s share price over the life of the option and the average of the volatility applying to a
comparable group of listed companies.
Key valuation assumptions and the costs recognised in the accounts during the period are noted in (19.2) and (19.3)
respectively.
Year ended 31 March 2019
Outstanding at 1 April 2018
Granted during the period
Forfeited during the period
Exercised during the period
Outstanding at 31 March 2019
Exercisable at 31 March 2019
Year ended 31 March 2018
Outstanding at 1 April 2017
Granted during the period
Forfeited during the period
Exercised during the period
Outstanding at 31 March 2018
Exercisable at 31 March 2018
Number of share
options granted
(number)
63,344
40,502
(9,132)
–
94,714
–
–
63,344
–
–
63,344
–
Weighted
average
price
(£)
1.70
1.72
1.70
–
1.71
–
–
1.70
–
–
1.70
–
1 9 . 2 VA L U AT I O N A S S U M P T I O N S
Assumptions used in the option valuation models to determine the fair value of options at the date of grant were
as follows:
Share price at grant (£)
Exercise price (£)
Expected volatility (%)
Expected life (years)
Risk free rate (%)
Expected dividend yield (%)
1 9 . 3 I F R S 2 S H A R E - B A S E D O P T I O N C O S T S
TAM EMI Scheme
TAM Sharesave Scheme
PPL ESS
PPL D Options
TAM EMI Scheme
TAM EMI Scheme
TAM Sharesave
TAM Sharesave
2018
2.40
–
28.48
2.70
0.81
2.75
2017
Scheme 2018
Scheme 2017
1.89
1.70
26.00
3.25
0.66
4.50
2.40
1.90
28.48
3.25
0.81
2.75
1.89
1.70
26.00
3.25
0.66
4.50
2019
(£’000)
2018
(£’000)
839
35
–
–
874
124
16
19
827
986
68
Tatton Asset Management Annual Report and Accounts 2019
2 0 O P E R AT I N G L E A S E C O M M I T M E N T S
The Group acts as a lessee for land and buildings under operating leases. The Group’s significant lease arrangements are
for properties, for which there are no significant lease incentives. At 31 March 2019, the property lease periods range from
six months to five years. The disclosures above for non-cancellable operating lease rentals have been split out below to
show the split between land and buildings and other assets.
Less than one year
Between one and five years
2019
Land and
buildings
(£’000)
75
703
778
2018
Land and
buildings
(£’000)
192
28
220
Lease expense during the year amounts to £252,000 (2018: £219,000), representing the minimum lease payments.
2 1 R E L AT E D P A R T Y T R A N S A C T I O N S
U LT I M AT E C O N T R O L L I N G P A R T Y
The Directors consider there to be no ultimate controlling party.
R E L AT I O N S H I P S
The Group has trading relationships with the following entities in which Paul Hogarth, a Director, has a beneficial interest:
Entity
Nature of transactions
Amber Financial Investments Limited
Jargon Free Benefits LLP
Paradigm Investment Management LLP
Perspective Financial Group Limited
Suffolk Life Pensions Limited
The Group provides discretionary fund management services, as well as
accounting and administration services.
The Group provides accounting and administration services.
The Group incurs finance charges.
The Group provides discretionary fund management services and
compliance advisory services.
The Group pays lease rental payments on an office building held in a
pension fund by Paul Hogarth.
R E L AT E D P A R T I E S B A L A N C E S
Terms and conditions
n/a
Advisor Cloud Limited
Payable within 30 days
Amber Financial Investments Limited
Jargon Free Benefits LLP
Repayment on demand
Paradigm Investment Management LLP Repayment on demand
Payable within 30 days
Perspective Financial Group Limited
Payable in advance
Suffolk Life Pensions Limited
2019
2018
Value of
Balance
income/
receivable/
(cost)
(payable)
(£’000)
(£’000)
Value of
income/
(cost)
(£’000)
Balance
receivable/
(payable)
(£’000)
–
239
24
(11)
369
(56)
–
(42)
43
(13)
72
9
–
523
20
–
401
(55)
4
27
19
–
423
–
K E Y M A N A G E M E N T P E R S O N N E L R E M U N E R AT I O N
Key management includes Executive and Non-Executive Directors. The compensation paid or payable to key management
personnel is as disclosed in note 10 on page 59.
Tatton Asset Management Annual Report and Accounts 2019
69
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S C O N T I N U E D
2 2 A LT E R N AT I V E P E R F O R M A N C E M E A S U R E S ( “ A P M s ” )
I N C O M E S TAT E M E N T M E A S U R E S
APM
equivalent measure
their statutory measure
Definition and purpose
Closest
Reconciling items to
Adjusted Operating
Profit before separately
disclosed items
Operating profit Exceptional costs
and share-based
payments.
See note 6.
This is considered to be an important measure where
exceptional items distort the understanding of the
operating performance of the business and allow
comparability between periods. See also note 2.23.
Adjusted Profit before
tax; before separately
disclosed items
Profit before tax Exceptional costs
and share-based
payments.
See note 6.
This is considered to be an important measure where
exceptional items distort the understanding of the
operating performance of the business and allow
comparability between periods. See also note 2.23.
Adjusted earnings per
share – Basic
Earnings per
share – basic
Adjusted earnings per
share fully diluted
Earnings per
share – fully
diluted
Net cash generated
from operations before
exceptional costs
Net cash
generated from
operations
O T H E R M E A S U R E S
Exceptional costs
and share-based
payments, and the
tax thereon. See
note 9.
Exceptional costs
and share-based
payments, and the
tax thereon. See
note 9.
Exceptional costs.
See note 6.
This is considered to be an important measure where
exceptional items distort the understanding of the
operating performance of the business and allow
comparability between periods. See also note 2.23.
This is considered to be an important measure where
exceptional items distort the understanding of the
operating performance of the business and allow
comparability between periods. See also note 2.23.
Net cash generated from operations before
exceptional costs. To show underlying cash
performance. See also note 2.23.
APM
equivalent measure
their statutory measure
Definition and purpose
Closest
Reconciling items to
Tatton – Assets Under
Management (“AUM”)
None
Not applicable
AUM is representative of the customer assets
and is a measure of the value of the customer
base. Movements in this base are an indication of
performance in the year and growth of the business to
generate revenues going forward.
Paradigm Consulting
members and growth
Paradigm Mortgages
member firms
and growth
None
None
Not applicable
Not applicable
Alternative growth measure to revenue, giving an
operational view of growth.
Alternative growth measure to revenue, giving an
operational view of growth.
Dividend cover
None
Not applicable
Dividend cover (being the ratio of diluted earnings
per share before exceptional items and share-based
charges) is 1.8 times, demonstrating ability to pay.
2 3 P O S T B A L A N C E S H E E T E V E N T
There were no material post balance sheet events.
2 4 C A P I TA L C O M M I T M E N T S
At 31 March 2019, the Directors confirmed there were capital commitments of £112,000 (2018: £330,000) for
capital improvements.
2 5 C O N T I N G E N T L I A B I L I T I E S
At 31 March 2019, the Directors confirmed there were contingent liabilities of £nil (2018: £nil).
70
Tatton Asset Management Annual Report and Accounts 2019
C O M P A N Y S TAT E M E N T O F F I N A N C I A L P O S I T I O N
A S AT 3 1 M A R C H 2 0 1 9
Non-current assets
Investments in subsidiaries
Property, plant and equipment
Deferred income tax assets
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Corporation tax
Total current liabilities
Non-current liabilities
Total liabilities
Net assets
Equity attributable to equity holders of the Company
Share capital
Share premium account
Other reserve
Merger reserve
Retained earnings
Total equity
Note
5
16
12
13
14
15
31-Mar
2019
(£’000)
77,216
2
143
77,361
10,127
5,508
15,635
92,996
(383)
–
(383)
–
(383)
92,613
11,182
8,718
1,036
67,316
4,361
92,613
31-Mar
2018
(£’000)
77,216
3
–
77,219
10,453
5,736
16,189
93,408
(1,379)
(1)
(1,380)
–
(1,380)
92,028
11,182
8,718
140
67,316
4,672
92,028
The Company generated a profit of £3,788,000 during the financial year (2018: loss of £3,542,000).
The financial statements on pages 71 to 72 were approved by the Board of Directors on 3 June 2019 and were signed on its
behalf by:
PA U L E DWA R D S
Director
Company registration number 10634323
The notes on pages 73 to 78 form an integral part of the financial statements.
Tatton Asset Management Annual Report and Accounts 2019
71
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
C O M P A N Y S TAT E M E N T O F C H A N G E S I N E Q U I T Y
F O R T H E Y E A R E N D E D 3 1 M A R C H 2 0 1 9
At 1 April 2017
Loss for the period
Issue of share capital
Share-based payments
Dividends
At 31 March 2018
Profit for the period
Dividends
Share-based payments
Deferred tax on share-based
payments
Share
capital
(£’000)
–
–
11,182
–
–
11,182
–
–
–
–
Share
premium
(£’000)
Other
reserve
(£’000)
–
–
8,718
–
–
8,718
–
–
–
–
–
–
–
140
–
140
–
–
766
130
Merger
reserve
(£’000)
–
–
67,316
–
–
67,316
–
–
–
–
Retained
earnings
(£’000)
(555)
(3,543)
–
–
8,770
Total
equity
(£’000)
(555)
(3,543)
87,216
140
8,770
4,672
92,028
3,788
(4,025)
(74)
3,788
(4,025)
692
–
130
At 31 March 2019
11,182
8,718
1,036
67,316
4,361
92,613
72
Tatton Asset Management Annual Report and Accounts 2019
N O T E S T O T H E C O M P A N Y F I N A N C I A L S TAT E M E N T S
1 A U T H O R I S AT I O N O F F I N A N C I A L S TAT E M E N T S A N D S TAT E M E N T O F C O M P L I A N C E W I T H
F R S 1 0 1
The financial statements of Tatton Asset Management plc for the year ended 31 March 2019 were authorised for issue by
the Board of Directors on 3 June 2019. Tatton Asset Management plc is incorporated and domiciled in England and Wales.
These financial statements were prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure
Framework’ (“FRS 101”) and in accordance with applicable accounting standards. The Company’s financial statements are
presented in sterling.
These financial statements have been prepared on a going concern basis and on the historical cost basis.
The principal accounting policies adopted by the Company are set out in note 2.
2 A C C O U N T I N G P O L I C I E S
2 . 1 A C C O U N T I N G P O L I C I E S
The accounting policies which follow set out those policies which apply in preparing the financial statements for the year
ended 31 March 2019.
The Company has taken advantage for the following disclosure exemptions under FRS 101:
a) the requirement in paragraph 38 of IAS 1 ‘Presentation of Financial Statements’ to present comparative information
in respect of:
1) Paragraph 79(a)(IV) of IAS 1;
2) Paragraph 73(e) of IAS 16 ‘Property, Plant and Equipment’;
b) the requirements of paragraphs 10(d), and 134–136 of IAS 1 ‘Presentation of Financial Statements’ and the requirements
of IAS 7 ‘Statement of Cash Flows’;
c) the requirements of paragraphs 30 and 31 of IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’;
d) the requirements of paragraph 17 of IAS 24 ‘Related Party Disclosures’;
e) the requirements in IAS 24 ‘Related Party Disclosures’ to disclose related party transactions entered into between two
or more members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a
member; and
f) the disclosure requirements of IFRS 7 ‘Financial Instruments: Disclosures’.
2 . 2 I N V E S T M E N T S
All investments are initially recorded at cost, being the fair value of consideration given including the acquisition costs
associated with the investment. Subsequently, they are reviewed for impairment on an individual basis if events or changes
in circumstances indicate the carrying value may not be fully recoverable.
2 . 3 F I N A N C I A L I N S T R U M E N T S
Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, and trade and
other payables.
2 . 4 T R A D E A N D O T H E R R E C E I VA B L E S
Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at
amortised cost using the effective interest method.
2 . 5 T R A D E A N D O T H E R P AYA B L E S
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the
effective interest method, where applicable or required. These amounts represent liabilities for goods and services
provided to the Group prior to the end of the financial period, which are unpaid.
2 . 6 C A S H A N D C A S H E Q U I VA L E N T S
Cash and cash equivalents comprise long and short-term deposits held with banks by the Company, and are subject to
insignificant risk of changes in value.
2 . 7 S H A R E - B A S E D P AY M E N T S
The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are
measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based
payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will
eventually vest. Fair value is measured by use of the Black-Scholes model or Monte Carlo model as appropriate.
Tatton Asset Management Annual Report and Accounts 2019
73
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O M P A N Y F I N A N C I A L S TAT E M E N T S C O N T I N U E D
2 A C C O U N T I N G P O L I C I E S C O N T I N U E D
2 . 8 I N T E R E S T I N C O M E A N D I N T E R E S T E X P E N S E
Finance income is recognised as interest accrued (using the effective interest method) on funds invested outside the
Group. Finance expense includes the cost of borrowing from third parties and is recognised on an effective interest rate
basis, resulting from the financial liability being recognised on an amortised cost basis.
2 . 9 TA X AT I O N
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the
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. The Group’s liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the Statement of Financial Position date.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets
and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and
is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable
temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised
if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in
a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the
accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences and it is probable that the temporary difference
will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated
with such investments and interests are only recognised to the extent that it is probable that there will be sufficient
taxable profits against which to utilise the benefits of the temporary difference and they are expected to reverse in the
foreseeable future.
The carrying amount of deferred tax assets is reviewed at each Statement of Financial Position date and reduced to
the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset
to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset
is realised based on tax laws and rates that have been enacted or substantively enacted at the Statement of Financial
Position date. Deferred tax is charged or credited in the income statement, except when it relates to items charged or
credited in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner
in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets
and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off the current tax assets against
current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to
settle its current tax assets and liabilities on a net basis.
Current and deferred tax for the year
Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other
comprehensive income or directly in equity, in which case the current and deferred tax are also recognised in other
comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial
accounting for a business combination, the tax effect is included in the accounting for the business combination.
2 . 1 0 D I V I D E N D S
Dividend distributions payable to equity shareholders are included in other liabilities when the dividends have been
approved in a Board meeting prior to the reporting date.
2 . 1 1 R E T I R E M E N T B E N E F I T C O S T S
The Company pays into a personal pension plan for which the amount charged to income in respect of pension costs
and other post-retirement benefits is the amount of the contributions payable in the year. Payments to the defined
contribution retirement benefit scheme are recognised as an expense when employees have rendered service entitling
them to the contributions. Differences between contributions payable and paid are accrued or prepaid. The assets of
the plans are invested and managed independently of the finances of the Company.
74
Tatton Asset Management Annual Report and Accounts 2019
3 O P E R AT I N G L O S S
The following items have been included in arriving at the operating loss for continuing operations:
Share-based payment charges (note 11)
31 -Mar
2019
(£’000)
840
31 -Mar
2018
(£’000)
140
Share-based payment charges relate to the provision made in accordance with IFRS 2 ‘Share-based Payment’ following the
issue of share options to employees.
4 S E R V I C E S P R O V I D E D B Y T H E C O M P A N Y ’ S A U D I T O R
During the period the Company obtained the following services provided by the Company’s auditor at the costs
detailed below:
Audit of the statutory financial statements of Tatton Asset Management plc
5 I N V E S T M E N T S
Cost and net book value
At 1 April 2017
Additions
As at 31 March 2018
Additions
As at 31 March 2019
31 -Mar
2019
(£’000)
33
31 -Mar
2018
(£’000)
31
£’000
–
77,216
77,216
–
77,216
The principal investment comprises shares at cost in the following companies:
Name of subsidiary
Nadal Newco Limited
Paradigm Partners Limited
Paradigm Mortgage Services LLP
Tatton Capital Group Limited
Tatton Capital Limited
Tatton Investment Management Limited
Tatton Oak Limited
Tatton Onshore Tax Strategies Limited
Tatton Crown Investments Limited
Country of incorporation
Holding
Direct/indirect
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
100%
100%
100%
100%
100%
100%
100%
100%
100%
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
All entities above are included within the consolidated financial statements for Tatton Asset Management plc and all have
the same registered address as the Company.
Tatton Asset Management Annual Report and Accounts 2019
75
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O M P A N Y F I N A N C I A L S TAT E M E N T S C O N T I N U E D
6 D I R E C T O R S A N D E M P L O Y E E S
The average number of persons employed by the Company (including Directors) during each year was as follows:
Administration
Wages, salaries and bonuses
Social security costs
Benefits in kind
Pension costs
Share-based payment charges
The remuneration of the highest paid Director was:
Total
7 U LT I M AT E C O N T R O L L I N G P A R T Y
The Directors consider that there is no ultimate controlling party.
8 F I N A N C E E X P E N S E
Bank interest income
9 I N C O M E TA X
Current tax expense
Current tax on profits for the period
Adjustment for under provision in prior periods
Deferred tax income
Share-based payments
Total tax income
31-Mar
2019
11
31-Mar
2019
1,095
132
–
12
312
1,551
31-Mar
2018
11
31-Mar
2018
900
107
13
16
15
1,051
31-Mar
2019
(£’000)
343
31-Mar
2018
(£’000)
474
31-Mar
2019
(£’000)
2
2
31-Mar
2019
(£’000)
–
–
–
12
12
31-Mar
2018
(£’000)
2
2
31-Mar
2018
(£’000)
–
–
–
–
–
76
Tatton Asset Management Annual Report and Accounts 2019
9 I N C O M E TA X C O N T I N U E D
The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the
United Kingdom applied to profit for the year as follows:
Profit/(loss) before taxation
Tax at UK corporation tax rate of 19% (2018: 19%)
Expenses not deductible for tax purposes
Income not taxable
Difference in tax rates
Share-based payments
Group relief
Total tax (income)/expense
31-Mar
2019
(£’000)
3,776
717
7
(1,218)
1
145
336
(12)
31-Mar
2018
(£’000)
(3,542)
(673)
–
–
–
–
673
–
The UK corporation tax rate reduced from 20% to 19% between the period 1 April 2015 to 31 March 2017. The rate reduced
to 19% with effect from 1 April 2017 and will reduce to 17% with effect from 1 April 2020. This will reduce the Company’s
future current tax credit/charge accordingly. The deferred tax liability as at 31 March 2019 has been calculated based on a
rate of 17% based on when the Company expects the deferred tax liability to reverse.
1 0 D I V I D E N D P A I D A N D P R O P O S E D
During the year, Tatton Asset Management plc paid the final dividend related to the year ended 31 March 2018 of
£2,460,000, representing a payment of 4.4p per share. In addition, the Company paid an interim dividend of £1,565,000
(2018 £1,230,000) to its equity shareholders. This represents a payment of 2.8p per share (2018: 2.2p per share).
In addition, the Directors are proposing a final dividend in respect of the financial year ended 31 March 2019 of 5.6p
(2018: 4.4p) per share which will absorb an estimated £3.1 million (2018 £2.5 million) of shareholders’ funds. It will be paid
on 12 July 2019 to shareholders who are on the register of members on 14 June 2019.
1 1 S H A R E - B A S E D P AY M E N T S
Details of share-based payments are shown in note 19 to the consolidated financial statements.
1 2 T R A D E A N D O T H E R R E C E I V A B L E S
Trade receivables
Amounts due from related parties
Prepayments and accrued income
31-Mar
2019
(£’000)
–
10,089
38
10,127
31-Mar
2018
(£’000)
410
10,029
14
10,453
All trade receivable amounts are short term. All of the Company’s trade and other receivables have been reviewed for
indicators of impairment and, where necessary, a provision for impairment provided. The carrying value is considered a fair
approximation of their fair value. The value of the impairment charged to the income statement is £nil (2018: £nil).
Trade receivable amounts are all held in sterling.
1 3 C A S H A N D C A S H E Q U I V A L E N T S
Cash at bank
31-Mar
2019
(£’000)
5,508
31-Mar
2018
(£’000)
5,736
Tatton Asset Management Annual Report and Accounts 2019
77
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O M P A N Y F I N A N C I A L S TAT E M E N T S C O N T I N U E D
1 4 T R A D E A N D O T H E R P AYA B L E S
Trade payables
Amounts owed to related parties
Accruals
31-Mar
2019
(£’000)
51
110
222
383
31-Mar
2018
(£’000)
1,162
–
217
1,379
The carrying values of trade payables, amounts due to related parties and accruals are considered reasonable
approximation of fair value.
Trade payable amounts are all held in sterling.
1 5 E Q U I T Y
Authorised, called up and fully paid
£0.20 ordinary shares
31-Mar
2019
31-Mar
2018
(number)
(number)
55,907,513
55,907,513
55,907,513
55,907,513
Each share in Tatton Asset Management plc carries one vote and the right to a dividend. Of the shares in issue, 49,497, 257
were issued in June 2017 prior to the IPO in order to acquire the three trading divisions and the remaining 6,410,256 were
issued at the IPO in July 2017.
1 6 D E F E R R E D TA X AT I O N
Asset/(liability) at 1 April 2017 and 31 March 2018
Income statement (charge)/credit
Equity (charge)/credit
Asset/(liability) at 31 March 2019
Share-based
payments
£’000
–
13
130
143
Total
£’000
–
13
130
143
1 7 C O N T I N G E N T L I A B I L I T I E S
The Directors confirmed that at 31 March 2019, no contingent liabilities existed (2018: none).
1 8 C A P I TA L C O M M I T M E N T S
The Directors confirmed that at 31 March 2019, no capital commitments existed (2018: none).
1 9 R E L AT E D P A R T Y T R A N S A C T I O N S
The Company has taken advantage of the exemption under paragraph 8(K) of FRS 101 not to disclose transactions with
entities that are wholly owned subsidiaries of Tatton Asset Management plc. There are no other related party transactions
other than those that have been disclosed in note 21 to the consolidated financial statements.
1 9 . 1 T R A N S A C T I O N S W I T H K E Y M A N A G E M E N T P E R S O N N E L
Other than the Directors and Officers of the Group (see note 10), no other key management personnel have been identified.
2 0 E V E N T S A F T E R T H E R E P O R T I N G P E R I O D
There were no events after the reporting period.
78
Tatton Asset Management Annual Report and Accounts 2019
Consultancy, design and production
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