Tanami Gold NL
Annual Report 2021

Plain-text annual report

CREATING THE ENVIRONMENT FOR GROWTH Annual Report and Accounts 2021 Strategic Report Introduction CREATING THE ENVIRONMENT FOR GROWTH Tatton Asset Management plc has delivered strong growth in what has been a challenging year, demonstrating the resilience of Tatton’s business model. Since the business floated four years ago, it has more than doubled the level of assets under management (“AUM”), reaching a milestone of £9bn at the end of this financial year. www Find out more about Tatton Asset Management at tattonassetmanagement.com Financials Adjusted operating profit* £11.402m +25.6% (2020: £9.076m) Profit before tax £7.303m Adjusted EPS* 14.74p Proposed final dividend -29.1% (2020: £10.296m) Read more on page 35 +22.8% (2020: 12.00p) Basic EPS on opposite page 7.5p +17.2% (2020: 6.4p) * Alternative performance measures are detailed in note 22 Contents STRATEGIC REPORT 1 Highlights 2 At a glance and investment case 4 Chairman’s Statement 6 Chief Executive’s Review 10 Chief Investment Officer’s Report 12 Engaging with our stakeholders 16 Our market share and trends 18 Our business model 20 Our strategy for growth 28 Key performance indicators 30 Risk management 32 Principal risks 34 Chief Financial Officer’s Report 36 Environmental, Social and Governance (“ESG”) CORPORATE GOVERNANCE 40 Board of Directors 42 Corporate Governance Statement 44 QCA Code Principles 45 Directors’ Remuneration Report 49 Directors’ Report 53 Independent Auditor’s Report FINANCIAL STATEMENTS 60 Consolidated Statement of Total Comprehensive Income 61 Consolidated Statement of Financial Position 62 Consolidated Statement of Changes in Equity 63 Consolidated Statement of Cash Flows 64 Notes to the Consolidated Financial Statements 92 Company Statement of Financial Position 93 Company Statement of Changes in Equity 94 Notes to the Company Financial Statements Strategic Report Corporate Governance Financial Statements Group revenue AUM £23.353m +9.3% £9.0bn +35.2% (2020: £6.7bn) (2020: £21.369m) Highlights Share price trading 450 400 350 300 250 200 150 190 2018 JUL 2017 203 2019 267 2020 425.5 270 2021 TATTON’S SHARE PRICE Total Shareholder Return for TAM over the same period is 112% Total Shareholder Return for TAM over the same period is 112% Financial — Group revenue increased 9.3% to £23.353m (2020: £21.369m) Operational — Tatton’s discretionary assets under management (“AUM”) — Adjusted operating profit* up 25.6% to £11.402m increased 35.2% to £8.990bn (2020: £6.651bn) (2020: £9.076m) — Tatton's ethical portfolios increased 141% to £441m — Adjusted operating profit* margin increased to 48.8% (2020: £183m) (2020: 42.5%) — Organic net inflows of £0.755bn (2020: £1.129bn) or 11.4% — Profit before tax £7.303m (2020: £10.296m) due to the of opening AUM, an average of £62.9m per month catch‑up in share‑based payment charges — The Group responded swiftly to the COVID‑19 outbreak — Final dividend increased by 17.2% to 7.5p (2020: 6.4p), giving and efficiently implemented comprehensive business a full year dividend of 11.0p (2020: 9.6p) continuity plans — Fully diluted adjusted earnings per share (“EPS”)* — Tatton increased its IFA firms by 12.3% to 668 (2020: 595) increased by 22.8% to 14.74p (2020: 12.00p) and basic EPS 10.86p (2020: 14.98p) due to the catch‑up in share‑based and number of client accounts to 72,450 (2020: 66,100) — Paradigm Mortgages increased its number of member firms payment charges to 1,612 (2020: 1,544) and gross lending to £11.34bn and — Healthy financial position, strong balance sheet and £16.934m Consulting member firms increased to 407 (2020: 394) of net cash (2020: £12.757m) Read more on page 34 Read more on page 6 Tatton Asset Management plc Annual Report and Accounts 2021 1 Strategic Report At a glance and Investment case A BROADER PROPOSITION Our vision is to be the provider of choice for financial advisers and their end clients who seek third party investment and operational support in order to elevate outcomes for both advisers and their clients. We are transparent, honest, open and without pretence. Across our Group we strive to be appropriately knowledgeable, to be conscious of risk and to continually improve. We support our Financial Advisers so they can spend time helping their clients and grow their businesses. P A U L H O G A R T H Chief Executive Officer Investment case Tatton Asset Management plc continues to deliver strong growth across revenue, adjusted operating profit* and AUM. AUM has grown by 35.2% in the year to £9.0bn and has grown by over £5bn in under 4 years, an average annual growth of 23.4% since 2017. The majority of this growth has been achieved organically, with average annual net inflows since listing in 2017 of £1.0bn per annum. The Group continues to grow and circa 85% of its revenue is recurring. The Group continues to deliver increasing profit margins, now at 48.8% and a 22.8% increase in fully diluted adjusted EPS* in the current financial year. We have a progressive dividend policy with circa 70% of adjusted earnings being paid out as dividends to shareholders giving a dividend yield of 3.1%. Average annual growth in AUM since 2017* Average annual net  inflows since 2017* 23.4% Increase in Adjusted EPS* 22.8% Current year dividend growth 14.6% £1.0bn Cash on the balance sheet £16.9m Current year dividend yield 3.1% Earnings support a stable and sustainable dividend 16.0 14.0 12.0 10.0 8.0 e c n e p 6.0 6.526 7.308 4.0 2.0 11.402 9.076 m £ t fi o r p g n i t a r e p o d e t s u d A j 0.0 2018 2019 / Full year dividend 2020 2021 / Adj EPS* Adjusted operating profit Read more on page 6 * Alternative performance measures are detailed in note 22. 2 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements Group’s proposition — Market leading on-platform discretionary fund management service — Full range of risk‑rated investment portfolios — Multi‑manager funds complement portfolios — Highly experienced investment team — Exclusively available to the clients of IFAs — Clients benefit from gaining access to full discretionary management of their investments — Platform agnostic – now available on 15 platforms — Comprehensive mortgage offering to directly authorised firms, including a whole of market lender panel — Financial compliance support to directly authorised wealth managers, IFAs and mortgage advisers Group revenue breakdown Paradigm Tatton 22.4% 77.6% The Group is a highly cash-generative business and it has a resilient balance sheet with £16.9m of net cash and £24.4m of net assets. In addition, we have access to a committed £10m revolving credit facility with a £20m accordion, providing liquidity and a good foundation for any future acquisitive growth. TAM recruits and retains high quality people that have a diverse range of skills and experience. Number of Tatton firms 668 Average annual growth in firm numbers* 29.6% Number of employees Employee retention rate 86 90% Our operating segments TATTON INVESTMENT MANAGEMENT DIVISION Tatton is a discretionary investment manager providing a range of investment services, predominately through an on‑platform only model portfolio service to the clients of IFAs. It manages £8.990 billion of assets for the private clients from 668 UK IFA firms. IFAs benefit by being able to offer their clients full discretionary asset management whilst retaining complete control of those relationships, together with the ability to manage their clients’ portfolios through existing platform arrangements. Paul Hogarth Chief Executive Officer PARADIGM – IFA SUPPORT SERVICES DIVISION Paradigm Mortgage Services is one of the UK’s leading mortgage distribution businesses, with membership of over 1,600 directly authorised firms, representing c.4,200 regulated IFAs. Paradigm Mortgage Services provides access to a whole of market lender panel as well as a wide range of mortgage and related support services, such as specialist lending distributors, conveyancing partners and general insurance via Paradigm Protect. Paradigm Consulting is a leading provider of support services, including compliance and other related products/services to directly authorised IFAs in the UK. Tatton Asset Management plc Annual Report and Accounts 2021 3 Chairman’s Statement During the year, the Group has continued to deliver on its strategic objectives and maintained strong growth in revenue, adjusted profits* and assets under management (“AUM”). The impact of the COVID‑19 pandemic over the reporting period ended 31 March 2021 has been widely reported and is now broadly understood. Notwithstanding the challenges that have arisen in this connection the Group has delivered on expectations for growth in revenue, adjusted operating profit* and AUM as well as on its strategic objectives. For this we have, in particular, our remarkable staff and a wide range of discriminating Independent Financial Advisers ("IFAs"), and their clients to thank. Their adaptability, commitment and resilience are at the heart of what Tatton has been able to achieve over the last 12 months. Strategic Report Chairman’s Statement CONTINUED PROGRESS AGAINST OUR STRATEGY R O G E R C O R N I C K Chairman The Group has continued to deliver on its strategic objectives and maintained strong growth in revenue, profits and AUM. 4 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements FINANCIAL PERFORMANCE Despite the challenges of the pandemic over the whole of the review period the Group has performed well. At the start of the year, we reacted swiftly to changing circumstances by transitioning to a new working and trading environment, redeploying resources to direct online engagement, running multiple online events and employing a communication strategy which included frequent online investment updates to support the IFA community and their clients. Operating along these lines the Group’s business model has proved very resilient. Group revenues increased by 9.3% to £23.4 million (2020: £21.4 million). Adjusted operating profit* increased by 25.6% to £11.4 million (2020: £9.1 million) and profit before tax, after incurring exceptional costs and share‑ based payment charges, was £7.3 million (2020: £10.3 million). The resulting impact on fully diluted adjusted earnings per share* was an increase of 22.8% to 14.74p (2020: 12.00p). Basic earnings per share were 10.86p (2020: 14.98p). STRATEGY In the early part of this year when the outlook was very uncertain, we implemented a capital investment, pay and recruitment freeze as we sought clarity on the impact of the pandemic on both our business and the wider industry. This was quickly lifted, and in the second half of this year we resumed investment in people and technology to PRO FIT Our financial focus E P S E U EV E N R A U M DIV I D E N D S develop the business. While this has been a challenging period, we have deployed our agility and resilience not only to engage with the SECTION 172 STATEMENT Section 172 of the Companies Act 2006 requires the Directors to immediate issues, but also to advance our capabilities for the future. act in the way that they consider, in good faith, would most likely We remain committed to the growth of AUM by providing products and services that are designed to support IFAs in advising their clients, and we will continue to invest in both people and technology that will grow the business by enhancing our relationships with the IFA community. While we aim to at least sustain our rate of organic growth, we also intend to supplement this growth through targeted M&A activity. promote the success of the Company for the benefit of its members as a whole. In doing this s.172 requires a Director to have regard, amongst other matters, to the likely consequences of any decisions in the long term; the interests of the Company’s employees; the need to foster the Company’s business relationships with suppliers, customers and others; the impact of the Company’s operations on the community and environment; the desirability of the Company maintaining a reputation for high standards of business conduct; This year has seen an increase in corporate activity in our industry and the need to act fairly as between members of the Company. driven by the continued trend for consolidation and supported by Further information can be found on pages 12 to 15 of this Report. the low cost of capital. In considering the opportunities, and threats, implicit in these developments our focus remains on assets that are strategically relevant and aligned, and those that will enhance our products and services, and support the maintenance of our position as an innovative and forward thinking business. By paying close attention to fundamentals, we aim to continue to create long‑term value for all our stakeholders. DIVIDENDS The Group has continued its growth trajectory and delivered against its financial performance targets maintaining both a strong balance sheet and cash generation which remain a key focus for the Board. The Board is proposing a final dividend of 7.5p per share, bringing the total ordinary dividend for the year to 11.0p per share, an increase of 14.6%, which is 2.0 times covered by adjusted BOARD AND CORPORATE GOVERNANCE Tatton Asset Management remains committed to the highest earnings per share. The Board continues to operate a progressive dividend policy and targets a payout ratio in the region of 70% of standards of corporate governance. The Board and its Committees annual adjusted earnings per share over the medium term. guide the Company and lead its strategic outlook, and we are determined to ensure that we have the right mix of skill sets to steer the Group forward. In support of this aim I would like to welcome Lesley Watt who joins the Board as an independent Non‑Executive Director. Lesley will serve on the Audit and Risk, Remuneration and Nominations Committees, and brings with her a significant amount of Board and M&A experience. Following this appointment Chris Poil will become the Senior Non‑Executive Director. In a business evolving in the current challenging environment, we will maintain a governance structure that underpins and facilitates growth, while ensuring effective controls and safeguards are in place. OUTLOOK While the ever‑changing market in which we operate can be quick to take advantage of any reliance on historical achievement, we believe that the momentum built up over this reporting period, combined with the potential of a number of opportunities currently under review, supports a sense of confidence, and optimism, as we view both the year ahead and the longer‑term future of the Group. Roger Cornick Chairman * Alternative performance measures are detailed in note 22. Tatton Asset Management plc Annual Report and Accounts 2021 5 Chief Executive’s Review This has been a significant year for the Group, a year that has seen unprecedented change and one in which I am pleased to report we have continued to grow and prosper. We are proud to have played a very positive role in supporting all our clients in what has been a very tough environment, but one which we have navigated successfully. We maintained our focus and continued to adopt our clear and sustainable business strategy, which is to drive revenue and profitability through broadening our appeal, widening our client base and further developing and growing our AUM. We continue to achieve this through engagement with our existing client base while at the same time attracting new firms that value our services and propositions, which in turn drives our growth. I am pleased to report the Group has now reached a milestone of £9.0bn of AUM, an increase of over £5bn in under four years from the point the business listed in July 2017. Impressively, the vast majority of this £5bn growth has been achieved organically except for a small acquisition of £135m relating to the Sinfonia funds in 2019. Strategic Report Chief Executive’s Review Adjusted operating profit* £11.4m +25.6% (2020: £9.1m) Revenue £23.4m +9.3% (2020: £21.4m) INVESTMENT EVOLVED P A U L H O G A R T H Chief Executive Officer We have responded swiftly and effectively to the challenges of the pandemic, always keeping the needs and interests of the IFA community front of mind. * Alternative Performance Measures are detailed in note 22 6 Strategic Report Corporate Governance Financial Statements Tatton Assets under Management in £ billion 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20 Sep-20 Mar-21 This reported financial year has run in parallel with the COVID‑19 pandemic and whilst our business has continued to prosper it is certainly not lost on me that it has been a difficult time for REVIEW OF THE FINANCIAL YEAR AND MARKET OVERVIEW I am pleased to report we delivered another record year for revenue many other corporates and indeed, more importantly, for many and profit driven by solid organic growth. Revenue increased by individuals who have been affected in what has been a distressing 9.3% to £23.4m (2020: £21.4m) and adjusted operating profit* and challenging year in lots of different ways. Tatton has a long increased by 25.6% to £11.4m (2020: £9.1m) with adjusted operating track record of putting the client first and our success has been built profit* margin increasing to 48.8% (2020: 42.5%). Pre‑tax profit on the core values of putting the IFA at the heart of our business. after exceptional items, amortisation of customer relationship This year this philosophy has been critical and our ability to adapt intangibles, finance costs and share‑based payment charges to their changing needs has paid dividends. We have done this decreased to £7.303m (2020: £10.296m) due to the increase in through an ongoing process of IFA engagement, listening to what share‑based payment charges in the period, following a release of they want and need and then delivering this to enable our IFAs to the provision at the March 2020 year end. This release was solely concentrate on running their business, meeting clients and ensuring related to the increased level of uncertainty in the market due to their client needs are satisfied. the COVID‑19 pandemic. The business model has been tested and proved to be very resilient As reported in the interim accounts, there is little doubt that the both financially but also operationally as we have adapted to change. pandemic impacted our business in the first half of this financial I am proud of the way in which everyone in the Group addressed year. There remained a significant amount of uncertainty as we the challenges they have faced, both personally and professionally, entered the second half of the year and we prudently anticipated while protecting the health and safety of their colleagues and delivering a similar financial performance across the business. communities. This mindset enabled us to adapt quickly and While we could not predict the length of the downturn, the work seamlessly to a new trading environment and implement a broad we did very early in this pandemic gave us a strong platform from range of changes, which included the redeploying of resources to which to push on and continue to grow. As such, the second half direct online engagement and running multiple interactive virtual performance was a significant gain on the first and we improved our events and frequent video investment updates. While this year has performance across all our metrics. We continued to benefit from seen a material change in the way we operate and interact with our a reduction in costs as we continued to work and engage with our clients, it has also been a period where we have learned a lot about firms and client base remotely, but the improved second half was ourselves and our business and in many ways, we have become fundamentally underpinned by improving markets, net inflows in a stronger and better business for it. Following the end of the Tatton which increased 30% in the second half of the year compared transition period on 31 December 2020 with the United Kingdom to the first half of the year, and an increase in gross lending (£6.3bn finally leaving the European Union on the 31 January 2020, there vs £5.0bn) in Paradigm. have been no direct material financial or operational impacts to the Group as a consequence. Tatton Asset Management plc Annual Report and Accounts 2021 7 Strategic Report Chief Executive’s Review continued IMPACT OF COVID-19 ON PARADIGM MORTGAGES  Mortgage procuration income  Protection & General Insurance ("GI") income  Valuations income  Provider marketing  Other income 1.7% 14.7% 6.1% 24.1% 2021 53.4% 1.6% 17.4% 10.3% 21.7% 2020 49.0% TATTON Tatton has continued to grow from strength to strength over the last 12 months in what has been a difficult year for all IFAs. We continue to grow organically, attracting new firms to our propositions, and continue to see positive net inflows. We now work with 668 (2020: 595) adviser firms and support over 72,450 (2020: 66,000) clients and we have continued to experience new net inflows through the year totalling £755m (2020: £1.129bn). As reported in the interims the first few months of this year were difficult times as we all adjusted to the new circumstances that the pandemic placed on us; however, we adjusted quickly and built up momentum throughout the year and delivered a much stronger second half with flows in H2 being £427m, a 30% increase on the £328m in H1. Overall, the business saw its AUM increase 35% or £2.3bn year on year to a new milestone of £9.0bn (2020: £6.7bn). In addition to the £755m of new net inflows, markets contributed £1.6bn or 24%. This year has seen us continue to broaden our propositions, expanding the number of platforms we operate on to 15 with plans to add more in the near future, and we have implemented a suite of new global models to complement our growing blended models. The Tatton environmental, social and governance ("ESG") proposition continues to grow strongly and now accounts for over 5% of the overall AUM or £0.4bn and is anticipated to make further strides given its strong performance and the ongoing trends in the market for ESG propositions. The strategic partnership agreement with Tenet has completed its first full year and we now have £0.5bn of AUM from 104 firms. We will continue to focus on the development of our AUM both organically but also through acquisitions of targeted funds, further strategic alliances and joint ventures where these fit with our strategy and direction. PARADIGM (IFA SUPPORT SERVICES DIVISION) The Paradigm division has shown considerable strength over the last 12 months. In what was a particularly difficult start to the financial year it has ultimately delivered a very resilient performance. Revenue for the year was £5.2m (2020: £5.4m), and costs were tightly controlled ensuring its adjusted operating profit* contribution was not impacted, delivering £2.0m (2020: £1.8m). Importantly, the second half performance was significantly stronger as the business took advantage of the increasing demand in the housing market. To put — Strong customer growth and an increase in lending from this in context, following the lifting of the lockdown restriction in the £5.0bn in the first half of the year, to £6.3bn in the second. first half of the year, which halted all physical in‑situ valuations, it soon — Despite this, Mortgages revenue fell slightly year on year due became clear the UK public had not lost their desire to move and to the impact of COVID‑19 on the different income streams. improve. In fact, in many ways the pandemic has stimulated many — Income from gross lending (procuration fees) increased homeowners to re‑evaluate their living arrangements, reconsider due to the increase in gross lending, albeit there has been lifestyle, and look for homes with more room and the ability to a change in product mix with a greater level of re‑mortgages accommodate working from home either fully or part of the time. and product transfers rather than new purchases. This in turn fed through to the mortgage market and was further aided — Protection and GI income has seen a small increase. by government stimulus and the July 2020 reduction in stamp duty — Valuations income was significantly affected with no valuations income in Q1 during the first lockdown. that was extended to end June 2021 from its original 31 March 2021 deadline. While initially access to lending was harder, as lenders limited — Provider marketing was also significantly affected as this products, restricted criteria and critically withdrew high loans to value relates to marketing income from strategic partners with a large proportion relating to face‑to‑face events which (“LTVs”), as the year progressed more funds became available and lending restrictions were relaxed more towards pre‑pandemic terms. have not been able to continue in the same format. The increase in activity improved gross lending from £5.0bn in the first half to £6.3bn in the second half. Overall revenue increased by 21%, 8 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements AUM reached a new milestone Paradigm Mortgages gross lending £9.0bn +35.2% (2020: £6.7bn) from 668 firms, an increase £11.3bn +15.0% (2020: £9.9bn), a record year, with procuration of 12.3% in the year income now making up more than half of Mortgages’ income £0.5m, compared to the first half of the year, and with continued cost is no doubt we will continue to utilise the alternative solutions of control positively impacted the contribution in year. online interaction and home working and essentially adopt a hybrid Although some way off pre‑pandemic levels, lenders have now returned to 95% LTV lending, helped partly by the government mortgage guarantee scheme and also with many lenders choosing to lend at this level through their own means. As the market continues to stabilise, we believe the specialist lending sector will play a more model to best leverage the use of time and resources. At the time of writing, activity and IFA engagement have been stable and this has been reflected in the new net inflows in the final quarter of the financial year under review. This momentum has also carried forward into the start of the new financial year. prominent role, particularly with regard to self‑employed clients and While the past 12 months have been challenging, our ambition those with new earnings complexities, for example those borrowers remains focused on continuing to deliver the organic growth in who were furloughed. While in many ways there remains a degree AUM and with £10bn in touching distance we set our sights well of uncertainty and it is therefore difficult to predict, on balance, we beyond this milestone. To support this ambition, corporate activity believe the next 12 months for the mortgage market remain positive. remains part of our strategy. This year has seen us participate in While we do not anticipate a significant increase in the volume of a number of corporate processes commencing early in the year gross mortgage lending, retention business is strong and growing with the proposed acquisition in the first half of this financial year and we believe we are well placed to continue to take advantage of of £5.5bn of funds and, while we were ultimately unsuccessful, the opportunities to grow our lending and cross‑sales activities across we followed a disciplined process and with a developing pipeline the Paradigm business, for example Protection and General Insurance our ambition for acquisitive growth remains undimmed, either and Compliance services. Paradigm Consulting has continued to maintain close links to its firms and advisers and supply best‑in‑class solutions and support to ensure IFA firms can effectively navigate the constantly changing regulatory landscape. This year was a difficult year for advisers and Paradigm as a partner needed to be adaptable in the way it provided its regulatory and compliance services. Paradigm successfully adopted virtual support processes at the same time as remaining focused on delivering bespoke consultancy to satisfy the varying needs and through funds, entities or joint ventures that are value creating and fit with the strategic direction of the Group. To supplement this, we will also pursue other strategic partnerships and we are delighted to bring on board new IFA partners following a due diligence process with Threesixty Services, a provider of compliance and business support services to over 900 directly authorised client firms and 9,000 advisers. This further extends our reach, which will support our organic growth plans alongside other exciting strategic partnerships and acquisition opportunities. wants of the IFAs. Over the period the business has increased the As we enter the new financial year, we remain confident the Group number of firms we work with to 407 (2020: 394) and demonstrates will continue to make progress and we look forward to reporting the importance of flexibility and service. on this progress as the year unfolds. CURRENT TRADING AND OUTLOOK As we enter the new financial year we do so with a degree of optimism. The industry is tuned into the new environment and while we look to return to more face‑to‑face interaction, there Paul Hogarth Chief Executive Officer Tatton Asset Management plc Annual Report and Accounts 2021 9 Strategic Report Chief Investment Officer’s Report Distribution of AUM across proposition matrix Chief Investment Officer’s Report 2020, from an investment perspective a year that at times seemed the ultimate annus horribilis, ended well, despite the global economy suffering the worst recessionary decline on record. The key for us was to look through the noise and mayhem of March 2020 and rapidly develop our understanding of how capital markets would react to the duress caused by the short‑term evaporation of earnings, vs the counterbalancing efforts by governments and central banks and their determination to prevent major damage to the output potential of their economies and the wellbeing of society. At Tatton we stood closely by our investors and, knowing that fear is the worst imaginable adviser, we provided relentless client communication insights into the drivers of market dynamics that once again were welcomed as valuable reassurance. Once global policy support commitment materialised, we adeptly positioned portfolios for the recovery. PROPOSITION AND BUSINESS DEVELOPMENTS As previously reported, we managed the change to remote working seamlessly and were able to support adviser businesses and their clients during this time in exactly the same way as if we had been office based. After an initial adjustment period, advisers took advantage of the changed landscape and discovered operational efficiencies arising from remote business practices that enabled them to extend their own regional footprint to mutual benefit. Blended 41.2% (2020: 39.6%) Managed 29.8% (2020: 38.0%) Tracker 18.3% (2020: 18.1%) Ethical/ESG 5.3% (2020: 3.0%) Income 1.0% (2020: 1.3%) Global 4.4% (2020: 0%) — Launch of Global portfolios during the year offering investors the widest choice of portfolio styles and risk profiles. — Continued growth in Ethical portfolios. A YEAR OF OPPORTUNITY AND OPTIMISM THROUGH THE PANDEMIC L O T H A R M E N T E L Chief Investment Officer “ We proved our commitment to our IFAs through decisive action in the depth of the crisis and by adapting and enhancing the way we do business. 10 Strategic Report Corporate Governance Financial Statements The widespread acceptance of online meetings successfully of the pandemic recession was its deliberate creation by governments to transformed the modus operandi of our lead generation team and mitigate the public health impact of the COVID‑19 virus, not market forces. the increased use of technology within day to day operations acted Nevertheless, the early rapid market recovery was initially interpreted as as a catalyst for the introduction of segmentation, targeting and a temporary reversal (known as a bear market bounce). This recovery positioning business practices with advisers. Our continued investment diverted from historical precedent and became sustained when it became in new digital infrastructure has delivered significant improvements in evident that the global economy was unlikely to suffer long‑lasting processing new business mandates and meaningful enhancements to scarring damage and that demand was likely to rebound very strongly. online IFA client management through the Tatton Portal, which were well received by all adviser firms. The rebound was led by China and Eastern Asia, where we had an overweight position to benefit, as it emerged first from the pandemic. The fallout from Brexit and the shifts in the world economy from the Likewise beneficial was the reiteration of an overall equity overweight COVID‑19 pandemic acted as a catalyst to bring forward changes in early April while distinctly underweighting UK equities. The US in our investment offering. In July we launched the Tatton Global followed China in the recovery of its stock market, as the home to the Portfolios, giving investor the choice to invest in portfolios weighted bulk of digital global enterprises such as Amazon, Microsoft, Netflix towards a global market capitalisation or in our Tatton Classic and other big tech benefited from consumers being homebound. Portfolios with their more traditional UK home biased asset allocation. The second pandemic wave in the autumn created an inevitable The pandemic has also stimulated a surge in interest towards ethical and market setback but markets then reversed dramatically in light of rapid ESG investing. Tatton has one of the longest‑running Ethical Managed progress of vaccine developments. This also marked the beginning of Portfolio Services ("MPS") (launched in 2014) in the UK and we have the "great rotation" with value and income investment assets staging seen interest grow significantly in our portfolios. This led to a noticeable a massive recovery – the flip side being underperformance of growth change in the distribution of inflows with a much larger proportion now and momentum‑style investments that had been the leaders of the going towards our Ethical portfolios as investors reprioritised their initial market recovery. balance of investment aims. The exceptionally strong outperformance of growth and momentum assets during 2020 also led to increased flows into our Tatton Tracker Portfolio range as market capitalisation weighted investment exposures appeared superior. 2020/2021 CAPITAL MARKETS AND RETURNS 1 APRIL 2020–31 MARCH 2021 Tatton investment returns (%) – core MPS product set (after The new US administration instigated a faster vaccination campaign and a greater post‑pandemic stimulus programme than anticipated, which extended positive market sentiment – despite the ever‑rising death toll and subsequent return of tightened restrictions. As society learned to live with the pandemic, but also started to see it coming to an end, a level of orthodoxy returned to capital markets. In this environment active stock picking made a strong comeback with discretionary fund management ("DFM") charge and fund costs) sectoral and market understanding becoming a premium once again Defensive Cautious Balanced Active Aggressive Global Equity Tatton Tatton Tatton Managed Tracker Blended Tatton Ethical 13.2 20.9 26.2 32.7 39.0 41.1 10.6 17.4 22.5 28.1 33.7 37.9 11.9 19.1 24.3 30.4 36.3 39.5 16.2 22.2 25.9 30.2 35.0 39.4 ARC PCI1 11.5 18.5 18.5/ 24.82 24.8 31.7 31.7 5 YEARS, 1 APRIL 2016–31 MARCH 2021 Tatton investment returns (%) – core MPS product set (annualised, after DFM charge and fund costs) Defensive Cautious Balanced Active Aggressive Global Equity Tatton Tatton Tatton Managed Tracker Blended Tatton Ethical3 4.6 6.3 7.3 8.7 10.1 13.5 4.5 6.2 7.5 8.9 10.2 13.2 4.5 6.3 7.4 8.8 10.1 13.4 – – 9.1 – – – ARC PCI1 3.6 5.3 5.3/ 7.22 7.2 8.9 8.9 1 ARC PCI – Asset Risk Consultants Private Client Indices ("PCI"). 2 Balanced Portfolios are measured against both ARC Balanced Asset PCI and ARC Steady Growth PCI as in risk terms the Balanced Portfolios lie in the middle of these Indices. 3 Only Tatton Ethical Balanced has existed for five years. Adapting to living and operating under constraints that Western societies last experienced during WWII and the resultant worst recession on record dominated all aspects of life and business. However, the key difference and rapidly closing the return gap to index trackers and momentum investing that had opened up in the first half of 2020. We were very pleased that our diversified investment approach, actively tilting towards trends in investments rather than following them exclusively, delivered strong and consistent returns. I am very satisfied that our stewardship approach, with a determined focus on sustainable and repeatable returns, has been well received by our investors. OUTLOOK FOR 2021 The outlook for the remainder of 2021 is brightened by the anticipation of a widespread economic recovery boom. Beyond that it remains unclear if global GDP growth rates can be maintained at higher than pre‑ pandemic levels, or will return to the post‑Global Financial Crisis ("GFC") decade of subdued demand and growth. Nevertheless, the necessity to reinvigorate the economy decisively in order to mitigate the negative impact of the vastly increased public sector debt provides policy makers with a strong incentive not to repeat their demand suppressing post‑ GFC mistakes. Tatton’s investment and business model has emerged successfully from the 2020/2021 years and we have been able to prove our commitment to the IFA sector through decisive action in the depth of the crisis and now by adapting and enhancing the way we do business. As advisers and their clients reflect on what worked well for them during the stresses of the pandemic, we are confident that we remain well positioned with a cost‑effective and broad investment offering. Lothar Mentel Chief Investment Officer Tatton Asset Management plc Annual Report and Accounts 2021 11 Strategic Report Engaging with our Stakeholders Engaging with our stakeholders We are committed to engaging and developing strong relationships with our key stakeholders and delivering long-term value. We recognise that it is important that we engage with each stakeholder in an open and transparent manner, taking into account their views in our strategic decision making. We engage with our stakeholders across all areas and levels of the business, with reporting and escalation to the Board as appropriate. Throughout the year we have continued to listen to our stakeholders and understand their needs. We have invested more time and resources in investor and wider market communication and provided support and reassurance to our IFAs and their clients. P A U L E D W A R D S Chief Financial Officer Our stakeholders Firms and clients IFAs and their clients are the central focus of our business. The Group’s ongoing success is built upon understanding our customers’ needs, both those of the IFAs and of their clients, and responding with products and support. As we understand their needs, we will continue to anticipate future requirements to allow IFAs to continue focusing on their clients and build their businesses. Shareholders We rely on the support and engagement of our shareholders to deliver our strategic objectives and grow the business. Our shareholder base supports the long-term strategy we take in the management of our business. People The Board recognises that our people are central to the ongoing success of the Group. The Group’s employees deliver the highest quality of service to our customers. Society We recognise the responsibility we have to wider society and other key stakeholders. We believe that demanding high levels of corporate responsibility is the right thing to do. External service providers Our external service providers include our distribution partners (platforms, IFAs, fund managers) and our suppliers. They are critical to ensuring the effective distribution of our products. Regulators Tatton Investment Management Limited is regulated by the Financial Conduct Authority (“FCA”). Their material issues How we engage Highlights and key decisions Further links — Performance of our funds — The business development — In July 2020 we launched the Tatton — See our business model teams meet regularly Global Portfolios on pages 18 and 19 with current and potential — As a result of the COVID-19 restrictions, — A summary of our and portfolios — Transparency — Quality of service — Fair pricing firms to develop a clear view of client objectives and how these are likely to evolve — Virtual events, including partner forums, roadshows and continuing professional development ("CPD") events Tatton and Paradigm ran multiple interactive virtual events and frequent video investment updates. Paradigm held 79 events during the proposition is shown on pages 2 and 3 — The Group’s KPIs are shown on pages 28 and 29 year attracting 5,359 attendees in total — Read more about our markets on pages 16 and 17 — The Group’s strategy is detailed on pages 20 and 21 — Compelling business — Regular meetings are — Delivered against our dividend policy — See our business model model and growth prospects held with our investors throughout the year with a total full year dividend of 11.0p, on pages 18 and 19 an increase of 14.6% (FY20: 9.6p) — Our dividend policy is — Long‑term sustainable — Results presentations — Adjusted operating profit* of £11.402m, detailed on page 49 business which delivers have been held virtually an increase of 25.6% (FY20: £9.076m) — The Group’s KPIs are shown attractive returns through at the half and full year — The decision was made to hold the half on pages 28 and 29 year and full year results presentations — The Group’s strategy is with shareholders virtually due to detailed on pages 20 and 21 COVID-19 restrictions maintaining a progressive dividend policy — High standards of governance — Making a difference — Presentations by — During the year the Group supported — See our business model for our customers — Having opportunities the Board to discuss performance and a range of individuals through professional qualifications on pages 18 and 19 — See our ESG section on for learning, growth and further development the Company’s strategic plans — Further extension of the Enterprise pages 36 and 39 Management Incentive ("EMI") and — Being fairly rewarded for — Regular management Sharesave schemes their contributions briefings — Staff transitioned seamlessly to working from home — Society has an interest — We aim for high — Growth in our Ethical portfolios — See our business model in how we manage our standards of governance — Continued improvement and adoption on pages 18 and 19 of corporate governance guidelines — See our ESG section on — Group-wide review of our approach to pages 36 and 39 clients’ assets and ensure across the Group. good stewardship over our investments Our careful selection process for Tatton’s — They have an interest in Ethical portfolios ensuring we manage our prioritises funds that business in a manner which actively engage with minimises our impact on company managers on the environment and helps ESG issues to benefit society ESG and establishment of a working group led by Chris Poil, Senior Non- Executive Director and the Head of the Audit and Risk Committee — Trusted partnerships — Regular service reviews — We maintained ongoing relations — Read more on pages 36 to 39 — Strong governance — Annual due diligence — Clear communications reviews with our key suppliers and partners during the year with updates at — Collaborative engagement Board meetings — Ensuring that the business — Direct communication — The Board and Audit and Risk — Information on our risk understands and adopts through our compliance Committee received and reviewed the principles and rules of the FCA Handbook senior manager function holder regular compliance reports — Completion of FCA COVID-19 — Open and — We always engage questionnaires throughout the year — Our Corporate Governance transparent communication in an open and co‑operative manner — Surplus regulatory capital was maintained throughout the year management framework and processes is shown on pages 30 and 31 42 to 44 Statement is shown on pages — Demonstrating good conduct — Acting in our customers’ best interests 12 Tatton Asset Management plc Annual Report and Accounts 2021 Our stakeholders Firms and clients IFAs and their clients are the central focus of our business. The Group’s ongoing success is built upon understanding our customers’ needs, both those of the IFAs and of their clients, and responding with products and support. As we understand their needs, we will continue to anticipate future requirements to allow IFAs to continue focusing on their clients and build their businesses. Shareholders We rely on the support and engagement of our shareholders to deliver our strategic objectives and grow the business. Our shareholder base supports the long-term strategy we take in the management of our business. The Board recognises that our people are central to the ongoing success of the Group. The Group’s employees deliver the highest quality of service to our customers. People Society We recognise the responsibility we have to wider society and other key stakeholders. We believe that demanding high levels of corporate responsibility is the right thing to do. External service providers Our external service providers include our distribution partners (platforms, IFAs, fund managers) and They are critical to ensuring the effective distribution our suppliers. of our products. Regulators Tatton Investment Management Limited is regulated by the Financial Conduct Authority (“FCA”). Strategic Report Corporate Governance Financial Statements Their material issues How we engage Highlights and key decisions Further links — The business development teams meet regularly with current and potential firms to develop a clear view of client objectives and how these are likely to evolve — Virtual events, including partner forums, roadshows and continuing professional development ("CPD") events — Regular meetings are held with our investors throughout the year — Results presentations have been held virtually at the half and full year — In July 2020 we launched the Tatton — See our business model Global Portfolios — As a result of the COVID-19 restrictions, Tatton and Paradigm ran multiple interactive virtual events and frequent video investment updates. Paradigm held 79 events during the year attracting 5,359 attendees in total on pages 18 and 19 — A summary of our proposition is shown on pages 2 and 3 — The Group’s KPIs are shown on pages 28 and 29 — Read more about our markets on pages 16 and 17 — The Group’s strategy is detailed on pages 20 and 21 — Delivered against our dividend policy with a total full year dividend of 11.0p, an increase of 14.6% (FY20: 9.6p) — Adjusted operating profit* of £11.402m, an increase of 25.6% (FY20: £9.076m) — The decision was made to hold the half year and full year results presentations with shareholders virtually due to COVID-19 restrictions — See our business model on pages 18 and 19 — Our dividend policy is detailed on page 49 — The Group’s KPIs are shown on pages 28 and 29 — The Group’s strategy is detailed on pages 20 and 21 — Presentations by — During the year the Group supported — See our business model — Performance of our funds and portfolios — Transparency — Quality of service — Fair pricing — Compelling business model and growth prospects — Long‑term sustainable business which delivers attractive returns through maintaining a progressive dividend policy — High standards of governance — Making a difference for our customers — Having opportunities for learning, growth and further development — Being fairly rewarded for the Board to discuss performance and the Company’s strategic plans — Regular management their contributions briefings — Society has an interest in how we manage our clients’ assets and ensure good stewardship over our investments — They have an interest in ensuring we manage our business in a manner which minimises our impact on the environment and helps to benefit society — We aim for high standards of governance across the Group. Our careful selection process for Tatton’s Ethical portfolios prioritises funds that actively engage with company managers on ESG issues — Trusted partnerships — Strong governance — Clear communications — Regular service reviews — Annual due diligence reviews — Collaborative engagement a range of individuals through professional qualifications — Further extension of the Enterprise Management Incentive ("EMI") and Sharesave schemes — Staff transitioned seamlessly to working from home — Growth in our Ethical portfolios — Continued improvement and adoption of corporate governance guidelines — Group-wide review of our approach to ESG and establishment of a working group led by Chris Poil, Senior Non- Executive Director and the Head of the Audit and Risk Committee on pages 18 and 19 — See our ESG section on pages 36 and 39 — See our business model on pages 18 and 19 — See our ESG section on pages 36 and 39 — We maintained ongoing relations — Read more on pages 36 to 39 with our key suppliers and partners during the year with updates at Board meetings — Ensuring that the business understands and adopts the principles and rules of the FCA Handbook — Open and transparent communication — Demonstrating good conduct — Acting in our customers’ best interests — Direct communication through our compliance senior manager function holder — We always engage in an open and co‑operative manner — The Board and Audit and Risk Committee received and reviewed regular compliance reports — Completion of FCA COVID-19 — Information on our risk management framework and processes is shown on pages 30 and 31 questionnaires throughout the year — Our Corporate Governance — Surplus regulatory capital was maintained throughout the year Statement is shown on pages 42 to 44 Tatton Asset Management plc Annual Report and Accounts 2021 13 Strategic Report Engaging with our Stakeholders continued Section 172 statement Section 172 of the Companies Act 2006 requires the Directors to The Directors fulfil their duties partly through a governance consider how best to promote the success of the Company for the framework that delegates day‑to‑day decision making to the benefit of its members as a whole. In doing so, the Directors must employees of the Company. The Board recognises that such have regard, amongst other matters, to: delegation needs to be part of a robust governance structure, which a) the likely consequences of any decisions in the long term; b) the interests of the Company’s employees; c) the need to foster the Company’s business relationships with covers our values, how we engage with our stakeholders, and how the Board assures itself that the governance structure and systems of controls continue to be robust. suppliers, customers and others; Our Chairman, with the assistance of the Company Secretary, sets d) the impact of the Company’s operations on the community the agenda for each Board meeting to ensure that the requirements and environment; of section 172 are always met and considered in line with our e) the desirability of the Company maintaining a reputation for approach to section 172 detailed below. high standards of business conduct; and f) the need to act fairly as between members of the Company. The opposite page shows some of the key decisions made by the Board having regard to the Group's stakeholders over the course Our Board ensures that all decisions are taken for the long term of the financial year due to the impact of the COVID‑19 pandemic. and collectively and individually aims to always uphold the highest standards of conduct. Similarly, our Board acknowledges that the business can only grow and prosper over the long‑term if it understands and respects the views and needs of the Company's investors, customers, employees, suppliers and other stakeholders to whom we are accountable, as well as the environment we operate within. Our approach to Section 172 Leadership and management receive training on Directors’ duties to ensure awareness of the Board’s responsibilities Our Board continually engages with stakeholders. Read more on pages 12 and 13 The Group has a flat structure and a culture of openness and transparency ensuring proper consideration of the potential impacts of decisions The Board are continually reviewing and ensuring that the governance in place is relevant for the size and nature of the business and the Board recognises the value it brings to the Group The Board determines the action to be taken following discussions INFORMED BOARD DISCUSSIONS HELD BY THE BOARD TO DETERMINE STRATEGY BOARD DECISION Board papers cover a broad range of topics to capture s.172 factors that are relevant to the strategic direction of the Group The Board considers and adapts its strategic direction with a view to ensuring it meets its long‑term strategic objectives The Board regularly receives and reviews financial and operational information that supports decision making and drives long‑term value creation We evaluate the outcomes of our decisions, take action and amend the strategy and implement change where necessary 14 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements The impact of the COVID-19 pandemic has run in parallel with our financial year, inevitably impacting our business and each of our stakeholders. Throughout the year, we have looked after the welfare and safety of our employees. We have communicated with our IFAs and their clients, providing critical reassurance at a time of uncertainty and volatility. We responded quickly and adapted our processes to a new working environment, continuing to deliver uninterrupted business operations, creating value for our shareholders and maintaining a strong capital position. Our response to the pandemic throughout the year Throughout the year, the Board has looked to make decisions to support its workforce and customers, review the resilience of its supply chain and consider the interest of its shareholders and regulators. P A U L H O G A R T H Chief Executive Officer Throughout 2020/2021 At each Board meeting, the Board reviewed the impact of the pandemic on our workforce and the resilience of the business and its supply chain. February 2020 onwards Tatton provided reassurance to our IFAs and their clients through consistent client communication insights into the Tatton and Paradigm redeployed drivers of market dynamics and Paradigm resources to direct online engagement, supported its intermediaries with running multiple interactive virtual events ongoing updates. which were very successful. March 2020 May 2020 Our staff transitioned seamlessly The Board considered the interest of its to working from home. The Board shareholders and the Group’s financial continued to support its people and take position when proposing the payment all precautions necessary, constantly of the FY20 final dividend of 6.4p. monitoring the evolving situation. During FY21 the Board has proposed total June and November 2020 The Board continued to engage with our investors, holding the Group’s full year and half year presentations virtually. dividends of 11.0p. July 2020 The Group’s Annual General Meeting ("AGM") was held with two members in attendance and the Board attending by phone. All shareholders were able to raise issues or concerns in advance of the meeting and vote by proxy. Tatton Asset Management plc Annual Report and Accounts 2021 15 Strategic Report Our market share and trends Our markets are evolving and so are we Tatton continues to grow as its markets expand. We see the potential for the UK platform market to continue to increase in size, while regulatory and pricing pressures drive IFAs to outsource the management of model portfolios to a discretionary fund manager. 1 CLIENTS ARE DEMANDING MORE CHOICE, VALUE FOR MONEY AND FEE TRANSPARENCY Due to the ageing population, the cost of funding retirement has increased. Individuals have become more self‑reliant in planning for their long‑term needs and they want a clear understanding of how much they are paying so they can determine which option provides the best value for money given their specific circumstances. 0.15% Tatton DFM MPS fee is 55% lower than the average MPS fee of 0.33%1 2 INCREASING DEMAND FOR ESG SOLUTIONS 3 DISRUPTION IN THE INVESTMENT MARKETS 4 GROWING STRENGTH OF THE IFA SECTOR An increased focus on climate change and COVID‑19 has provided the most significant The requirement for advice from IFAs environmental issues has driven consumer level of market turbulence since the 2008 continues to increase as the mass affluent demand for a choice of investment options financial crisis, with the global economy make complex decisions around financial that focus on corporate environmental, suffering the worst recorded recessionary planning, particularly during a time of market social and governance factors. COVID‑19 decline. Such market disruption can turbulence. The pandemic saw IFAs adapt has reinforced this trend, making investors significantly affect consumer confidence their advice process and shift successfully more aware of and likely to act in relation to and alter both their short‑ and long‑term to remote working; however regulatory and social and environmental issues. attitudes towards savings and investment. technological change continues to drive €120bn of net inflows into European sustainable -30% FTSE 100 fell by 30% to 6,100 in February/ funds in Q1 2021, making up 51% of overall new flows into European funds2 March 2020, recovering to over 7,000 by June 2021 consolidation across the industry. 5,512 +0.1% Number of Directly Authorised IFA Firms3 5 GROWING STRENGTH OF PLATFORM MARKET 6 APPETITE FOR LENDING 7 IMPACT OF REGULATORY CHANGE The platform market is fast growing and After an effective closure of the mortgage The market demand for financial advice is becoming an increasingly attractive method market in April 2020, the pandemic stimulated growing; however, the ability of IFAs to meet for managing investments. Following the many homeowners to re‑evaluate their living this demand has been challenged partly due FCA’s Investment Platforms Market Study in arrangements. This in turn fed through to the to increased regulatory pressures, such as 2019, it should become easier for consumers mortgage market and as the year progressed MiFID II, General Data Protection Regulation to choose or switch platforms through clearer more funds became available and criteria (“GDPR”) and Senior Managers & Certification pricing information and the reduction or restrictions relaxed. removal of exit fees. £541bn +9.3% On‑platform AUM4, forecast to be >£1trn by 2025 1. Platforum, October 2020 2. Morningstar, February 2021 3. PIMFA, November 2020 16 £258bn -5.0% Gross lending in the UK market in 2020 4. Platforum, November 2020 5. Schroders, November 2020 Regime ("SM&CR"), meaning that IFAs face significant costs and resource challenges. #1 concern Regulation is the biggest concern for IFAs in 20215 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements Growth Opportunities As these market trends evolve, we see the opportunity for Tatton to take advantage of the growth opportunities that these present to our business and to our stakeholders. Advisers continue the trend of outsourcing Demand increases for sustainable investing and business practices We have a growing IFA customer base, winning new firms Tatton offers a complete range of risk profiles in our Ethical through demonstrating the benefits and value of outsourcing the Portfolios enabling investors to choose from a range of discretionary fund management of the IFAs' clients' investment investment products that best suit their circumstances. portfolios. We offer a broad range of model portfolios and During the year the Group has launched a Group‑wide review funds at a transparent and highly competitive cost, focusing on of the adequacy and effectiveness of our ESG policies, to delivering an investment performance that matches the clients' increase the level of transparency in our reporting and to drive risk appetite. better outcomes for our stakeholders. See pages 36 to 39 for more information. 668 firms +12.3% Number of firms using the Tatton DFM service £441m AUM in Tatton’s Ethical Portfolios +183% Growing demand for investment platforms Strength of the UK mortgage market The UK platform market continues to grow. Consumers benefit 95% loan to value lending is now more freely available, helped from the platform model by being able to engage more closely partly by the government backed scheme though many lenders with their financial planning and monitor their investments to chose to lend at this level through their own means. As the aid decision making. IFAs can offer their clients a broad range market continues to stabilise, the specialist lending sector will of investment propositions while also benefiting from the play a more prominent role as it returns to pre‑pandemic levels platform's operational efficiencies. of lending which were curtailed due to funding issues. All in all, while there remains a level of uncertainty, the UK mortgage market remains resilient supported by ongoing demand for mortgage products. £1.0trn On‑platform AUM forecast to be greater than £1.0trn by 2025 £11.34bn +15.0% Paradigm Mortgages gross lending Tatton Asset Management plc Annual Report and Accounts 2021 17 Strategic Report Our business model How we do business We succeed because we work closely with IFAs to understand what they and their clients need; this also helps us to gain insights into our market and supports the development of the Group's overall offer. Our inputs How we create long-term value RELATIONSHIP WITH IFAS We provide high quality investment management, consultancy and mortgage‑related services which empower IFAs to support their clients. We establish long‑lasting relationships to support IFAs in building bigger, better businesses. REGULATORY KNOWLEDGE Our Paradigm Consulting team has vast regulatory experience and technical knowledge. We offer first class support to IFAs where there is increased demand for advice in an increasingly regulated industry. CAPITAL ALLOCATION Capital is retained for both regulatory requirements and investment needs. The Board considers possible acquisition opportunities which are complementary, strategically aligned to the existing model, earnings enhancing and accretive to shareholder value. TECHNOLOGY The Group invests in technology through both Client financial goals operational and capital expenditure. Investment priorities — Investment goals are determined where technology supports the — Length of investment Group in delivering its long‑term growth strategy. — Risk appetite BRAND RECOGNITION The recognition of our brand has continued to improve. The Group invests in cost‑effective marketing through direct marketing and events, whilst raising brand awareness through a combination of PR and referrals. TALENTED PEOPLE We recruit, develop and retain high calibre people with relevant expertise to deliver a high quality service and implement our Group strategy. IFA We work hard to manage the investments of our IFAs’ clients and provide support to help firms to grow their clients’ wealth and focus on building relationships. OUR BUSINESS MODEL IS UNDERPINNED BY: — Our strategy, pages 20 and 21 — Our risk management framework, pages 30 and 31 — Our high standards of corporate governance, pages 42 to 44 — How we engage with our stakeholders, pages 12 to 15 18 Tatton Asset Management plc Annual Report and Accounts 2021 How we create long-term value Strategic Report Corporate Governance Financial Statements Our outputs SHAREHOLDERS The Group has a cash‑generative business model, access to a committed £10m revolving credit facility and a further £20m accordion, significant levels of recurring revenue 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 49. CLIENTS We help clients achieve their long‑term goals through providing a quality service and by managing their wealth through our range of portfolios and funds, which are flexible, responsive and cost effective. IFAS We provide IFAs with support in an increasingly regulated environment and access to whole of market lenders and distributors. EMPLOYEES 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. SOCIETY The services provided by the Group to IFAs and their clients allow individuals to save and invest with confidence. See pages 36 to 39. Tatton INVESTMENT PORTFOLIOS AND FUNDS — 668 firms — 72,450 client accounts — £8.990bn AUM — 44 risk‑rated portfolios across a range of strategies across 15 platforms Paradigm MORTGAGES AND INSURANCE — 1,612 member firms — £11.34bn gross lending AUM COMPLIANCE ADVICE AND SUPPORT TO IFAS — 407 Consulting £8.990bn (2020: £6.651bn) member firms — Over 1,150 IFAs Adjusted operating profit* £11.402m (2020: £9.076m) * Alternative performance measures are detailed in note 22. Tatton Asset Management plc Annual Report and Accounts 2021 19 Strategic Report Our strategy for growth We remain focused on a growth strategy The Group continues to deliver increasing AUM, new customer acquisition and improving financial results against the backdrop of a complex and challenging market environment. We are focused on the provision of products and services that an IFA requires to service its clients and continue to invest in both people and technology that will enhance and enable our business model. The Group is strategically well positioned in its respective markets, and we continue to develop and reinforce our business. To augment our organic growth we will look to make acquisitions that will enhance earnings and contribute to our broad strategic goals and the Group remains optimistic about its long- Our strategy Description term prospects. 1 DEEPEN OUR IFA RELATIONSHIPS TO GROW AUM 2 ORGANIC GROWTH – INCREASE SHARE OF OUR RESPECTIVE MARKETS 3 M&A ACTIVITY REMAINS PART OF THE GROUP’S GROWTH STRATEGY 4 MIGRATION OF ASSET “BACK BOOKS” 5 STRATEGIC PARTNERSHIPS AND JOINT VENTURES Strengthening existing IFA/client Further penetrate our markets adding We continue to look to complement our Existing clients using Tatton’s DFM Agreements put in place to develop relationships and building new long-term new firms in Tatton and new members strong organic growth through targeted service have a back book of assets that strategic partnership/alliances and joint relationships, delivering sustainable value in Paradigm for both the IFA/clients and shareholders acquisitions that fit strategically and will we look to migrate over to Tatton in the ventures as an additional distribution be earnings enhancing medium term channel to increase assets on the Tatton 2021 achievements — AUM has increased by 35.2% to — New firms and new members — This year we have participated in — This financial year we developed and — This is the first full year of the £8.990bn from £6.651bn in the prior increased across all parts of a number of corporate processes, migrated back books with a total strategic partnership with Tenet year across all firms and clients the business in each of which we have followed value of £71m — The number of firms in the year increased by 12.3% to 668 — We launched Global portfolios in the year, increasing our proposition to our clients — Tatton +12.3% to 668 firms — Paradigm Mortgages +4.4% to 1,612 — Paradigm Consulting +3.3% to 407 a disciplined process — We have developed a strong pipeline of potential targets to support future M&A activity DFM service Group. At March 2021, 104 firms have contributed £0.5bn to Tatton’s overall AUM of £9.0bn — We have brought on board new IFA partners following a due diligence with Threesixty Services 2022 objectives — We continue to invest in account — Maintain new firm growth in Tatton — Our ambition is to grow both — We maintain a pipeline of back — Continue to develop existing management, both external and and Paradigm through further organically and also through making book opportunities. As we head strategic alliances and develop new internal, to ensure we are well placed marketing and account management strategic acquisitions that are into the new financial year, we will relationships that align objectives KPIs Risks to service the IFAs’ needs — Further broaden our proposition and service portfolio — Maintain the market leading product and service proposition Net inflows Net inflows as % of opening AUM Tatton firm numbers 11.4% £0.8bn Increase in AUM in the year 35.2% 668 Mortgages members 1,612 Growth in Tatton firms 12.3% Consulting members 407 earnings enhancing and have the look to execute the migrations while and deliver the best outcomes for potential to fit our wider strategic developing further opportunities to the client and IFA objectives. We will continue to add to the pipeline evaluate opportunities as and when they arise Cash at bank Undrawn debt AUM facility £16.9m £10.0m £9.0bn Back book migrations £71m Attributable Attributable firms 104 AUM £0.5bn INTERNAL — Failure of investment strategy INTERNAL — Failure of investment strategy — Due diligence and post acquisition — Failure of investment strategy — Key personnel risk INTERNAL INTERNAL — Key personnel risk (the loss of, or inability — Loss or failure of key IFA client integration risk — Key personnel risk (relationship management) to recruit and retain key personnel) EXTERNAL — Adverse macro-economic, EXTERNAL — Increasing level of competition and new entrants into the MPS market — Liquidity risk where the Group is (relationship management) — Failure of investment strategy unable to obtain sufficient funding — Loss or failure of key IFA client EXTERNAL EXTERNAL EXTERNAL — Changing competitive environment political and market factors which — IFA consolidation reduces the — Adverse macro-economic, political — Changing competitive environment — Regulatory changes affecting affect performance number of targets with the potential and market factors which affect — Failure of a third party the Group’s ability to reach new — Changing regulatory and competitive to impact existing firms the valuation of target companies/ platform provider distribution channels environment which could adversely impact AUM and client number targets — System failure, cyber security and data protection breaches causing reputational damage 20 Tatton Asset Management plc Annual Report and Accounts 2021 Access to accordion £20.0m INTERNAL fund ranges — Bank default — Interest rate risk on borrowings Strategic Report Corporate Governance Financial Statements Our strategy Description 1 DEEPEN OUR IFA RELATIONSHIPS TO GROW AUM INCREASE SHARE OF OUR 2 ORGANIC GROWTH – RESPECTIVE MARKETS 3 M&A ACTIVITY REMAINS PART OF THE GROUP’S GROWTH STRATEGY 4 MIGRATION OF ASSET “BACK BOOKS” 5 STRATEGIC PARTNERSHIPS AND JOINT VENTURES Strengthening existing IFA/client Further penetrate our markets adding We continue to look to complement our Existing clients using Tatton’s DFM Agreements put in place to develop relationships and building new long-term new firms in Tatton and new members strong organic growth through targeted service have a back book of assets that strategic partnership/alliances and joint relationships, delivering sustainable value in Paradigm for both the IFA/clients and shareholders acquisitions that fit strategically and will we look to migrate over to Tatton in the ventures as an additional distribution be earnings enhancing medium term channel to increase assets on the Tatton DFM service 2021 achievements — AUM has increased by 35.2% to — New firms and new members — This year we have participated in — This financial year we developed and — This is the first full year of the £8.990bn from £6.651bn in the prior increased across all parts of a number of corporate processes, migrated back books with a total strategic partnership with Tenet year across all firms and clients the business in each of which we have followed value of £71m — The number of firms in the year — Tatton +12.3% to 668 firms a disciplined process increased by 12.3% to 668 — Paradigm Mortgages +4.4% to 1,612 — We launched Global portfolios in the year, — Paradigm Consulting +3.3% to 407 increasing our proposition to our clients — We have developed a strong pipeline of potential targets to support future M&A activity Group. At March 2021, 104 firms have contributed £0.5bn to Tatton’s overall AUM of £9.0bn — We have brought on board new IFA partners following a due diligence with Threesixty Services 2022 objectives — We continue to invest in account — Maintain new firm growth in Tatton — Our ambition is to grow both — We maintain a pipeline of back — Continue to develop existing management, both external and and Paradigm through further organically and also through making book opportunities. As we head strategic alliances and develop new internal, to ensure we are well placed marketing and account management strategic acquisitions that are into the new financial year, we will relationships that align objectives KPIs Risks to service the IFAs’ needs — Further broaden our proposition and service portfolio — Maintain the market leading product and service proposition Net inflows Net inflows as % Tatton firm of opening AUM numbers 11.4% £0.8bn Increase in AUM in the year 35.2% INTERNAL 668 Mortgages members 1,612 INTERNAL Growth in Tatton firms 12.3% Consulting members 407 — Failure of investment strategy — Failure of investment strategy earnings enhancing and have the look to execute the migrations while and deliver the best outcomes for potential to fit our wider strategic developing further opportunities to the client and IFA objectives. We will continue to add to the pipeline evaluate opportunities as and when they arise Cash at bank Undrawn debt facility AUM £16.9m £10.0m £9.0bn Back book migrations £71m Attributable firms 104 Attributable AUM £0.5bn Access to accordion £20.0m — Key personnel risk (the loss of, or inability — Loss or failure of key IFA client integration risk — Key personnel risk (relationship management) to recruit and retain key personnel) EXTERNAL — Liquidity risk where the Group is (relationship management) — Failure of investment strategy EXTERNAL — Increasing level of competition and unable to obtain sufficient funding — Loss or failure of key IFA client — Adverse macro-economic, new entrants into the MPS market political and market factors which — IFA consolidation reduces the EXTERNAL — Adverse macro-economic, political EXTERNAL — Changing competitive environment EXTERNAL — Changing competitive environment — Regulatory changes affecting affect performance number of targets with the potential and market factors which affect — Failure of a third party the Group’s ability to reach new — Changing regulatory and competitive to impact existing firms the valuation of target companies/ platform provider distribution channels INTERNAL — Due diligence and post acquisition INTERNAL — Failure of investment strategy INTERNAL — Key personnel risk environment which could adversely impact AUM and client number targets — System failure, cyber security and data protection breaches causing reputational damage fund ranges — Interest rate risk on borrowings — Bank default Read more on page 6 Tatton Asset Management plc Annual Report and Accounts 2021 21 Strategic Report Our strategy for growth Delivering value through strategic partnerships 22 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements Our working relationship with Tatton has been easy from the beginning. The investment proposition provides a range of competitively priced managed portfolios including an ethical option. Introducing Tatton to our clients has been straightforward and now forms part of our overall offering, improving our processes and allowing us to focus on the planning needs of our clients. C R A I G B O N S O R Jalapeno Financial Planning www Find out more about Tatton Asset Management at tattonassetmanagement.com J U S T I N E R A N D A L L Sales Director After completing the first full year of working with the Tenet Group, our partnership has brought 104 new IFA firms and in excess of £0.5bn of client assets into the Tatton family. We have been delighted to extend our distribution footprint by demonstrating to the Tenet firms the value of working with an investment manager with a strong track record. This has enabled the team and I to work with firms of all shapes and sizes to deliver a consistent approach to managing investments and service excellence. Most importantly, this allows the advisers to focus on what they do best – helping clients achieve their financial and lifestyle goals. 18 months 104 firms £0.5bn AUM Justine Randall Sales Director Tatton Asset Management plc Annual Report and Accounts 2021 23 Strategic Report Our strategy for growth Making a difference through ethical investments 24 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements We invest in best-in- breed ethical funds that have standards similar to those we aspire to for our portfolios and that can also deliver attractive performance to investors. L O T H A R M E N T E L Chief Investment Officer www Find out more about Tatton Asset Management at tattonassetmanagement.com Tatton’s Ethical Portfolios hold £441 million of AUM, 5% of our overall AUM and an increase of 141% in the year. Over the years many investors have become frustrated that their investments do not take into consideration the environmental impact or corporate behaviour of the underlying companies in the funds. Environmental and socially responsible policies are more central to our everyday lives and so investing according to these principles is becoming more mainstream. Tatton Investment Management’s Ethical Portfolios are designed to suit the needs of investors who want their investments to align with their own responsible investing concerns. We offer a complete range of risk profiles in our Ethical Portfolios allowing us to meet the needs of the majority of investors. To do this, we combined our sophisticated investment process with a set of negative and positive ethical screens, selecting managers with strategies and investment outlooks that complement each other to create harmonious investment portfolios. Read more on page 39 AUM (£m) £441m £274m £183m £138m £38m £45m £95m £72m Sep 2017 Mar 2018 Sep 2018 Mar 2019 Sep 2019 Mar 2020 Sep 2020 Mar 2021 AUM £441m Net flows £204m Number of accounts 4,472 % of overall AUM 4.9% +141% (2020: £183m) +89% (2020: £108m) +98% (2020: 2,263) +2.1% (2020: 2.8%) Tatton Asset Management plc Annual Report and Accounts 2021 25 Strategic Report Our strategy for growth Supporting IFAs in a rollercoaster mortgage market 26 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements Despite a challenging year in the mortgage market, Paradigm has excelled in recruiting new firms and has reached record levels of mortgage completions and applications. R O B E R T H U N T Chief Executive Officer of Paradigm Mortgages R O B E R T H U N T Chief Executive Officer of Paradigm Mortgages In April 2020, due to the first lockdown, the housing market was in effect closed to new business with the subsequent impact on mortgage lending. Roll on 12 months and Paradigm has had a record year in mortgage applications and completions. This is not solely down to the reduction in stamp duty – by the time the Chancellor introduced this in July the market was already running apace and Paradigm was able to build on this due to the support we offered to our members and the wider market during the difficult months of lockdown. Paradigm continued to recruit new firms despite not being able to make in-person visits. These factors, and a dedicated, hard working team, enabled Paradigm to provide high quality service and support to our members through the most difficult of times, with the result that we increased our completions by 15% to £11.34bn in a market that declined by 5%. Mortgage completions trend over lockdown i g n d n e l s s o r G DEC 19 JAN 20 FEB 20 MAR 20 APR 20 MAY 20 JUN 20 JUL 20 AUG 20 SEP 20 OCT 20 NOV 20 DEC 20 JAN 21 FEB 21 MAR 21 www Find out more about Tatton Asset Management at tattonassetmanagement.com Tatton Asset Management plc Annual Report and Accounts 2021 27 Strategic Report Key performance indicators Group performance Strategic objectives The Group uses these financial and strategic Key performance indicators (“KPIs”) to measure its progress and the achievement against its strategy. 1 DEEPEN OUR IFA RELATIONSHIPS TO GROW AUM Tatton firm numbers 668 2 ORGANIC GROWTH – INCREASE SHARE OF OUR RESPECTIVE MARKETS Net inflows £0.8bn 3 M&A ACTIVITY REMAINS PART OF THE GROUP’S GROWTH STRATEGY Opportunities being considered while maintaining discipline around fundamentals 4 MIGRATION OF ASSET “BACK BOOKS” 5 STRATEGIC PARTNERSHIPS AND JOINT VENTURES Migration of back books contributed to AUM of £9.0bn Attributable AUM £0.5bn Read more on page 20 Financial KPIs GROUP REVENUE (£M) Revenue generated by the Group for the financial year. ADJUSTED OPERATING PROFIT* (£M) Adjusted operating profit* generated by the Group. FULLY DILUTED ADJUSTED EPS* (P) Adjusted profit after tax* divided by the weighted average number of fully diluted ordinary shares. PROPOSED FINAL DIVIDEND (P) Final proposed dividend per share. Non-financial KPIs AUM (£BN) Total AUM at the end of the year. ASSET NET INFLOWS (£BN) Growth in new clients has helped drive positive net inflows. TATTON INVESTMENT MANAGEMENT FIRMS Number of Tatton firms at the end of the financial year. PARADIGM CONSULTING MEMBERS The year end number of Paradigm Consulting members. PARADIGM MORTGAGES MEMBERS Number of Paradigm Mortgages members at the end of the year. MORTGAGES GROSS LENDING (£BN) Value of gross lending by Paradigm firms. 2018 2019 2020 2021 2018 2019 2020 2021 2018 2019 2020 2021 2018 2019 2020 2021 2018 2019 2020 2021 2018 2019 2020 2021 2018 2019 2020 2021 2018 2019 2020 2021 2018 2019 2020 2021 2018 2019 2020 2021 15.5 17.5 21.4 23.4 6.5 7.3 9.1 11.4 9.12 10.02 12.00 14.74 4.4 5.6 6.4 7.5 see page 49. FY2021 progress and FY2022 outlook a dividend. Key risks 4.879 6.068 6.651 8.990 0.960 1.106 1.129 0.755 341 445 595 668 368 390 394 407 1,220 1,392 1,544 1,612 6.87 8.39 9.86 11.34 FY2021 progress and FY2022 outlook Key risks Revenue has grown by 9.3% in the year, driven by the A reduction in AUM through adverse macro-economic, increase in AUM and number of firms receiving the political or market factors or through a changing Tatton and Paradigm services. The Group’s strategy is competitive environment reduces revenue. to continue its growth both organically and through M&A activity. A loss or failure of a key IFA client or reputational damage reducing AUM will also affect the Group’s revenue. Link to strategic objectives 1,2,3,4,5 TAM has a high level of recurring revenue and high level Adjusted operating profit* would be affected by of operational gearing, delivering increased profits a reduction in revenue or increased operating costs, and margins. Adjusted operating profit* has increased for example through the revenue risks listed above or by 25.6% to £11.402m, delivering adjusted operating through increased costs from changes to legislation profit* margin of 48.8% (2020: 42.5%). Profit before tax, and regulation or a system failure, cyber security or 1,2,3,4,5 however, has reduced to £7.303m (2020: £10.296m) due data breach. to the catch-up in share-based payment charges. Strong growth across the Group has driven an increase of Fully diluted adjusted EPS* would be affected by 1,2,3,4,5 22.8% in fully diluted adjusted EPS* to 14.74p, reflecting a reduction in profits. the increased value delivered to shareholders. The Group expects to continue to grow EPS through the scalability of the business model and continued strategic execution. A final proposed dividend of 7.5p gives a full year A reduction in profits would reduce the level of profits 1,2,3,4,5 dividend of 11.0p. The Group targets continued growth in dividends per share in line with the Group’s dividend policy; available for distribution to shareholders. If the Group had a shortfall in cash or other liquid assets, changed its strategy on the allocation of capital or an inability to obtain sufficient funding it may be unable to pay Link to strategic objectives 1,2,3,4,5 AUM has increased by £2.3 billion, or 35.2% this year There may be falls in AUM through adverse macro- to a new milestone of £9.0 billion. Net inflows were economic, political or market factors. The Group may £0.8 billion in the year with positive market movements suffer outflows as a result of a changing competitive of £1.5 billion following the COVID-19 pandemic-related environment, a failure in its investment strategy, a loss or market downturn at the end of the 2020 financial year. failure of a key IFA client or a failure to recruit and retain quality personnel to meet its clients’ needs. Strong growth in new clients has helped drive positive Net inflows may reduce due to adverse market net inflows of £755 million despite the challenging conditions, a loss or failure of a key IFA client, a changing market conditions of the last financial year. We built up competitive environment or a failure of the Group’s 1,2,3,4,5 momentum through the year, delivering £427 million investment strategy. in H2 compared with £328 million in H1 and carry this momentum into the new financial year. Strong growth in the number of firms using the Tatton An increasingly competitive environment may affect the DFM service, an increase of 12.3% to 668 firms. The Group Group’s ability to add new firms. The Group may lose continues to focus on increasing our share of the market firms due to a failure of the Group’s investment strategy 2,3,5 and adding new firms. or its recruitment and retention of quality personnel. Paradigm Consulting members maintained steady The Group may not be able to increase the number growth in new members, increasing by 3.3% to 407 of member firms due to an increasingly competitive and the Group will continue to support its firms and environment and market consolidation. gain new members. Paradigm Mortgages has excelled in recruiting new firms, The Group may not be able to increase the increasing its members by 4.4% to 1,612. number of member firms due to an increasingly competitive environment. Paradigm Mortgages increased its gross lending by 15.0% Paradigm gross lending would be affected by the number to £11.34bn in a market that declined by 5%. As Paradigm of member firms. continues to recruit new firms, it will increase its share of the mortgage market. 2,5 2,5 2 28 Tatton Asset Management plc Annual Report and Accounts 2021 * Alternative performance measures are detailed in note 22. Financial KPIs GROUP REVENUE (£M) Revenue generated by the Group for the financial year. ADJUSTED OPERATING PROFIT* (£M) Adjusted operating profit* generated by the Group. FULLY DILUTED ADJUSTED EPS* (P) Adjusted profit after tax* divided by the weighted average number of fully diluted ordinary shares. PROPOSED FINAL DIVIDEND (P) Final proposed dividend per share. Non-financial KPIs AUM (£BN) Total AUM at the end of the year. ASSET NET INFLOWS (£BN) Growth in new clients has helped drive positive net inflows. TATTON INVESTMENT MANAGEMENT FIRMS Number of Tatton firms at the end of the financial year. PARADIGM CONSULTING MEMBERS The year end number of Paradigm Consulting members. PARADIGM MORTGAGES MEMBERS Number of Paradigm Mortgages members at the end of the year. MORTGAGES GROSS LENDING (£BN) Value of gross lending by Paradigm firms. Strategic Report Corporate Governance Financial Statements FY2021 progress and FY2022 outlook Key risks Revenue has grown by 9.3% in the year, driven by the increase in AUM and number of firms receiving the Tatton and Paradigm services. The Group’s strategy is to continue its growth both organically and through M&A activity. A reduction in AUM through adverse macro-economic, political or market factors or through a changing competitive environment reduces revenue. A loss or failure of a key IFA client or reputational damage reducing AUM will also affect the Group’s revenue. Link to strategic objectives 1,2,3,4,5 TAM has a high level of recurring revenue and high level of operational gearing, delivering increased profits and margins. Adjusted operating profit* has increased by 25.6% to £11.402m, delivering adjusted operating profit* margin of 48.8% (2020: 42.5%). Profit before tax, however, has reduced to £7.303m (2020: £10.296m) due to the catch-up in share-based payment charges. Strong growth across the Group has driven an increase of 22.8% in fully diluted adjusted EPS* to 14.74p, reflecting the increased value delivered to shareholders. The Group expects to continue to grow EPS through the scalability of the business model and continued strategic execution. Adjusted operating profit* would be affected by a reduction in revenue or increased operating costs, for example through the revenue risks listed above or through increased costs from changes to legislation and regulation or a system failure, cyber security or data breach. 1,2,3,4,5 Fully diluted adjusted EPS* would be affected by a reduction in profits. 1,2,3,4,5 A final proposed dividend of 7.5p gives a full year dividend of 11.0p. The Group targets continued growth in dividends per share in line with the Group’s dividend policy; see page 49. A reduction in profits would reduce the level of profits available for distribution to shareholders. If the Group had a shortfall in cash or other liquid assets, changed its strategy on the allocation of capital or an inability to obtain sufficient funding it may be unable to pay a dividend. 1,2,3,4,5 FY2021 progress and FY2022 outlook Key risks AUM has increased by £2.3 billion, or 35.2% this year to a new milestone of £9.0 billion. Net inflows were £0.8 billion in the year with positive market movements of £1.5 billion following the COVID-19 pandemic-related market downturn at the end of the 2020 financial year. There may be falls in AUM through adverse macro- economic, political or market factors. The Group may suffer outflows as a result of a changing competitive environment, a failure in its investment strategy, a loss or failure of a key IFA client or a failure to recruit and retain quality personnel to meet its clients’ needs. Link to strategic objectives 1,2,3,4,5 Strong growth in new clients has helped drive positive net inflows of £755 million despite the challenging market conditions of the last financial year. We built up momentum through the year, delivering £427 million in H2 compared with £328 million in H1 and carry this momentum into the new financial year. Net inflows may reduce due to adverse market conditions, a loss or failure of a key IFA client, a changing competitive environment or a failure of the Group’s investment strategy. 1,2,3,4,5 Strong growth in the number of firms using the Tatton DFM service, an increase of 12.3% to 668 firms. The Group continues to focus on increasing our share of the market and adding new firms. An increasingly competitive environment may affect the Group’s ability to add new firms. The Group may lose firms due to a failure of the Group’s investment strategy or its recruitment and retention of quality personnel. 2,3,5 Paradigm Consulting members maintained steady growth in new members, increasing by 3.3% to 407 and the Group will continue to support its firms and gain new members. The Group may not be able to increase the number of member firms due to an increasingly competitive environment and market consolidation. Paradigm Mortgages has excelled in recruiting new firms, increasing its members by 4.4% to 1,612. The Group may not be able to increase the number of member firms due to an increasingly competitive environment. 2,5 2,5 Paradigm Mortgages increased its gross lending by 15.0% to £11.34bn in a market that declined by 5%. As Paradigm continues to recruit new firms, it will increase its share of the mortgage market. Paradigm gross lending would be affected by the number of member firms. 2 * Alternative performance measures are detailed in note 22. Tatton Asset Management plc Annual Report and Accounts 2021 29 Strategic Report Risk management Our approach to risk Effective risk management is essential for the financial strength and resilience of the Group. Our risk management framework ensures that the business identifies existing and emerging risks to delivering the Group strategy and continues to develop appropriate mitigation to protect all our stakeholders. BOARD EXECUTIVE MANAGEMENT RISK MANAGEMENT AUDIT AND RISK COMMITTEE SENIOR MANAGEMENT/ SUBSIDIARY BOARDS COMPLIANCE FUNCTIONS Risk management RISK MANAGEMENT FRAMEWORK The Board is ultimately responsible for the Group’s risk management GOVERNANCE Our internal governance structure includes departmental and internal control systems, and for determining the Group’s risk management reviews with dedicated risk registers, where appetite. A risk management framework has been developed by the each department is responsible for overseeing key investment, Board to ensure that all potential areas of risk to the business are operational and corporate functions. The Group’s Audit and Risk identified, assessed, regularly reviewed, monitored and reported. Committee serves as the focal point for risk management activities, The Board seeks to ensure that the risks taken by the Group are reviewing and challenging specific risks to the Group, and reviewing managed in order to achieve a balance between appropriate levels the effectiveness of frameworks in place to manage those risks. of risk and return. Ownership of risks rests within the relevant It also ensures that the principal risks of the Group are considered. divisions and teams, with oversight and escalation to the Group Board where required. 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 PHILOSOPHY AND CULTURE The Board encourages a strong risk culture throughout the business. The Audit and Risk Committee met three times in the year and, following the appointment of Lesley Watt in April 2021, its members are: — Chris Poil, Chairman (and Non-Executive Board Director) — Roger Cornick (Non-Executive Chairman of the Board) — Lesley Watt (Non-Executive Board Director) — Other Directors and senior management are invited to attend as appropriate, including: — Paul Hogarth (CEO) — Paul Edwards (CFO) — Helen O’Neill (COO of Tatton Investment Management Limited (“TIML”)) — Grant Dempster (Non-Executive Board Director of TIML) It believes an embedded risk culture enhances the effectiveness of We look forward to the additional oversight and challenge that risk management and decision making across the Group. The Board Lesley will be able to bring from her previous experience. is responsible for setting the right tone and, through our senior management team, encouraging appropriate behaviours and collaboration on managing risk across the business. This strong risk culture ensures that all employees are able to identify, assess, manage and report against the risks the Group faces. The Group has a Whistleblowing procedure where employees can raise concerns anonymously either internally or externally. TIML RISK REVIEW During the year, the Group’s regulated entity, TIML, completed an independent review of its current risk management practices to support its growth strategy and ensure ongoing alignment with good practice. Although this review did not identify any material deficiencies, the TIML Board agreed the following enhancements: — clarifying the risk governance arrangements between the Group and TIML, via a revised schedule of Matters Reserved; 30 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements Risk assessment process The Board and senior management are actively involved in a continuous risk assessment process as part of our risk management framework. Our risk assessment process considers both the impact and likelihood of risk events which could materialise, affecting the delivery of the strategic goals and our 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. — implementing a more structured risk appetite framework, comprising both financial and franchise risk areas; and — enhancing the current risk reporting of the top risks facing the THREE LINES OF DEFENCE 1 FIRST LINE OF DEFENCE OWNERSHIP AND MANAGEMENT OF RISK WITHIN business, which is ongoing. THE BUSINESS The progress in delivering these changes is overseen by the TIML Each division’s senior management are accountable for identifying Board and reported to the TAM Audit and Risk Committee on a and managing their risks in line with the risk assessment process. quarterly basis. RISK APPETITE The Audit and Risk Committee regularly reviews the Group’s risk registers and mitigating processes to ensure that these are considered acceptable to the risk appetite and attitude of the Board. They are responsible for developing and maintaining effective internal controls to mitigate risk to an acceptable level. 2 SECOND LINE OF DEFENCE RISK OVERSIGHT AND CHALLENGE The TAM Board, Audit and Risk Committee, the TIML Board The Board’s strategic objectives and expectations are that the and those involved in compliance functions maintain a level of business will continue to grow; however, the Board remains independence from the first line and provide oversight and committed to having a balanced appetite for risk, ensuring that our challenge of the first line risk management and provide guidance internal controls mitigate risk to appropriate levels. and direction on the Group’s policies and procedures relating to risk management. 3 THIRD LINE OF DEFENCE INDEPENDENT ASSURANCE The Group does not have an internal audit function; however, there are other external bodies which provide some independent assurance, perspective and challenge. Third party companies are used for reviewing and testing in areas such as IT Security, Human Resources, and Health and Safety. RISK REPORTING Our assessment system provides a grading of risks by multiplying a value based on the impact of the risk by a value based on the likelihood of its occurrence. 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 ensures that management takes action where these risks are deemed to be outside the Group’s risk tolerance. The following section shows our assessment of the top risks that we face, along with how the significance of the risk has changed during the year. As the UK has now left the European Union without any material impact to the Group’s business, this specific risk has been removed and the Group will continue to monitor the related risks of Adverse macro-economic, political and market factors and Changes to UK tax law. New and emerging risks are considered and assessed by the Board throughout the year for inclusion in this list. Read more on page 42 Tatton Asset Management plc Annual Report and Accounts 2021 31 Strategic Report Principal risks Industry risks Risk Impact Mitigation Key  Risk increased   Risk decreased   Risk unchanged Adverse macro-economic, political — Downturns in the market and resultant — The Group has an experienced and market factors falls in AUM or other income would have investment management team with Economic, political and market forces, a negative impact on the Group’s revenue a strong track record particularly impacting the UK equity and profit — Investment strategies are markets, which are beyond the Group’s — Market uncertainty can lead to clients continually monitored by the control could adversely affect the value being reluctant to invest in the market, Investment Committee of AUM from which the Group derives so reducing net inflows — A prudent approach to investment revenues. This could be sudden in cases such as the COVID-19 pandemic, and could cause significant volatility in global markets and severe economic weakness which undermines confidence. strategy means that a significant proportion of AUM is made up of lower risk appetite portfolios which typically have a market fall correlation of approximately 60% Changing competitive environment — Loss of competitive advantage such — Broad service offering providing The market environment in which the Group that AUM and client number targets diversified revenue streams across operates is highly competitive with fast are adversely impacted. This would an increased number of platforms changing characteristics and trends. have a negative impact on revenue — Highly competitive pricing points and profitability — Deep industry experience and strong client relationships resulting in a loyal customer base — Strong brand and excellent reputation Regulatory risk — Regulatory fine and/or censure — Regulatory advice is a core business Changes to or new legislation and/or — Related negative publicity could reduce stream for the Group meaning that regulation, or changes to interpretation customer confidence and affect ability to a strong risk culture exists throughout and/or failure to comply with existing generate net inflows the Group legislation and/or regulation, may adversely — Poor conduct could have a negative — The Group delivers strong regulatory impact the Group’s operations and impact on client outcomes, impacting and compliance support to clients competitive position. the Group’s ability to achieve through dedicated compliance teams strategic objectives and systems — Complaints and claims from third parties — The Group’s strong financial position and clients in connection with the provides a safeguard should changes to Group’s regulatory responsibilities could regulatory capital requirements occur have an adverse impact on the Group’s financial condition Change to UK tax law — Increase in taxes leaves investors with less — Broad service offering, providing A change to UK tax law, particularly as free cash to invest, resulting in a reduction diversified revenue streams a result of a change in UK law post Brexit savings and investment in pensions and and as the economy recovers from the other wrap products, so reducing AUM COVID-19 pandemic, could adversely and the Group’s revenue impact the performance and attractiveness of long-term saving and investment through pensions and other wrap products. Operational risks Risk Impact Mitigation Failure of a third party service provider — Negative impact on customer outcomes — Due diligence is performed when The Group manages its investments through due to service unavailability, delays in selecting key suppliers the use of third party service providers, receiving and/or processing customer — The Group is covered by third party e.g. platform/authorised corporate director transactions or interruptions to settlement indemnities for business-critical services providers. Operational failure or cessation and reconciliation processes — Third party relationships are subjected of trade of a significant third party could — Financial impact through increased to a high level of ongoing oversight, have a material adverse impact on the operational losses including due diligence and a risk- Group’s reputation, operations, financial — Regulatory fine and/or censure based approach, from the Group’s performance and growth. 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. internal compliance function. This gives assurance that third party platform providers meet the Group’s high standards. — Inability to service client needs — Recruitment programmes are in place — Reputational damage 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 in place to incentivise staff and encourage long- term retention 32 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements Operational risks continued Risk Impact Mitigation Key  Risk increased   Risk decreased   Risk unchanged Failure of investment strategy — Negative impact on achievement of — The Group has an experienced The risk that the investment strategy fails to AUM, net inflows and client number investment management team with maintain an acceptable level of performance, strategic targets a strong track record particularly in times of significant market — Poor client outcomes that also prevent the — Investment strategies are continually volatility such as due to the impact of the achievement of our growth targets monitored by senior management, the COVID-19 pandemic, resulting in a decline — Reputational damage Investment Committee and the Board in revenues and in the value of assets from which revenues are derived. — Due to the nature of the Group’s investment strategy, its portfolios typically have a market fall correlation of approximately 60% Loss or failure of key IFA client — Negative impact on achievement of — The Group has a clearly defined The Group has several major IFA clients. AUM, operating profit and client number business development strategy and A change in relationship or termination of strategic targets a broad service offering business with any of these, and the Group — Reputational damage — The Group continues to add member being unable to replace them in a timely fashion, could have an adverse impact. firms, so diversifying its client base — Client engagement is proactively managed by dedicated client managers who have in-depth knowledge of the IFA industry and expert regulatory and compliance knowledge System failure, cyber security and — Related negative publicity could damage — Experienced in-house team of IT data protection customer and market confidence in the professionals supported by reputable The risk that operations are impacted or business, affecting our ability to retain and and established third party suppliers that data loss or data breach occurs due attract new customers — IT disaster recovery procedures in place to system error, malfunction or malicious — Information security breaches could — Data Protection Officers appointed external breach. There is a heightened result in fine/censure from regulators, the — Penetration testing conducted regularly risk for financial fraud as individuals Information Commissioner’s Office and — Increased awareness and training take advantage of the current COVID-19 the FCA of employees pandemic situation. Financial risks Risk Counterparty credit risk Impact Mitigation — Unintended market exposure — The Group trades only with reputable, A counterparty to a financial obligation — Customer detriment credit worthy third parties may default on repayments, particularly if under financial stress due to the COVID-19 pandemic — Receivable balances are reviewed regularly for non-collection and any doubtful balances are provided against — All receivables are paid monthly Liquidity risk — Reputational damage — Profitable and cash-generative business The Group may be unable to meet financial — Potential customer detriment — New £10m revolving credit facility put in liabilities as they become due because — Financial loss place in the year, with a £20m accordion of a shortfall in cash or other liquid — Unable to meet obligations as they fall due — Active cash flow forecasting and assets or an inability to obtain sufficient additional funding. liquidity management ensures availability of funds at short notice — The Group maintains a cash surplus above regulatory and working capital requirements Bank default — Financial loss — The Group only uses banks with strong The risk that one of the Group’s relationship — Unable to meet obligations as they fall due credit ratings banks could default. — Banking relationships are reviewed regularly Concentration risk — Over-reliance on one business activity — Broad range of business services Risk arising from lack of diversification in could lead to financial underperformance offered, providing diversified revenue business activity or geography. streams and a diverse and growing client base — Recruitment into the Group’s sales functions in the year in order to grow AUM across a broader client base Tatton Asset Management plc Annual Report and Accounts 2021 33 Strategic Report Chief Financial Officer’s Report Group revenue (£m) £23.4m +9.3% 2019 2020 2021 AUM (£bn) £9.0bn +32.5% 2019 2020 2021 Adjusted EPS* (p) 14.74p +22.8% 2019 2020 2021 £17.5m £21.4m £23.4m Chief Financial Officer’s Report OVERVIEW In a year which has seen significant uncertainty and market volatility, the Group has shown a considerable level of resilience across all areas of the business. The Group’s business model has been resoundly tested and proved to be robust as the Group delivered strong growth across revenue, adjusted operating profit* and earnings while maintaining a strong balance sheet and liquidity position. RECORD REVENUE AND PROFITS Revenue – Group reported revenue increased by 9.3% to £23.353 million (2020: £21.369 million). £6.1bn £6.7bn Tatton revenue increased 13 .6% to £ 1 8 .097 million £9.0bn (2020: £15.924 million). AUM increased 35.2% to reach £8.990 billion (2020: £6.651 billion). This increase in AUM includes net inflows of £755 million despite the challenging market conditions and was supported by investment returns of 23.8% as markets recovered following the deterioration of asset values in February 2020 due to the COVID-19 pandemic. The mix of the investment income continues 10.02p to evolve with income from MPS continuing to show strong growth. 12.00p Tatton funds continue to make an increase in contribution as we 14.74p further expand our proposition beyond purely MPS. Funds, or non- MPS, AUM now accounts for £0.5 billion of AUM (2020: £0.3 billion). RESILIENCE AND LONG- TERM VALUE CREATION P A U L E D W A R D S Chief Financial Officer The Group has delivered a strong financial performance in a difficult year, highlighting the resilience of its business model. 34 Strategic Report Corporate Governance Financial Statements Paradigm’s revenue reduced by 3.4% to £5.240 million performance effectively requiring two years’ charge to be taken in the (2020: £5.426 million) as the initial lockdown and subsequent current financial year. Although some of these items may recur from restrictions impacted valuations and marketing income, predominately one period to the next, operating profit has been adjusted for these in H1. However, despite the restrictions in place, Paradigm Mortgages items to give better clarity of the underlying performance of the Group. adapted quickly to the new environment and increased its member The alternative performance measures (“APMs”) are consistent with firms to 1,612 (2020: 1,544) driving an increase of 15.0% in gross how the business performance is planned and reported within the lending from completions to £11.34 billion (2020: £9.86 billion). internal management reporting to the Board. Some of these measures Paradigm Consulting member firms increased to 407 (2020: 394). are also used for the purpose of setting remuneration targets. Profit – The Group delivered adjusted operating profit* of £11.402 million (2020: £9.076 million), an increase of 25.6%. Adjusted operating profit* EARNINGS PER SHARE Basic earnings per share reduced to 10.86p (2020: 14.98p) due to the margin increased to 48.8% (2020: 42.5%), supported by our business impact of the share-based payments charge in the year and the benefit model and the low level of operational gearing but also uniquely in 2020 of the credit relating to the VAT refund. Adjusted earnings per this year has seen a reduction in costs of circa £0.6 million related to share* increased by 22.9% to 16.14p (2020: 13.13p) and adjusted fully travel and marketing. Total Group operating profit was £7.508 million diluted earnings per share increased by 22.8% to 14.74p (2020: 12.00p). (2020: £10.302 million) which includes the impact of the cost of separately disclosed items of £3.894 million with the prior year benefiting from a credit from separately disclosed items of £1.227 million, largely relating to the VAT refund received in 2020. STATEMENT OF FINANCIAL POSITION AND CASH The Group continues to strengthen its balance sheet and net assets increased to £24.446 million (2020: £17.778 million). The Group continued to see healthy cash generation and ended the year with In order to better understand the profitability of the divisions, each cash on the balance sheet of £16.934 million (2020: £12.757 million). division has been allocated an element of central overhead costs. Net cash generated from operating activities before exceptional The allocation is based on the amount of time spent by central items was £10.906 million (2020: £9.831 million), 95.6% of adjusted functions and the central services used by the divisions. The operating operating profit*. The Group received £3.212 million on the issue of profit figures for the current and prior year reflect the allocation of new shares following the exercise of employee share options and, these central costs so that the prior year figures are comparable. following demand from institutional investors, Zeus Capital, the Tatton continues to make investments which underpin our growth, increasing our sales team at the start of the financial year by an additional three people to help drive and support future growth. Adjusted operating profit* increased by 26.4% to £10.901 million (2020: £8.622 million1) and its adjusted margin* increased to 60.2% (2020: 54.1%1). Tatton’s continued strong growth has ensured it remains the largest part of the Group, contributing 77.5% of the Company’s Broker, elected to exercise their warrant over 1,118,151 ordinary shares. The warrant was granted at the point of listing in July 2017 and there are no other warrants outstanding. DEBT FACILITY Earlier this year the Group has put in place a new debt facility giving access to up to £30 million of funds. The new facility is split between a £10 million three-year committed revolving credit facility which revenue and 95.6% of the adjusted operating profit* (see note 4), a remains undrawn, with an accordion option of £20 million. The accordion trend that is expected to continue. Paradigm’s adjusted operating profit* contributed £2.028 million (2020: £1.891 million1), with margin of 38.7% (2020: 34.9%1). CHANGE IN VAT TREATMENT At the end of March 2020, the Group agreed with HM Revenue feature remains uncommitted at this stage but accessible on short notice and provides financial flexibility for future corporate transactions. DIVIDENDS The Board is recommending a final dividend of 7.5p. When added to the interim dividend of 3.5p this gives a full year dividend of 11.0p. & Customs (“HMRC”) that Tatton’s supplies of DFM services in This proposed dividend reflects both our cash performance in the respect of model portfolios would be exempt from VAT. As a result, period and our underlying confidence in our business. If approved at the Group received a VAT refund of £1.7 million in the prior year the Annual General Meeting the final dividend will be paid on 28 July relating to the years 2015 to 2019. During this financial year, HMRC 2021 to shareholders on the register on 25 June 2021. has continued correspondence with the Group to seek further understanding and clarification around the Group’s MPS service, with a further claim relating to 2020 remaining outstanding. RISK MANAGEMENT Risk is managed closely and is spread across our businesses and managed to individual materiality. Our key risks have been SEPARATELY DISCLOSED ITEMS Separately disclosed items include the cost of share-based payments referenced in this Annual Report primarily on pages 32 and 33. We choose key performance indicators that reflect our strategic of £3.740 million, amortisation of customer relationship intangible priorities of investment, growth and profit and these are detailed assets of £0.120 million, £0.218 million of acquisition-related fees and on pages 28 and 29. a credit relating to the change in fair value of contingent consideration of £0.184 million; see note 6. There has been a significant increase in share-based payments this year as a consequence of the release of the majority of the provision in the prior year due to the uncertainty around the impact that the COVID-19 pandemic would have on the financial performance of the Group. Due to the Group’s response and management of the business, the Group has delivered a strong financial The Strategic Report found on pages 1 to 39 has been approved and authorised for issue by the Board of Directors and signed on their behalf on 14 June 2021 by: Paul Edwards Chief Financial Officer 1. Restated for the allocation of central overhead costs in the year ending March 2020 * Alternative performance measures are detailed in note 22. Tatton Asset Management plc Annual Report and Accounts 2021 35 Strategic Report Environmental, Social and Governance (“ESG”) Positive action The Board understands and is committed to its Environmental, Social and Governance (“ESG”) responsibilities and ensures that ESG considerations are built into the Group’s strategy across the whole of the business. We conduct our operations with integrity, fairness and transparency and we recognise that we have an important part to play in shaping the future for all our stakeholders. We are committed to delivering positive outcomes for all. OUR ESG PRIORITIES The Board initiated an ESG review during this year to address how ENVIRONMENT As a financial services business, our main environmental impacts are the business responds to ESG-related matters at the corporate largely through UK-based travel and the consumption of resources level. A sub-committee has been established with Chris Poil (Senior and emissions at our business premises. We look to manage and Non-Executive Director and Head of the Audit and Risk Committee) reduce our environmental impact and carbon footprint through the leading this team with the aim of creating a roadmap to develop efficient use of resources. the initiatives in this area. The ESG sub-committee feed information into the Board where it identifies any gaps in its application of ESG principles including opportunities where we can make further progress in the future. The Board has commenced holding ESG as a standing item on its agenda and uses the information provided by the sub-committee in its decision making process as detailed on page 14 and takes appropriate action. Our key priorities for further improvement over the short term are: ENVIRONMENT — Monitoring and reporting on climate change impact, energy consumption and energy efficiency — Waste management, considering Green IT and IT recycling We have a relatively small number of employees with three UK offices. Our employees rarely travel internationally, and particularly in the current year, our UK travel has significantly reduced with employees making use of video conferencing facilities. This is a trend which we expect to continue to some extent, even once all the restrictions relating to the COVID-19 pandemic have been removed. OUR PEOPLE AND CULTURE People are our most important asset in achieving our Group strategy and provide excellent service and support to IFAs which enables them to meet the needs of their clients. In support of this, we aim to ensure all employees have the skill set to deliver SOCIAL — Extending employee communication around wellbeing this and in addition that they feel they are respected, motivated and safeguarded while at work. The business remains small with and engagement currently fewer than 90 employees which allows the Directors to — Reporting on equal opportunity and equal pay communicate with employees informally throughout the year but — Other means of supporting employee learning also through annual conferences and general meetings. In addition, and development there are appropriate procedures in place to ensure employees are — Consideration of other ways of supporting charitable giving able to raise issues through our grievance and harassment policies GOVERNANCE — ESG reporting including a Corporate Responsibility Policy and Whistleblowing Policy which encourages employees to report matters of significant concern to their line manager, Compliance Manager, the Board or the Chair of the Audit and Risk Committee. Other ESG areas are regularly monitored and reviewed by the Board The Board is also currently considering additional ways of extending and the Audit and Risk Committee. communication and engagement with employees. 36 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements We encourage all employees to develop and make progress in Age breakdown within Tatton their careers at TAM plc, whether through internal training, apprenticeship schemes or professional qualifications. The Group supports its employees with training and development, assisting financially and with time where appropriate to help them meet their goals; this includes CPD targets set by our regulators, ensuring that our investment managers have the appropriate technical and supervision skills to maintain the highest levels of client service.  18—30  31—45  46—60  60+ We encourage employees to take a long-term view of the business through the provision of share-based incentives through both an EMI share option scheme, open to eligible employees, and a SAYE share option scheme which is open to all employees. Total employee turnover during the year was 10%, of which 6% was voluntary employee turnover. 8% 24% 40% 28% MENTAL HEALTH AND WELLBEING We focus on the wellbeing of our people and we are acutely GENDER PAY GAP REPORTING Gender Breakdown within Tatton aware this year in particular of the challenges that everyone has faced since lockdown commenced. We have introduced access for all employees to a range of health support services, including remote GP access, mental health support and life, money and Other Management/ Supervisory wellbeing support. We hope that this will be a valuable addition Board to staff benefits. COVID-19 As the impact of the COVID-19 pandemic evolved over the past year, we have paid particular attention to supporting our employees as well as our clients. We adapted seamlessly to working from home and supported employees whose circumstances were more challenging. We invested in new equipment for employees and ensured all employees had laptops to enable them to work from home. Online communication tools which were already in place across the business became the day to day means of communicating across the workforce and externally. During the 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 % Men % Women Tatton Gender pay gap by hourly pay quarter Upper hourly pay quarter Upper middle hourly pay quarter Lower middle hourly pay quarter Lower hourly pay quarter 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 year, all Board and Committee meetings have been held virtually % Men % Women due to the impact of the pandemic. Our business continuity plans were proved to be effective as our customer support and business processes continued unaffected. The Group has not received any funding from government for any purpose, including the pandemic, as the Board believes that these government schemes are intended for businesses significantly more affected than TAM plc. In addition, no staff were made redundant directly because of the pandemic. DIVERSITY AND INCLUSION The Group is an equal opportunities employer and it is our policy to ensure that all job applicants and employees are treated fairly and on merit, regardless of race, sex, marital/civil partnership status, age, disability, religious belief, pregnancy, maternity or sexual Despite there being no requirement for the Group to publish its gender pay gap report due to the number of employees in the Group, analysis over the Group’s gender pay gap has been performed and reviewed by the Board and Remuneration Committee. Some of the key figures have been disclosed in this Annual Report to give transparency. The Group seeks to create an inclusive Company culture with a  diverse workforce. Part of how we formally monitor our progress is now through gender pay gap reporting and we use this information to highlight any areas that need to be addressed to narrow the gap. orientation. We believe that an inclusive culture in which employees We have analysed where there are men and women who perform are highly engaged enables everybody to succeed. the same role and in all cases they are paid equally. The mean We recognise that women have been less well represented at all levels in the investment management industry and the financial services sector has the largest pay gap. The Group’s figures correlate with this but show a slight improvement on the previous year where in March 2021, the Group employed 88 permanent staff, with a total of 33 women, 38% of our workforce (2020: 36%). hourly pay gap in 2021 is 45% and the median hourly pay gap is 48%. These differences reflect the profile of the workforce at different job levels where there is a higher number of men in senior roles than women, however this is a trend which is changing in our organisation as women have made up 75% of the most recent appointments into senior positions. Tatton Asset Management plc Annual Report and Accounts 2021 37 Strategic Report Environmental, Social and Governance (“ESG”) continued Our people and culture European sustainable fund assets1 Flows into European funds1 £1,332bn +199% 51% of all new flows into European funds are now going into Sustainable funds from 2020 SUPPLIERS The Group acknowledges its responsibilities in relation to tackling Our Compliance team and other Committees have policies in place to prevent and detect financial crime, such as money laundering modern slavery and has a zero tolerance stance on slavery and and bribery and corruption, and to meet any obligations arising human trafficking within our workforce and supply chain. We are from regulatory change. a UK-based provider of financial services, meaning we do not produce, manufacture or sell any physical goods. We also do not have a long or complex supply chain. GOVERNANCE The Company has applied the principles of the Quoted Companies Alliance Corporate Governance Code (the “Code”) in so far as it Our main suppliers provide support services such as information can be applied practically. The Code is constructed around ten technology, market data and property services. We consider our broad principles, accompanied by an explanation of what those suppliers to be at a relatively low risk of engaging in practices principles entail together with a set of disclosure requirements. of modern slavery or human trafficking. We nonetheless remain These principles and how we comply with them can be found committed to preventing any such practices from occurring in our on pages 42 to 44 of this report and on the Group’s website. business or supply chain. CHARITABLE GIVING In 2020, the Group, its employees, customer and strategic TAX STRATEGY Tatton is committed to full compliance with all statutory obligations and full disclosure to tax authorities. The Group’s partners participated for a third year in the Trussell Trust’s Reverse tax affairs are managed in line with our overall high standards of Advent Calendar, with the Group matching all donations by 150%. governance, and with consideration of our corporate reputation. The Trussell Trust and its network of UK food banks supports people across the UK experiencing food poverty of some kind and due to the COVID-19 pandemic many of the usual fundraising activities have not been possible. REGULATION AND FINANCIAL CRIME The Group ensures that it complies with all relevant legal and regulatory requirements. We value our reputation for ethical behaviour and integrity. The Company operates anti-bribery policies which extend across the Group and we are committed to conducting our operations free from bribery and corruption. We also have a Whistleblowing Policy which encourages employees to report matters of significant concern to the Chair of the Audit and Risk Committee. 1. Morningstar, 2021 38 Our appetite for tax risk is low and we do not participate in aggressive tax planning or condone abusive tax practices which would contravene our ethics and culture. We pay all tax as it falls due and believe in maintaining a transparent and professional working relationship with HMRC and other tax authorities. In respect of the year ended 31 March 2021, the Group has paid £2.1 million of corporation tax. CYBER AND DATA SECURITY TAM plc places great importance on information security, including cybersecurity, to protect against external threats and malicious insiders. The Group’s cybersecurity strategy prioritises identification, protection, detection, analysis and response to known, anticipated or unexpected cyber threats, effective management of cyber risks, and resilience against cyber incidents. The Group maintains a cybersecurity program structured around the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework. Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements European sustainable fund assets1 European assets 12% of total 81% of millennials are demanding ‘climate aware’ responsible investment products2 The Group maintains a cybersecurity training program, which We examine the managers’ use of data, the culture of the firm and is designed to help employees recognise information and the fund management team themselves. It is not good enough cybersecurity concerns and respond accordingly. In particular, this simply to buy from an ‘ethical’ fund universe applying performance program is designed to provide all employees with the knowledge analysis criteria. We always meet the managers and, since we are and skills to prevent, identify, and escalate cybersecurity risks. aiming to be as objective and rigorous as possible in our fund TATTON’S APPROACH TO ESG INVESTING Tatton is a pioneer of discretionary ESG investing launching the first Tatton Ethical Portfolio in 2014. This experience is vital for advisers as more investment managers launch ESG funds and selection, ask the difficult questions our investors need answering. DO TATTON ETHICAL PORTFOLIOS MAKE A DIFFERENCE? From an investor perspective investing ethically can collectively more discretionary managers launch their own ESG portfolios. make a difference to how companies behave since it affects their There is no industry standard or set in stone rulebook as to how asset ability to raise capital from institutions that are avoiding poor managers or investors should apply ethical criteria. Our experience ESG practice at the behest of their investors. It is clear we are of interpreting what our advisers’ clients actually want and building in a period of change and Tatton’s seven years of research and portfolios on that basis is vital to ensure we meet clients’ ethical management experience in this field matters. expectations. Advisers need confidence in their discretionary managers since the risk of ‘greenwashing’ applies at a portfolio as well as fund level. We believe ESG principles have the potential to provide widespread benefits to us all, including improving the value of the funds and companies that investors own. Tatton is well placed The largely welcomed shift to mainstream for ESG investing to identify and take advantage of this expanding and societally does present some challenges, such as the definitions of what important market. is ‘ethical’ and whether investing responsibly ultimately detracts from performance. Primarily, we select fund managers for all of our portfolios on their process and performance through our proprietary due diligence process. We apply the same process for our Ethical Portfolios with the additional focus on how managers integrate ethical investing into their investment process. Fund managers can differ greatly in their respective approach to any type of investing and this is no different for ethical funds. We research each fund manager on a firm by firm and fund by fund basis – individual funds within the same firm can also be managed very differently so we have to get down into the detail before we are satisfied with selecting a fund. 2. KPMG Tatton Asset Management plc Annual Report and Accounts 2021 39 Corporate Governance Board of Directors The Board ROGER CORNICK Chairman PAUL HOGARTH Chief Executive Officer PAUL EDWARDS Chief Financial Officer Committee memberships Commenced: 2017 Commenced: 2007 Commenced: 2018   Nominations Committee Skills, competence and experience: Skills, competence and experience: Skills, competence and experience:  Remuneration Committee Roger is Tatton Asset Management’s Paul is the Chief Executive Officer Paul is the Chief Financial Officer  Audit and Risk Committee Non-Executive Chairman. From January of Tatton Asset Management, of Tatton Asset Management. He is  Board Director 2009 to September 2016, Roger as well as Senior Partner at also Finance Director of Paradigm was Chairman of Aberdeen Asset Paradigm Consulting. Partners Limited and Tatton Management having joined the Board in January 2004. Prior to joining Aberdeen, Roger was with Perpetual plc for over 20 years. Paul has over 30 years’ experience Investment Management Limited. in financial services, the majority Prior to joining Tatton Asset of which were at the centre of IFA Management Paul was the Group distribution. Paul was the Co- Finance Director of Scapa Group plc Founder of Bankhall in 1987, and for six years and NCC Group plc for built Bankhall Investment Associates ten years. He has also held several from scratch to sale in May 2001 at other senior roles in a broad range which point 25% of the IFA sector of listed and private companies. utilised at least part of the Bankhall Until recently Paul was also the Chair service proposition. After leaving of the Hallé Pension Trustees, having Bankhall he went on to establish spent five years in the role. Paul is a Chartered Management Accountant and also holds an MBA from Manchester Business School. Paradigm Partners Limited, which launched in 2007 and has since grown to become one of the UK’s top five distribution businesses. Subsequently he was also the Founder of Perspective Financial Group Limited later in 2007 and of Tatton Capital Limited in 2012. Paul has a BA in Economics from Heriot-Watt University in Edinburgh. 40 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements LOTHAR MENTEL Director & Chief Investment Officer CHRIS POIL Non-Executive Director & Head of Audit and Risk LESLEY WATT Non-Executive Director ROBERT HUNT Chief Executive Officer of Mortgages Commenced: 2012 Commenced: 2017 Commenced: 2021 Commenced: 2007 Skills, competence and experience: Skills, competence and experience: Skills, competence and experience: Skills, competence and experience: Lothar is the Chief Investment Officer Chris is Tatton Asset Management’s Lesley Watt is Tatton Asset Robert is the Chief Executive of of Tatton Asset Management. He is Senior Independent Non-Executive Management ’s independent Paradigm Mortgage Services also Chief Executive Officer for Director. Previously he served as Non-Executive Director. Lesley is LLP and a Board member of the Tatton Investment Management. Head of UK Equities at ING Baring a senior executive with over 20 Society of Mortgage Professionals 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 Management. Lothar began his career in Germany as a performance and risk analyst, 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. Asset Management. Prior to joining years’ experience at board and (“SMP”) acting as a respected ING he was a Director of Mercury senior finance positions including figurehead and representative of Asset Management. Chris has Scottish and Newcastle plc mortgage clubs. He has over 30 previously been a Non-Executive and latterly as CFO of Miller years’ experience of working within Director of Ignite Group Ltd, Novus Developments. Lesley currently financial intermediaries. Leisure Ltd and Byron Ltd. holds a Non-Executive Directorship at Scottish Baroque Ensemble Limited, where she chairs the Audit and Risk Committee. Prior to setting up Paradigm Mortgages in 2007, Robert was the key accounts director at Santander (formerly Abbey National) for 13 years. Before joining Santander, he had various management roles at Hill Samuel Asset Management Group in which he worked for 11 years. Robert has now led Paradigm Mortgages to win the Mortgage Strategy’s Best Mortgage Club Award for two consecutive years. In 1978 Robert joined the Royal Air Force where he studied electronic engineering for 5 years. Tatton Asset Management plc Annual Report and Accounts 2021 41 Corporate Governance Corporate Governance Statement Corporate Governance Statement INTRODUCTION The Board is committed to achieving high standards of corporate governance, integrity and business ethics. The Group has taken into consideration the guidance for smaller quoted companies on the Code produced by the Quoted Companies Alliance Corporate Governance Code (the “Code”) 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; see page 44. BOARD COMMITTEES NOMINATIONS COMMITTEE The Nominations Committee is responsible for Board recruitment and succession planning, to ensure that the right skill sets are present in the Boardroom. REMUNERATION COMMITTEE The Remuneration Committee is responsible for determining all elements of remuneration for the Executive Directors and for reviewing the appropriateness and relevance of the Group’s remuneration policy. Under the AIM Rules, the Group is not required to comply with the provisions of the UK Corporate Governance Code. While the UK Corporate Governance Code has not been applied in full, the Board has continued working towards full compliance over the coming years. LEADERSHIP AND ROLE OF THE BOARD The Board is responsible for the long-term success of the Group and AUDIT AND RISK COMMITTEE The Audit and Risk Committee’s main responsibilities are to challenge management, 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. BOARD EFFECTIVENESS, COMPOSITION AND INDEPENDENCE OF THE BOARD During the year, and up until the date of signing this report, the is ultimately accountable for the Group’s strategy, risk management Board comprised a Non-Executive Chairman, two Non-Executive and performance. The Board’s primary roles are to provide Directors and three Executive Directors. The Board has determined entrepreneurial leadership to the Group within a framework of that all the Non-Executive Directors are independent in character prudent and effective control which enables risk to be assessed and and judgement and neither represent a major shareholder group managed, and to set the Group’s strategic objectives and ensure nor have any involvement in the day to day management of the that the necessary resources are made available so that those Company or its subsidiaries. The Non-Executive Directors continue objectives can be met. The Board also sets the Group’s values and standards and promotes these values throughout the organisation. The Board is responsible to complement the Executive Directors’ experience and skills, bringing independent judgement and objectivity to enhance shareholder value. for ensuring that its obligations to its shareholders and other The skills and experience of the Non-Executive Directors are stakeholders, including employees, suppliers, customers and the wide and varied and they provide constructive challenge in the community, are understood and met. Boardroom. The composition of the Board is intended to ensure that The Board comprises three Executive Directors, a Non-Executive Chairman and two Non-Executive Directors. The Group appointed a new Non-Executive Director, Lesley Watt, effective from April 2021. The names, biographical details and Committee memberships of the Board are set out on pages 40 and 41 of this report. Responsibilities of each Board member have been clearly established and there is a clearly defined division of responsibility between the Chairman and the Chief Executive. The Chairman is responsible for leading the Board, ensuring that shareholders 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. its membership represents a mix of backgrounds 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 sets 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, with Lesley Watt joining the Board as a Non-Executive Director in April 2021. The Board members seek continuous improvement, ensuring they have the necessary up- to-date experience, skills and capabilities with development and training where required, see further information opposite. Although not members of the Committees, the Executive Directors attend meetings of the Audit and Risk Committee, Remuneration Committee and Nominations Committee as invited attendees, when appropriate. 42 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements MEETINGS AND ATTENDANCE The following table sets out attendance of each Director at Board COMMUNICATION WITH SHAREHOLDERS The Board is committed to maintaining an ongoing dialogue meetings held during the 12 months to the year ended 31 March 2021: with the Company’s shareholders. The principal methods of Audit communication with private investors remain the Annual Report Remuneration Nominations and Risk Board Committee Committee Committee Number of meetings held Roger Cornick Chris Poil Paul Hogarth Lothar Mentel Paul Edwards 5 5 5 5 5 5 4 4 4 4 – 4 1 1 1 1 – – 3 3 3 2 – 3 and financial statements, the Interim Report, half and full year investor presentations, the Annual General Meeting and the Group’s website (www.tattonassetmanagement.com). The Annual General Meeting (“AGM”) provides a forum for constructive communication between the Board and shareholders. All shareholders are invited to raise any issues or concerns arising from the business proposed to be conducted at the AGM meeting by email in advance. Responses will be published on the Company’s website on the morning of the AGM. In addition, throughout the Lesley Watt was appointed to the Board as a Non-Executive year, the Executive Directors, and separately the Chairman, meet Director in April 2021 and therefore is not shown in the table above. with investors to discuss matters relevant to the Company. PERFORMANCE The Board conducts a review of the performance of individual INTERNAL CONTROL AND RISK MANAGEMENT The Board is ultimately responsible for the Group’s system of Directors, to monitor and improve effectiveness. The review of the internal control and for reviewing its effectiveness. Such systems Chief Executive is undertaken by the Non-Executive Chairman. are designed to manage rather than eliminate risks and can only In addition to individual reviews, the Board considers its overall provide reasonable, not absolute, assurance against material performance as a body and the performance of its Committees. misstatement or loss. An ongoing process has been established The review has confirmed that the performance of the Board and to promote and communicate an appropriate risk culture within its Committees is effective and appropriate. the Group and to identify, evaluate and manage significant risks DEVELOPMENT AND TRAINING The Chairman is responsible for ensuring Directors’ continuing professional development and every Director is entitled to receive training and development relevant 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 developments from the Company and professional advisers. STAKEHOLDER INTERESTS AND ENGAGEMENT As Directors, we are obliged to fulfil our section 172 duties, having faced by each part of the Group. This process has been in place throughout the year under review and includes key risks (industry, financial and operational) facing the Group. The process has also included the review and circulation of 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 effectiveness of the systems of internal control and risk management to ensure controls react to changes in the regard to the factors set out in the Chairman’s Statement on page Group’s operations. 5 and also on pages 12 and 13 and, in taking decisions, ensure that we promote the success of the Company as a whole. We believe that effective stakeholder engagement is critical to running a long-term sustainable business and by considering the Company’s strategic priorities and having a process in place for decision making, the Board aims to make sure that its approach to decision making and consideration of stakeholder interests is consistent. Further information on the Company’s key stakeholders is shown on pages 12 and 13. Approved and authorised for issue by the Board of Directors and signed on its behalf by: Paul Edwards Chief Financial Officer Tatton Asset Management plc Annual Report and Accounts 2021 43 Corporate Governance QCA Code Principles The Group has adopted the Quoted Companies Alliance Corporate Governance Code (the “QCA Code”). The QCA Code is built on the three fundamentals of delivering growth; maintaining a dynamic management framework; and building trust, each of which the Board is committed to, as it believes these will support the Group’s medium to long-term success. QCA Code Principle Required disclosure Reference 1 2 3 4 5 6 7 8 9 Establish a strategy and business model which promote long-term value Our business model is shown on pages for shareholders 18 and 19 of the 2021 Annual Report Seek to understand and meet shareholder needs and expectations How we engage with our Stakeholders is shown on pages 12 to 15 of the 2021 Annual Report Take into account wider stakeholder and social responsibilities and their How we engage with our Stakeholders implications for long-term success is shown on pages 12 to 15 of the 2021 Annual Report Embed effective risk management, considering both opportunities and threats, Our risk management processes and throughout the organisation principal risks are shown on pages 30 to 33 the 2021 Annual Report Maintain the board as a well-functioning, balanced team led by the chair Details of our Board members are shown on pages 40 and 41 of the 2021 Annual Report Ensure that between them the directors have the necessary up-to-date experience, Details of our Board members are skills and capabilities shown on pages 40 and 41 of the 2021 Annual Report Evaluate board performance based on clear and relevant objectives, seeking The Corporate Governance Report and continuous improvement Remuneration Report are detailed on pages 42 and 43 and 45 to 48 of the 2021 Annual Report Promote a corporate culture that is based on ethical values and behaviours Our ESG report is shown on pages 36 to 39 of the 2021 Annual Report Maintain governance structures and processes that are fit for purpose and support good decision making by the board The Corporate Governance Report is detailed on pages 42 and 43 of the 2021 10 Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders Annual Report How we engage with our Stakeholders is shown on pages 12 to 15 and our Corporate Governance Report and Remuneration Report are detailed on pages 42 and 43 and 45 to 48 of the 2021 Annual Report 44 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements Directors’ Remuneration Report REMUNERATION POLICY REMUNERATION POLICY FOR EXECUTIVE DIRECTORS The policy of the Remuneration Committee is to set basic salaries REMUNERATION POLICY FOR THE CHAIRMAN AND NON-EXECUTIVE DIRECTORS The Chairman and other Non-Executive Directors are appointed at a level which is competitive with that of comparable businesses. under a letter of appointment. The letters of appointment cover such The same principles are applied to Directors’ fixed remuneration, matters as duties, time commitment and other business interests. pension contributions and benefits as are applied to those of The Remuneration Committee determines the remuneration for employees throughout the organisation. the Chairman and Non-Executive Directors within the limits set in The main principles of the senior executive remuneration policy are set out below: 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 — Attract and retain high calibre executives in a competitive in comparable companies. The Chairman’s fee is currently set at market, and remunerate executives fairly and responsibly. £90,000 per annum. The Non-Executive Director fees policy is — Motivate delivery of our key business strategies and to pay a basic fee for membership of the Board, with additional encourage a strong and sustainable performance fees for the Senior Independent Director and Chairmanship of a orientated culture. Committee to take into account the additional responsibilities and — Align the business strategy and achievement of planned time commitments of these roles. The Non-Executive Director’s fee business objectives. is currently set at £70,000 per annum. — Take into consideration the views of shareholders and best- practice guidelines. SERVICE CONTRACTS It is the Group’s policy for all Executive Directors to have contracts The Committee believes that the level of remuneration for Executive of employment that contain a termination notice period of not less Directors is commensurate with the corporate and personal than 12 months. All Executive Director appointments continue until performance of the Executive Directors for the financial year ended terminated by either party on giving not less than 12 months’ notice 31 March 2021. EXTERNAL APPOINTMENTS 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 remuneration earned from any such appointment may be retained by the individual Executive Director. to the other party. Non-Executive Directors do not have service contracts. A letter of appointment provides for an initial period of 12 months and continues until terminated by either party giving three months’ prior written notice to expire at any time on or after the initial 12 month period. SINGLE TOTAL FIGURE OF REMUNERATION FOR EACH DIRECTOR (AUDITED) Directors’ remuneration payable in respect of the year ended 31 March 2021 was as follows: Basic salary 2020/2021 and fees £ Bonus £ 31/03/2021 Pension- 2019/2020 related and Deferred Bonus3 £ other taxable benefits £ Total £ 31/03/2020 Pension- related and other taxable Basic salary and fees Bonus benefits £ £ – 342,000 150,000 300,000 1,887 793,887 342,000 305,176 85,000 100,000 6,046 496,222 300,381 35,000 262,500 85,000 100,000 951 448,451 262,500 – 909,676 320,000 500,000 8,884 1,738,560 904,881 35,000 90,000 70,000 – – – – – – 90,000 70,000 90,000 70,000 – – 1,069,676 320,000 500,000 8,884 1,898,560 1,064,881 35,000 14,130 £ 1,622 11,573 935 14,130 – – Total £ 343,622 346,954 263,435 954,011 90,000 70,000 1,114,011 Executive Directors Paul Hogarth Lothar Mentel Paul Edwards Sub-total Non-Executives Roger Cornick Chris Poil Total Notes 1 Paul Hogarth and Lothar Mentel have received additional basic salary in lieu of provision of a company car. 2 All Executive Directors have received additional basic salary in lieu of pension contributions. 3 In the financial year ended 31 March 2021, bonuses of £500,000 relate to the performance in the financial year ended 31 March 2020, however the decision for the award was deferred until October 2020 due to the uncertainty around the impact on the business of the COVID-19 pandemic, see further information overleaf. Tatton Asset Management plc Annual Report and Accounts 2021 45 Corporate Governance Directors’ Remuneration Report continued COMPONENTS OF REMUNERATION SALARIES AND FEES Salaries for Executive Directors are determined by the LONG-TERM INCENTIVES The long-term incentive plan for Executives is designed to reward execution of strategy and growth in shareholder value over a Remuneration Committee. The level of salary broadly reflects the multiple-year period. Long-term performance measurement value of the individual, their role, skills and experience. Salaries are discourages excessive risk taking and inappropriate short-term reviewed annually in March with any changes typically taking effect behaviours and encourages Executive Directors to take a long- in April taking account of market levels, corporate performance and term view by aligning their interests with those of shareholders. individual 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. PENSION PROVISION 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. OTHER BENEFITS Executive Directors are entitled to benefits commensurate with their position, including consideration for a discretionary performance- related annual bonus scheme, private medical cover, life assurance and car allowances. Where possible, and to the limits applied by the legislation, the long-term incentive plan benefits from the tax advantages under an Enterprise Management Incentive (“EMI”) scheme. SHARESAVE PLAN The Sharesave 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. TAM PLC LONG-TERM INCENTIVE PLAN The Directors have adopted the TAM plc EMI plan which became effective on admission and which was extended in each subsequent year up to 2020. 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 SHORT-TERM INCENTIVES – 2021 PERFORMANCE AND the EMI plan. REMUNERATION OUTCOMES Our remuneration framework for our Executive Directors is closely aligned with the financial performance of the Group. The Group’s assets under management grew by 35.2% to reach £8.990 billion at 31 March 2021, revenue grew by 9.3% to £23.353 million and adjusted operating profit* grew by 25.6% to £11.402 million, which VESTING OF 2017 EMI SCHEME The EMI options granted in 2017 were based on a combination of targets for adjusted earnings per share (“EPS”) growth of 40% and total shareholder return (“TSR”) of 30% compound annual growth over a three-year period. represents an underlying operating margin of 48.8%. Any bonuses The 2017 EMI scheme vested in July 2020 and the vesting outcome paid as a short-term incentive are based on predetermined was 76% of the total options granted. This resulted in 2,196,185 financial targets set at the start of the financial year and personal options vesting. During the year 673,568 shares were issued by performance. For further details on the financial performance of the Company to satisfy options which were exercised with the the firm, please see pages 34 and 35. remaining 1,522,617 options being unexercised as at 31 March 2021. In the financial year ended 31 March 2021, bonuses of £820,000 were paid to Executive Directors, of which £500,000 relates to the PERFORMANCE CONDITIONS FOR CURRENT EMI SCHEMES Options granted under the EMI plan are only exercisable subject performance in the financial year ended 31 March 2020 where the to the satisfaction of performance conditions which will determine predetermined financial targets had been met. However, due to the the proportion of the option that will vest at the end of the three- extraordinary circumstances relating to the impact of the COVID-19 year performance period. The performance conditions used in pandemic which unfolded at the time of the prior year end March determining the number of options that will vest are split, with 75% 2020, it was agreed by the Board that the Group would implement of the shares vesting by reference to growth in adjusted EPS and a salary increase and bonus freeze at the start of this financial year. 25% of the shares vesting based on growth in TSR over the three- The allocation and decision of this award was therefore deferred year performance period. until October 2020 when there was greater clarity around the short- and medium-term implications of the pandemic on the financial performance of the Group. *Alternative performance measures are detailed in note 22. 46 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements Performance condition Weighting Vesting criteria EPS 75% TSR 25% 13% straight-line growth results in 33% of the option subject to the EPS measure vesting 40% straight-line growth results in 100% of the option subject to the EPS measure vesting If the growth rate falls between the thresholds above, the proportion of options subject to the EPS measure that vest will be determined on a straight-line basis 8.25% compound annual growth rate results in 33% of the option subject to the TSR measure vesting 25% compound annual growth rate results in 100% of the option subject to the TSR measure vesting If the compound annual growth rate falls between the thresholds above, the proportion of options subject to the TSR measure that vest will be determined on a straight-line basis 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 adjusted EPS growth, the shares will be fully diluted and the impact of adjusted items as determined by the Board, see note 6, will be disregarded to ensure that they do not artificially impact the EPS measurement. The option will vest in respect of growth in EPS and compound annual growth in TSR over the three-year performance periods, commencing 1 April in the year that the options have been granted. DIRECTORS’ INTERESTS IN SHARE OPTIONS Outstanding share options granted to Executive Directors are as follows: Executive Directors Paul Hogarth Lothar Mentel Paul Edwards Date of grant Exercise price Number the year the year the year Number At 31 March 2020 Granted during Exercised during Lapsed during At 31 March 2021 7 July 2017 7 August 2018 28 July 2020 7 July 2017 7 August 2018 28 July 2020 7 August 2018 28 July 2020 £1.89 £0.00 £0.00 £1.89 £0.00 £0.00 £0.00 £0.00 503,168 330,000 – – – 174,758 1,118,150 330,000 – – – 162,274 765,000 – 3,046,318 – 141,624 478,656 – – – – – – – – – (121,098) – – (269,106) – – – – 382,070 330,000 174,758 849,044 330,000 162,274 765,000 141,624 (390,204) 3,134,770 MALUS AND CLAWBACK Vested and unvested EMI plan awards are subject to a formal malus UNAPPROVED SHARE SCHEME Options issued under the long-term incentives are intended to and clawback mechanism. GRANT OF EQUITY SHARE OPTIONS UNDER THE EMI PLAN At 31 March 2021, the Company had granted options to certain of its Executive Directors and senior managers to acquire (in aggregate) up to 8.2% of its share capital. The maximum entitlement of any individual was 2.4%. TERMS OF AWARDS 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 2021 the Company held no shares in treasury, other than those held by the Employee Benefit Trust to satisfy options awarded under share incentive schemes (2020: nil). be qualifying options for EMI purposes. If they are not qualifying options (for example, because they exceed the statutory limit at the date of grant) then they will take effect as unapproved options which cannot benefit from the preferential tax treatments afforded to options granted pursuant to an EMI scheme. EMPLOYEE BENEFIT TRUST (“EBT”) The Company’s EBT was established for the benefit of the employees, former employees and their dependants of the Group. The EBT may be used in conjunction with the EMI plan where the Remuneration Committee decides in its discretion that it is appropriate to do so. The Company may provide funds to the trustee by way of loan or gift to enable the trustee to subscribe or purchase existing shares in the market in order to satisfy awards made under the EMI plan or the SAYE share option plan. During the year, the Company has made a gift of £0.975 million to the EBT (2020: £1.0 million). As at 31 March 2021, the EBT held a total of 775,157 ordinary shares (2020: 413,411) equating to 1.34% of the issued ordinary share capital of the Company (2020: 0.74%). Tatton Asset Management plc Annual Report and Accounts 2021 47 Corporate Governance Directors’ Remuneration Report continued TOTAL SHAREHOLDER RETURN FROM ADMISSION ON AIM TO 31 MARCH 2021 The Company’s share price in the period from admission on AIM DIRECTORS’ INTERESTS The beneficial interests of the Directors and their connected persons in the ordinary share capital of the Company at 31 March on 7 July 2017 to 31 March 2021 increased from £1.56 to £3.51 and 2021 were as follows: market capitalisation grew from £87,215,720 to £203,192,191 with £15.78 million returned to shareholders by way of dividend. The graph below shows the Company’s TSR compared to the FTSE AIM All-Share Index in the 12 months to 31 March 2021. 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. Paul Hogarth Lothar Mentel Paul Edwards Christopher Poil Roger Cornick No. of Percentage ordinary shares shareholding (%) 10,575,358 1,022,373 94,864 173,205 32,051 18.27% 1.73% 0.16% 0.30% 0.06% 200 180 160 140 120 100 80 31/03/2020 30/04/2020 31/05/2020 30/06/2020 31/07/2020 31/08/2020 30/09/2020 31/10/2020 30/11/2020 31/12/2020 31/01/2021 28/02/2021 31/03/2021 Tatton Asset Management plc FTSE AIM All-Share Total Return GBP Source: Morningstar Direct 48 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements Directors’ Report The Directors are pleased to present their report together with the audited consolidated financial statements for the year ended 31 March 2021. REVIEW OF THE BUSINESS AND FUTURE DEVELOPMENTS A review of the business and future developments can be found in the Chairman’s Statement and the Chief Executive’s Review on pages 4 and 5, and 6 to 9 respectively. PRINCIPAL ACTIVITIES TAM 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 within two core operating divisions as follows: Subsidiary name % owned by the Company Principal activities of the subsidiary Operating division Tatton Investment Management Limited (“Tatton”) Paradigm Partners Limited (“Paradigm Consulting” or “PPL”) 100% 100% Provides discretionary fund overlay services to IFAs Tatton Provides compliance consultancy and technical support services to IFAs Paradigm Paradigm Mortgage Services LLP (“PMS”) 100% Provides mortgage and insurance product distribution services Paradigm RESULTS AND DIVIDENDS Group profit before tax was £7.303 million (2020: £10.296 million), The Company’s key stakeholders are shown on pages 12 and13 and we have detailed how we engage with them and understand down 29.1% on the prior year due to the catch-up in share-based their issues and the impact of the decisions of management on payment charges and the credit relating to the change in the VAT our stakeholders. treatment of Tatton’s investment management services, see note 6. Adjusted operating profit* was £11.402 million (2020: £9.076 million) giving an Adjusted operating profit* margin of 48.8% (2020: 42.5%). ALTERNATIVE PERFORMANCE MEASURES We use a number of performance measures to assist in presenting information in this statement in a way which can be easily analysed Operating profit after the effect of share-based payments, and understood. We use such measures consistently and reconcile amortisation on customer relationship intangible assets and them as appropriate and they are used by management in evaluating exceptional items is £7.508 million (2020: £10.302 million). performance. See notes 2.23 and 22. An interim dividend in respect of the period ended 30 September 2020 of 3.5p per share was paid to shareholders on 18 December SHARE CAPITAL As at 31 March 2021 there were 57,889,065 fully paid ordinary 2020. The Directors recommend a final dividend of 7.5p per share. shares of 20p amounting to £11,577,813, an increase of £396,310 on This has not been included within the Group financial statements the prior year due to the issue of shares upon exercise of employee as no obligation existed at 31 March 2021. If approved, the final share options and the exercise of a warrant over new shares in dividend will be paid on 28 July 2021 to ordinary shareholders the Company by Zeus Capital Investments Limited (the holding whose names are on the register at the close of business on company of Tatton’s nominated adviser and joint broker). 25 June 2021. Details of the issued share capital shown are in note 18 to the The Company operates a progressive dividend policy to grow consolidated financial statements. The Company has one class of dividends in line with the Group’s adjusted earnings, with a target ordinary shares which carry no right to fixed income. Each ordinary payout ratio in the region of 70% of annual adjusted diluted earnings share carries the right to one vote at general meetings of the per share. The policy is intended to ensure that shareholders Company. There are no specific restrictions on the size of a holding benefit from the growth of the Group, and it aligns with the or on the transfer of shares, which are both governed by the general strategic objective of growing our dividend. The Board recognises provisions of the Articles of Association and prevailing legislation the importance of dividends to shareholders and the benefit of other than: certain restrictions may be imposed from time to time by providing sustainable shareholder returns. The target payout ratio laws and regulations pursuant to the Listing Rules of the Financial has been adopted to provide sufficient flexibility for the Board to Conduct Authority (“FCA”), whereby certain Directors, Officers remunerate shareholders for their investment whilst recognising and employees of the Group require the approval of the Group to that there may at times be a requirement to retain capital within deal in ordinary shares of the Company. 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; — future cash commitments and investment plans, in line with the Company’s strategic plan; and — the impact of the decision on the Company’s key stakeholders. 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. SHARE OPTIONS 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 20 to the consolidated financial statements. Tatton Asset Management plc Annual Report and Accounts 2021 49 Corporate Governance Directors’ Report continued SIGNIFICANT SHAREHOLDERS At 14 May 2021, the Company had been notified of the following DIRECTORS’ INTERESTS Directors’ emoluments, interests in the shares of the Company interests representing 3% or more of its issued share capital: and options to acquire shares are disclosed in the Directors’ Shareholder held holding Paul Hogarth and connected parties 10,575,358 18.26% beneficial owner of Paradigm House, the Group’s registered address and the trading premises of PPL. Shares Percentage Remuneration Report on pages 45 to 48. Paul Hogarth is also the 14.32% 12.26% 4.77% 5.16% 4.77% Funds and accounts under management by direct and indirect investment management subsidiaries of BlackRock, Inc. Liontrust Investment Partners LLP 8,292,340 7,097,519 Chelverton Asset Management Limited 2,760,914 Canaccord Genuity Wealth Limited Kames Capital plc Legal & General Investment Management Limited Gresham House Asset Management Limited Standard Life Aberdeen plc 2,985,443 2,764,449 2,613,866 4.51% 2,133,394 1,829,564 3.68% 3.16% PURCHASE OF OWN SHARES At the 2020 AGM, shareholders authorised the Company to buy back up to 10% of its own ordinary shares by market purchase at any time prior to the conclusion of the AGM to be held in 2021. The Company did not purchase any of its own shares during the financial year, other than through the EBT (note 19). The cost of shares purchased and held by the EBT is deducted from equity. At the forthcoming AGM, the Directors will seek to extend shareholders’ approval for a further period to the conclusion of the AGM to be held in 2022, by way of special resolution, for the grant of an authority for the Company to make market purchases of up to 10% of its own shares. 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 shareholders. The Directors would only exercise CONFLICTS OF INTEREST There are procedures in place to deal with any Directors’ conflicts of interest arising under section 175 of the Companies Act 2006. DIRECTORS’ INDEMNITY All Directors and Officers of the Company have the benefit of the indemnity provision 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. PRINCIPAL RISKS A report on principal risks, risk management and internal controls is included on pages 30 to 33. EMPLOYEES 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 equitable 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 authority sought if they believed such a purchase in the interests The Group aims to give full and fair consideration to the possibility of shareholders generally. The minimum price to be paid will be the of employing disabled persons wherever suitable opportunities shares’ nominal value of 20p and the maximum price will be no more exist. Employees who become disabled are given every opportunity than 5% above the average middle market quotations for the shares to continue their positions or be trained for other suitable positions. on the five days before the shares are purchased. The Group provides a Group personal pension plan which is open TAKE OVER DIRECTIVE The Company has only one class of ordinary share and these shares have equal voting rights. The nature of individual Directors’ holdings is disclosed on page 48. There are no other significant holdings of any individual. BOARD OF DIRECTORS The names of the present Directors and their biographical details are shown on pages 40 and 41. At the AGM, to be held on 21 July 2021, to all employees. The Group operates an Enterprise Management Incentive scheme and a Group Sharesave scheme, details of which are provided in the Directors’ Remuneration Report and the financial statements. There is further information on the Group’s employee engagement and how it fosters relationships with stakeholders on pages 12 to 15. FINANCIAL INSTRUMENTS The Group’s financial instruments at 31 March 2021 comprise cash all Executive and Non-Executive Directors will offer themselves and cash equivalents, receivable and payable balances that arise for re-election. APPOINTMENT AND REPLACEMENT OF DIRECTORS With regard to the appointment and replacement of Directors, the Company is governed by its Articles of Association (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). directly from its daily operations and £0.2 million of financial assets at fair value through profit or loss. Cash flow is managed to ensure that sufficient cash is available to meet liabilities. The Group is not reliant on income generated 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. 50 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements POST BALANCE SHEET DATE EVENTS There have been no material post balance sheet events. POLITICAL DONATIONS The Group made no political donations or contributions during the year (2020: £nil). ANNUAL GENERAL MEETING (“AGM”) The AGM of the Company will be held on 21 July 2021. A notice convening the meeting will be sent to shareholders on 24 June 2021. AUDITOR Deloitte LLP was the Group’s independent auditor during the year and has confirmed its willingness to continue in office. A resolution to reappoint Deloitte LLP as auditor to the Group and to authorise the Directors to set its remuneration will be proposed at the 2021 AGM. Each of the persons who is a Director at the date of approval The Group also maintains its high level of ongoing oversight and monitoring of third party platforms. The Board is satisfied that the business can operate successfully in these conditions. The Board is satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future: Liquidity – The Group has a robust financial liquidity position with £16.9 million cash at 31 March 2021 and no debt, a £10 million committed revolving credit facility which remains undrawn with access to an accordion of £20 million and a highly efficient working capital cycle, ensuring strong operating cash conversion (95.6% of adjusted operating profit). Regulatory position – Management have assessed the impact of the COVID-19 pandemic and have confirmed that the Group continues to have significant headroom over its regulatory requirements. of this Annual Report confirms that: Having given due consideration to the risks, uncertainties — 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. CORPORATE GOVERNANCE A full review of corporate governance appears on pages 42 to 44. STATEMENT OF DIRECTORS’ RESPONSIBILITIES/ DISCLOSURES TO THE AUDITOR As far as the Directors are aware, there is no relevant information of and contingencies disclosed in the financial statements and accompanying reports, the Directors believe the business is well placed to manage its business risk successfully. Accordingly, 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 affect its future development, performance and position are set out in the Strategic Report; see page 4 onwards. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and which the Group’s independent auditor is unaware. The Directors regulations. Company law requires the Directors to prepare such have taken all the steps that they ought to have taken as Directors financial statements for each financial year. Under that law the to make themselves aware of any relevant audit information and Directors are required to prepare the Group financial statements to establish that the Company’s independent auditor is aware of in accordance with International Financial Reporting Standards that information. RELATED PARTIES Details of related party transactions are given in note 21 to the consolidated financial statements. GOING CONCERN The Board has reviewed detailed papers prepared by management that consider the Group’s expected future profitability, dividend policy, capital position and liquidity, both as they are expected to be and also under more stressed conditions. The Board has also reviewed the management actions that could be taken in these scenarios. Management have also prepared reports in relation to the operational resilience of the business reflecting the switch to home working in compliance with government advice and effectively implementing its business continuity planning procedures. (“IFRSs”) as adopted by the United Kingdom 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 satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. Tatton Asset Management plc Annual Report and Accounts 2021 51 Corporate Governance Directors’ Report continued In preparing the Parent Company financial statements, the Directors are required to: DIRECTORS’ RESPONSIBILITIES STATEMENT We confirm that to the best of our knowledge: — select suitable accounting policies and then apply — the financial statements, prepared in accordance with the them consistently; relevant financial reporting framework, give a true and fair — make judgements and accounting estimates that are view of the assets, liabilities, financial position and profit or reasonable and prudent; loss of the Company and the undertakings included in the — state whether applicable Financial Reporting Standard 101 consolidation taken as a whole; ‘Reduced Disclosure Framework’ has been followed, subject — the Strategic Report includes a fair review of the development to any material departures disclosed and explained in the and performance of the business and the position of the financial statements; and Company and the undertakings included in the consolidation — prepare the financial statements on the going concern basis taken as a whole, together with a description of the principal unless it is inappropriate to presume that the Company will risks and uncertainties that they face; and continue in business. — the Annual Report and financial statements, 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 its behalf by: Paul Hogarth Chief Executive Officer Paul Edwards Chief Financial Officer In preparing the Group financial statements, IAS 1 requires that Directors: — properly select and apply accounting policies; — present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; — provide additional disclosures when compliance with the specific requirements 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 keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. 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 maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 52 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements Independent Auditor’s Report to the members of Tatton Asset Management Plc REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS 1. OPINION In our opinion: — 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 2021 and of the group’s profit for the year then ended; — the group financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB); — the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and — the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. 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 cash flow statement; and — the related notes 1 to 25. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and international accounting standards in conformity with the 3. SUMMARY OF OUR AUDIT APPROACH Key audit matters The key audit matters that we identified in the current year were: Materiality Scoping Significant changes in our approach — Share based payments; and — Impairment of intangible assets. Within this report, key audit matters are identified as follows:  Newly identified  Increased level of risk  Similar level of risk  Decreased level of risk The materiality that we used for the group financial statements was £365,000 which was determined on the basis of 5% of profit before tax. Our audit covered 100% of the group’s profit before tax, revenue, and net assets. In the prior year we identified a key audit matter in respect of valuation and completeness over the intangible asset recognised following the acquisition of Sinfonia Asset Management Limited. However, for the current period the impairment of such intangible has been retained as a key audit matter with the completeness assertion not deemed relevant as this related to the fair value of the assets acquired. CONCLUSIONS RELATING TO GOING CONCERN 4. In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. requirements of the Companies Act 2006 and IFRSs as issued by Our evaluation of the directors’ assessment of the group’s and the IASB. The financial reporting framework that has been applied parent company’s ability to continue to adopt the going concern in the preparation of the parent company financial statements basis of accounting included: is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice). — Evaluating management’s assessment, identifying the assumptions and testing the mechanical accuracy of the underlying forecast; BASIS FOR OPINION 2. We conducted our audit in accordance with International — Understanding the entity’s process for the preparation of its assessment and any related controls; Standards on Auditing (UK) (ISAs (UK)) and applicable law. — Performing sensitivity analysis on the key assumptions Our responsibilities under those standards are further described in applied to understand those that could give rise to a material the auditor’s responsibilities for the audit of the financial statements uncertainty on the use of the going concern basis; and 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 — Checking consistency with the forecast assumptions applied in the going concern assessment across other forecasts within the Group. audit of the financial statements in the UK, including the Financial Based on the work we have performed, we have not identified Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to any material uncertainties relating to events or conditions that, listed entities, and we have fulfilled our other ethical responsibilities individually or collectively, may cast significant doubt on the in accordance with these requirements. group’s and parent company’s ability to continue as a going concern We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. for a period of at least twelve months from when the financial statements are authorised for issue. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. Tatton Asset Management plc Annual Report and Accounts 2021 53 Corporate Governance Independent Auditor’s Report continued KEY AUDIT MATTERS 5. 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. 5.1. SHARE BASED PAYMENTS  Key audit matter description There are three Enterprise Management Incentive (EMI) schemes in place, beginning August 2018, 2019, and 2020, in addition to the three Sharesave schemes. The August 2018 scheme has different vesting conditions for directors (B options) and non-directors (A options). The 2017 EMI and Sharesave schemes vested in July 2020. During the year, the Remuneration Committee reviewed and modified the vesting criteria for the 2017 and 2018 EMI schemes, to account for the unexpected impact arising from market movements due to COVID-19, albeit this did not impact the valuation of the scheme significantly. Our key audit matter has been pinpointed to the 2018 EMI scheme, given the size of the income statement charge. 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, using a Monte Carlo model. 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, using a Black Scholes model. The accuracy of share based payments is considered to be the focus of our key audit matter, due to the judgements inherent in the assumptions used in the models. Specifically the accuracy of the number of options expected to vest under the EPS performance condition of the EMI scheme. The accounting policies adopted by the Group and the sources of estimation uncertainty have been disclosed within note 2.20 and 2.22 respectively within the financial statements. Note 20 details the reconciliation of the share based payment balance. To address our share based payment key audit matter, we have performed the following procedures over the significant risk: — Obtained an understanding of the relevant controls put in place by management to manage the risks associated with accounting for share based payments; — Challenged the EPS growth assumptions that determines the number of options that will vest, through recalculation and extrapolation of historical growth rates and by reviewing analyst growth forecasts; — Worked with our internal specialists on share based payment valuations to review the scheme documentation, and recalculate the valuation of the schemes at the reporting date under IFRS 2, including the impact of modifications to the scheme; — Assessed the fair value output from the fair value model to determine whether it is generating a reasonable fair value based on the assumptions. How the scope of our audit responded to the key audit matter Key observations As a result of the above procedures, we consider that the share based payment charge is materially in line with the requirements of IFRS 2. 54 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements 5.2. IMPAIRMENT OF INTANGIBLE ASSETS  Key audit matter description On 30 September 2019, the Group acquired the share capital of Sinfonia Asset Management Limited (“SAML”) gaining control over the entity. At acquisition, the Group identified any other identifiable intangible assets acquired in the business combination. The Group recognised a client relationship intangible asset relating to the non-contractual customer relationships, with the customer being the IFA. The initial cost of the intangible assessment was valued at £1.2m and is being amortised over a ten-year period since this is considered the estimated useful life of the customer relationship. As at 31 March 2021 the carrying amount of the intangible is £1.02m, with £0.18m relating of accumulated amortisation and no historic impairment losses. We have identified a key audit matter and fraud risk in relation to the valuation of the customer contract intangible, specifically in relation to the determination of future cash flows and growth rates used in the value in use (VIU) calculation as part of the impairment assessment which requires significant judgement and therefore potential for management to introduce bias in estimates. The accounting policies adopted by the Group have been disclosed within notes 2.8 and 2.9 to the financial statements. Impairment of client relationships has been identified as a critical accounting judgement in note 2.22. Note 12 details the reconciliation of the client relationship intangible balance. To address our intangible asset impairment key audit matter, we have: — Obtained an understanding of relevant controls in relation to the impairment review process for client relationship intangibles; — Challenged the key assumptions used within management’s future cash flows through seeking corroboratory and contradictory evidence; and — Tested management’s forecasting accuracy by reference to cash flows/customer lapses observed since the acquisition date. How the scope of our audit responded to the key audit matter Key observations As a result of the above procedures, management’s judgement and estimates are reasonable and concur no impairment of the intangible asset is required. Tatton Asset Management plc Annual Report and Accounts 2021 55 Corporate Governance Independent Auditor’s Report continued 6. OUR APPLICATION OF MATERIALITY 6.1. MATERIALITY 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 Group financial statements £365,000 (2020: £439,000) Parent Company financial statements £310,250 (2020: £351,000) 5% of profit before tax (2020: 5% of adjusted Parent company materiality equates to 2% of income before tax) For our basis of materiality we have used profit before tax which has changed from the prior year where adjusted profit before tax was used. The benchmark was normalised in the prior year as a result of a prior period VAT refund within exceptional income. There were no adjustments to profit before tax in the current year. total assets (2020: 2% of total assets), which is capped at 85% (2020: 80%) of Group materiality. The percentage of Group materiality has been determined based on the contribution to the total Group net assets. Rationale for the benchmark applied We have determined materiality based on profit The main operation of the parent company is to before tax as it is a profit driven business, therefore hold investments in the subsidiaries. We have is considered the most relevant benchmark for therefore selected total assets as the benchmark users of the financial statements. for determining materiality. We have however capped materiality based on the Group materiality. PBT £7,303k PBT Group materiality Group materiality £365k Component materiality range £15k to £347k Audit and Risk Committee reporting threshold £15k 6.2. PERFORMANCE MATERIALITY We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole. Performance materiality 70% (2020: 70%) of group materiality 70% (2020: 70%) of parent company materiality Group financial statements Parent Company financial statements Basis and rationale for determining performance materiality In determining performance materiality, we considered the following factors: — Our risk assessment, including our assessment of the group’s overall control environment and that we consider it appropriate to rely on controls over investment wrap service income; — Our understanding of the entity and its environment, in particular the resilience of the group against the impact of Covid 19; and — Our past experience of the audit, which has indicated a low number of corrected and uncorrected misstatements identified in prior periods. 6.3. ERROR REPORTING THRESHOLD We agreed with the Audit and Risk Committee that we would report to the Committee all audit differences in excess of £15,000 (2020: £22,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit and Risk Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements. 56 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements 7. AN OVERVIEW OF THE SCOPE OF OUR AUDIT IDENTIFICATION AND SCOPING OF COMPONENTS 7.1. 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. At a Group level, the audit team has also tested the consolidation process and adjustments. Our Group audit focused on the three (2020: three) material trading entities within the Group’s three (2020: three) reportable segments and the three (2020: three) material holding companies including the parent Company. The Group audit team performed full scope audits on all entities directly, which account for 100% (2020: 100%) of the Group’s profit before tax, revenue and net assets. We have used appropriate levels of materiality for the three material trading entities and three material holding companies that ranged from £15,000–£347,000 (2020: £83,000–£417,000). 7.2. OUR CONSIDERATION OF THE CONTROL ENVIRONMENT The key IT system relevant to the audit was the financial accounting system as this is integral to the accounting records maintained by the Group. We have not relied upon any controls associated with this system as its operation involves a high degree of manual intervention. We tested the manual controls in place for investment wrap service related revenue and relied on the controls in place for our testing of this balance. 8. OTHER INFORMATION The other information comprises the information included in the annual report, other than the financial We have nothing to statements and our auditor’s report thereon. The directors are responsible for the other information contained report in this regard. within the annual report. 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. 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 course of our audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. 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. RESPONSIBILITIES OF DIRECTORS 9. As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS 10. 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. Tatton Asset Management plc Annual Report and Accounts 2021 57 Corporate Governance Independent Auditor’s Report continued EXTENT TO WHICH THE AUDIT WAS CONSIDERED CAPABLE OF DETECTING IRREGULARITIES, INCLUDING FRAUD 11. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. IDENTIFYING AND ASSESSING POTENTIAL RISKS RELATED TO IRREGULARITIES 11.1. In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, we considered the following: — the nature of the industry and sector, control environment and business performance including the design of the group’s remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets; — results of our enquiries of management and the Audit and Risk Committee about their own identification and assessment of the risks of irregularities; — any matters we identified having obtained and reviewed the group’s documentation of their policies and procedures relating to: • identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non- compliance; • detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; • the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations; — the matters discussed among the audit engagement team and relevant internal specialists, including tax, IT and industry specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud. As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified the greatest potential for fraud in the following areas: accuracy of share based payments and impairment of intangible assets. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override. We also obtained an understanding of the legal and regulatory framework that the group operates in, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations we considered in this context included the UK Companies Act and tax legislation. In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but compliance with which may be fundamental to the group’s ability to operate or to avoid a material penalty. These included FCA regulations. 11.2. AUDIT RESPONSE TO RISKS IDENTIFIED As a result of performing the above, we identified share based payments and the impairment of intangible assets as key audit matters related to the potential risk of fraud. The key audit matters section of our report explains the matters in more detail and also describes the specific procedures we performed in response to those key audit matters. In addition to the above, our procedures to respond to risks identified included the following: — reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described as having a direct effect on the financial statements; — enquiring of management, the audit committee and external legal counsel concerning actual and potential litigation and claims; — performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud; — reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with HMRC and the Financial Conduct Authority; and — in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business. We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal specialists, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. 58 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS 12. OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion, based on the work undertaken in the course of the audit: — the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and — the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the group and 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. 13. OPINION ON OTHER MATTER PRESCRIBED BY OUR ENGAGEMENT LETTER In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the provisions of the Companies Act 2006 that would have applied were the company a quoted company. 14. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION 14.1. ADEQUACY OF EXPLANATIONS RECEIVED AND ACCOUNTING RECORDS 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. 14.2. DIRECTORS’ REMUNERATION 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. 15. USE OF OUR REPORT 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. David Heaton (Senior statutory auditor) For and on behalf of Deloitte LLP Statutory Auditor Manchester, United Kingdom 14 June 2021 Tatton Asset Management plc Annual Report and Accounts 2021 59 Financial Statements Consolidated Statement of Total Comprehensive Income FOR THE YEAR ENDED 31 MARCH 2021 Revenue Other exceptional income Administrative expenses Operating profit – Share-based payment costs – Amortisation of intangibles – customer relationships – Exceptional items Adjusted operating profit (before separately disclosed items)1 Finance costs Profit before tax Taxation charge Profit attributable to shareholders Earnings per share – Basic Earnings per share – Diluted Adjusted earnings per share – Basic2 Adjusted earnings per share – Diluted2 31-Mar 2021 (£’000) 23,353 – (15,845) 7,508 3,740 120 34 11,402 (205) 7,303 (1,192) 6,111 10.86p 10.31p 16.14p 14.74p 31-Mar 2020 (£’000) 21,369 1,588 (12,655) 10,302 108 60 (1,394) 9,076 (6) 10,296 (1,933) 8,363 14.98p 14.54p 13.13p 12.00p Note 6 6 6 6 7 8 9 9 9 9 1 Adjusted for exceptional items, amortisation on client relationship intangibles and share-based payments. See note 22. 2 Adjusted for exceptional items, amortisation on client relationship intangibles and share-based payments and the tax thereon. See note 22. 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. 60 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements Consolidated Statement of Financial Position AS AT 31 MARCH 2021 Non-current assets Goodwill Intangible assets Property, plant and equipment Deferred tax assets Total non-current assets Current assets Trade and other receivables Financial assets at fair value through profit or loss Corporation tax Cash and cash equivalents Total current assets Total assets Current liabilities Trade and other payables Corporation tax Total current liabilities Non-current liabilities Other payables Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity attributable to equity holders of the Company Share capital Share premium account Own shares Other reserve Merger reserve Retained earnings Total equity Note 11 12 13 16 14 17 15 15 16 18 19 31-Mar 2021 (£’000) 6,254 1,436 992 1,420 10,102 4,302 163 48 16,934 21,447 31,549 (6,587) – (6,587) (516) – (516) (7,103) 24,446 11,578 11,534 (1,969) 2,041 (28,968) 30,230 24,446 31-Mar 2020 (£’000) 6,254 1,495 1,034 – 8,783 3,431 – – 12,757 16,188 24,971 (6,186) (199) (6,385) (702) (106) (808) (7,193) 17,778 11,182 8,718 (996) 2,041 (28,968) 25,801 17,778 The financial statements on were approved by the Board of Directors on 14 June 2021 and were signed on its behalf by: PAUL EDWARDS Director Company registration number: 10634323 Tatton Asset Management plc Annual Report and Accounts 2021 61 Financial Statements Consolidated Statement of Changes in Equity FOR THE YEAR ENDED 31 MARCH 2021 At 1 April 2019 Profit and total comprehensive income Dividends Share-based payments Deferred tax on share-based payments Own shares acquired in the year At 31 March 2020 Profit and total comprehensive income Dividends Share-based payments Deferred tax on share-based payments Issue of share capital on exercise of employee share options Own shares acquired in the year At 31 March 2021 Note 9 20 19 9 20 Share capital (£’000) 11,182 Share premium (£’000) 8,718 – – – – – – – – – – 11,182 8,718 – – – – – – – – 396 2,816 Own shares (£’000) Other reserve (£’000) Merger reserve (£’000) – – – – – (996) (996) – – – – – 2,041 (28,968) – – – – – – – – – – – – – – – – – – – – – – Retained earnings (£’000) 22,315 Total equity (£’000) 15,288 8,363 8,363 (4,920) (4,920) 86 86 (43) (43) – 6,111 (5,551) 2,954 (996) 17,778 6,111 (5,551) 2,954 915 915 – – 3,212 (973) 2,041 (28,968) 25,801 19 – – 11,578 11,534 (973) (1,969) 2,041 (28,968) 30,230 24,446 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. 62 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements Consolidated Statement of Cash Flows FOR THE YEAR ENDED 31 MARCH 2021 Operating activities Profit for the year Adjustments: Income tax expense Finance costs Depreciation of property, plant and equipment Amortisation of intangible assets Share-based payment expense Changes in: Trade and other receivables Trade and other payables Exceptional items Cash generated from operations before exceptional items Cash generated from operations Income tax paid Net cash from operating activities Investing activities Payment for the acquisition of subsidiary, net of cash acquired Purchase of intangible assets Purchase of property, plant and equipment Net cash used in investing activities Financing activities Interest (paid)/received Transaction costs related to borrowings Dividends paid Proceeds from the issue of shares Purchase of own shares Repayment of lease liabilities 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 Note 31-Mar 2021 (£’000) 31-Mar 2020 (£’000) 6,111 8,363 7 13 12 6 6 9 19 1,192 205 351 341 3,740 (537) (531) 34 10,906 10,872 (2,051) 8,821 (160) (282) (67) (509) (36) (613) (5,551) 3,212 (973) (174) (4,135) 4,177 12,757 16,934 1,933 6 298 195 108 (1,016) 1,338 (1,394) 9,831 11,225 (2,278) 8,947 (2,002) (271) (294) (2,567) 162 – (4,920) – (996) (61) (5,815) 565 12,192 12,757 Tatton Asset Management plc Annual Report and Accounts 2021 63 Financial Statements Notes to the Consolidated Financial Statements 1 General Information 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 Accounting Policies The principal accounting policies applied in the presentation of the annual financial statements are set out below. 2.1 BASIS OF PREPARATION The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the United Kingdom 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 as this is the currency of the jurisdiction where all of the Group’s sales are made. 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 GOING CONCERN 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. To form the view that the consolidated financial statements should continue to be prepared on an ongoing basis in light of the current COVID-19 pandemic and the resulting economic uncertainty, the Directors have assessed the outlook of the Group by considering various market scenarios and management actions. This review has allowed management to assess the potential impact on income, costs, cash flow and capital and the ability to implement effective management actions that may be taken to mitigate the impact. The Directors have also 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. 64 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements 2 Accounting Policies continued 2.3 BASIS OF CONSOLIDATION The Group’s financial statements consolidate those of the Parent Company and all of its subsidiaries as at 31 March 2021. 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. 2.4 ADOPTION OF NEW AND REVISED STANDARDS NEW AND AMENDED IFRS STANDARDS THAT ARE EFFECTIVE FOR THE CURRENT YEAR The following revised standards and interpretations have been adopted in the current year, being amendments to the Conceptual Framework in IFRS Standards, IAS 1 ‘Presentation of Financial Statements’, IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’, IFRS 16 ‘Leases’, IFRS 3 ‘Business Combinations’, IFRS 9 ‘Financial Instruments’, IAS 39 ‘Financial Instruments: Recognition and Measurement’ and IFRS 7 ‘Financial Instruments: Disclosures’. These amendments have not had a material impact on the financial statements of the Group. STANDARDS IN ISSUE NOT YET EFFECTIVE 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 yet effective. The Group intends to adopt these Standards and Interpretations when they become effective, rather than adopt them early. EFFECTIVE DATE 1 JANUARY 2023 IFRS 17 ‘Insurance Contracts’ In addition the following standards each have amendments will be effective for accounting periods beginning on or after 1 January 2021: IFRS 10 ‘Consolidated Financial Statements’ IAS 28 ‘Investments in Associates and Joint Ventures’, IAS 1 ‘Presentation of Financial Statements’, IFRS 3 ‘Business Combinations’, IAS 16 ‘Property, Plant and Equipment’, IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’. The Directors do not expect that the adoption of the new or revised Standards listed above will have a material impact on the financial statements of the Group in future periods. 2.5 REVENUE 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 for discretionary fund management services in relation to on-platform investment assets under management (“AUM”). Revenue is recognised daily based on the AUM. — Fees charged to IFAs for compliance consultancy services, which are recognised when performance obligations are met. — Fees for providing investment platform services. Revenue is recognised on a daily basis, in line with the satisfaction of performance obligations, on the assets under administration held on the relevant investment platform. — Fees for mortgage-related services including commissions from mortgage and other product providers and referral fees from strategic partners. Commission is recognised when performance obligations are met. — Fees for marketing services provided to providers of mortgage and investment products, which is recognised when performance obligations are met. Tatton Asset Management plc Annual Report and Accounts 2021 65 Financial Statements Notes to the Consolidated Financial Statements continued 2 Accounting Policies continued 2.6 EXCEPTIONAL ITEMS Exceptional items are disclosed and described separately in the financial statements where it is necessary to do so to provide further understanding of the underlying financial performance of the Group. These include material items of income or expense that are shown separately due to the significance of their nature and amount. 2.7 INTEREST INCOME AND INTEREST EXPENSE 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. 2.8 IMPAIRMENT 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 Statement of Total Comprehensive Income 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. The impairment review has also considered the COVID-19 pandemic as a potential indicator of impairment and as a result of this review, none of the assets held by the Group were impaired. See note 11 for further details. 2.9 GOODWILL AND INTANGIBLE ASSETS Goodwill is initially recognised and measured as set out in note 2.11. 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 (or groups of 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 CGU 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. On disposal of a CGU, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. 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. 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. 66 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements 2 Accounting Policies continued Intangible assets acquired in a business combination and recognised separately from goodwill are recognised initially at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, the customer relationship intangible assets have a finite useful life and are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the straight-line method over their useful lives, estimated at ten years. 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 2021 and have considered the COVID-19 pandemic as a potential indicator of impairment. As a result of the review, it was determined that none of the assets are impaired (2020: none). 2.10 PROPERTY, PLANT AND EQUIPMENT 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. — Fixtures and fittings – 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. 2.11 BUSINESS COMBINATIONS 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 acquired and the 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. Tatton Asset Management plc Annual Report and Accounts 2021 67 Financial Statements Notes to the Consolidated Financial Statements continued 2 Accounting Policies continued When the consideration transferred by the Group in a business combination includes 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 the 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. Other contingent consideration is remeasured to fair value at subsequent reporting dates with changes in fair value recognised in profit or loss. 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 at the acquisition date that, if known, would have affected the amounts recognised as of that date. 2.12 LEASES At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16. The Group recognises a right-of-use (“ROU”) asset and a lease liability at the inception date of the lease. The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The ROU assets are subsequently depreciated on a straight-line basis over the shorter of the expected life of the asset and the lease term, adjusted for any remeasurements of the lease liability. At the end of each reporting period, the ROU assets are assessed for indicators of impairment in accordance with IAS 36. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. The Group uses its incremental borrowing rate as the discount rate. Lease payments included in the measurement of the lease liability comprise the following: — fixed payments, including in-substance fixed payments; — variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; — amounts expected to be payable under a residual value guarantee; and — the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early. 68 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements 2 Accounting Policies continued The lease liability is subsequently measured by adjusting the carrying amount to reflect the interest charge, the lease payments made and any reassessment or lease modifications. The lease liability is remeasured if the Group changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the ROU asset, or is recorded in profit or loss if the carrying amount of the ROU asset has been reduced to zero. Where the Group is an intermediate lessor in a sub-lease, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the ROU asset arising from the head lease, not with reference to the underlying asset. 2.13 CASH AND CASH EQUIVALENTS 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. 2.14 FINANCIAL INSTRUMENTS Financial assets and financial liabilities are recognised in the 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. FINANCIAL INVESTMENTS Financial investments are classified as fair value through profit or loss if they are either held for trading or specifically designated in this category on initial recognition. Assets in this category are initially recognised at fair value and subsequently remeasured, with gains or losses arising from changes in fair value being recognised in the Statement of Comprehensive Income. Financial assets at fair value through profit or loss include investments in a regulated open-ended investment company and an investment portfolio, which are managed and evaluated on a fair value basis in line with the market value. 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 plc Annual Report and Accounts 2021 69 Financial Statements Notes to the Consolidated Financial Statements continued 2 Accounting Policies continued 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. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (“FVTPL”) Financial liabilities are classified as at FVTPL when the financial liability is (i) contingent consideration of an acquirer in a business combination, (ii) held for trading or (iii) designated as at FVTPL. Financial liabilities at FVTPL are measured at fair value, with any gains or losses arising on changes in fair value recognised in profit or loss. 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. 2.15 TAXATION 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 where 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. 70 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements 2 Accounting Policies continued 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. 2.16 RETIREMENT BENEFIT COSTS 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. 2.17 PROVISIONS 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. 2.18 EQUITY, RESERVES AND DIVIDEND PAYMENTS 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. 2.19 EMPLOYEE BENEFIT TRUST The Company provides finance to the EBT to purchase the Company’s shares on the open market in order to meet its obligation to provide shares when an employee exercises awards made under the Group’s share-based payment schemes. Administration costs connected with the EBT are charged to the Statement of Comprehensive Income. The cost of shares purchased and held by the EBT is deducted from equity. The assets held by the EBT are consolidated into the Group’s financial statements. 2.20 SHARE-BASED PAYMENTS 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. 2.21 OPERATING SEGMENTS The Group comprises the following two operating segments which are defined by trading activity: — Tatton – investment management services — Paradigm – the provision of compliance and support services to IFAs and mortgage advisers The Board is considered to be the chief operating decision maker. Tatton Asset Management plc Annual Report and Accounts 2021 71 Financial Statements Notes to the Consolidated Financial Statements continued 2 Accounting Policies continued 2.22 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY 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. GOODWILL AND CLIENT RELATIONSHIP INTANGIBLES CRITICAL JUDGEMENT Impairment of goodwill and client relationship intangibles Impairment exists when the carrying value of an asset or cash-generating unit (“CGU”) 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 purposes of impairment testing, the recoverable amount of goodwill is determined using a discounted cash flow model, as detailed in note 11. The results of the calculation indicate that goodwill and client relationship intangibles are not impaired. BUSINESS COMBINATIONS ESTIMATION UNCERTAINTY Valuation of the earn-out consideration On 30 September 2019, the Group acquired the entire share capital of Sinfonia Asset Management Limited (“Sinfonia“). The Group accounted for the transaction as a business combination. The purchase price payable for the acquisition was split into a number of different parts. The payment of certain elements has been deferred. At 31 March 2021, there remained one element of deferred consideration unvested and subject to ongoing vesting conditions. The value of earn-out consideration is variable, dependent on performance by the acquired business against certain operational targets by 30 September 2021. The estimated value of earn-out consideration that will be payable at these dates is £nil, based on projections of growth in funds under management over that period. Under the terms of the agreements, the maximum possible payment under the remaining earn-out and incentivisation award is capped at £345,000, which represents qualifying funds under management of approximately £132.5 million at 30 September 2021. SHARE-BASED PAYMENTS ESTIMATION UNCERTAINTY Given the significance of share-based payments as a 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 Statement of Total Comprehensive Income is adjusted accordingly (at the end of the relevant scheme as a minimum). Based on the current forecasts of the Group, the charge for the year is based on 100% of the options vesting for the element relating to non-market-based performance conditions. A decrease of 10% in the vesting assumptions would reduce the charge in the year by £341,000. In considering the level of satisfaction of performance obligations, the Group’s forecast has been reviewed and updated for the expected impact of the COVID-19 pandemic, various market scenarios and management actions. This forecast has been used to estimate the relevant vesting assumptions for the Enterprise Management Incentive (“EMI”) schemes in place. 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. 72 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements 2 Accounting Policies continued 2.23 ALTERNATIVE PERFORMANCE MEASURES 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 in note 22 including explanations of how they are calculated and how they can be reconciled to a statutory measure where relevant. There is also further information on separately disclosed items in note 6. 3 Capital Management 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 total equity which totalled £24.4 million as at 31 March 2021 (2020: £17.8 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. 4 Segment Reporting Information reported to the Board of Directors as the chief operating decision maker (“CODM”) 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 and the marketing and promotion of the funds run by the companies under Tatton Capital Limited (“Tatton”) and the provision of compliance and support services to IFAs and mortgage advisers (“Paradigm”). The Group’s reportable segments under IFRS 8 are therefore Tatton, Paradigm, and “Central” which contains the Operating Group’s central overhead costs. During the financial year, it was decided that centrally incurred overhead costs should be allocated to the Tatton and Paradigm divisions on an appropriate pro rata basis and this is how financial information is presented to the Group’s CODM. The March 2020 comparative figures have been presented on a like for like basis showing the relevant allocation of central costs on the prior year. Tatton Asset Management plc Annual Report and Accounts 2021 73 Financial Statements Notes to the Consolidated Financial Statements continued 4 Segment Reporting continued The principal activity of Tatton is that of discretionary fund management (“DFM”) of investments on-platform and the provision of investment wrap services. The principal activity of Paradigm is that of provision of support services to IFAs and mortgage advisers. 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: Year ended 31 March 2021 Revenue Administrative expenses Operating profit/(loss) Share-based payments Exceptional items Amortisation of client relationship intangible assets Adjusted Operating profit/(loss) (before separately disclosed items)1 Finance costs Profit/(loss) before tax Year ended 31 March 2020 restated2 Revenue Other exceptional income Administrative expenses Operating profit/(loss) Share-based payments Exceptional items Amortisation of client relationship intangible assets Adjusted operating profit/(loss) (before separately disclosed items)1 Finance (costs)/income Profit/(loss) before tax All turnover arose in the United Kingdom. Tatton (£’000) 18,097 (7,132) 10,965 – (184) 120 10,901 (21) 10,944 Tatton (£’000) 15,924 1,588 (7,492) 10,020 – (1,458) 60 8,622 (20) 10,000 Paradigm (£’000) 5,240 (3,212) 2,028 – – – 2,028 (4) 2,024 Paradigm (£’000) 5,426 – (3,599) 1,827 – 64 – 1,891 13 1,840 Central (£’000) 16 (5,501) (5,485) 3,740 218 – (1,527) (180) (5,665) Central (£’000) 19 – (1,545) (1,545) 108 – – (1,437) 1 Group (£’000) 23,353 (15,845) 7,508 3,740 34 120 11,402 (205) 7,303 Group (£’000) 21,369 1,588 (12,655) 10,302 108 (1,394) 60 9,076 (6) (1,544) 10,296 1 Alternative performance measures are detailed in note 22. 2 Administrative expenses in March 2020 have been restated to include an allocation of central overhead costs to aid comparability with the current year. 74 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements 5 Operating Profit The operating profit and the profit before taxation are stated after charging/(crediting): Amortisation of software Depreciation of property, plant and equipment Depreciation of right-of-use assets Gain arising on financial assets designated as FVTPL Separately disclosed items (note 6) Services provided by 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: Non-audit services 31-Mar 2021 (£’000) 221 175 176 (35) 31-Mar 2020 (£’000) 135 160 138 – 3,894 (1,226) 69 66 25 34 58 86 31-Mar 2020 (£’000) 97 97 – (1,588) (1,394) 108 60 (1,226) Total audit fees were £135,000 (2020: £92,000). Total non-audit fees payable to the auditor were £25,000 (2020: £86,000). 6 Separately Disclosed Items Restructuring costs Acquisition-related expenses Gain arising on changes in fair value of contingent consideration VAT reclaim income Total exceptional costs/(income) Share-based payment charges Amortisation of client relationship intangible assets Total separately disclosed items 31-Mar 2021 (£’000) – 218 (184) – 34 3,740 120 3,894 Separately disclosed items shown separately on the face of the Statement of Total Comprehensive Income or included within administrative expenses reflect 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 or frequency. EXCEPTIONAL ITEMS During the period, the Group pursued a potential acquisition of a business which fitted the strategic direction of the Group and would have been both material and complementary to the Tatton portfolio of products. The Group incurred professional fees of £218,000 during the process which have been treated as exceptional items. Acquisition-related expenses during the financial year ended 31 March 2020 related to the acquisition of the share capital of Sinfonia Asset Management Limited (“Sinfonia”), incurring acquisition-related costs of £97,000. Tatton Asset Management plc Annual Report and Accounts 2021 75 Financial Statements Notes to the Consolidated Financial Statements continued 6 Separately Disclosed Items continued During the current financial year, the Group revalued its financial liability at FVTPL relating to the deferred consideration on the acquisition of Sinfonia. This has resulted in a credit from the change in fair value of £184,000 being recognised in the year. During the financial year ended 31 March 2020, the Group incurred a restructuring charge relating to the rationalisation and restructuring of various departments and functions. The headcount reduction resulted in redundancy costs, payment in lieu of notice, settlement and other restructuring-related costs. These have been excluded from underlying earnings in view of their one-off nature. In addition, during the financial year ended 31 March 2020, the Group agreed with HMRC that Tatton’s supplies of discretionary fund management services in respect of model investment portfolios are exempt from VAT. As a result, the Group recognised income of £1,756,000 relating to the four-year period ended 31 March 2019, £1,675,000 of which has been received from HMRC as a VAT refund. This is offset by £168,000 of professional fees. The Group reflected this change in treatment of revenue and the level of irrecoverable input VAT in revenue and administrative expenses from 1 April 2019. SHARE-BASED PAYMENTS Share-based payments is a recurring item, though the value will change depending on the estimation of the satisfaction of performance obligations attached to certain awards. It has been excluded from the core business operating profit since it is a significant non-cash item. Underlying profit, being adjusted operating profit, represents largely cash-based earnings and more directly relates to the financial reporting period. The current year charge of £3,740,000 has seen a material increase on the prior year charge of £108,000, as in the prior year a significant amount of the provision for share-based payments was released due to the uncertainty around the impact that the COVID-19 pandemic would have on the financial performance of the business. In the current year, there is an increased expectation of the amount of options that will vest for the schemes currently in place, so increasing the charge in the Statement of Comprehensive Income. AMORTISATION OF CLIENT RELATIONSHIP INTANGIBLE ASSETS Payments made for the introduction of customer relationships that are deemed to be intangible assets are capitalised and amortised over their useful life, which has been assessed to be ten years. This amortisation charge is recurring over the life of the intangible asset, though has been excluded from the core business operating profit since it is a significant non-cash item. Underlying profit, being adjusted operating profit, represents largely cash-based earnings and more directly relates to the financial reporting period. 7 Finance Costs Bank interest income Other interest income Interest expense on lease liabilities Interest payable in servicing of banking facilities 31-Mar 2021 (£’000) 1 – (25) (181) (205) 31-Mar 2020 (£’000) 3 13 (22) – (6) 76 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements 8 Taxation 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 Adjustment in respect of previous years Effect of rate changes Total tax expense 31-Mar 2021 (£’000) 1,790 13 1,803 (563) 7 (55) – 1,192 31-Mar 2020 (£’000) 1,986 7 1,993 (12) 57 (95) (10) 1,933 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% (2020: 19%) Expenses not deductible for tax purposes Income not taxable Adjustments in respect of previous years Differences in tax rates Fixed asset differences Share-based payments Total tax expense 31-Mar 2021 (£’000) 7,303 1,388 63 (34) (42) – 6 (189) 1,192 31-Mar 2020 (£’000) 10,296 1,956 87 – (88) (10) – (12) 1,933 In the 3 March 2021 Budget, it was announced that the UK corporation tax rate will change to 25% from 1 April 2023 but this has not yet been substantively enacted. Deferred tax is calculated using the rate expected to apply when the relevant timing differences are forecast to unwind. Tatton Asset Management plc Annual Report and Accounts 2021 77 Financial Statements Notes to the Consolidated Financial Statements continued 9 Earnings per Share and Dividends 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. NUMBER OF SHARES Basic Weighted average number of shares in issue Effect of own shares held by an EBT Diluted Effect of weighted average number of options outstanding for the year Weighted average number of shares (diluted)1 Adjusted diluted Effect of full dilution of employee share options which are contingently issuable or have future attributable service costs Adjusted diluted weighted average number of options and shares for the year2 31-Mar 2021 31-Mar 2020 56,835,807 55,907,513 (551,954) (72,355) 56,283,853 55,835,158 2,966,507 59,250,360 1,694,831 57,529,989 2,370,976 61,621,336 3,545,946 61,075,935 1 The weighted average number of shares is diluted due to the effect of potentially dilutive contingent issuable shares from share option schemes. 2 The dilutive shares used for this measure differ from that used for statutory dilutive earnings per share; the future value of service costs attributable to employee share options is ignored and contingently issuable shares for long-term incentive plan options are assumed to fully vest. The Directors have selected this measure as it represents the underlying effective dilution by offsetting the impact to the calculation of basic shares of the purchase of shares by the EBT to satisfy options. Own shares held by an EBT represents the Company’s own shares purchased and held by the Employee Benefit Trust (“EBT”), shown at cost. In the year ended 31 March 2021 the EBT purchased 361,746 (2020: 413,411) of the Company’s own shares. Earnings attributable to ordinary shareholders Basic and diluted profit for the period Share-based payments – IFRS 2 option charges Amortisation of intangible assets – customer relationships Exceptional costs/(income) – 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 31-Mar 2021 (£’000) 6,111 3,740 120 34 (923) 9,082 10.86 10.31 16.14 14.74 31-Mar 2020 (£’000) 8,363 108 60 (1,394) 194 7,331 14.98 14.54 13.13 12.00 DIVIDENDS 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 its 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 2020 of £3,552,000, representing a payment of 6.4p per share. In addition, the Company paid an interim dividend of £1,999,000 (2020: £1,789,000) to its equity shareholders. This represents a payment of 3.5p per share (2020: 3.2p per share). The Company’s dividend policy is described in the Directors’ Report on page 49. At 31 March 2021, the Company’s distributable reserves were £28.6 million (2020: £25.8 million). 78 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements 10 Staff Costs The staff costs shown below exclude key management compensation which is shown separately below. Wages, salaries and bonuses Social security costs Pension costs Termination benefits Share-based payments The average monthly number of employees during the year was as follows: Administration Key management 31-Mar 2021 (£’000) 4,971 619 200 54 1,257 7,101 31-Mar 2021 82 3 85 31-Mar 2020 (£’000) 5,995 594 160 88 123 6,960 31-Mar 2020 79 3 82 KEY MANAGEMENT COMPENSATION 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 2021 (£’000) 1,730 5 4 2,483 4,222 31-Mar 2020 (£’000) 940 11 3 (15) 939 In addition to the remuneration above, the Non-Executive Chairman and Non-Executive Directors have submitted invoices for their fees as follows: Total fees 31-Mar 2021 (£’000) 160 31-Mar 2020 (£’000) 160 The Group incurred Social security costs of £235,000 (2020: £126,000) on the remuneration of the Directors and Non-Executive Directors. The remuneration of the highest paid Director was: Total 31-Mar 2021 (£’000) 794 31-Mar 2020 (£’000) 347 The highest paid Director did not exercise any share options in the period. There were 174,758 share options granted to the highest paid Director in the year. Tatton Asset Management plc Annual Report and Accounts 2021 79 Financial Statements Notes to the Consolidated Financial Statements continued 11 Goodwill Cost and carrying value at 31 March 2020 and 31 March 2021 Goodwill (£’000) 6,254 The carrying value of goodwill includes £5.9 million allocated to the Tatton operating segment and CGU. This is made up of £2.5 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, £2.0 million arising from the acquisition in 2017 of an interest in Tatton Capital Group Limited and £1.4 million of goodwill generated on the acquisition of Sinfonia. The carrying value of goodwill also includes £0.4 million allocated to the Paradigm operating segment and CGU relating to the acquisition of Paradigm Mortgage Services LLP. None of the goodwill is expected to be deductible for income tax purposes. IMPAIRMENT LOSS AND SUBSEQUENT REVERSAL 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 then an impairment charge is made. Such impairment is charged to the Statement of Total Comprehensive Income. IMPAIRMENT TESTING For the purpose of impairment testing, goodwill is allocated to the Group’s operating companies which represent 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 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 reviewed the carrying value of goodwill at 31 March 2021 and do not consider it to be impaired. GROWTH RATES The value in use is calculated from cash flow projections based on the Group’s forecasts for the year ending 31 March 2022 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. DISCOUNT RATES The pre-tax discount rate used to calculate value is 10.8% (2020: 7.7%). The discount rate is derived from a benchmark calculated from a number of comparable businesses. CASH FLOW ASSUMPTIONS 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 2021 is £245 million (2020: £414 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. 80 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements 12 Intangible Assets Cost Balance at 31 March 2019 Additions Acquired on acquisition of a subsidiary Balance at 31 March 2020 Additions Balance at 31 March 2021 Accumulated amortisation and impairment Balance at 31 March 2019 Charge for the period Balance at 31 March 2020 Charge for the period Balance at 31 March 2021 Net book value As at 31 March 2019 As at 31 March 2020 As at 31 March 2021 Computer software (£’000) Customer relationships (£’000) 266 271 – 537 282 819 (43) (135) (178) (221) (399) 223 359 420 – – 1,196 1,196 – 1,196 – (60) (60) (120) (180) – 1,136 1,016 All amortisation charges are included within administrative expenses in the Statement of Total Comprehensive Income. 13 Property, Plant and Equipment Cost Balance at 31 March 2019 Increase attributable to change in accounting standards Additions Balance at 31 March 2020 Additions Disposals Balance at 31 March 2021 Accumulated depreciation and impairment Balance at 31 March 2019 Charge for the period Balance at 31 March 2020 Charge for the period Disposals Balance at 31 March 2021 Net book value As at 1 April 2019 As at 31 March 2020 As at 31 March 2021 Computer, office equipment and Fixtures and motor vehicles (£’000) fittings (£’000) Right-of-use assets – buildings (£’000) 507 – 81 588 67 (223) 432 (397) (73) (470) (80) 223 (327) 110 118 105 478 – 213 691 – (214) 477 (239) (87) (326) (95) 214 (207) 239 365 270 – 689 – 689 242 – 931 – (138) (138) (176) – (314) – 551 617 All depreciation charges are included within administrative expenses in the Statement of Total Comprehensive Income. Tatton Asset Management plc Annual Report and Accounts 2021 Total (£’000) 266 271 1,196 1,733 282 2,015 (43) (195) (238) (341) (579) 223 1,495 1,436 Total (£’000) 985 689 294 1,968 309 (437) 1,840 (636) (298) (934) (351) 437 (848) 349 1,034 992 81 Financial Statements Notes to the Consolidated Financial Statements continued 13 Property, Plant and Equipment continued The Group leases buildings and IT equipment. The Group has applied the practical expedient for low value assets and so has not recognised IT equipment within ROU assets. The average lease term is five years. No leases have expired in the current financial period. All depreciation charges are included within administrative expenses in the Statement of Total Comprehensive Income. RIGHT-OF-USE ASSETS Amounts recognised in profit and loss Depreciation on right-of-use assets Interest expense on lease liabilities Expense relating to short-term leases Expense relating to low value assets At 31 March 2021, the Group is committed to £nil for short-term leases (2020: £nil). The total cash outflow for leases amounts to £220,000 (2020: £156,000). 14 Trade and Other Receivables Trade receivables Amounts due from related parties Prepayments and accrued income Other receivables 31-Mar 2021 (£’000) (176) (25) (44) (1) (246) 31-Mar 2021 (£’000) 172 29 3,060 1,041 4,302 31-Mar 2020 (£’000) (138) (22) (94) (1) (255) 31-Mar 2020 (£’000) 116 108 1,948 1,259 3,431 All trade receivable amounts are short term. The carrying value is considered a fair approximation of their fair value. The Group applies the IFRS 9 simplified approach to measuring expected credit losses (“ECLs”) for trade receivables at an amount equal to lifetime ECLs. 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 (2020: £nil). The amounts due from related parties are net of provisions. At 31 March 2021 Tatton Asset Management plc made full provision of £60,000 against the recoverability of amounts due from Jargonfree Benefits LLP in addition to the full provision of £1,251,000 made at 31 March 2017 by Paradigm Mortgage Services LLP. During the year, Paradigm Partners Limited wrote off a debt with Amber Financial Investments Limited (“Amber”) of £350,000 which had been fully provided for. Amber was previously a related party as an entity controlled by Paul Hogarth until its sale in November 2020. The carrying value of the provisions as at 31 March 2021 was £1,311,000 (2020: £1,601,000). Trade receivable amounts are all held in sterling. 82 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements 15 Trade and Other Payables Trade payables Amounts due to related parties Accruals Deferred income Contingent consideration Other payables Less non-current portion: Contingent consideration Other payables Total non-current trade and other payables Total current trade and other payables 31-Mar 2021 (£’000) 294 236 3,330 132 – 3,111 7,103 – (516) (516) 6,587 31-Mar 2020 (£’000) 275 222 2,476 131 344 3,440 6,888 (172) (530) (702) 6,186 The carrying values of 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. 16 Deferred Taxation Asset/(liability) at 31 March 2019 Acquisition of subsidiary Income statement (charge)/credit Equity charge (Liability)/asset at 31 March 2020 Income statement credit Equity credit Asset/(liability) at 31 March 2021 17 Financial Instruments Deferred capital Share-based Acquisition allowances payments intangibles £’000 £’000 £’000 (45) – (81) – (126) 25 – 149 – 130 (43) 236 563 915 – (227) 11 – (216) 23 – Total £’000 104 (227) 60 (43) (106) 611 915 (101) 1,714 (193) 1,420 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. Tatton Asset Management plc Annual Report and Accounts 2021 83 Financial Statements Notes to the Consolidated Financial Statements continued 17 Financial Instruments continued 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). All financial assets except for financial investments are categorised as loans and receivables and are classified as level 1. Financial investments are categorised as financial assets at fair value through profit or loss and are classified as level 1 and the fair value is determined directly by reference to published prices in an active market. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (LEVEL 1) Financial investments in regulated funds or model portfolios 31-Mar 2021 (£’000) 163 31-Mar 2020 (£’000) 28 All financial liabilities except for contingent consideration are categorised as financial liabilities measured at amortised cost and are also classified as level 1. The only financial liabilities measured subsequently at fair value on level 3 fair value measurement represent contingent consideration relating to a business combination. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (LEVEL 3) Contingent consideration Balance at 1 April 2020 Paid in the year Changes in fair value of contingent consideration Balance at 31 March 2021 £’000 344 (160) (184) – INTEREST RATE RISK The Group finances its operations through a combination of retained profits and a bank facility which currently remains undrawn. The Group would have an exposure to interest rate risk should this facility be drawn as it has a floating rate above the base rate. The Group’s cash and cash equivalents balance of £16,934,000 was its only financial instrument subject to variable interest rate risk. The impact of a 0.1% increase or decrease in interest rate on the post-tax profit is not material to the Group. At 31 March 2021, total borrowings were £nil (2020: £nil). 84 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements 17 Financial Instruments continued CREDIT RISK 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 31-Mar 2021 (£’000) 16,934 3,808 20,742 31-Mar 2020 (£’000) 12,757 3,110 15,867 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. 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 31-Mar 2021 (£’000) 147 16 5 4 172 31-Mar 2020 (£’000) 75 19 17 5 116 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. LIQUIDITY RISK 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 and IFRS 7 as detailed in the accounting policies to this historical financial information, are as follows: Tatton Asset Management plc Annual Report and Accounts 2021 85 Financial Statements Notes to the Consolidated Financial Statements continued 17 Financial Instruments continued At 31 March 2021, the Group’s non-derivative financial liabilities have contractual maturities (including interest payments where applicable) as summarised below: At 31 March 2021 Trade and other payables Lease liabilities Total Current Non-current Within 6 months 6,228 113 6,341 6 to 12 months – 114 114 1 to 5 years – 516 516 Later than 5 years – – – This compares with the maturity of the Group’s non-derivative financial liabilities in the previous reporting period as follows: At 31 March 2020 Trade and other payables Lease liabilities Contingent consideration Total Current Non-current Within 6 months 5,761 37 – 5,798 6 to 12 months – 84 172 256 1 to 5 years – 530 172 702 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. MARKET RISK The Group has made investments in its own managed funds and portfolios and the value of these investments is subject to equity market risk, being the risk that changes in equity prices will affect the Group’s income or the value of its holdings of financial instruments. If equity prices had been 5% higher/lower, the impact on the Group’s Statement of Comprehensive Income would be £8,000 higher/lower due to changes in the fair value of financial assets at fair value through profit or loss. 18 Equity Authorised, called up and fully paid £0.20 ordinary shares At 1 April 2020 Issue of share capital on exercise of employee share options Issue of share capital on exercise of share warrant At 31 March 2021 Each share in Tatton Asset Management plc carries one vote and the right to a dividend. 19 Own Shares The following movements in own shares occurred during the year: At 1 April 2020 Acquired in the year At 31 March 2021 Number 55,907,513 863,401 1,118,151 57,889,065 Number of shares 413,411 361,746 775,157 £’000 996 973 1,969 Own shares represent the cost of the Company’s own shares, either purchased in the market or issued by the Company, that are held by an EBT to satisfy future awards under the Group’s share-based payment schemes (note 20). 775,157 shares were held in the EBT at 31 March 2021 (2020: 413,411). 86 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements 20 Share-Based Payments During the year, a number of share-based payment schemes and share options schemes have been utilised by the Company, described under 20.1 Current schemes, below. 20.1 CURRENT SCHEMES (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. 3,022,733 options with a weighted average exercise price of £1.89 were granted, exercisable in July 2020. There have been 673,568 options exercised during the period from this scheme and 696,099 of these options lapsed. The scheme was extended on 8 August 2018, 1 August 2019 and 28 July 2020 with 1,720,138, 193,000 and 1,000,000 zero cost options granted in each respective year. These options are exercisable on the third anniversary of the grant date. A total of 3,022,733 options with a weighted average exercise price of £1.89 were granted, each exercisable in July 2020. The options vest in August 2021, August 2022 or July 2023 provided certain performance conditions and targets, set prior to grant, have been met. If the performance conditions are not met, the options lapse. A total of 4,386,070 options remains outstanding at 31 March 2021, 1,522,617 of which are currently exercisable. No options were forfeited in the period (2020: 68,319 options were forfeited). Within the accounts of the Company, the fair value at grant date is estimated using the appropriate models including both the Black- Scholes and Monte Carlo modelling methodologies. Outstanding at 1 April 2019 Granted during the period Forfeited during the period Outstanding at 31 March 2020 Exercisable at 31 March 2020 Outstanding at 1 April 2020 Granted during the period Exercised during the period Lapsed during the period Forfeited during the period Outstanding at 31 March 2021 Exercisable at 31 March 2021 Number of share options granted (number) 4,631,056 193,000 (68,319) 4,755,737 – 4,755,737 1,000,000 (673,568) (696,099) – 4,386,070 1,522,617 Weighted average price (£) 1.19 – 0.52 1.15 – 1.15 – 1.70 1.83 – 0.66 1.89 (II) TATTON ASSET MANAGEMENT PLC SHARESAVE SCHEME (“TAM SHARESAVE SCHEME”) On 7 July 2017, 5 July 2018, 3 July 2019 and 6 July 2020 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. Over the life of the 2018 TAM Sharesave scheme it is estimated that, based on current saving rates, 48,688 share options will be exercisable at an exercise price of £1.90. Over the life of the 2019 TAM Sharesave scheme it is estimated that, based on current savings rates, 75,610 share options will be exercisable at an exercise price of £1.79. Over the life of 2020 TAM Sharesave scheme it is estimated that, based on current savings rates, 134,656 share options will be exercisable at an exercise price of £2.29. During the period, 189,833 options have been exercised and 2,940 options have been forfeited. Tatton Asset Management plc Annual Report and Accounts 2021 87 Financial Statements Notes to the Consolidated Financial Statements continued 20 Share-Based Payments continued 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 options and the average 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 20.2 and 20.3 below respectively. Number of share options Weighted average Outstanding at 1 April 2019 Granted during the period Forfeited during the period Outstanding at 31 March 2020 Exercisable at 31 March 2020 Outstanding at 1 April 2020 Granted during the period Exercised during the period Forfeited during the period Outstanding at 31 March 2021 Exercisable at 31 March 2021 granted (number) 131,976 102,493 (10,741) 223,728 26,176 223,728 70,894 (189,833) (2,940) 101,849 10,588 20.2 VALUATION ASSUMPTIONS 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 (%) EMI scheme Sharesave scheme 2020 2.84 – 34.80 3.00 (0.06) 3.38 2019 2.12 – 30.44 3.00 0.35 3.96 2018 2.40 – 28.48 3.00 0.81 2.75 2017 1.89 1.70 26.00 3.00 0.66 4.50 2020 2.85 2.29 34.80 3.00 (0.06) 3.38 2019 2.14 1.79 30.44 3.00 0.35 3.96 2018 2.34 1.90 28.48 3.00 0.81 2.75 20.3 IFRS 2 SHARE-BASED OPTION COSTS TAM EMI scheme TAM Sharesave scheme 31-Mar 2021 (£’000) 3,716 24 3,740 price (£) 1.70 1.75 1.85 1.73 1.70 1.73 2.08 1.70 2.01 1.81 1.70 2017 1.89 1.70 26.00 3.00 0.66 4.50 31-Mar 2020 (£’000) 84 24 108 88 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements 21 Related Party Transactions ULTIMATE CONTROLLING PARTY The Directors consider there to be no ultimate controlling party. RELATIONSHIPS The Group has trading relationships with the following entities in which Paul Hogarth, a Director, has a beneficial interest: Entity Amber Financial Investments Limited Nature of transactions The Group provides discretionary fund management services, as well as accounting and administration services. Paradigm Investment Management LLP The Group incurs finance charges. Suffolk Life Pensions Limited The Group pays lease rental payments on an office building held in a pension fund by Paul Hogarth. From 30 November 2020 Amber Financial Investments Limited is no longer a related party. The transactions shown below are those which took place in the financial period during which the company was a related party. The balance receivable/payable is the year end balance. RELATED PARTY BALANCES Terms and conditions Amber Financial Investments Limited Payable within 30 days Jargonfree Benefits LLP Repayment on demand Paradigm Management Partners LLP Repayment on demand Paradigm Investment Management LLP Repayment on demand Suffolk Life Pensions Limited Payable in advance Hermitage Holdings (Wilmslow) Limited Repayment on demand Balances with related parties are non-interest bearing. Value of income/ (cost) (£’000) 2021 Balance receivable/ (payable) (£’000) 226 – – (2) (76) (18) 29 – – (235) (1) – Value of income/ (cost) (£’000) 297 15 1 (5) (57) 4 2020 Balance receivable/ (payable) (£’000) 25 66 5 (234) 9 4 KEY MANAGEMENT PERSONNEL REMUNERATION Key management includes Executive and Non-Executive Directors. The compensation paid or payable to key management personnel is as disclosed in note 10. Tatton Asset Management plc Annual Report and Accounts 2021 89 Financial Statements Notes to the Consolidated Financial Statements continued 22 Alternative Performance Measures (“APMs”) APM Adjusted operating profit before separately disclosed items Closest Reconciling items to equivalent measure their statutory measure Operating profit Exceptional items, share-based payments and amortisation of client relationship intangibles. See note 6. Adjusted profit before tax; before separately disclosed items Profit before tax Exceptional items, share-based payments and amortisation of client relationship intangibles. See note 6. Adjusted earnings per share – Basic Earnings per share – Basic Adjusted earnings per share – Diluted Earnings per share – Diluted Net cash generated from operations before separately disclosed items Net cash generated from operations Exceptional items, share-based payments and amortisation of client relationship intangibles and the tax thereon. See note 9. Exceptional items, share-based payments and amortisation of client relationship intangibles and the tax thereon. The dilutive shares for this measure assume that all contingently issuable shares will fully vest. See note 9. Exceptional items, share-based payments and amortisation of client relationship intangibles. See note 6. Definition and purpose An important measure where exceptional items distort the understanding of the operating performance of the business. Allows comparability between periods. See also note 2.23. An important measure where exceptional items distort the understanding of the operating performance of the business. Allows comparability between periods. See also note 2.23. An important measure where exceptional items distort the understanding of the operating performance of the business. Allows comparability between periods. See also note 2.23. An important measure where exceptional items distort the understanding of the operating performance of the business. Allows 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. 90 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements 22 Alternative Performance Measures (“APMs”) continued OTHER MEASURES APM Tatton – assets under management (“AUM”) and net inflows Closest Reconciling items to equivalent measure their statutory measure None Not applicable Paradigm Consulting members and growth Paradigm Mortgages lending, member firms and growth None None Not applicable Not applicable Dividend cover None Not applicable CAGR in AUM and CAGR in Tatton firm numbers None Not applicable Average annual net inflows None Not applicable 23 Post Balance Sheet Events There were no material post balance sheet events. 24 Capital Commitments Definition and purpose 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. Net inflows measure the net of inflows and outflows of customers assets in the year. Alternative growth measure to revenue, giving an operational view of growth. Alternative growth measure to revenue, giving an operational view of growth. Dividend cover (being the ratio of the proposed final dividend against diluted earnings per share before exceptional items and share-based charges) demonstrates the Group’s ability to pay the proposed dividend. The Cumulative Annual Growth Rate in AUM and Tatton firm numbers since the Group listed on the AIM Stock exchange in July 2017. The average annual net inflows since the Group listed on the AIM stock exchange in July 2017. At 31 March 2021, the Directors confirmed there were no capital commitments (2020: none) for capital improvements. 25 Contingent Liabilities At 31 March 2021, the Directors confirmed there were no contingent liabilities (2020: none). Tatton Asset Management plc Annual Report and Accounts 2021 91 Financial Statements Company Statement of Financial Position AS AT 31 MARCH 2021 Non-current assets Investments in subsidiaries Property, plant and equipment Deferred 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 Total current liabilities Net assets Equity attributable to equity holders of the Company Share capital Share premium account Own shares Merger reserve Retained earnings Total equity Note 5 17 13 14 15 16 12 31-Mar 2021 (£’000) 77,216 13 – 77,229 9,397 8,182 17,579 94,808 (1,791) (1,791) 93,017 11,578 11,534 (1,969) 67,316 4,558 93,017 31-Mar 2020 (£’000) 77,216 5 235 77,456 9,264 7,657 16,921 94,377 (1,932) (1,932) 92,445 11,182 8,718 (996) 67,316 6,225 92,445 The Company generated a profit of £1,017,000 during the financial year (2020: profit of £5,706,000). The financial statements were approved by the Board of Directors on 14 June 2021 and were signed on its behalf by: PAUL EDWARDS Director Company registration number: 10634323 92 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements Company Statement of Changes in Equity FOR THE YEAR ENDED 31 MARCH 2021 At 1 April 2019 Profit and total comprehensive income Dividends Share-based payments Deferred tax on share-based payments Own shares acquired in the year At 31 March 2020 Profit and total comprehensive income Dividends Share-based payments Deferred tax on share-based payments Issue of share capital on exercise of employee share options Own shares acquired in the year At 31 March 2021 Share capital (£’000) 11,182 Share premium (£’000) 8,718 – – – – – – – – – – 11,182 8,718 – – – – – – – – 396 2,816 Own shares (£’000) – – – – – (996) (996) – – – – – – – 11,578 11,534 (973) (1,969) Merger reserve (£’000) 67,316 Retained earnings (£’000) 5,397 Total equity (£’000) 92,613 – – – – – 5,706 5,706 (4,920) (4,920) 85 85 (43) (43) – (996) 67,316 6,225 92,445 1,017 (5,551) 2,953 1,017 (5,551) 2,953 (86) (86) – – 3,212 (973) 93,017 67,316 4,558 – – – – – – The merger reserve was 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. The merger reserve is non-distributable. Tatton Asset Management plc Annual Report and Accounts 2021 93 Financial Statements Notes to the Company Financial Statements 1 Authorisation of Financial Statements and Statement of Compliance with FRS 101 The financial statements of Tatton Asset Management plc for the year ended 31 March 2021 were authorised for issue by the Board of Directors on 14 June 2021. 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 Accounting Policies 2.1 ACCOUNTING POLICIES The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended 31 March 2021. The Company has taken advantage of 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 INVESTMENTS 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 FINANCIAL INSTRUMENTS Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, and trade and other payables. 2.4 TRADE AND OTHER RECEIVABLES 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 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. 2.6 CASH AND CASH EQUIVALENTS 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. 94 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements 2 Accounting Policies continued 2.7 SHARE-BASED PAYMENTS 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. 2.8 INTEREST INCOME AND INTEREST EXPENSE 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 TAXATION CURRENT TAX The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Total Comprehensive Income 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 where 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 Statement of Total Comprehensive Income, 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. Tatton Asset Management plc Annual Report and Accounts 2021 95 Financial Statements Notes to the Company Financial Statements continued 2 Accounting Policies continued 2.10 DIVIDENDS 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. 2.11 RETIREMENT BENEFIT COSTS 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. 3 Operating Loss The following items have been included in arriving at the operating loss for continuing operations: Share-based payment charges (note 11) 31-Mar 2021 (£’000) 3,740 31-Mar 2020 (£’000) 108 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 Services Provided by the Company’s Auditor 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 TAM plc Services provided by the Group’s auditor: Non-audit services 5 Investments Cost and net book value at 1 April 2019, 31 March 2020 and 31 March 2021 The principal investments comprise 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 Crown Investments Limited* Sinfonia Asset Management Limited Country of incorporation United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom 31-Mar 2021 (£’000) 69 18 31-Mar 2020 (£’000) 34 22 £’000 77,216 Holding 100% 100% 100% 100% 100% 100% 100% 100% 100% Direct/Indirect Direct Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect * Indicates that this subsidiary is entitled to exemption from audit under section 479A of the Companies Act 2006 for the year ending 31 March 2021. All entities above are included within the consolidated financial statements for TAM plc and all have the same registered address as the Company. 96 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements 6 Directors and Employees 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 Pension costs Share-based payment charges The remuneration of the highest paid Director was: Total 7 Ultimate Controlling Party The Directors consider that there is no ultimate controlling party. 8 Finance Costs Bank interest income Interest payable in servicing of banking facilities 9 Taxation Current tax income Current tax on profits for the period Deferred tax charge/(income) Share-based payments Adjustment in respect of previous years Difference in tax rates Total tax charge/(income) 31-Mar 2021 Number 11 31-Mar 2021 (£’000) 1,521 188 10 3,740 5,459 31-Mar 2021 (£’000) 794 31-Mar 2021 (£’000) 1 (181) (180) 31-Mar 2021 (£’000) – 149 – – 149 31-Mar 2020 Number 12 31-Mar 2020 (£’000) 1,130 142 12 108 1,392 31-Mar 2020 (£’000) 347 31-Mar 2020 (£’000) – – – 31-Mar 2020 (£’000) – 4 (123) (16) (135) Tatton Asset Management plc Annual Report and Accounts 2021 97 Financial Statements Notes to the Company Financial Statements continued 9 Taxation continued 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% (2020: 19%) Expenses not deductible for tax purposes Income not taxable Differences in tax rates Share-based payments Adjustments in respect of prior years Group relief Total tax charge/(credit) 31-Mar 2021 (£’000) 1,166 221 54 (1,501) – 522 – 853 149 31-Mar 2020 (£’000) 5,571 1,059 25 (1,496) (16) 4 (123) 412 (135) In the 3 March 2021 Budget, it was announced that the UK corporation tax rate will increase to 25% from 1 April 2023. Deferred tax is calculated using the rate expected to apply when the relevant timing differences are forecast to unwind. 10 Dividend Paid and Proposed During the year, Tatton Asset Management plc paid the final dividend related to the year ended 31 March 2020 of £3,552,000, representing a payment of 6.4p per share. In addition, the Company paid an interim dividend of £1,999,000 (2020: £1,789,000) to its equity shareholders. This represents a payment of 3.5p per share (2020: 3.2p per share). In addition, the Directors are proposing a final dividend in respect of the financial year ended 31 March 2021 of 7.5p (2020: 6.4p) per share which will absorb an estimated £4.3 million (2020: £3.6 million) of shareholders’ funds. It will be paid on 28 July 2021 to shareholders who are on the register of members on 25 June 2021. 11 Share-based Payments Details of share-based payments are shown in note 20 to the consolidated financial statements. 12 Own Shares Details of own shares are shown in note 19 to the consolidated financial statements. 98 Tatton Asset Management plc Annual Report and Accounts 2021 Strategic Report Corporate Governance Financial Statements 13 Trade and Other Receivables Amounts due from related parties Prepayments and accrued income Other debtors 31-Mar 2021 (£’000) 8,821 553 23 9,397 31-Mar 2020 (£’000) 9,184 50 30 9,264 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 made. The carrying value is considered a fair approximation of their fair value. At 31 March 2021 Tatton Asset Management plc made full provision of £60,000 against the recoverability of amounts due from a related party, Jargonfree Benefits LLP. This provision has been charged to the Statement of Total Comprehensive Income and there has been no other provision made for impairment of receivable balances (2020: £nil). Trade receivable amounts are all held in sterling. 14 Cash and Cash Equivalents Cash at bank 15 Trade and Other Payables Trade payables Amounts due to related parties Accruals Other creditors 31-Mar 2021 (£’000) 8,182 31-Mar 2021 (£’000) 55 110 1,626 – 1,791 31-Mar 2020 (£’000) 7,657 31-Mar 2020 (£’000) 44 1,309 534 45 1,932 The carrying values of 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. 16 Equity Authorised, called up and fully paid £0.20 ordinary shares At 1 April 2020 Issue of share capital on exercise of employee share options Issue of share capital on exercise of share warrant At 31 March 2021 Each share in Tatton Asset Management plc carries one vote and the right to a dividend. Number 55,907,513 863,401 1 ,1 1 8 ,1 5 1 57,889,065 Tatton Asset Management plc Annual Report and Accounts 2021 99 Financial Statements Notes to the Company Financial Statements continued 17 Deferred Taxation Asset at 31 March 2019 Income statement credit Equity charge Asset at 31 March 2020 Income statement charge Equity charge Asset at 31 March 2021 18 Contingent Liabilities Share-based payments £’000 143 135 (43) 235 (149) (86) – Total £’000 143 135 (43) 235 (149) (86) – At 31 March 2021, the Directors confirmed there were no contingent liabilities (2020: none). 19 Capital Commitments At 31 March 2021, the Directors confirmed there were no capital commitments (2020: none) for capital improvements. 20 Related Party Transactions 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 TAM plc. There are no other related party transactions other than those that have been disclosed in note 21 to the consolidated financial statements. 20.1 TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL Other than the Directors and Officers of the Group (see note 21 to the consolidated financial statements), no other key management personnel have been identified. 21 Events After the Reporting Period There were no events after the reporting period. 100 Tatton Asset Management plc Annual Report and Accounts 2021 Consultancy, design and production www.luminous.co.uk Design and production www.luminous.co.uk Paradigm House, Brooke Court, Wilmslow, Cheshire SK9 3ND 

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