TIDMTAM
RNS Number : 0282Q
Tatton Asset Management PLC
16 June 2020
16 June 2020
Tatton Asset Management PLC
("TAM plc", the "Group" or the "Company")
AIM: TAM
AUDITED FINAL RESULTS
For the year ended 31 March 2020
TAM plc, the investment management and IFA support services
group, today announces its audited final results for the year ended
31 March 2020.
FINANCIAL HIGHLIGHTS
-- Group revenue increased 22.0% to GBP21.369m (2019: GBP17.518m)
-- Adjusted Operating Profit(1) up 24.2% to GBP9.076m (2019: GBP7.308m)
-- Adjusted Operating Profit(1) margin increased to 42.5% (2019: 41.7%)
-- Operating profit increased to GBP10.302m (2019: GBP5.925m)
-- Profit before tax increased to GBP10.296m (2019: GBP6.112m)
-- Final dividend increased by 14.3% to 6.4p (2019: 5.6p), giving a
full year dividend of 9.6p
-- Fully diluted adjusted earnings per share ("EPS")(2) increased by
19.8% to 12.00p (2019: 10.02p)
-- Healthy financial position, strong balance sheet and GBP12.757m of
net cash (2019: GBP12.192m)
Operating profit before exceptional items, IFRS2 share-based payment
(1) costs and amortisation of acquired intangibles
Adjusted fully diluted earnings per share is calculated by dividing
(2) the adjusted operating profit less cash interest and less tax on operating
activities by the weighted average number of ordinary shares in issue
during the year plus potentially dilutive ordinary shares
OPERATIONAL HIGHLIGHTS
-- Tatton Investment Management's ("Tatton") discretionary assets under
management ("AUM") increased 9.6% to GBP6.651bn (2019: GBP6.068bn)
-- Organic net inflows of GBP1.129bn (2019: GBP1.106bn) or 18.6% of
opening AUM, an average of GBP94.1m per month
-- The Group responded swiftly to the COVID-19 outbreak and efficiently
implemented comprehensive business continuity plans
-- The Group made its first acquisition: Sinfonia Asset Management Limited,
five risk targeted funds that complement the current fund range proposition
-- Tatton increased its firms by 33.7% to 595 (2019: 445) and number
of accounts to 66,100 (2019: 58,500)
-- Tatton's long-term business partnership with Tenet, which was announced
in June 2019, is developing well with81 new Independent Financial
Adviser ("IFA") firms and initial business activity has resulted
in AUM of GBP226m
-- Amalgamation of Consulting and Mortgages creating a simplified IFA
support services business, allowing the Group to better meet the
needs of IFAs through an integrated approach
-- Paradigm Mortgage Services increased gross lending via its channels
by 17.5% to GBP9.86bn (2019: GBP8.39bn)
-- Paradigm Consulting increased the number of member firms to 394 (2019:
390)
Paul Hogarth, Chief Executive Officer, commented:
" I am pleased to report another year of progress for the Group,
in this our third year as a plc. Despite a complex macro backdrop,
we have continued to perform strongly and delivered against all the
challenging targets we set ourselves at the time of our IPO.
I am particularly pleased with how the Group has reacted to
recent events working remotely and maintaining our focus on
supporting our IFAs and wider client base. I personally feel that
you cannot beat face to face advice and look forward to the
resumption of normal business practices as and when circumstances
allow. It will be great to see our IFA partners moving their
businesses forward and supporting their clients in their normal
manner.
This year the Group made its first acquisition of Sinfonia Asset
Management from Tenet and the integration process has gone well, we
have made very good progress working with the Tenet firms and
converting them to the benefits of the Tatton DFM proposition.
Looking forward we are committed to making Tatton a true asset
manager and we are looking to enhance its investment product
offering. As always, we rely on IFA feedback which enables us to
shape and develop our proposition.
will, inevitably, be opportunities in our markets, as a result
of this unprecedented disruption. TAM plc maintains its clear focus
on delivering sustainable organic and acquisitive growth and is
well placed to act should any appropriate opportunities arise.
The Board is looking forward to the future with confidence and
to reporting on the Group's progress as the year unfolds."
For further information, please contact:
Tatton Asset Management plc
Paul Hogarth (Chief Executive Officer)
Paul Edwards (Chief Financial Officer)
Lothar Mentel (Chief Investment Officer) +44 (0) 161 486 3441
Zeus Capital - Nomad and Broker
Martin Green (Corporate Finance)
Dan Bate (Corporate Finance and QE) +44 (0) 20 3829 5000
N+1 Singer - Joint Broker
Peter Steel (Corporate Finance) +44 (0) 20 7496 3061
Rachel Hayes (Corporate Broking) +44 (0) 20 7496 3189
Belvedere Communications - Financial tattonpr@belvederepr.com
PR +44 (0) 7407 023 147
John West / Llew Angus (media) + 44 (0) 7715 769 078
Cat Valentine / Keeley Clarke (investors)
Trade Media Enquiries
Roddi Vaughan Thomas +44 (0) 20 7139 1452
For more information, please visit:
www.tattonassetmanagement.com
Chairman's Statement
Continued progress against our strategy
The financial year ended 31 March 2020 was a challenging period
beginning amid the political turmoil caused by Brexit and
concluding with the onset of an unprecedented global health crisis.
Nevertheless TAM plc has achieved a third successive year of growth
in revenue, profits and assets under management ("AUM").
COVID-19 began to affect financial markets across the world at
the end of January 2020, and we have included a separate report on
its impact on our businesses in the section immediately following
this statement. The Board would like to express our sincere hope
that all shareholders, staff, clients, advisors and suppliers, have
been able to keep safe during this unprecedented development and
will be able to get through the pandemic in as positive a manner as
is possible.
Our people
On behalf of the Board, I would like to take the opportunity to
acknowledge the very high level of contribution from each member of
staff that has made it possible to achieve the position outlined in
this statement, and to offer our grateful thanks. At the same time,
I should draw attention to the positive and effective leadership
provided by the Executive, in unprecedented circumstances, which
has enabled the Group to sustain the service levels and high
standards needed to maintain positive trading over the last few
months, and will equip us to meet the challenges ahead.
Results
The impact of COVID-19 in the period under review has been to
reduce the value of AUM during February and March 2020, although
flows of net new funds, and revenues, held up well.
Group revenues increased by 22.0% to GBP21.369 million (2019:
GBP17.518 million). Adjusted Operating Profit* increased by 24.2%
to GBP9.076 million (2019: GBP7.308 million) and profit before tax,
after incurring exceptional items and share-based payment charges,
was GBP10.296 million (2019: GBP6.112 million). The resulting
impact on fully diluted adjusted earnings per share was an increase
of 19.8% to 12.00p (2019: 10.02p). Basic earnings per share were
14.98p (2019: 8.69p).
Tatton, our on-platform discretionary asset manager, increased
AUM by 9.6% to GBP6.651 billion (2019: GBP6.068 billion) with
strong net inflows of GBP1.129 billion. Paradigm, the Group's IFA
support business, has enjoyed another year of growth, increasing
both the number of member firms and revenue flows. Mortgage
Services, the Group's mortgage distribution and support services
business, continued to grow well. Member firms increased 10.9% to
1,544 with associated gross lending from completions increasing
17.5% to GBP9.86 billion (31 March 2019: GBP8.39 billion).
Strategy
The Group's strategic objectives have not been materially
affected by recent events. We retain our focus on organic growth
through the provision of products and services that are designed to
enable Independent Financial Advisers ("IFAs") to advise their
clients, and we continue to invest in both people and technology
that will steadily grow the business by enhancing our support for
them.
Our operating systems have been designed in such a way that
staff, working from home, are able to maintain service levels and
standards that sustain the broad product offering of all our
underlying businesses. We are now focused on reinforcing resilience
in our operational, business development, and financial management
capabilities.
Challenging market conditions create opportunities and threats
in diverse areas and we are acutely conscious of the possibility of
further consolidation in our industry. We have evaluated several
acquisition opportunities during the period under review but remain
committed to pursuing only those which are complementary,
strategically aligned to the existing model, earnings enhancing and
accretive to shareholder value.
Board and corporate governance
TAM plc remains committed to the highest standards of corporate
governance. The Board and its Committees are key to guiding the
Company and leading its strategy, and we are determined to ensure
that we have the right mix of skill sets to steer the Group
forward. In a business evolving in the current challenging
environment, we will maintain a governance structure that underpins
and encourages growth, while ensuring effective controls and
safeguards are in place.
Section 172 Statement
Section 172 of the Companies Act 2006 requires the Directors to
act in the way that they consider, in good faith, would most likely
promote the success of the Company for the benefit of its members
as a whole. Further information on our engagement with stakeholders
and consideration of our dividend policy can be found in our full
financial statements.
Dividends
Given the Group's performance this year; the strong cash
generation; and our confidence that we can adapt to meet changing
market circumstances, the Board is proposing a final dividend of
6.4p per share, bringing the total ordinary dividend for the year
to 9.6p per share, an increase of 14.3%, which is 1.9 times covered
by adjusted earnings per share. The Board continues to operate a
progressive dividend policy and targets a payout ratio in the
region of 70% of annual adjusted earnings per share over the medium
term.
Outlook
While the trading period immediately in front of us is not easy
to read, the Group remains well-positioned to execute our
strategy.
As the new financial year progresses, we will adapt where
necessary to meet changing trading conditions, while continuing to
build on the success achieved to date through further investment in
efficient operations and customer service. As a result we
anticipate delivering continued returns to our shareholders through
a progressive dividend policy, and remain optimistic over our
ability to achieve further progress.
COVID-19 impact
The COVID-19 pandemic has impacted all businesses to varying
degrees. The Board of TAM is pleased to report that, whilst the
Group's performance has been affected, the Group operates in
resilient markets and the directors believe the fundamentals of the
business and its route to market remain strong and relevant in
these unprecedented times.
Throughout the pandemic, the Group has supported its customers
(the IFAs) by providing valuable data and narrative to enable them
to communicate clearly with their clients, further cementing
long-term mutually beneficial relationships.
TAM plc has a low-risk, high-margin business model, based on
strong levels of recurring revenue (circa 85% over the last 3
years). Whilst it's still too early to estimate accurately the full
financial impact of the pandemic, the Group has a robust financial
liquidity position with GBP12.8 million cash at 31 March 2020 and
no debt; a GBP1.5 million overdraft facility which remains undrawn;
and a highly efficient working capital cycle, ensuring strong
operating cash conversion (c.100% of adjusted operating profit).
The Company also has indications of a good level of support from
quality lending institutions, in the unlikely event that this will
be required.
The Board is confident that the Group has more than adequate
resources to withstand the challenges the pandemic presents in the
short to mid-term.
As noted above, the dividend policy remains unchanged.
The Group operates on a lean cost base, which enables our
businesses to remain competitive in their markets. However, we are
undertaking a cost reduction exercise to ensure that all
opportunities to improve efficiency are explored. Whilst investment
in future growth will continue, a moratorium on material capital
expenditure is in place and salary increases and bonuses have been
frozen until the COVID-19 situation unfolds. The Group will not
take advantage of Government support schemes, which the Board
believes are intended for businesses significantly more affected
than TAM plc.
The Group's forecast has been reviewed and updated for the
expected impact of COVID-19 pandemic, 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 Board will continue to support its people and take all the
precautions necessary to ensure the Company's ongoing robust
financial health and remains vigilant, constantly monitoring the
evolving situation. New opportunities to strengthen the business
through acquisition will also be evaluated if and when they
arise.
Roger Cornick
Chairman
* Alternative performance measures are detailed in note 23.
Chief Executive's Review
Investment evolved
I am pleased to report on another year of progress for the
Group, in this our third year as a plc. Despite a complex macro
backdrop, we have continued to perform strongly and delivered
against all the challenging targets we set ourselves at the time of
our IPO.
We floated in 2017 with a clear strategy to drive revenue and
profitability through the development and growth of assets under
management (AUM), and by building on existing relationships, while
further developing new relationships with IFAs and new members
across the Group.
Since then, we have increased our AUM from GBP3.9bn to over
GBP6.6bn, an increase of circa 70%. Almost all of this growth has
been achieved organically. In the year under review, net inflows
averaged GBP94.1m per month, compared to GBP90.0m per month in the
prior year, with additional support from the acquisition of
Sinfonia Asset Management from Tenet in September 2019, which added
a further GBP135m of AUM.
Today, Tatton is working with over 595 IFA firms, and manages
66,100 client accounts, representing growth of 114% and 55%
respectively since IPO. The number of Paradigm Consulting IFA
firms, for whom we provide regulatory and compliance services, has
also continued to grow in this three-year period, increasing from
352 to 394, and our Mortgages Services membership increased from
1,069 to 1,544.
Over the three years since IPO the key driver for the Group's
growth in both revenue and profits has been our on platform
Discretionary Fund Management Managed Portfolio Service ("DFM MPS")
proposition, which remains the most competitive in the market. It
has no minimum investment and delivers a standard of service to all
levels of investors and their IFA irrespective of portfolio size,
which some other providers normally reserve for wealthier clients.
This, combined with risk management, creates a compelling
proposition for IFAs.
The Group has achieved its targets, despite facing some major
headwinds: global equity markets endured steep declines in Q4 2018
amid persistent worries over trade and economic growth; uncertainty
surrounding the UK's Brexit plans followed closely, creating
investor hesitancy throughout 2019; and, in the final month of the
year under review, the COVID-19 pandemic and resulting lockdowns
which wiped trillions off equity values around the world.
We have weathered all these storms and have continued to deliver
growth in line with expectations, by focusing on providing simple
but effective solution-based services to our clients, including the
most competitive DFM offering available. I would like to thank our
shareholders for backing our team and supporting our ambitions and
our clients for their continuing commitment and faith in our
ability to deliver an unrivalled service.
COVID-19
As stated in our most recent Trading Update, the Group responded
swiftly to the Covid-19 outbreak and efficiently implemented
comprehensive business continuity plans. We pivoted to remote
working, seamlessly replicating our processes and systems, whilst
safeguarding the health and safety of our employees and ensuring
that the business continued to service our clients as normal. The
Group will not be taking advantage of any Government support
scheme, which the Board believes are intended for businesses which
have been significantly more affected than TAM plc.
The market overview
Before the impact of COVID-19 IFA businesses were continuing to
thrive, reporting increased levels of turnover and profitability.
Over the last 12 months, the number of IFA firms across the full
IFA population has remained static and we would expect that, post
lockdown, IFAs will return to recent historic levels of activity.
We do not expect the number of supporting firms to reduce due to
COVID-19 issues, as their recurring revenue model and low geared
cost base ensures continued financial prosperity.
Tatton has always believed in the benefits of independent
intermediated advice, and we are very encouraged by how IFAs are
adapting to change and delivering value to their clients, while
maintaining profitable businesses. The requirement for independent
financial advisory services continues to grow with eight out of ten
advisers reporting an increase in client numbers year on year. It
is interesting to note that robo-advisory businesses, which provide
financial advice and investment management based on mathematical
rules or algorithms and with minimal human intervention, are
struggling to reach critical mass and financial viability.
While many financial advisers continue to manage and run
portfolios in-house, it is clear that an increasing number are
reviewing their business models in favour of the outsourced
investment management services, which contribute to improved
efficiency in the financial planning process. The complexity of the
financial planning process and burden of regulation, including
MIFID II reporting, makes researching and maintaining investment
portfolios in-house challenging and increasingly expensive. When
set against a backdrop of increased global market volatility and
economic uncertainty, we see the trend for outsourcing escalating
and demand for Tatton's services increasing.
The broader opportunity for Tatton continues to improve, with
over GBP500bn of assets currently sitting on platforms of which
more than GBP50bn are in model portfolios. Tatton currently has
GBP6.651bn and is the largest provider of DFM MPS. Platforms are
expected to grow by 5-6% per annum, with some commentators
forecasting that assets will exceed GBP1.0 trillion by 2023.
Tatton
This year has seen another strong year of growth for Tatton. Net
inflows were GBP1.129bn (2019: GBP1.106bn) and we also experienced
a significant increase in IFA firms to 595 (2019: 445). The closing
balance of AUM was GBP6.651bn, a 9.6% increase on the prior year
despite being impacted by a negative market performance of 14.3% or
GBP1.1bn towards the end of the financial year, due to COVID-19
related market falls. Prior to this, our AUM reached a record level
of GBP7.758bn on 21 February 2020, an increase of 100% since we
joined AIM.
A significant milestone in the year was the strategic
partnership announced in June 2019 with Tenet Group ("Tenet"), one
of the UK's largest financial advisory businesses, to provide a
managed portfolio service for its appointed representatives and
directly authorised firms. Of the 474 Tenet firms, 81 firms are now
using Tatton's services and they have contributed GBP261.0m of net
new flows. The year also saw the acquisition of the Tenet's
Sinfonia funds in September which contributed GBP135.0m of AUM.
Our focus this year will be to consolidate our position as the
leading DFM MPS provider of choice. We will look to leverage our
competitive advantage as being a high value low cost DFM and
further developing our AUM organically. However, it has always been
our intention to become a true asset manager, building on the
success of our MPS services and adapting to increased IFA demand
for cost reducing multi-asset multi manager solutions. This
ambition is achievable through a combination of organic and M&A
activity, enhancing the value of our AUM and continuing to serve
the demands of the IFA sector for improved client solutions.
At the current time, it remains unclear what further impact the
COVID-19 pandemic will have on the business. Since the year end,
AUM has recovered in line with our 0.6 beta(1) to the markets and
the start of the new financial year has seen positive net inflows
in the first two months. Clearly, events will further unfold, but
we believe our business model is robust and resilient and the
business remains well placed to manage its way through the effects
of the pandemic.
Paradigm (IFA support services division)
During the year, we took the decision to simplify our business
units to create a clear distinction between our investment
management and support services businesses. The Paradigm businesses
now report under a single operation and continue to deliver both
IFA Consulting and Mortgage Services.
Paradigm Consulting maintains close relationships with its
financial adviser firms, providing bespoke consultancy and support
and helping them manage the risk of an ever-changing landscape of
regulation. The number of firms has marginally increased in the
year under review, growing from 390 to 394, with a mix of ad hoc
consultancy and competitive pricing contributing to a 9.6% increase
in revenue to GBP2.476m (2019: GBP2.260m).
Paradigm Mortgages aggregates mortgage lending and life
insurance. Membership of Paradigm Mortgages enables advisers and
their clients to benefit from economies of scale and secure access
to the best mortgage deals and life assurance products available.
This year has been a difficult one in the mortgage market, with the
first half framed by Brexit uncertainties and finishing with the
impact of COVID-19. Despite these challenges, revenue rose by 9.7%
to GBP2.949m (2019: GBP2.689m), as membership grew 10.9% to 1,544
(FY19: 1,392) and gross lending from completions rose by 17.5% to
GBP9.86bn (FY19: GBP8.39bn).
The recent lockdown restrictions have made completing mortgages
difficult. This has, inevitably, impacted all parts of the mortgage
supply chain and, while the restrictions have been eased, it will
take time for the market to return to normality. The likely total
impact still remains difficult to forecast. That said, the business
is lean and efficient and remains in good shape to navigate its way
through this crisis.
Current trading and outlook
The strong momentum built through the year has been impacted
during lockdown, with engagement of both existing and potential
client IFAs naturally lower than in the preceding months. Our teams
continue to work remotely, in line with Government guidelines
which, while effective, hampers normal activity levels to a certain
degree. I have no doubt that when restrictions are fully lifted and
we can safely return to normal operation, the Group's new business
flows will also return to normal levels. Naturally this will be
dependent on government guidelines and no further interruptions
caused by freshly imposed restrictions in the future.
All that said, Tatton has provided considerable support and
valuable market data to its IFAs throughout this exceptionally
difficult time. The positive feedback we are receiving shows how
much this work has been appreciated by our IFAs. I believe the
goodwill and positivity around our services will translate to new
business opportunities, as IFA businesses talk with their peers and
come to realise that they have been left significantly exposed with
little or no support in a volatile and difficult market
environment. IFAs who have continued to in-source their investment
proposition have now been exposed on three separate occasions:
Woodford and the "star" fund manager reliance; the suspension and
lack of liquidity in property funds, another favourite of IFAs; and
latterly, the collapse of global markets. These events must have
instilled doubt over the decision to continue providing this
service in-house and will lead them to evaluate peer-recommended
outsourcing alternatives.
We expect Paradigm Consulting to trade as normal through this
uncertain period, albeit remotely. Clearly, the mortgage market and
its behaviour are out of our control and we remain guarded against
forecasting any significant recovery in the short-term. One thing
we know for sure is that lenders will be more risk adverse,
reducing their loan to value (LTV) lending ratio. That said, it is
clear that demand will return in the medium term as structural
market conditions have not fundamentally changed, and Government
incentivisation is anticipated to assist economic recovery post
COVID-19.
It would not be the right description to refer to COVID-19 as a
bump in the road but we have often internally referred to the
recent loss of momentum as leading to a potential lost year on our
growth trajectory. Unfortunate as this is, we believe the Group is
resilient and financially robust, with an enduring business model
and exceptional people. The Board and I have no doubt that the
business will rebuild momentum rapidly when circumstances
permit.
There will, inevitably, be opportunities in our markets as a
result of this unprecedented disruption. Tatton maintains its clear
focus on delivering sustainable organic and acquisitive growth and
is perfectly placed to act should any appropriate opportunities
arise.
The Board looks to the future with confidence and to reporting
on the Group's progress as the year unfolds.
Paul Hogarth
Chief Executive Officer
1. Beta: The level of volatility in comparison to the market as a whole.
Chief Investment Officer's Report
Business growth accelerates
Net inflows remained strong at GBP1.129bn over the year, while
the core proposition was expanded to enhance future growth
potential.
Capital market returns veered from headwind to tailwind during
the 2019 calendar year, while AUM growth was driven by strong
inflows and positive market performance. Until the pandemic crisis,
UK investor sentiment was overshadowed by Brexit, but a more
positive liquidity backdrop - as central banks reversed monetary
tightening - drove global portfolio values upwards.
After reaching a peak of GBP7.8 billion just before the
pandemic, negative market returns drove Tatton's AUM back down to
GBP6.7 billion. Net client inflows remained positive at GBP86
million for March, supported by a continual supply of market
updates and insights during the crisis, which put investor fear
into context and prevented panic-driven redemptions.
As adviser business activity gradually returns, we are
benefitting from the support we gave them during the crisis, which
has strengthened our relationships and boosted confidence in our
portfolio stewardship. Our proactive communication approach,
together with investor returns strictly within the boundaries of
chosen risk profiles, presents a solid base for continued business
growth.
Proposition developments and business investments
Tatton has expanded its range of Blended Funds to five, adding
two risk categories, defensive and aggressive, to meet the risk
spectrum used by IFAs, ensuring a better complementary fit with our
Managed Portfolio Service. Lower charges and consistent performance
from the extended range should capture client assets that cannot
access our Managed Portfolio Service.
The Tatton Bespoke Investment Service ("BPS"), created in 2019,
is gaining inflows and is now available on several investment
platforms. Its competitive, transparent charges offer considerable
opportunity to increase assets during the coronavirus recovery.
IFAs and investors will be seeking price value and we should
benefit from existing supplier disturbance created by the
lockdown.
We expanded our business development capability, adding
office-based lead generation to support our field-based team. This
reinforces our investment in sales and communications marketing
resource to grow the number of firms using Tatton, in particular
Tenet. We are now deepening relationships with more adviser firms
through white label and investment support for larger firms.
We appointed a Deputy Head of Investment and created a new role
of Chief Economist, as well as recruiting a Chief Investment
Strategist. Greater strength and depth within our investment team
will help extend our investment offering across a wider range of
asset allocation requirements, allowing us to reach an
ever-increasing adviser target audience.
Investment portfolio returns
1 April 2019 - 31 March 2020
Tatton Fund Performance (%) - core produce set
(1/4/2019-31/03/2020 after DFM charge and fund costs)
Tatton Active Tatton Tracker Tatton Hybrid Tatton Ethical IA Sector*
-------------- ------------- -------------- ------------- -------------- ----------
Defensive (1.7) (1.1) (1.4) (0.8) (3.5)
Cautious (5.0) (4.1) (4.5) (1.6) (7.1)
Balanced (7.5) (6.4) (7.0) (2.2) (7.4)
Active (10.1) (8.7) (9.4) (3.0) (7.7)
Aggressive (12.5) (11.0) (11.8) (3.5) (8.1)
Global Equity (7.1) (6.2) (6.6) (3.6) (8.1)
-------------- ------------- -------------- ------------- -------------- ----------
Since launch 1/2013
Tatton Fund Performance (%) - core produce set
(1/1/2013-31/03/2020, annualised, after DFM charge and fund
costs)
Tatton Active Tatton Tracker Tatton Hybrid IA Sector*
Defensive 4.3 4.6 4.4 3.5
Cautious 5.4 5.4 5.4 4.2
Balanced 6.1 6.1 6.2 5.1
Active 6.9 7.0 7.0 6.0
Aggressive 7.1 7.6 7.4 6.0
----------- ------------- -------------- ------------- ----------
* IA - Investment Association managed fund peer group with
comparable asset allocation characteristics.
2019/2020 capital markets and returns
Global growth slowed notably in 2019 and although 2020 brought
promising early signs of a recovery, we were waiting for tangible
improvement. Meanwhile, capital markets were banking on a renewed
monetary push from central banks and a steadily rebounding global
economy showing up in the economic dataflow. Easing trade tensions
between the US and China, plus the manufacturing sector emerging
from its third midcycle slowdown of the past decade, had many
investors decidedly bullish. As a result, the equity rally building
since last autumn continued until mid-February, despite corporate
results failing to meet lofty expectations.
Although the coronavirus was initially brushed off as a problem
confined to the Asia-Pacific region, similar to the 2003 SARS
outbreak, the world woke up to the global pandemic threat - and its
economic implications - on 20 February. From this point, asset
markets responded with the broadest and steepest multi-asset
sell-off in history. Prices only stabilised after the announcement
of fiscal and monetary support measures of unprecedented dimension
and reach. Temporarily removing the risk of a devastating global
credit default cycle, together with pledges of limitless
"buyer-of-last-resort" liquidity, has led to a V-shaped recovery in
asset markets which is looking increasingly less likely for the
underlying economy.
This leaves stock market valuations in early June even more
extended than those seen in February, yet with a much more
uncertain outlook. Investment managers cannot apply historic
experience to this situation full of "unknown unknowns", except to
observe that - similar to the aftermath of the global financial
crisis - the enormous injection of financial support is finding its
way into asset price inflation rather than the traditional price
inflation most would expect.
Immense monetary and fiscal support measures, together with the
need to upgrade healthcare provisions and update elements of the
global supply chain, could create the capex demand volumes that had
been lacking in the previous decade - or create inflationary
pressures while growth remains subdued. We will use the discipline
and rigour of our investment approach to position clients'
portfolios to benefit from either outcome, without compromising
investment risk.
In the prevailing market environment, we are satisfied with our
portfolio construction and management on behalf of our investors.
While we share the disappointment of poor capital market returns
overall, this 2020 market crash has borne fewer surprises than
retail investors experienced during the 2008/2009 bear market. By
holding our nerve amid the market chaos around us, our response
ensured portfolios stayed within the boundaries of what our risk
profiles suggested was possible, while fully participating in the
risk asset rebound that followed.
Outlook 2020
Global crises provide catalysts for change and Tatton is well
positioned for the post-lockdown environment. We see a number of
positives for our business model as more advisers and clients
become comfortable with digital engagement, which appeals to our
low-cost operating model. Our cultural agility helps us adapt to
new relationship dynamics and we will enhance this capability with
more "distance business" throughout 2020.
The post-lockdown environment will be highly competitive. Tatton
was deliberately very visible during the crisis, offering a viable
alternative should existing supplier disturbance require advisers
to seek new arrangements for their clients. We will continue to
provide responsive information and insight, and will enhance our
digital capability to engage with the adviser community in
innovative ways.
Lothar Mentel
Chief Investment Officer
Chief Financial Officer's Report
Growth and long-term value creation
Overview
I am pleased to report that the Group has continued to make good
progress and has delivered another year of double-digit growth in
both revenue and adjusted operating profits* with strong
performances from both Tatton and Paradigm.
Record revenue and profits
Revenue - Group reported revenue increased by 22.0% to GBP21.369
million (2019: GBP17.518 million) and includes GBP1.2m relating to
the change in the VAT treatment of Tatton's investment management
services which is explained below.
Tatton revenue increased 27.2% to GBP15.924 million (2019:
GBP12.521 million) supported by the continued growth of AUM, which
ended the year at GBP6.651 billion (2019: GBP6.068 billion), an
increase of 9.6% despite the impact of COVID-19 related market
deterioration which occurred towards the end of the financial year.
The growth of AUM was driven by strong net inflows in the year at
GBP1.129 billion, an average of GBP94.1m per month.
Paradigm continues to make progress following the amalgamation
of Paradigm Mortgages and Paradigm Consulting which was announced
at the interim period, with revenue increasing 9.6% to GBP5.426
million (2019: GBP4.949 million). Mortgages member firms increased
to 1,544 (2019: 1,392) driving an increase of 17.5% in gross
lending from completions to GBP9.86 billion (2019: GBP8.39
billion), Consulting members increased to 394 (2019: 390).
Profit - The Group delivered adjusted operating profit* of
GBP9.076 million (2019: GBP7.308 million), an increase of 24.2% and
adjusted operating profit margin increased to 42.5% (2019: 41.7%).
Total Group operating profit was GBP10.302 million (2019: GBP5.925
million) after crediting separately disclosed items of GBP1.226
million.
Tatton continues to make investments which underpin our growth,
including updating IT systems and the new online portal. In the
second half of the year we have added new resource, including both
investment personnel and sales and marketing resource to help drive
and support future growth; accordingly, adjusted operating profit*
increased 20.9% to GBP8.910 million (2019: GBP7.371 million) and
its margin slightly decreased to 56.0% (2019: 58.9%). Tatton's
continued strong growth has ensured it is now the largest part of
the Group, contributing 74.5% of the revenue and 98.2% of the
adjusted operating profit* (see note 4), a trend that is expected
to continue. Paradigm's adjusted operating profit* contributed
GBP2.128 million (2019: GBP1.818 million), with margin of 39.2%
(2019: 36.7%).
Return on capital employed is 48.8% (31 March 2019: 47.8%). The
Group remains capital light and makes efficient use of the capital
employed to generate strong returns and create value for our
shareholders.
Change in VAT treatment
During the year, the Group has 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 has received a VAT refund relating to the period from May
2015 to March 2019 of GBP1.7m. The refund has been recognised as
exceptional income in the current year results, offset by
professional fees of GBP0.1m. The current year impact of GBP1.2m
has been recognised within revenue, and also an increase in costs
of GBP0.2m relating to the irrecoverable element of input VAT.
Separately disclosed items
Separately disclosed items include the cost of share-based
payments of GBP0.108 million, amortisation of customer relationship
intangible assets of GBP0.060 million, GBP0.097 million of
acquisition-related fees, GBP0.097 million of restructuring costs
and a credit relating to the treatment of VAT of GBP1.588 million,
see note 6 to the Group financial statements. Although some of
these items may recur from one period to the next, operating profit
has been adjusted for these items to give better clarity of the
underlying performance of the Group. The Alternative Performance
Measures ("APMs") are consistent with how the business performance
is planned and reported within the internal management reporting to
the Board. Some of these measures are also used for the purpose of
setting remuneration targets.
Earnings per share
Basic earnings per share increased 72.4% to 14.98p (2019:
8.69p). Adjusted earnings per share* increased 19.5% to 13.13p
(2019: 10.99p) and adjusted fully diluted earnings per share
increased 19.8% to 12.00p (2019: 10.02p).
Cash flow
The Group continued to see healthy cash generation. Net cash
generated from operating activities before exceptional items was
GBP9.831 million (2019: GBP8.011 million), 108.3% of adjusted
operating profit*. Exceptional items totalled GBP1.394 million and
net cash generated from operating activities was GBP8.947 million
(2019: GBP6.136 million). There has been an increase in the level
of income tax paid in the year as Tatton now pays its quarterly
instalments earlier in line with the requirements for "very large"
companies. Tax paid in the year was GBP2.278 million (2019:
GBP1.366 million) and dividends paid in the year totalled GBP4.9
million (2019: GBP4.0 million). The Group made intangible and
tangible asset investments of GBP0.565 million and ended the year
with cash on the balance sheet of GBP12.757 million (2019:
GBP12.192 million).
Dividends and capital allocation
The Board is recommending a final dividend of 6.4p. When added
to the interim dividend of 3.2p this gives a full year dividend of
9.6p. This proposed dividend reflects both our cash performance in
the period and our underlying confidence in our business. Dividend
cover (being the ratio of earnings per share before exceptional
items and share-based payment charges) is 1.9 times. If approved at
the Annual General Meeting the final dividend will be paid on 28
August 2020 to shareholders on the register on 17 July 2020. Our
objective is to maximise long-term shareholder returns through a
disciplined deployment of cash. To support this, we have adopted a
cash allocation policy that allows for: investment in capital
projects that support growth; regular returns to shareholders from
our free cash flow; acquisitions to supplement our existing
portfolio of business; and an efficient balance sheet appropriate
to the Company's investment requirements.
Statement of financial position
The Group continues to strengthen its balance sheet and net
assets increased to GBP17.778 million (2019: GBP15.288 million).
Tangible and intangible assets (excluding goodwill) totalled
GBP2.529 million (2019: GBP0.602 million), increasing in the year
due to recognition of a customer relationships intangible asset of
GBP1.196 million on the acquisition of Sinfonia and the adoption of
IFRS 16, with further increases due to investments made in both
systems and infrastructure. Goodwill totalled GBP6.254 million
(2019: GBP4.917 million), the increase again due to the acquisition
of Sinfonia in September 2019.
New reporting standards
The Group has adopted IFRS 16 'Leases' with effect from 1 April
2019 using the modified retrospective approach, under which method
prior year comparatives have not been restated, with the
right-of-use asset equal to the lease liability at transition date.
The net impact on the balance sheet is a reduction in net assets of
GBP0.1m at March 2020 and there is no material impact on the
Group's KPIs. Further details and the impact are set out in note
2.5 in the financial statements.
Risk management and the year ahead
Risk is managed closely and is spread across our businesses and
managed to individual materiality. Our key risks have been
referenced in our full Annual Report. We choose key performance
indicators that reflect our strategic priorities of investment,
growth and profit. These KPIs are part of our day to day management
of the business and in the year ahead we will focus on growth and
value creation. In this way we aim to deliver continued value to
shareholders.
The Strategic Report has been approved and authorised for issue
by the Board of Directors and signed on their behalf on 15 June
2020 by:
Paul Edwards
Chief Financial Officer
* Alternative performance measures are detailed in note 23 .
CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME
For the year ended 31 March 2020
Note 31-Mar 31-Mar
2020 2019
(GBP'000) (GBP'000)
-------------------------------------------------------- ----- ----------- -----------
Revenue 21,369 17,518
Other exceptional income 1,588 -
Administrative expenses (12,655) (11,593)
-------------------------------------------------------- ----- ----------- -----------
Operating Profit 10,302 5,925
-------------------------------------------------------- ----- ----------- -----------
- Share-based payment costs 6 108 874
- Amortisation of intangibles - customer relationships 6 60 -
- Exceptional items 6 (1,394) 509
-------------------------------------------------------- ----- ----------- -----------
Adjusted Operating Profit (before separately
disclosed items)(1) 9,076 7,308
-------------------------------------------------------- ----- ----------- -----------
Finance (costs)/income 7 (6) 187
-------------------------------------------------------- ----- ----------- -----------
Profit before tax 10,296 6,112
Taxation charge 8 (1,933) (1,255)
Profit attributable to shareholders 8,363 4,857
-------------------------------------------------------- ----- ----------- -----------
Earnings per share - Basic 9 14.98p 8.69p
Earnings per share - Diluted 9 14.54p 7.92p
Adjusted earnings per share - Basic(2) 9 13.13p 10.99p
Adjusted earnings per share - Diluted(2) 9 12.00p 10.02p
-------------------------------------------------------- ----- ----------- -----------
1 Adjusted for exceptional items, amortisation on client
relationship intangibles and share-based payments. See note 23.
2 Adjusted for exceptional items, amortisation on client
relationship intangibles and share-based payments and the tax
thereon. See note 23.
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.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 March 2020
31-Mar 31-Mar
2020 2019
Note (GBP'000) (GBP'000)
--------------------------------------------- ---- ---------- ----------
Non-current assets
Goodwill 11 6,254 4,917
Intangible assets 12 1,495 223
Property, plant and equipment 13 1,034 349
Deferred tax assets 16 - 104
--------------------------------------------- ---- ---------- ----------
Total non-current assets 8,783 5,593
--------------------------------------------- ---- ---------- ----------
Current assets
Trade and other receivables 14 3,431 2,508
Cash and cash equivalents 12,757 12,192
--------------------------------------------- ---- ---------- ----------
Total current assets 16,188 14,700
--------------------------------------------- ---- ---------- ----------
Total assets 24,971 20,293
--------------------------------------------- ---- ---------- ----------
Current liabilities
Trade and other payables 15 (6,186) (4,521)
Corporation tax (199) (484)
--------------------------------------------- ---- ---------- ----------
Total current liabilities (6,385) (5,005)
--------------------------------------------- ---- ---------- ----------
Non-current liabilities
Other payables 15 (702) -
Deferred tax liabilities 16 (106) -
--------------------------------------------- ---- ---------- ----------
Total non-current liabilities (808) -
--------------------------------------------- ---- ---------- ----------
Total liabilities (7,193) (5,005)
--------------------------------------------- ---- ---------- ----------
Net assets 17,778 15,288
--------------------------------------------- ---- ---------- ----------
Equity attributable to equity holders of the
Company
Share capital 18 11,182 11,182
Share premium account 8,718 8,718
Own shares 19 (996) -
Other reserve 2,041 2,041
Merger reserve (28,968) (28,968)
Retained earnings 25,801 22,315
--------------------------------------------- ---- ---------- ----------
Total equity 17,778 15,288
--------------------------------------------- ---- ---------- ----------
The financial statements on were approved by the Board of
Directors on 15 June 2020 and were signed on its behalf by:
Paul Edwards
Director
Company registration number: 10634323
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2020
Share Share Own Other Merger Retained Total
capital premium shares reserve reserve earnings equity
Note (GBP'000) (GBP'000) (GBP'000) (GBP'000) (GBP'000) (GBP'000) (GBP'000)
---------------------------- ---- ---------- ---------- ---------- ---------- ---------- ---------- ----------
At 1 April 2018 11,182 8,718 - 2,041 (28,968) 20,588 13,561
---------------------------- ---- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Profit and total
comprehensive income - - - - - 4,857 4,857
Dividends 9 - - - - - (4,025) (4,025)
Share-based payments 20 - - - - - 765 765
Deferred tax on share-based
payments - - - - - 130 130
---------------------------- ---- ---------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 March 2019 11,182 8,718 - 2,041 (28,968) 22,315 15,288
---------------------------- ---- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Profit and total
comprehensive income - - - - - 8,363 8,363
Dividends 9 - - - - - (4,920) (4,920)
Share-based payments 20 - - - - - 86 86
Deferred tax on
share-based payments - - - - - (43) (43)
Own shares acquired in
the year 19 - - (996) - - - (996)
---------------------------- ---- ---------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 March 2020 11,182 8,718 (996) 2,041 (28,968) 25,801 17,778
---------------------------- ---- ---------- ---------- ---------- ---------- ---------- ---------- ----------
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.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March 2020
31-Mar 31-Mar
2020 2019
Note (GBP'000) (GBP'000)
-------------------------------------------------- ---- ---------- ----------
Operating activities
Profit for the year 8,363 4,857
Adjustments:
Income tax expense 1,933 1,255
Finance costs/(income) 7 6 (187)
Depreciation of property, plant and equipment 13 298 91
Amortisation of intangible assets 12 195 43
Share-based payment expense 6 108 874
Changes in:
Trade and other receivables (1,016) 78
Trade and other payables 1,338 491
-------------------------------------------------- ---- ---------- ----------
Exceptional items 6 (1,394) 509
-------------------------------------------------- ---- ---------- ----------
Cash generated from operations before exceptional
items 9,831 8,011
-------------------------------------------------- ---- ---------- ----------
Cash generated from operations 11,225 7,502
-------------------------------------------------- ---- ---------- ----------
Income tax paid (2,278) (1,366)
-------------------------------------------------- ---- ---------- ----------
Net cash from operating activities 8,947 6,136
-------------------------------------------------- ---- ---------- ----------
Investing activities
Payment for the acquisition of subsidiary, net
of cash acquired 21 (2,002) -
Purchase of intangible assets (271) (266)
Purchase of property, plant and equipment (294) (336)
-------------------------------------------------- ---- ---------- ----------
Net cash used in investing activities (2,567) (602)
-------------------------------------------------- ---- ---------- ----------
Financing activities
Interest received 162 53
Dividends paid 9 (4,920) (4,025)
Purchase of own shares 19 (996) -
Repayment of lease liabilities (61) -
-------------------------------------------------- ---- ---------- ----------
Net cash used in financing activities (5,815) (3,972)
-------------------------------------------------- ---- ---------- ----------
Net increase in cash and cash equivalents 565 1,562
-------------------------------------------------- ---- ---------- ----------
Cash and cash equivalents at beginning of period 12,192 10,630
-------------------------------------------------- ---- ---------- ----------
Net cash and cash equivalents at end of period 12,757 12,192
-------------------------------------------------- ---- ---------- ----------
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 financial information, which comprises the Consolidated
Statement of Total Comprehensive Income, the Consolidated Statement
of Financial Position, the Consolidated Statement of Changes in
Equity, the Consolidated Statement of Cash Flows and the related
notes, is derived from the full Group financial statements for the
year ended 31 March 2020. The Group financial statements have been
prepared in accordance with International Financial Reporting
Standards ("IFRSs") as adopted for use in the European Union and
International Financial Reporting Interpretations Committee
("IFRIC") interpretations issued by the International Accounting
Standards Board ("IASB") and the Companies Act 2006. The financial
information does not constitute full financial statements within
the meaning of section 434 of the Companies Act 2006.
Statutory financial statements for the year ended 31 March 2019
have been delivered to the Registrar of Companies and those for
2020 will be delivered following the Company's AGM. The auditor has
reported on those financial statements: its reports were
unqualified, did not draw attention to any matters by way of
emphasis and did not contain statements under s498 (2) or (3) of
the Companies Act 2006.
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 (GBP'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.
2.3 Basis of consolidation
On 23 February 2017, the Company was incorporated under the name
Nadal Listco Limited, which changed to Tatton Asset Management
Limited on 31 May 2017. On 19 June 2017, the Company acquired the
entire share capital of Nadal Newco Limited via a share for share
exchange with the shareholders of Nadal Newco Limited. On 19 June
2017, Tatton Asset Management Limited was re-registered as a public
company with the name Tatton Asset Management plc.
2.4 Subsidiaries
The Group's financial statements consolidate those of the Parent
Company and all of its subsidiaries as at 31 March 2020. The Parent
controls a subsidiary if it is exposed, or has rights, to variable
returns from its involvement with the subsidiary and has the
ability to affect those returns through its power over the
subsidiary. All subsidiaries have a reporting date of 31 March.
All transactions between Group companies are eliminated on
consolidation, including unrealised gains and losses on
transactions between Group companies. Where unrealised losses on
intra-group asset sales are reversed on consolidation, the
underlying asset is also tested for impairment from a Group
perspective. Amounts reported in the financial statements of
subsidiaries have been adjusted where necessary to ensure
consistency with the accounting policies adopted by the Group.
Profit or loss and other comprehensive income of subsidiaries
acquired or disposed of during the year are recognised from the
effective date of acquisition, up to the effective date of
disposal, as applicable.
2.5 Adoption of new and revised standards
New and amended IFRS Standards that are effective for the
current year
In the current period, the Group, for the first time, has
applied IFRS 16 'Leases' (as issued by the IASB in January 2016)
which became effective for accounting periods beginning on or after
1 January 2019. The date of initial application of IFRS 16 for the
Group was 1 April 2019.
IFRS 16 introduces new or amended requirements with respect to
lease accounting. It introduces significant changes to the lessee
accounting by removing the distinction between operating and
finance lease and requiring the recognition of a right-of-use asset
and a lease liability at commencement for all leases, except for
short-term leases and leases of low value assets.
In contrast to lessee accounting, the requirements for lessor
accounting have remained largely unchanged. The impact of the
adoption of IFRS 16 on the Group's consolidated financial
statements is described below.
The Group has applied IFRS 16 using the modified retrospective
approach. Under this approach, comparative information is not
restated and the cumulative effect of internally applying IFRS 16
is recognised in retained earnings at the date of initial
application, however there is no impact on the net assets and
retained earnings of the Group at 1 April 2019.
Impact on the new definition of a lease
The Group has made use of the practical expedient available on
transition to IFRS 16 not to reassess whether a contract is or
contains a lease. Accordingly, the definition of a lease in
accordance with IAS 17 and IFRIC 4 will continue to be applied to
those leases entered or modified before 1 April 2019. The change in
definition of a lease mainly relates to the concept of control.
IFRS 16 determines whether a contract contains a lease on the basis
of whether the customer has the right to control the use of an
identified asset for a period of time in exchange for
consideration.
The Group applies the definition of a lease and related guidance
set out in IFRS 16 to all lease contracts entered into or modified
on or after 1 April 2019 (whether it is a lessor or a lessee in the
lease contract). In preparation for the first-time application of
IFRS 16, the Group has carried out an implementation project. The
project has shown that the new definition in IFRS 16 will not
change significantly the scope of contracts that meet the
definition of a lease for the Group.
Impact on lessee accounting
Former operating leases
IFRS 16 changes how the Group accounts for leases previously
classified as operating leases under IAS 17, which were off --
balance sheet.
Applying IFRS 16, for all leases (except as noted below), the
Group:
a) recognises right-of-use assets and lease liabilities in the
Consolidated Statement of Financial Position, initially measured at
the present value of the future lease payments;
b) recognises depreciation of right-of-use assets and interest
on lease liabilities in the Consolidated Statement of Total
Comprehensive Income; and
c) separates the total amount of cash paid into a principal
portion (presented within financing activities) and interest
(presented within operating activities) in the Consolidated
Statement of Cash Flows.
Lease incentives (e.g. rent-free period) are recognised as part
of the measurement of the right-of-use assets and lease liabilities
whereas under IAS 17 they resulted in the recognition of a lease
liability incentive, amortised as a reduction of rental expenses on
a straight-line basis.
Under IFRS 16, right-of-use assets will be tested for impairment
in accordance with IAS 36 'Impairment of Assets'. This replaces the
previous requirement to recognise a provision for onerous lease
contracts.
For short-term leases (lease term of 12 months or less) and
leases of low-value assets (such as personal computers and office
furniture), the Group has opted to recognise a lease expense on a
straight-line basis as permitted by IFRS 16. This expense is
presented within Other operating expenses in the Consolidated
Statement of Total Comprehensive Income.
Financial impact of initial application of IFRS 16
The tables below show the amount of adjustment for each
financial statement line item affected by the application of IFRS
16 for the current period.
Impact on profit or loss in the period GBP'000
---------------------------------------- -------
Increase in depreciation(1) (138)
Increase in finance costs(1) (22)
Decrease in other operating expenses(1) 150
---------------------------------------- -------
Decrease in profit for the period (10)
---------------------------------------- -------
Impact on earnings per share p
---------------------------------------------------------- -----
Increase in earnings per share from continuing operations
Basic 0.02p
---------------------------------------------------------- -----
Diluted 0.02p
---------------------------------------------------------- -----
As if IAS
17 still IFRS 16
Impact on assets, liabilities and equity as applied adjustments As presented
at 31 March 2020 GBP'000 GBP'000 GBP'000
-------------------------------------------- --------- ------------ ------------
Right-of-use asset(1) - 551 551
-------------------------------------------- --------- ------------ ------------
Net impact on total assets - 551 551
-------------------------------------------- --------- ------------ ------------
Trade and other payables (103) 103 -
-------------------------------------------- --------- ------------ ------------
Lease liabilities(1) - (650) (650)
-------------------------------------------- --------- ------------ ------------
Net impact on total liabilities (103) (547) (650)
-------------------------------------------- --------- ------------ ------------
Impact on net assets (103) 4 (99)
-------------------------------------------- --------- ------------ ------------
Retained earnings (103) 4 (99)
-------------------------------------------- --------- ------------ ------------
1 The application of IFRS 16 to leases previously classified as
operating leases under IAS 17 resulted in the recognition of
right-of-use assets and lease liabilities. It resulted in a
decrease in Other operating expenses and an increase in
depreciation and interest expense.
GBP'000
---------------------------------------------------------------- -------
Operating lease commitments disclosed as at 31 March 2019 778
(Less): short-term leases recognised on a straight-line basis
as expense (28)
---------------------------------------------------------------- -------
750
---------------------------------------------------------------- -------
Lease liability recognised as at 1 April 2019 discounted using
the lessee's incremental borrowing rate at the date of initial
application 689
---------------------------------------------------------------- -------
Of which are:
Current lease liabilities 40
Non-current lease liabilities 649
---------------------------------------------------------------- -------
689
---------------------------------------------------------------- -------
The application of IFRS 16 has an impact on the consolidated
cash flows of the Group. Under IFRS 16, lessees must present:
-- short-term lease payments and payments for leases of
low-value assets as part of operating activities (the Group has
included these payments as part of payments to suppliers and
employees);
-- cash paid for the interest portion of lease liability as
either operating activities or financing activities, as permitted
by IAS 7 (the Group has opted to include interest paid as part of
operating activities); and
-- cash payments for the principal portion for lease liability,
as part of financing activities.
Under IAS 17, all lease payments on operating leases were
presented as part of cash flows from operating activities. At the
reporting date there is no impact on net cash generated by
operating activities as no payments have been made against the
relevant lease in the period. The adoption of IFRS 16 did not have
an impact on net cash flows.
The Group as lessee
The Group assesses whether a contract is or contains a lease at
inception of the contract.
The Group recognises a right-of-use asset and a corresponding
lease liability with respect to all lease arrangements in which it
is the lessee, except for short-term leases (defined as leases with
a lease term of 12 months or less) and leases of low value assets.
For these leases, the Group recognises the lease payments as an
operating expense on a straight-line basis over the term of the
lease unless another systematic basis is more representative of the
time pattern in which economic benefits from the leased assets are
consumed.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted by using the rate implicit in the lease. If this rate
cannot be readily determined, the Group uses its incremental
borrowing rate.
Lease payments included in the measurement of the lease
liability comprise:
-- fixed lease payments (including in substance fixed payments),
less any lease incentives;
-- the amount expected to be payable by the lessee under
residual value guarantees;
-- the exercise price of purchase options, if the lessee is
reasonably certain to exercise the options; and
-- payments of penalties for terminating the lease, if the lease
term reflects the exercise of an option to terminate the lease.
The lease liability is presented within Trade and other payables
in the Consolidated Statement of Financial Position.
The lease liability is subsequently measured by increasing the
carrying amount to reflect interest on the lease liability (using
the effective interest method) and by reducing the carrying amount
to reflect the lease payments made.
The Group remeasures the lease liability (and makes a
corresponding adjustment to the related right-of-use asset)
whenever:
-- the lease term has changed or there is a change in the
assessment of exercise of a purchase option, in which case the
lease liability is remeasured by discounting the revised lease
payments using a revised discount rate;
-- the lease payments change due to changes in an index or rate
or a change in expected payment under a guaranteed residual value,
in which cases the lease liability is remeasured by discounting the
revised lease payments using the initial discount rate (unless the
lease payments change is due to a change in a floating interest
rate, in which case a revised discount rate is used); and
-- a lease contract is modified and the lease modification is
not accounted for as a separate lease, in which case the lease
liability is remeasured by discounting the revised lease payments
using a revised discount rate.
The Group did not make any such adjustments during the periods
presented.
The right-of-use assets comprise the initial measurement of the
corresponding lease liability, lease payments made at or before the
commencement day and any initial direct costs. They are
subsequently measured at cost less accumulated depreciation and
impairment losses.
Whenever the Group incurs an obligation for costs to dismantle
and remove a leased asset, restore the site on which it is located
or restore the underlying asset to the condition required by the
terms and conditions of the lease, a provision is recognised and
measured under IAS 37. The costs are included in the related
right-of-use asset, unless those costs are incurred to produce
inventories.
Right-of-use assets are depreciated over the shorter period of
lease term and useful life of the underlying asset. If a lease
transfers ownership of the underlying asset or the cost of the
right-of-use asset reflects that the Group expects to exercise a
purchase option, the related right-of-use asset is depreciated over
the useful life of the underlying asset. The depreciation starts at
the commencement date of the lease.
The right-of-use assets are within property, plant and equipment
in the Consolidated Statement of Financial Position. The Group
applies IAS 36 'Impairment of Assets' to determine whether a
right-of-use asset is impaired and accounts for any identified
impairment loss as described in the property, plant and equipment
policy.
As a practical expedient, IFRS 16 permits a lessee not to
separate non-lease components, and instead account for any lease
and associated non-lease components as a single arrangement. The
Group has not used this practical expedient.
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 as yet effective. The Group
intends to adopt these Standards and Interpretations when they
become effective, rather than adopt them early.
Effective date 1 January 2020
Amendments to the Conceptual Framework in IFRS Standards
Amendments to IAS 1 'Presentation of Financial Statements'
Amendments to IAS 8 'Accounting Policies, Changes in Accounting
Estimates and Errors'
Amendments to IFRS 3 'Business Combinations'
Amendments to IFRS 9 'Financial Instruments', IAS 39 'Financial
Instruments: Recognition and Measurement' and IFRS 7 'Financial
Instruments: Disclosure'
Effective date 1 January 2021
IFRS 17 'Insurance Contracts'
A number of IFRS and IFRIC interpretations are also currently in
issue which are not relevant for the Group's activities and which
have not therefore been adopted in preparing the annual financial
statements.
The Directors do not expect that the adoption of the Standards
listed above will have a material impact on the financial
statements of the Group in future periods.
2.6 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 charged to IFAs for compliance consultancy services,
which is 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 discretionary fund management services in relation
to on-platform investment Assets Under Management ("AUM"). Revenue
is recognised daily based on the AUM.
-- Fees for mortgage-related services including commissions from
mortgage and other product providers and referral fees from
strategic partners. Commission is recognised 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.
2.7 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.
2.8 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 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.
2.10 Goodwill and Intangible assets
Goodwill is initially recognised and measured as set out in note
2.12.
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 cash-generating units (or groups
of cash-generating units) expected to benefit from the synergies of
the combination. Cash-generating units 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 cash-generating unit 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 cash-generating unit, 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.
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
2020 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 (2019: none).
2.11 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.
2.12 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.
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
of the acquisition date that, if known, would have affected the
amounts recognised as of that date.
2.13 Leases
Policy applicable from 1 April 2019
The Group has applied the practical expedient to grandfather the
definition of a lease at the date of transition. Therefore, this
policy applies to all contracts entered into on or after 1 April
2019.
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.
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
right-of-use asset, or is recorded in profit or loss if the
carrying amount of the right-of-use 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 right-of-use asset arising from the head
lease, not with reference to the underlying asset.
Policy applicable before 1 April 2019
Lease agreements which do not transfer substantially all of the
risks and rewards of ownership of the leased assets to the Group
are classified as operating leases. Payments made under operating
leases are recognised in profit or loss on a straight-line basis
over the term of the lease. The impact of any lease incentives is
spread over the term of the lease.
2.14 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.
2.15 Financial instruments
Financial assets and financial liabilities are recognised in the
Group's Statement of Financial Position when the Group becomes a
party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially
measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and
financial liabilities (other than financial assets and financial
liabilities at fair value through profit or loss) are added to or
deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition. Transaction
costs directly attributable to the acquisition of financial assets
or financial liabilities at fair value through profit or loss are
recognised immediately in profit or loss.
All financial assets are recognised and derecognised on a trade
date where the purchase or sale of a financial asset is under a
contract whose terms require delivery of the financial asset within
the timeframe established by the market concerned, and are
initially measured at fair value, plus transaction costs, except
for those financial assets classified as at fair value through
profit or loss. Transaction costs directly attributable to the
acquisition of financial assets classified as at fair value through
profit or loss are recognised immediately in profit or loss.
Non-derivative financial instruments comprise investments in
equity and debt securities, trade and other receivables, cash and
bank balances, loans and borrowings, and trade and other
payables.
Trade receivables
Trade receivables do not carry interest and are stated at
amortised cost as reduced by appropriate allowances for estimated
irrecoverable amounts. They are recognised when the Group's right
to consideration is only conditional on the passage of time.
Allowances incorporate an expectation of lifetime credit losses
from initial recognition and are determined using an expected
credit loss approach.
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.
The Group does not hold or issue derivative financial
instruments for trading purposes.
2.16 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 and it is probable that the temporary difference will
not reverse in the foreseeable future. Deferred tax assets arising
from deductible temporary differences associated with such
investments and interests are only recognised to the extent that it
is probable that there will be sufficient taxable profits against
which to utilise the benefits of the temporary difference and they
are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
Statement of Financial Position date and reduced to the extent that
it is no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised based on tax laws and rates that have been enacted or
substantively enacted at the Statement of Financial Position date.
Deferred tax is charged or credited in the income statement, except
when it relates to items charged or credited in other comprehensive
income, in which case the deferred tax is also dealt with in other
comprehensive income.
The measurement of deferred tax liabilities and assets reflects
the tax consequences that would follow from the manner in which the
Group expects, at the end of the reporting period, to recover or
settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off the current tax assets against
current tax liabilities and when they relate to income taxes levied
by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
Current and deferred tax for the year
Current and deferred tax are recognised in profit or loss,
except when they relate to items that are recognised in other
comprehensive income or directly in equity, in which case the
current and deferred tax are also recognised in other comprehensive
income or directly in equity respectively. Where current tax or
deferred tax arises from the initial accounting for a business
combination, the tax effect is included in the accounting for the
business combination.
2.17 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.
2.18 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.
2.19 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.
2.20 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 Consolidated 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.
2.21 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.
2.22 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.
Following changes to the structure of the Group's internal
organisation, and subsequent changes to the way in which financial
and management information is presented to both the Board and the
Executive Committee, the composition of the Group's reportable
segments changed in the financial year ended 31 March 2020.
The change to the Group's organisation structure was the
establishment of the Paradigm division in order to bring together
the activities of Paradigm Consulting and Paradigm Mortgages under
single leadership. The change allows the needs of independent
financial advisers and mortgages advisers to be better met through
an integrated approach. The services being provided to these
customers include compliance and support services. In addition, the
Tatton division now includes wrap-related revenue which was
previously included in the Paradigm Consulting division. This
change brings the management and responsibility for all
asset-related management and services into one division.
As a result of these changes, activities previously reported
under Paradigm Consulting have been split between Tatton and
Paradigm, with Paradigm Mortgages being reported under
Paradigm.
The Revenue, Operating Profit and Adjusted Operating Profit* by
segment disclosure note for the year ended March 2019 has been
amended as follows:
(i) Revenue by segment
Year ended 31 March 2019
---------------------------------
As reported Adjustment Restated
GBP'000 GBP'000 GBP'000
-------------------- ----------- ---------- --------
Tatton 8,732 3,789 12,521
-------------------- ----------- ---------- --------
Paradigm - 4,949 4,949
Paradigm Consulting 6,049 (6,049) -
Paradigm Mortgages 2,689 (2,689) -
-------------------- ----------- ---------- --------
Central 48 - 48
-------------------- ----------- ---------- --------
Total 17,518 - 17,518
-------------------- ----------- ---------- --------
(ii) Operating Profit by segment
Year ended 31 March 2019
---------------------------------
As reported Adjustment Restated
GBP'000 GBP'000 GBP'000
-------------------- ----------- ---------- --------
Tatton 4,098 2,743 6,841
-------------------- ----------- ---------- --------
Paradigm - 1,805 1,805
Paradigm Consulting 2,983 (2,983) -
Paradigm Mortgages 1,565 (1,565) -
-------------------- ----------- ---------- --------
Central (2,721) - (2,721)
-------------------- ----------- ---------- --------
Total 5,925 - 5,925
-------------------- ----------- ---------- --------
(iii) Adjusted Operating Profit* by segment
Year ended 31 March 2019
-------------------- ---------------------------------
As reported Adjustment Restated
GBP'000 GBP'000 GBP'000
-------------------- ----------- ---------- --------
Tatton 4,628 2,743 7,371
-------------------- ----------- ---------- --------
Paradigm - 1,818 1,818
Paradigm Consulting 2,996 (2,996) -
Paradigm Mortgages 1,565 (1,565) -
-------------------- ----------- ---------- --------
Central (1,881) - (1,881)
-------------------- ----------- ---------- --------
Total 7,308 - 7,308
-------------------- ----------- ---------- --------
* Alternative performance measures are detailed in note 23.
2.23 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
The impact of COVID-19 has been considered as a potential
indicator of impairment of goodwill and intangible assets.
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.
Client relationship intangibles
Critical judgements
Client relationship intangibles purchased through corporate
transactions
When the Group purchases client relationships through
transactions with other corporate entities, a judgement is made as
to whether the transaction should be accounted for as a business
combination or as a separate purchase of intangible assets. In
making this judgement, the Group assesses the assets, liabilities,
operations and processes that were the subject of the transaction
against the definition of a business combination in IFRS 3. In
particular, consideration is given to the scale of the operations
subject to the transaction and whether ownership of a corporate
entity has been acquired, among other factors.
Business combinations
Critical judgement
Treatment and fair value of consideration transferred
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.
Business combinations and acquisitions require a fair value
exercise to be undertaken to allocate the purchase price to the
fair value of the identifiable assets acquired and the liabilities
assumed. The determination of the fair value of the asset and
liabilities is based, to a considerable extent, on management's
judgement. The amount of goodwill initially recognised as a result
of a business combination is dependent on the allocation of this
purchase price to the identifiable assets and liabilities with any
unallocated portion being recorded as goodwill.
As described in note 21 to the financial statements, the
purchase price payable for the acquisition is split into a number
of different parts. The payment of certain elements has been
deferred. At 31 March 2020, two elements of deferred consideration
remained unvested and subject to ongoing vesting conditions.
Vesting of the earn-out consideration is conditional on
achieving certain operational targets.
Estimation uncertainty
Valuation of the earn-out consideration
The value of earn-out consideration is variable, dependent on
performance by the acquired business against certain operational
targets by 30 September 2020 and 30 September 2021. The estimated
value of earn-out consideration that will be payable at these dates
is GBP344,000, based on projections of growth in funds under
management over that period.
If qualifying funds under management do not exceed GBP98 million
then no earn-out consideration is payable.
If qualifying funds under management at 30 September 2020 are
GBP10 million higher or lower than management's estimate then the
earn-out consideration would be GBP200,000 higher or lower and the
charge to profit or loss in the year to 31 March 2020 would be
GBP200,000 higher or lower.
Under the terms of the agreements, the maximum possible payment
under the earn-out and incentivisation awards is capped at
GBP689,000; which represents qualifying funds under management of
approximately GBP132.5 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 appropriately
(at the end of the relevant scheme as a minimum). The sensitivity
analysis carried out shows that if it was considered that 100% of
the options would vest, the charge for the year would increase by
GBP1,420,000; an increase of 10% in the vesting assumptions would
increase the charge in the year by GBP185,000. In considering the
level of satisfaction of performance obligations, the Group's
forecast has been reviewed and updated for the expected impact of
COVID-19 pandemic, various market scenarios and management actions.
This forecast has been used to estimate the relevant vesting
assumptions for the 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.
2.24 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 23 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 GBP17.8
million as at 31 March 2020 (2019: GBP15.3 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 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. The operating segments disclosed
have changed during the reporting period, see note 2.22.
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:
Tatton Paradigm Central Group
Year ended 31 March 2020 (GBP'000) (GBP'000) (GBP'000) (GBP'000)
----------------------------------------------- ---------- ---------- ---------- ----------
Revenue 15,924 5,426 19 21,369
Other exceptional income 1,588 - - 1,588
Administrative expenses (7,204) (3,362) (2,089) (12,655)
----------------------------------------------- ---------- ---------- ---------- ----------
Operating Profit/(Loss) 10,308 2,064 (2,070) 10,302
----------------------------------------------- ---------- ---------- ---------- ----------
Share-based payments - - 108 108
Exceptional items (1,458) 64 - (1,394)
Amortisation of client relationship intangible
assets 60 - - 60
----------------------------------------------- ---------- ---------- ---------- ----------
Adjusted Operating Profit/(Loss) (before
separately
disclosed items)* 8,910 2,128 (1,962) 9,076
----------------------------------------------- ---------- ---------- ---------- ----------
Finance (costs)/income (20) 13 1 (6)
----------------------------------------------- ---------- ---------- ---------- ----------
Profit/(loss) before tax 10,288 2,077 (2,069) 10,296
----------------------------------------------- ---------- ---------- ---------- ----------
Year ended 31 March 2019 (restated, see Tatton Paradigm Central Group
note 2.22) (GBP'000) (GBP'000) (GBP'000) (GBP'000)
----------------------------------------- ---------- ---------- ---------- ----------
Revenue 12,521 4,949 48 17,518
Administrative expenses (5,680) (3,144) (2,769) (11,593)
----------------------------------------- ---------- ---------- ---------- ----------
Operating Profit/(Loss) 6,841 1,805 (2,721) 5,925
----------------------------------------- ---------- ---------- ---------- ----------
Share-based payments 34 - 840 874
Exceptional charges 496 13 - 509
----------------------------------------- ---------- ---------- ---------- ----------
Adjusted Operating Profit/(Loss) (before
separately
disclosed items)* 7,371 1,818 (1,881) 7,308
----------------------------------------- ---------- ---------- ---------- ----------
Finance income - 185 2 187
----------------------------------------- ---------- ---------- ---------- ----------
Profit/(loss) before tax 6,841 1,990 (2,719) 6,112
----------------------------------------- ---------- ---------- ---------- ----------
All turnover arose in the United Kingdom.
* Alternative performance measures are detailed in note 23.
5 OPERATING PROFIT
The operating profit and the profit before taxation are stated
after charging/(crediting):
31-Mar 31-Mar
2020 2019
(GBP'000) (GBP'000)
---------------------------------------------------------- ---------- ----------
Amortisation of software 135 43
Depreciation of property, plant and equipment 160 91
Depreciation of right-of-use assets 138 -
Separately disclosed items (note 6) (1,226) 1,383
Services provided by the Group's auditor:
Audit of the statutory consolidated and Company financial
statements of
TAM plc 34 33
Audit of subsidiaries 58 40
Other fees payable to auditor:
Other taxation advisory services - 38
Non-audit services 86 10
---------------------------------------------------------- ---------- ----------
Total audit fees were GBP92,000 (2019: GBP73,000). Total
non-audit fees payable to the auditor were GBP86,000 (2019:
GBP48,000).
6 Separately disclosed items
31-Mar 31-Mar
2020 2019
(GBP'000) (GBP'000)
-------------------------------------------------------- ---------- ----------
IPO costs - 13
Project set-up costs related to transferring Authorised
Corporate Director - 293
New fund set-up costs - 203
Restructuring costs 97 -
Acquisition-related expenses 97 -
VAT reclaim (1,588) -
-------------------------------------------------------- ---------- ----------
Total exceptional items (1,394) 509
-------------------------------------------------------- ---------- ----------
Share-based payments 108 874
Amortisation of client relationship intangible assets 60 -
-------------------------------------------------------- ---------- ----------
Total separately disclosed items (1,226) 1,383
-------------------------------------------------------- ---------- ----------
Separately disclosed items shown separately on the face of the
Consolidated 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
On 30 September 2019 the Group acquired the share capital of
Sinfonia Asset Management Limited (see note 21) and incurred
acquisition-related costs of GBP97,000. These costs are part of
separately disclosed items within administrative expenses in the
Consolidated Statement of Total Comprehensive Income.
The restructuring charge relates 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.
During the year, the Group has 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 has recognised income of GBP1,756,000 relating to the 4 year
period ending 31 March 2019, GBP1,675,000 of which has been
received from HMRC as a VAT refund. This is offset by GBP168,000 of
professional fees. The Group has reflected this change in treatment
of revenue and the level of irrecoverable input VAT in revenue and
administrative expenses from 1 April 2019.
During the financial year ended 31 March 2019, the Group
incurred exceptional one-off costs of GBP496,000 which related to
the funds in Tatton. Tatton transferred its Authorised Corporate
Director, who acts on behalf of the Company to administer the
funds, and this transfer incurred significant project management
charges. In addition, Tatton launched new funds in the year and
incurred material set-up costs as part of the process; both are
included within exceptional items and separately disclosed items
within administrative expenses in the Consolidated Statement of
Total Comprehensive Income.
Various legal and professional costs incurred in relation to the
IPO of the Group in July 2017 are shown as part of separately
disclosed items within administrative expenses in the Consolidated
Statement of Total Comprehensive Income in the prior year.
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.
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)/INCOME
31-Mar 31-Mar
2020 2019
(GBP'000) (GBP'000)
-------------------------------------- ---------- ----------
Bank interest income 3 2
Other interest income 13 214
Interest expense on lease liabilities (22) -
Bank charges - (29)
-------------------------------------- ---------- ----------
(6) 187
-------------------------------------- ---------- ----------
8 Taxation
31-Mar 31-Mar
2020 2019
(GBP'000) (GBP'000)
-------------------------------------------------- ---------- ----------
Current tax expense
Current tax on profits for the period 1,986 1,318
Adjustment in respect of previous years 7 (74)
-------------------------------------------------- ---------- ----------
1,993 1,244
-------------------------------------------------- ---------- ----------
Deferred tax expense
Share-based payments (12) (19)
Origination and reversal of temporary differences 57 30
Adjustment in respect of previous years (95) -
Effect of rate changes (10) -
-------------------------------------------------- ---------- ----------
Total tax expense 1,933 1,255
-------------------------------------------------- ---------- ----------
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:
31-Mar 31-Mar
2020 2019
(GBP'000) (GBP'000)
-------------------------------------------------- ---------- ----------
Profit before taxation 10,296 6,112
-------------------------------------------------- ---------- ----------
Tax at UK corporation tax rate of 19% (2019: 19%) 1,956 1,161
Expenses not deductible for tax purposes 87 25
Adjustments in respect of previous years (88) (74)
Differences in tax rates (10) (2)
Share-based payments (12) 145
-------------------------------------------------- ---------- ----------
Total tax expense 1,933 1,255
-------------------------------------------------- ---------- ----------
A reduction in the UK corporation tax rate from 19% to 17%
(effective from 1 April 2020) was substantively enacted on 6
September 2016. In the 11 March 2020 Budget, it was announced that
the UK corporation tax rate will remain at the current level of 19%
and not reduce to 17% from 1 April 2020. Deferred tax is calculated
using the rate expected to apply when the relevant timing
differences are forecast to unwind.
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
2020 2019
---------------------------------------------------- ---------- ----------
Basic
Weighted average number of shares in issue 55,907,513 55,907,513
Effect of own shares held by an EBT (72,355) -
---------------------------------------------------- ---------- ----------
55,835,158 55,907,513
Diluted
Weighted average number of shares (diluted)(1) 57,529,989 61,313,712
Adjusted diluted
Adjusted diluted weighted average number of options
and shares for the year(2) 61,075,935 61,313,712
---------------------------------------------------- ---------- ----------
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 ("LTIP")
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 ending 31 March 2020 the EBT purchased 413,411
(2019: none) of the Company's own shares.
31-Mar 31-Mar
2020 2019
(GBP'000) (GBP'000)
----------------------------------------------------------- ---------- ----------
Earnings attributable to ordinary shareholders
Basic and diluted profit for the period 8,363 4,857
Share-based payments - IFRS 2 option charges 108 874
Amortisation of intangible assets - customer relationships 60 -
Exceptional (income)/costs - see note 6 (1,394) 509
Tax impact of adjustments 194 (97)
----------------------------------------------------------- ---------- ----------
Adjusted basic and diluted profits for the period and
attributable earnings 7,331 6,143
----------------------------------------------------------- ---------- ----------
Earnings per share (pence) - Basic 14.98 8.69
----------------------------------------------------------- ---------- ----------
Earnings per share (pence) - Diluted 14.54 7.92
----------------------------------------------------------- ---------- ----------
Adjusted earnings per share (pence) - Basic 13.13 10.99
----------------------------------------------------------- ---------- ----------
Adjusted earnings per share (pence) - Diluted 12.00 10.02
----------------------------------------------------------- ---------- ----------
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 the strategy and to invest in opportunities to
grow the business and enhance shareholder value.
During the year, TAM plc paid the final dividend related to the
year ended 31 March 2019 of GBP3,131,000, representing a payment of
5.6p per share. In addition, the Company paid an interim dividend
of GBP1,789,000 (2019: GBP1,565,000) to its equity shareholders.
This represents a payment of 3.2p per share (2019: 2.8p per
share).
The Company's dividend policy is described in the Directors'
Report. At 31 March 2020, the Company's distributable reserves were
GBP25.8 million (2019: GBP22.3 million).
10 Staff costs
The staff costs shown below exclude key management compensation
which is shown separately below.
31-Mar 31-Mar
2020 2019
(GBP'000) (GBP'000)
---------------------------- ---------- ----------
Wages, salaries and bonuses 5,995 4,389
Social security costs 594 648
Pension costs 160 110
Termination benefits 88 -
Share-based payments 123 874
---------------------------- ---------- ----------
6,960 6,021
---------------------------- ---------- ----------
The average monthly number of employees during the year was as
follows:
31-Mar 31-Mar
2020 2019
--------------- ------ ------
Administration 79 74
Key management 3 3
--------------- ------ ------
82 77
--------------- ------ ------
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'.
31-Mar 31-Mar
2020 2019
(GBP'000) (GBP'000)
----------------------------- ---------- ----------
Short-term employee benefits 940 884
Post-employment benefits 11 14
Other long-term benefits 3 3
Share-based payments (15) 587
----------------------------- ---------- ----------
939 1,488
----------------------------- ---------- ----------
In addition to the remuneration above, the Non-Executive
Chairman and Non-Executive Directors have submitted invoices for
their fees as follows:
31-Mar 31-Mar
2020 2019
(GBP'000) (GBP'000)
----------- ---------- ----------
Total fees 160 160
----------- ---------- ----------
The remuneration of the highest paid Director was:
31-Mar 31-Mar
2020 2019
(GBP'000) (GBP'000)
------ ---------- ----------
Total 347 343
------ ---------- ----------
The highest paid Director did not exercise any share options in
the period. There were no share options granted to the highest paid
Director in the year.
11 Goodwill
Goodwill
(GBP'000)
----------------------------------------- ----------
Cost and carrying value at 31 March 2019 4,917
Recognised on acquisition of subsidiary 1,337
----------------------------------------- ----------
Cost and carrying value at 31 March 2020 6,254
----------------------------------------- ----------
The carrying value of goodwill includes GBP5.9 million allocated
to the Tatton operating segment and CGU. This is made up of GBP2.5
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,
GBP2.0 million arising from the acquisition in 2017 of an interest
in Tatton Capital Group Limited and GBP1.3 million of goodwill
generated in the year on the acquisition of Sinfonia, see note 21.
The carrying value of goodwill also includes GBP0.4 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 represents the lowest level
within the Group at which the goodwill is monitored for internal
management accounts purposes.
Goodwill acquired in a business combination is allocated, at
acquisition, to the cash-generating units ("CGUs") or group of
units that are expected to benefit from that business combination.
The Directors test goodwill annually for impairment, or more
frequently if there are indicators that goodwill might be impaired.
The impairment review considered the COVID-19 pandemic as a
potential indicator of impairment, consequently, the Group carried
out an exercise The Directors have reviewed the carrying value of
goodwill at 31 March 2020 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 ended 31 March 2021 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 7.7% (2019:
8.3%). 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 2020 is GBP414 million (2019: GBP223 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.
12 intangible assets
Computer Customer
software relationships Total
(GBP'000) (GBP'000) (GBP'000)
---------------------------------------- ---------- -------------- ----------
Cost
Balance at 31 March 2018 - - -
Additions 266 - 266
---------------------------------------- ---------- -------------- ----------
Balance at 31 March 2019 266 - 266
---------------------------------------- ---------- -------------- ----------
Additions 271 - 271
Acquired on acquisition of a subsidiary - 1,196 1,196
---------------------------------------- ---------- -------------- ----------
Balance at 31 March 2020 537 1,196 1,733
---------------------------------------- ---------- -------------- ----------
Accumulated amortisation and impairment
Balance at 31 March 2018 - - -
Charge for the period (43) - (43)
---------------------------------------- ---------- -------------- ----------
Balance at 31 March 2019 (43) - (43)
Charge for the period (135) (60) (195)
---------------------------------------- ---------- -------------- ----------
Balance at 31 March 2020 (178) (60) (238)
---------------------------------------- ---------- -------------- ----------
Net book value
As at 31 March 2018 - - -
---------------------------------------- ---------- -------------- ----------
As at 31 March 2019 223 - 223
---------------------------------------- ---------- -------------- ----------
As at 31 March 2020 359 1,136 1,495
---------------------------------------- ---------- -------------- ----------
All amortisation charges are included within administrative
expenses in the Consolidated Statement of Total Comprehensive
Income.
13 Property, plant and equipment
Computer,
office equipment Right-of-use
and motor Fixtures assets
vehicles and fittings - buildings Total
(GBP'000) (GBP'000) (GBP'000) (GBP'000)
---------------------------------------- ----------------- ------------- ------------ ----------
Cost
Balance at 1 April 2018 435 214 - 649
Additions 72 264 - 336
---------------------------------------- ----------------- ------------- ------------ ----------
Balance at 31 March 2019 507 478 - 985
Adoption of IFRS 16 - - 689 689
Additions 81 213 - 294
---------------------------------------- ----------------- ------------- ------------ ----------
Balance at 31 March 2020 588 691 689 1,968
---------------------------------------- ----------------- ------------- ------------ ----------
Accumulated depreciation and impairment
Balance at 1 April 2018 (331) (214) - (545)
Charge for the period (66) (25) - (91)
---------------------------------------- ----------------- ------------- ------------ ----------
Balance at 31 March 2019 (397) (239) - (636)
Charge for the period (73) (87) (138) (298)
---------------------------------------- ----------------- ------------- ------------ ----------
Balance at 31 March 2020 (470) (326) (138) (934)
---------------------------------------- ----------------- ------------- ------------ ----------
Net book value
As at 1 April 2018 104 - - 104
---------------------------------------- ----------------- ------------- ------------ ----------
As at 31 March 2019 110 239 - 349
---------------------------------------- ----------------- ------------- ------------ ----------
As at 31 March 2020 118 365 551 1,034
---------------------------------------- ----------------- ------------- ------------ ----------
All depreciation charges are included within administrative
expenses in the Consolidated Statement of Total Comprehensive
Income.
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 Consolidated Statement of Total Comprehensive
Income.
Right-of-use assets
31-Mar
2020
(GBP'000)
-------------------------------------- ----------
Amounts recognised in profit and loss
Depreciation on right-of-use assets (138)
Interest expense on lease liabilities (22)
Expense relating to short-term leases (94)
Expense relating to low value assets (1)
-------------------------------------- ----------
(255)
-------------------------------------- ----------
At 31 March 2020, the Group is committed to GBPnil for
short-term leases.
The total cash outflow for leases amounts to GBP156,000.
14 Trade and other receivables
31-Mar 31-Mar
2020 2019
(GBP'000) (GBP'000)
--------------------------------- ---------- ----------
Trade receivables 116 313
Amounts due from related parties 108 107
Prepayments and accrued income 1,948 1,763
Other receivables 1,259 191
Loan notes - 134
--------------------------------- ---------- ----------
3,431 2,508
--------------------------------- ---------- ----------
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 (2019: GBPnil).
The amounts due from related parties are net of provisions. At
31 March 2017, Paradigm Mortgage Services LLP made full provision
of GBP1,251,000 against the recoverability of amounts due from
Jargon Free Benefits LLP. Also, as at 31 March 2017, Paradigm
Partners Limited made full provision of GBP350,000 against the
recoverability of amounts due from Amber Financial Investments
Limited, an entity controlled by Paul Hogarth.
The carrying value of the provisions as at 31 March 2020 was
GBP1,601,000 (2019: GBP1,601,000). There has been no movement in
the carrying value during the year.
Trade receivable amounts are all held in sterling.
15 Trade and other payables
31-Mar 31-Mar
2020 2019
(GBP'000) (GBP'000)
------------------------------------------- ---------- ----------
Trade payables 275 414
Amounts due to related parties 222 386
Accruals 2,476 1,382
Deferred income 131 165
Contingent consideration 344 -
Other payables 3,440 2,174
------------------------------------------- ---------- ----------
6,888 4,521
------------------------------------------- ---------- ----------
Less non-current portion:
Contingent consideration (172) -
Other payables (530) -
------------------------------------------- ---------- ----------
Total non-current trade and other payables (702) -
------------------------------------------- ---------- ----------
Total current trade and other payables 6,186 4,521
------------------------------------------- ---------- ----------
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
Deferred Share-based Acquisition
capital allowances payments intangibles Total
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ------------------- ----------- ------------ --------
Liability at 1 April 2018 (15) - - (15)
Income statement (charge)/credit (30) 19 - (11)
Equity credit - 130 - 130
----------------------------------- ------------------- ----------- ------------ --------
Asset/(liability) at 31 March 2019 (45) 149 - 104
----------------------------------- ------------------- ----------- ------------ --------
Acquisition of subsidiary - - (227) (227)
Income statement (charge)/credit (81) 130 11 60
Equity charge - (43) - (43)
----------------------------------- ------------------- ----------- ------------ --------
(Liability)/asset at 31 March 2020 (126) 236 (216) (106)
----------------------------------- ------------------- ----------- ------------ --------
17 Financial instruments
The Group's treasury activities are designed to provide
suitable, flexible funding arrangements to satisfy the Group's
requirements. The Group uses financial instruments comprising
borrowings, cash and items such as trade receivables and payables
that arise directly from its operations. The main risks arising
from the Group's financial instruments are interest rate risks,
credit risks and liquidity risks. The Board reviews policies for
managing each of these risks and they are summarised below.
The Group finances its operations through a combination of cash
resource and other borrowings. Short-term flexibility is satisfied
by overdraft facilities in Paradigm Partners Limited which are
repayable on demand.
Fair value estimation
IFRS 7 requires disclosure of fair value measurements of
financial instruments by level of the following fair value
measurement hierarchy:
-- Quoted prices (unadjusted) in active markets for identical
assets or liabilities (level 1).
-- Inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (level
2).
-- Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (level
3).
All financial assets are categorised as Loans and receivables
and are classified as level 1. 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. No gain or loss
for the year relating to this contingent consideration has been
recognised in profit or loss.
Interest rate risk
The Group finances its operations through a combination of
retained profits and bank overdrafts. The Group has an exposure to
interest rate risk, as the overdraft facility is at an interest
rate of 3.2% above the base rate. At 31 March 2020, total
borrowings were GBPnil (2019: GBPnil).
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:
31-Mar 31-Mar
2020 2019
Classes of financial assets - carrying amounts: (GBP'000) (GBP'000)
------------------------------------------------ ---------- ----------
Cash and cash equivalents 12,757 12,192
Trade and other receivables 3,110 2,208
------------------------------------------------ ---------- ----------
15,867 14,400
------------------------------------------------ ---------- ----------
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:
31-Mar 31-Mar
2020 2019
(GBP'000) (GBP'000)
---------------------------------------------- ---------- ----------
Not more than 3 months 75 241
More than 3 months but not more than 6 months 19 72
More than 6 months but not more than 1 year 17 -
More than 1 year 5 -
---------------------------------------------- ---------- ----------
Total 116 313
---------------------------------------------- ---------- ----------
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:
At 31 March 2020, the Group's non-derivative financial
liabilities have contractual maturities (including interest
payments where applicable) as summarised below:
Current Non-current
----------------- ------------------
Within 6 6 to 12 1 to 5 Later than
At 31 March 2020 months months years 5 years
------------------------- -------- ------- ------ ----------
Trade and other payables 5,761 - - -
Lease liabilities 37 84 530 -
Contingent consideration - 172 172 -
------------------------- -------- ------- ------ ----------
Total 5,798 256 702 -
------------------------- -------- ------- ------ ----------
This compares with the maturity of the Group's non-derivative
financial liabilities in the previous reporting period as
follows:
Current Non-current
----------------- ------------------
Within 6 6 to 12 1 to 5 Later than
At 31 March 2019 months months years 5 years
------------------------- -------- ------- ------ ----------
Trade and other payables 4,356 - - -
------------------------- -------- ------- ------ ----------
Total 4,356 - - -
------------------------- -------- ------- ------ ----------
The above amounts reflect the contractual undiscounted cash
flows, which may differ to the carrying values of the liabilities
at the reporting date.
18 Equity
31-Mar 31-Mar
2020 2019
(number) (number)
------------------------------------- ---------- ----------
Authorised, called up and fully paid
GBP0.20 ordinary shares 55,907,513 55,907,513
------------------------------------- ---------- ----------
Each share in TAM plc carries one vote and the right to a
dividend.
19 Own shares
The following movements in own shares occurred during the
year:
Number
of shares GBP'000
--------------------- ---------- -------
At 1 April 2019 - -
Acquired in the year 413,411 996
--------------------- ---------- -------
At 31 March 2020 413,411 996
--------------------- ---------- -------
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 employee benefit trust to satisfy future awards under
the Group's share-based payment schemes (note 20). 413,411 shares
were held in the Employee Benefit Trust at 31 March 2020 (2019:
nil).
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) TAM plc EMI Scheme ("TAM EMI Scheme")
On 7 July 2017 the Group launched an EMI share option scheme
relating to shares in TAM plc to enable senior management to
participate in the equity of the Company. A total of 3,022,733
options with a weighted average exercise price of GBP1.89 were
granted during the prior period, each exercisable in July 2020.
The scheme was extended on 8 August 2018 and a total of
1,720,138 zero cost options were granted during the year ended 31
March 2019, each exercisable in August 2021. The scheme was further
extended on 1 August 2019 and a total of 193,000 zero cost options
were granted, each exercisable in August 2022. A total of 4,755,737
options remain outstanding at 31 March 2020, none of which are
currently exercisable.
No options were exercised during the period. A total of 68,319
options were forfeited in the period (111,815 options were
forfeited in the prior year).
The options vest in July 2020, August 2021 or August 2022
provided certain performance conditions and targets, set prior to
grant, have been met. If the performance conditions are not met,
the options lapse.
Within the accounts of the Company, the fair value at grant date
is estimated using the appropriate models including both
Black-Scholes methodology and Monte Carlo modelling
methodologies.
Number
of Weighted
share options average
granted price
(number) (GBP)
----------------------------- -------------- --------
Outstanding at 1 April 2018 3,022,733 1.89
Granted during the period 1,720,138 -
Forfeited during the period (111,815) 1.89
----------------------------- -------------- --------
Outstanding at 31 March 2019 4,631,056 1.19
----------------------------- -------------- --------
Exercisable at 31 March 2019 - -
----------------------------- -------------- --------
Outstanding at 1 April 2019 4,631,056 1.19
Granted during the period 193,000 -
Forfeited during the period (68,319) 0.52
----------------------------- -------------- --------
Outstanding at 31 March 2020 4,755,737 1.15
----------------------------- -------------- --------
Exercisable at 31 March 2020 - -
----------------------------- -------------- --------
(ii) TAM plc Sharesave Scheme ("TAM Sharesave Scheme")
On 7 July 2017, 5 July 2018 and 3 July 2019 the Group launched
all employee Sharesave schemes for options over shares in TAM plc,
administered by Yorkshire Building Society. Employees are able to
save between GBP10 and GBP500 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 2017 Sharesave scheme it is estimated that,
based on current saving rates, 197,481 share options will be
exercisable at an exercise price of GBP1.70. Over the life of the
2018 Sharesave scheme it is estimated that, based on current saving
rates, 48,688 share options will be exercisable at an exercise
price of GBP1.90. Over the life of the 2019 Sharesave scheme it is
estimated that, based on current savings rates, 75,610 share
options will be exercisable at an exercise price of GBP1.79. No
options have been exercised or expired in the period and 10,741
options have been forfeited in the period.
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 overleaf respectively.
Number
of Weighted
share options average
granted price
(number) (GBP)
----------------------------- -------------- --------
Outstanding at 1 April 2018 63,344 1.70
Granted during the period 82,322 1.74
Forfeited during the period (13,690) 1.71
----------------------------- -------------- --------
Outstanding at 31 March 2019 131,976 1.70
----------------------------- -------------- --------
Exercisable at 31 March 2019 - -
----------------------------- -------------- --------
Outstanding at 1 April 2019 131,976 1.70
Granted during the period 102,493 1.75
Forfeited during the period (10,741) 1.85
----------------------------- -------------- --------
Outstanding at 31 March 2020 223,728 1.73
----------------------------- -------------- --------
Exercisable at 31 March 2020 26,176 1.70
----------------------------- -------------- --------
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:
EMI Scheme Sharesave Scheme
------------------- --------------------
2019 2018 2017 2019 2018 2017
------------------------ ----- ----- ----- ------ ----- -----
Share price at grant
(GBP) 2.12 2.40 1.89 2.14 2.34 1.89
Exercise price (GBP) 0.00 0.00 1.70 1.79 1.90 1.70
Expected volatility (%) 30.44 28.48 26.00 30.44 28.48 26.00
Expected life (years) 3.00 3.00 3.00 3.00 3.00 3.00
Risk free rate (%) 0.35 0.81 0.66 0.35 0.81 0.66
Expected dividend yield
(%) 3.96 2.75 4.50 3.96 2.75 4.50
------------------------ ----- ----- ----- ------ ----- -----
20.3 IFRS 2 Share-based option costs
31-Mar 31-Mar
2020 2019
(GBP'000) (GBP'000)
--------------------- ---------- ----------
TAM EMI Scheme 84 839
TAM Sharesave Scheme 24 35
--------------------- ---------- ----------
108 874
--------------------- ---------- ----------
21 BUSINESS COMBINATION
On 30 September 2019, the Group acquired 100% of the issued
share capital of Sinfonia Asset Management Limited ("Sinfonia"),
obtaining control of Sinfonia. Sinfonia is an administration
services company which facilitates the sale of investment products.
Sinfonia holds funds within the IFSL Sinfonia Open-Ended Investment
Companies. Sinfonia was acquired in order to complement Tatton's
existing fund range and give IFAs' clients further access to a
range of investments balanced to reflect a particular risk
profile.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed upon acquisition of Sinfonia are
set out in the table below:
GBP'000
------------------------------------------------ -------
Identifiable intangible assets 1,196
Financial assets 54
Financial liabilities (13)
Deferred tax liability (227)
------------------------------------------------ -------
Total identifiable assets 1,010
Goodwill 1,337
------------------------------------------------ -------
Total consideration 2,347
------------------------------------------------ -------
Satisfied by:
Cash 2,003
Contingent consideration arrangement 344
------------------------------------------------ -------
Total consideration transferred 2,347
------------------------------------------------ -------
Net cash outflow arising on acquisition:
Cash consideration 2,003
Less: cash and cash equivalent balance acquired (1)
------------------------------------------------ -------
Net cash outflow 2,002
------------------------------------------------ -------
The fair value of the financial assets includes accrued income
and prepayments with a fair value of GBP54,000. The best estimate
at acquisition date of the contractual cash flows not to be
collected is GBPnil.
The fair value of Sinfonia's client relationship intangible
assets has been measured using a multi-period excess earnings
method. The model uses estimates of client longevity and the level
of activity driving commission income to derive a forecast series
of cash flows, which are discounted to a present value to determine
the fair value of the client relationships acquired. The useful
economic life of the client relationships has been determined to be
ten years.
The goodwill of GBP1,337,000 arising from the acquisition
consists of future synergies and future income expected to be
generated from the funds. None of the goodwill is expected to be
deductible for income tax purposes.
The contingent consideration arrangement requires the value of
assets held in the funds to meet specific criteria agreed between
the parties. The potential undiscounted amount of all future
payments that the Group could be required to make under the
contingent consideration arrangement is between GBPnil and
GBP690,000.
The fair value of the contingent consideration arrangement of
GBP344,000 was estimated by calculating the expected future value
of assets held in the Sinfonia funds. The liability of GBP344,000
has been recognised in other payables in the Consolidated Statement
of Financial Position.
Acquisition-related costs (included in administrative expenses
and separately disclosed in the Consolidated Statement of Total
Comprehensive Income) amount to GBP97,000.
Sinfonia contributed GBP151,000 to revenue and GBP81,000 to the
Group's profit for the period between the date of acquisition and
the reporting date.
22 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 Nature of transactions
------------------------------ ---------------------------------------------------
Amber Financial Investments The Group provides discretionary fund management
Limited services, as well as accounting and administration
services.
------------------------------ ---------------------------------------------------
Jargon Free Benefits LLP The Group provides accounting and administration
services.
------------------------------ ---------------------------------------------------
Paradigm Investment Management The Group incurs finance charges.
LLP
------------------------------ ---------------------------------------------------
Perspective Financial The Group provides discretionary fund management
Group Limited services and compliance advisory services.
------------------------------ ---------------------------------------------------
Suffolk Life Pensions The Group pays lease rental payments on an office
Limited building held in a pension fund by Paul Hogarth.
------------------------------ ---------------------------------------------------
From 20 December 2019 Perspective Financial Group 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
2020 2019
---------------------------------------- ------------------------
Value of Value of
Balance
income/ income/ receivable/
(cost) Balance receivable/(payable) (cost) (payable)
Terms and conditions (GBP'000) (GBP'000) (GBP'000) (GBP'000)
--------------------------- --------------------- ---------- ---------------------------- ---------- ------------
Amber Financial Investments Payable within
Limited 30 days 297 25 239 (42)
Jargon Free Benefits LLP Repayment on demand 15 66 24 43
Paradigm Management
Partners
LLP Repayment on demand 1 5 - 4
Paradigm Investment
Management
LLP Repayment on demand (5) (234) (11) (13)
Perspective Financial Payable within
Group Limited 30 days 243 11 369 72
Suffolk Life Pensions
Limited Payable in advance (57) 9 (56) 9
Hermitage Holdings
(Wilmslow)
Limited Repayment on demand 4 4 - -
--------------------------- --------------------- ---------- ---------------------------- ---------- ------------
Balances with related parties are non-interest bearing.
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.
23 Alternative performance measures ("APMs")
Closest
equivalent Reconciling items to
APM measure their statutory measure Definition and purpose
--------------------- ------------------ ----------------------------- -------------------------------------
Adjusted Operating Operating Exceptional items, An important measure where
Profit before profit share-based payments exceptional items distort
separately disclosed and amortisation of the understanding of the
items client relationship operating performance of
intangibles. See note the business. Allows comparability
6. between periods. See also
note 2.24.
--------------------- ------------------ ----------------------------- -------------------------------------
Adjusted Profit Profit before Exceptional items, An important measure where
before tax; tax share-based payments exceptional items distort
before separately and amortisation of the understanding of the
disclosed items client relationship operating performance of
intangibles. See note the business. Allows comparability
6. between periods. See also
note 2.24
--------------------- ------------------ ----------------------------- -------------------------------------
Adjusted earnings Earnings per Exceptional items, An important measure where
per share - share - Basic share-based payments exceptional items distort
Basic and amortisation of the understanding of the
client relationship operating performance of
intangibles and the the business. Allows comparability
tax thereon. See note between periods. See also
9. note 2.24.
--------------------- ------------------ ----------------------------- -------------------------------------
Adjusted earnings Earnings per Exceptional items, An important measure where
per share - share - Diluted share-based payments exceptional items distort
Diluted and amortisation of the understanding of the
client relationship operating performance of
intangibles and the the business. Allows comparability
tax thereon. The dilutive between periods. See also
shares for this measure note 2.24.
assume that all contingently
issuable shares will
fully vest. See note
9.
--------------------- ------------------ ----------------------------- -------------------------------------
Net cash generated Net cash generated Exceptional items, Net cash generated from operations
from operations from operations share-based payments before exceptional costs.
before separately and amortisation of To show underlying cash performance.
disclosed items client relationship See also note 2.24.
intangibles. See note
6.
--------------------- ------------------ ----------------------------- -------------------------------------
Other measures
Reconciling
Closest items to
equivalent their statutory
APM measure measure Definition and purpose
------------------- ----------- ---------------- ----------------------------------------------
Tatton - Assets None Not applicable AUM is representative of the customer
Under Management assets and is a measure of the value
("AUM") of the customer base. Movements in
this base are an indication of performance
in the year and growth of the business
to generate revenues going forward.
------------------- ----------- ---------------- ----------------------------------------------
Paradigm Consulting None Not applicable Alternative growth measure to revenue,
members and growth giving an operational view of growth.
------------------- ----------- ---------------- ----------------------------------------------
Paradigm Mortgages None Not applicable Alternative growth measure to revenue,
lending, member giving an operational view of growth.
firms
and growth
------------------- ----------- ---------------- ----------------------------------------------
Dividend cover None Not applicable Dividend cover (being the ratio of
diluted earnings per share before exceptional
items and share-based charges) is 1.9
times, demonstrating ability to pay.
------------------- ----------- ---------------- ----------------------------------------------
24 Post balance sheet event
There were no material post balance sheet events.
25 Capital Commitments
At 31 March 2020, the Directors confirmed there were no capital
commitments (2019: GBP112,000) for capital improvements.
26 Contingent Liabilities
At 31 March 2020, the Directors confirmed there were no
contingent liabilities (2019: none).
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UVOBRRVUNAAR
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June 16, 2020 02:00 ET (06:00 GMT)
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