Liontrust Asset Management Regulatory News (LIO)

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LIONTRUST ASSET MANAGEMENT PLC

HALF YEAR REPORT FOR THE SIX MONTHS ENDED

30 SEPTEMBER 2023

Liontrust Asset Management Plc ("Liontrust", the "Company", or the "Group"), the independent fund management group, today announces its Half Year Report for the six months ended 30 September 2023.

Results:

· Gross Profit of £98.6 million (2022: £108.8 million), a decrease of 9% when compared to the same period last year. Gross Profit excluding Performance Fees1 of £92.5 million (2022: £108.8 million), a decrease of 15% when compared to the same period last year.

· £6.0 million of performance fee revenues (2022: £nil).

· Adjusted profit before tax1 of £36.0 million (2022: £42.9 million), a decrease of 16% when compared to the same period last year.

· Adjusted diluted earnings per share1 of 42.32 pence per share (2022: 53.87 pence per share), a decrease of 21% when compared to the same period last year.

· Statutory loss before tax of £10.1 million (2022: profit £14.1 million). This includes charges of £46.2 million (2022: £28.8 million) relating to acquisitions and associated restructuring costs (£8.1 million); the non-cash amortisation and impairment of the related intangible assets and goodwill (amortisation: £7.0 million, impairment: £29.9 million); and other non-cash and non-recurring costs (£1.1 million). See note 6 below for further detail and a reconciliation to Adjusted profit before tax.

Dividend:

· First Interim dividend per share of 22.0 pence (2022: 22.0 pence).

Assets under management and advice:

? · On 30 September 2023, assets under management and advice ("AuMA") were £27.7 billion, a decrease of 12% over for the six months ended 30 September 2023.

· AuMA as at 9 November 2023 were £26.6 billion.

Flows:

· Net outflows of £3.2 billion in the six months ended 30 September 2023 (2022: £2.2 billion outflows).

1 This is an Alternative Performance Measure, see note 2 below.

Commenting, John Ions, Chief Executive, said:

"This has been a challenging period for the asset management sector, including Liontrust. This is shown by the fact that the industry experienced net retail outflows in the UK in September of £1.4 billion, according to the Investment Association ("IA"), and asset managers only required net retail sales of £7.4 million in the UK in the 3rd quarter of 2023 to make it into the top 10 list of sellers (Source: The Pridham Report). 

It is in this context that we need to view Liontrust's net outflows and the impairment of recent acquisitions. The majority of Liontrust's assets are invested in UK equities, which is an asset class that continues to be out of favour with investors. UK All Companies was the worst selling sector for net retail sales yet again in September 2023 (with net retail outflows of £884 million), which has been the case for 10 out of the past 11 months.

The impairment of recent acquisitions, which does not affect our net cash, reflects the sentiment towards UK equities, especially among institutional investors, which has negatively impacted the funds and mandates we inherited from the acquisition of Majedie Asset Management.

Liontrust has partly grown through acquisitions and they have made it a better business by broadening the pool of talent, and enhancing product development and the infrastructure of the business, including client service. 

Our focus is clear and we are committed to navigating the current headwinds and emerging with the business stronger than ever. There are a number of areas we are prioritising to achieve our strategic objectives.

We are seeking to further broaden our investment talent and product offering, which follows an optimisation of the current fund range. We have closed and merged a number of funds, launched the GF Sustainable Future US Growth Fund and will offer an Irish-domiciled version of the European Dynamic Fund in the first quarter of 2024.

Both fund launches are in response to client demand; the European Dynamic Fund is the best performer in its IA sector over the last five years and is in the 1st quartile over one and three years and since launch (Source: Financial Express, as at 31.10.23, total return, bid-to-bid, net of fees, income reinvested, share class I). There is also increasing interest from Europe in the Cashflow Solution team's long/short European Strategic Equity Fund that has delivered 81.1% over the past three years (Source: Financial Express, as at 31.10.23, total return, net of fees, income reinvested, share class C3).

A key part of our strategy is to broaden distribution internationally. This requires not only having the appropriate infrastructure but also the product range to meet demand, which will benefit from further diversification of asset classes. One area of strong demand in Europe is for SFDR Article 9 funds. Given all our Irish-domiciled Sustainable Future funds are in this category, this positions them well for the future.

All four UK-domiciled Economic Advantage funds are in the 1st quartile of their respective IA sectors since launch or since the team started managing them but have been facing the headwind of falling demand (Source: Financial Express). However, this negative sentiment does present opportunities to investors in the form of attractive valuations. The Economic Advantage team argues that the UK market as a whole represents a 32% discount to intrinsic value and this rises to 49% for small caps (Source: Liontrust, Canaccord Genuity Quest, 06.09.23.).

In the current environment, it is more important than ever that our investment teams explain the drivers of performance and how their portfolios are positioned for the future. We have interacted extensively with our client base over the autumn, including through a series of Liontrust and partner events. This is in conjunction with the strong engagement our communications continue to generate, including more than 1.7 million views of our fund manager videos from the start of 2023 to November.

To support the investment and distribution teams we have been reviewing our operating model and are investing in the operational infrastructure of the business. We want to ensure Liontrust has an efficient and scalable platform to support the growth of the Group going forward.

While we continue to invest in selected areas of the Group for future growth, we are also concentrating on managing costs and driving efficiencies across the business. This is to ensure we have a lean, efficient and focused operation, underpinned by a resilient balance sheet, both now and for the future.

All of these developments and initiatives are building on the strong foundations that we already have through the investment teams, brand, distribution and business processes. They give me great confidence we will emerge stronger from the current environment."

For further information please contact:

Teneo (Tel: 020 7353 4200, Email: liontrust@teneo.com)

Tom Murray, Colette Cahill

Liontrust Asset Management Plc (Tel: 020 7412 1700, Website: liontrust.co.uk)

John Ions: Chief Executive

Vinay Abrol: Chief Financial Officer & Chief Operating Officer

Simon Hildrey: Chief Marketing Officer

David Boyle: Head of Corporate Development

Singer Capital Markets (Tel: 020 7496 3000)

Corporate Broking: Charles Leigh-Pemberton

Corporate Finance: Justin McKeegan

Panmure Gordon (Tel: 020 7886 2500)

Corporate Broking: David Watkins

Corporate Advisory: Atholl Tweedie

HSBC Bank plc (Tel: 020 7991 8888)

Corporate Broking: Sam McLennan, James Hopton

Corporate Advisory: Alexander Paul

Chair's Statement

No company enjoys linear growth over many years. There will inevitably be bumps, twists and turns along the way. While Liontrust has been going through a less comfortable part of the journey after delivering many years of rapid growth, the Group has a robust strategy and a clear plan for how management intends to deliver it.

We understand the reasons for the net outflows of £3.2 billion over the first half of the financial year. Key drivers are Liontrust's bias towards quality growth investing and small and mid caps, along with a significant proportion of our AuMA being invested in the UK stock market, which have all been negatively impacted by investor sentiment. In the first nine months of 2023, for example, UK All Companies was the worst selling IA sector in eight of those months.

The question we often get asked by investors is when will this sentiment change, which is especially significant now as our fund managers are telling us that the share prices of the companies they hold in their portfolios are at historically low levels. There is usually never a simple catalyst, other than time. We believe in the teams' investment processes and their ability to deliver for investors over the long term - this unwavering focus on process has historically rewarded our investors.

Liontrust is not waiting passively for the cycle to change, however. The Group is focused on broadening the fund range and investment teams, expanding the asset classes and investment styles managed by Liontrust, increasing global distribution, enhancing further the investor experience and strengthening the operating model and infrastructure.

It was in pursuing this strategy that we made the decision to seek to acquire GAM. Having carefully considered the proposed acquisition, we decided it was the right deal to accelerate our stated strategy, especially in broadening our fund range and global distribution and enhancing our business infrastructure. The Board is pleased that Liontrust attempted to acquire GAM and then remained resolute in sticking to a price that we believe was fair for the value of the business, recognising the costs it would have entailed. This is a better outcome than completing a deal for the wrong price for Liontrust.

Liontrust has announced costs related to the impairment of the related intangible assets and goodwill on past acquisitions. These costs do not impact the Group's cash position and Liontrust continues to be in a strong financial position, supported by its robust balance sheet. This is shown by the fact that Liontrust's first interim dividend has been maintained at 22.0p, the same as we announced at the Half Year Results in 2022.

The strategy of Liontrust has not changed. Our management and staff are working hard to continue to pursue this strategy including the expansion of investment teams and distribution, enhancing the investor experience and improving the efficiency of the operating model.

We have always considered it vital to put our investors first and our rigorous investment processes have been a key part of delivering the outcomes expected by investors. We seek to provide value for money, exceptional service and support, be as transparent as possible, and communicate clearly and frequently. Consumer Duty is therefore welcome and prompts us all to ensure we are delivering the best outcomes possible. 

Through continual development of the business and our offering to investors, we believe Liontrust will become an even stronger Group.

Results

Adjusted profit before tax2 is £36.035 million (2022: £42.867 million), a decrease of 16% compared to last year. Adjusted profit before tax2 is disclosed in order to give shareholders an indication of the profitability of the Group excluding non-cash (intangible asset amortisation and impairment) expenses and non-recurring (professional fees relating to acquisition, cost reduction, restructuring and severance compensation related) expenses, see note 6 below for a reconciliation of adjusted profit before tax2.

2 This is an Alternative Performance Measure, see note 2 below.

Dividend

In accordance with the Company's longstanding progressive dividend policy, which remains unchanged, the Board is declaring a first Interim dividend of 22.0 pence per share (2022: 22.0 pence) which will be payable on 5 January 2024 to shareholders who are on the register as at 24 November 2023, the shares going ex-dividend on 23 November 2023. Last day for Dividend Reinvestment Plan elections is 12 December 2023.

Looking forward

While the asset management industry is facing a number of headwinds and Liontrust has been through a challenging period for net outflows, the Board is optimistic about the outlook for the Group. This is based on the strategy for the business and the excellence of the investment teams, their processes, the brand, client relationships and financial strength of the Group.

Assets under management and advice

On 30 September 2023, our AuMA stood at £27,650 million and were broken down by type and investment process as follows:

AuMA as at 9 November 2023 were £26,576 million.

Flows

The net outflows over the six-month period to 30 September 2023 were £3,213 million (2022: £2,187 million). A reconciliation of fund flows and AuMA over the six-month period to 30 September 2023 is as follows:

UK Retail Fund Performance (Quartile ranking)

Source: Financial Express to 30 September 2023 as at 4 October 2023, bid-bid, total return, net of fees, based on primary share classes. Past performance is not a guide to future performance, investments can result in total loss of capital. The above funds are all UK authorised unit trusts, OEICs, Irish authorised OEICs (primary share class) or UK listed investment trusts. Liontrust Russia Fund is not included as it is currently suspended and in an IA sector that is not rankable (e.g., Specialist) so it would not be a fair comparison to make. The onshore and offshore Tortoise funds are not included as they are not in IA sectors. Edinburgh Investment Trust Plc uses the IT UK Equity Income sector.

Alastair Barbour

Non-executive Chair

15 November 2023

Consolidated Statement of Comprehensive Income

Six months ended 30 September 2023

Consolidated Balance Sheet

As at 30 September 2023

Consolidated Statement of Change in Equity (unaudited)

Six months ended 30 September 2023

Consolidated Statement of Change in Equity (unaudited)

Six months ended 30 September 2022

Consolidated Statement of Change in Equity (audited)

Year ended 31 March 2023

Notes to the Financial Statements

1 Principal accounting policies

a) Basis of preparation

The Group financial information for the six months ended 30 September 2023 has been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and with IAS 34 Interim Financial Reporting. The condensed interim financial statements should be read in conjunction with the Group's annual financial statements for the year ended 31 March 2023, which were prepared in accordance with UK-adopted international financial reporting standards (IFRS) and with the requirements of the Companies Act as applicable to companies reporting under those standards.

The condensed financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The financial information for the half years ended 30 September 2023 and 2022 has not been audited by the auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information. KPMG reported on the 31 March 2023 financial statements, and their report was unmodified and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006 in the UK.

The preparation of financial statements in conformity with IFRS requires the Directors of the Company to make significant estimates and judgements that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial information and the reported income and expense during the reporting periods. Although these judgements and assumptions are based on the Directors' best knowledge of the amount, events or actions, actual results may differ from these estimates. The accounting policies set out below have been used to prepare the financial information. All accounting policies have been consistently applied.

b) Going concern

The financial information presented within these financial statements has been prepared on a going concern basis under the historical cost convention (except for the measurement of financial assets at fair value through profit and loss and Deferred Bonus and Variable Allocation Plan ('DBVAP') liability which are held at their fair value). The Group is reliant on cash generated by the business to fund its working capital. The Directors have assessed the prospects of the Group and parent company over the forthcoming 12 months, including an assessment of current trading; budgets, plans and forecasts; the adequacy of current financing arrangements; liquidity, cash reserves and regulatory capital; and potential material risks to these forecasts and the Group strategy. This assessment includes consideration of a severe but plausible downside scenario in which AuMA falls by 20%. The Directors confirm that as a result of this assessment they have a reasonable expectation that the Group and parent company will continue to operate and meet its liabilities as they fall due for at least 12 months from the date of signing these accounts.

c) Accounting estimates and judgements

The preparation of the financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. Estimates and judgements used in preparing the financial statements are periodically evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable. The resulting accounting estimates may not equal the related actual results. There are no significant judgements. The Directors make a number of estimates, these include leases (note 1k in the financial statements for the year ended 31 March 2023) and share based payments (see note 1p in the financial statements for the year ended 31 March 2023), neither of which are considered to be significant. In addition, the Directors make estimates to support the carrying value of goodwill and intangibles that arise on acquisition.

Goodwill and Intangible assets

Goodwill arising on acquisitions is capitalised in the consolidated balance sheet. Goodwill is carried at cost less provision for impairment. The carrying value of goodwill is not amortised but is tested annually for impairment or more frequently if any indicators of impairment arise. Goodwill is allocated to a cash generating unit (CGU) for the purpose of impairment testing, with the allocation to those CGUs that are expected to benefit from the business combination in which the goodwill arose (see note 14 of the Financial Statements to 31 March 2023).

The costs of acquiring intangible assets such as fund management contracts are capitalised where it is probable that future economic benefits that are attributable to the assets will flow to the Group and the cost of the assets can be measured reliably. The assets are held at cost less accumulated amortisation and impairment. An assessment is made at each reporting date, on a standalone basis for each intangible asset, as to whether there is any indication that the asset in use may be impaired. If any such indication exists and the carrying value exceeds the estimated recoverable amount at the 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.

Further information on the impairment testing and estimates used are contained in note 10.

The fund management contracts and segregated clients' contracts relating to the assets acquired as part of the acquisitions of Alliance Trust Investments Limited; Neptune Investment Management Limited; Architas Multi-Manager Limited and Architas Advisory Services Limited (together "Architas") and Majedie Investment Management Limited are recorded initially at fair value and recorded in the consolidated financial statements as intangible assets, they are then amortised over their useful lives on a straight-line basis. Management have determined that the useful life of these assets is between 5 and 10 years owing to the nature of the acquired products. Impairment is tested through measuring the recoverable amount against the carrying value of the related intangible asset. The recoverable amount is the higher of the fair value less costs to sell and its value in use. The Directors assess the value in use using a multi-period excess earnings model which requires a number of inputs requiring management estimates, the most significant of which include: future AuMA growth, useful economic life and discount rate. In the current period, significant estimates were only required for the intangible assets in relation to Architas and Majedie (see notes 10 and 11 for further detail).

Impairment losses on goodwill, where these are identified, are not reversed. Impairment is tested through measuring the recoverable amount against the carrying value of the related goodwill. The recoverable amount is the higher of the fair value less costs to sell the CGU and its value in use. Value in use is assessed using a multi-period excess earnings model which requires a number of inputs requiring management estimates and judgements, the most significant of which are: future new business, AuMA growth, discount rate and terminal growth rate.

In the current period, significant estimates were only required to be reassessed for the goodwill assets in relation to Architas and Majedie (see notes 10 and 11 for further details). Due to the strong performance and growth of the Sustainable Investment team (acquired as part of the ATI acquisition) and the Global Equity team (acquired as part of the Neptune acquisition) since acquisition there is no significant estimation in relation to the impairment of the related goodwill allocated to the Sustainable and Global Equity Investment teams' CGU.

d) Regulatory capital position

Following the approval of the Group's Internal Capital and Risk Assessment ("ICARA") process in September 2023, the updated capital position for the Group is shown below:

Note, the capital position for the Group as at 30 September 2023 (unaudited) includes the impairment of the intangible assets and goodwill.

1 Group Capital minus own shares, intangibles and goodwill adjusted for deferred tax liabilities

2 Group Capital requirement calculated per MiFIDPRU as part of the Internal Capital and Risk Assessment (ICARA) process

3 For 30 September 2023, first interim dividend of 22.0 pence per share paid in January following the half year end

4 For 31 March 2023 and 31 March 2022, second interim dividend of 50.0 pence per share paid in August following financial year end

The ICARA process included a review of the capital calculation shown above. The Group had previously not adjusted the intangibles for related deferred tax liabilities as part of the capital calculation believing it was more prudent not to do so, however the review suggested it was market practice to deduct them and so we have now done so. The figures for financial year ended 31 March 2022 ("FY22") have been similarly adjusted to give correct comparable for FY22 The table above shows the represented information.

2 Adjusted performance measures ("APMs")

3 Segmental reporting

The Group operates only in one business segment - Investment management.

The Group offers different fund products through different distribution channels. All financial, business and strategic decisions are made centrally by the Board, which determines the key performance indicators of the Group. The Group reviews financial information presented at a Group level. The Board, is therefore, the chief operating decision-maker for the Group. The information used to allocate resources and assess performance is reviewed for the Group as a whole. On this basis, the Group considers itself to be a single-segment investment management business.

4 Revenue

1 September 2023 performance fees generated on redemptions from the Tortoise funds.

5 Administration expenses

1 Includes acquisition related and restructuring costs for Majedie/GAM.

Note, although a proportion of the projected costs associated with the proposed acquisition of GAM were negotiated on a contingent basis, there is a one-off exceptional charge of not more than £11 million of which approximately £2 million was incurred in the financial year ended 31 March 2023 and £8 million was incurred in the 6 months ended 30 September 2023, with further costs expected in the second half of the current financial year. These fees and costs relate primarily to Corporate Finance, Target Operating Model design, Class 1 Circular and Swiss Offer documents and Legal.

6 Adjusted profit before tax

Adjusted profit before tax is reconciled in the table below:

1 Includes acquisition related and restructuring costs for Majedie/GAM.

7 Taxation

The half yearly tax charge has been calculated at the estimated full year effective UK corporation tax rate of 25% (30 September 2022: 19%).

8 Earnings per share

The calculation of basic earnings per share is based on profit after taxation and the weighted average number of Ordinary Shares in issue for each period as shown in the table below. Shares held by the Liontrust Asset Management Employee Trust are not eligible for dividends and are treated as cancelled for the purposes of calculating earnings per share.

Diluted earnings per share is calculated on the same bases as set out above, after adjusting the weighted average number of Ordinary Shares for the effect of options to subscribe for new Ordinary Shares that were in existence during the six months ended 30 September 2023 as shown in the table below. This is reconciled to the actual weighted number of Ordinary Shares as follows:

9 Neptune deferred consideration

On 1 October 2019 ("Completion Date") the Company acquired the entire issued share capital of Neptune Investment Management Limited. The Share Purchase Agreement in relation to the acquisition provided that an earnout of 661,813 Liontrust Shares ("Tranche Two Consideration Shares") was payable if the AuMA managed by the acquired team exceeded £4bn on the 3rd anniversary of the Completion Date. The seller could extend this term if the MSCI World Index fell by 10% or more in the preceding 12 months prior to the 3rd anniversary of the completion date. As at 1 October 2022 the MSCI World Index had fallen by more than 10% and therefore the earnout provision was retested at 1 October 2023. At 1 October 2023 the AuMA of the acquired team did not meet the threshold and the Tranche Two Consideration was not payable.

10 Intangible assets

Intangible assets represent investment management contracts that have been capitalised upon acquisition and are amortised on a straight-line basis over their useful economic lives.

The intangible asset on the balance sheet represents investment management contracts as follows:

Impairment of intangible assets

ATI

There were no indicators of impairment for ATI intangible asset as at 30 September 2023 based on the AuM and flow of funds being in line with management expectations.

Neptune

There were no indicators of impairment for Neptune intangible asset as at 30 September 2023 based on the AuM and flow of funds being in line with management expectations.

Architas

Indicators of impairment were identified for the Architas investment management contract intangible due to higher than expected fund outflows and negative market returns leading to forecast revenues being lower than originally forecast. The value of the intangible assets have therefore been retested as at 30 September 2023 which has resulted in an impairment of the Architas investment management contract intangible of £7.311 million.

Majedie

Indicators of impairment were identified for the Majedie investment management contracts and segregated clients intangible assets as at 30 September 2023 due to the current macroeconomic and geopolitical climate and its resultant impact on outflows. The value of the intangible assets have therefore been retested as at 30 September 2023 which has resulted in an impairment of the Majedie investment management contract intangible of £12.753 million and Majedie Segregated Clients intangible of £5.314 million.

Intangible assets impaired in the period: