MJH.L Regulatory News (MJH)

The following amendments have been made to the ' Preliminary results for the twelve months ended 30th June 2020' announcement released on 14 October at 7.00 a.m. under RNS No 9835B.

References to the acquisition of 'Bridge Group' have replaced its codename 'Bear Mountain' in two incidences. All other details remain unchanged. The full amended text is shown below.

MJ Hudson Group plc

Preliminary results for the twelve months ended 30th June 2020

MJ Hudson Group plc ("MJ Hudson", the "Company" or the "Group"), the international asset management consultancy, today announces its preliminary results for the twelve months ended 30th June 2020 ("FY20").

Highlights

Statutory results

· Revenue growth of 5%, up from £21.2m in FY19 to £22.3m in FY20

· Loss before tax increased from £(3.4)m to £(7.0)m - explained below

· Basic EPS of (0.5)p consistent with restated FY19 EPS post IPO

· £13.4m cash balance at end of 30 June

· Net debt position excluding IFRS16 leases has improved by £22m to £10m as at 30 June 20

Underlying results

· Underlying revenue growth of 22%, up from £16.7m in FY19 to £20.3m in FY20

· Underlying continuing EBITDA up 56% (£1.5m), from £2.7m in FY19 to £4.2m in FY20

· Underlying profit/(loss) before tax increased five-fold, from loss of £(0.2)m in FY19 to profit of £1.1m in FY20

· Underlying diluted EPS of 0.6p compared to (0.6)p in FY19

· Added a further 4 large and multi-divisional clients

· Announcing acquisition of Bridge Consulting Limited and subsidiaries ("Bridge Group") today, an Irish funds services provider

· M&A pipeline remains busy

· Sustained market volatility is a risk factor but our multi divisional group has proven resilient in the year reported and we remain cautiously confident about our prospects in the current year

Financial summary

1. Underlying revenue is statutory revenue less direct cost of sales

2. Adjustment to Administrative expenses is the addback of share based payments and LTIP expense in Statement of Comprehensive Income

3. Underlying continuing EBITDA is segment profit/(loss) before: share based payments expense (including LTIP), fundraising and acquisition costs, nonrecurring costs, unallocated group expenses and discontinued business losses.

4. Finance costs and fair value movements are adjusted for costs of convertible loan notes which converted to equity at IPO and the deemed interest on the deferred consideration

5. Underlying profit/(loss) before tax is underlying continuing EBITDA after depreciation and amortisation, finance costs and fair value movements

6. The FY20 underlying profit before tax includes an adjustment for depreciation is £0.3m in respect of doubled rent depreciation for the period from December 2019 to April 2020 where the new and former London office leases overlapped.

7. Totals may not add due to rounding.

1. Continuing and underlying continuing EBITDA margin is the continuing (underlying continuing) EBITDA divided by underlying revenue

2. Underlying profit before tax divided by weighted average number of shares

3. Net cash/(debt) excluding IFRS 16 leases is cash and cash equivalents less borrowings. Further details below.

To assist shareholders' understanding of the performance of the Group, underlying results have been presented. The adjustments made to derive underlying results are reconciled to statutory results are described below. These notes are used throughout this release.

Commenting on the results, CEO of MJ Hudson, Matthew Hudson said:

´´The business has achieved a certain critical mass after a transformative year. Our balance sheet was improved following the successful AIM flotation at the end of last year. Our business model has evolved and we now provide services and advice over three divisions of comparable financial scale. The Global Financial Crisis was a learning experience for us when our business was formed. Then as now we are exposed to an industry, the Alternative investment industry, with persuasive growth potential and our activities are internationally scalable. The Group now presents three divisions with more economic balance than at any prior point.

The Covid-19 pandemic caused a freezing of new private funds launches and thus held back revenue in our advisory division in the four months to end June 2020. Despite that, June remained the strongest revenue month for the Group. Activity levels in law - a forward indicator of revenues - in recent months have been ahead of the previous year. Outside of our advisory division, the Group´s growth accelerated in the second half.

In terms of outlook, the Board is encouraged by the Group´s resilience across its three divisions and the continuing growth of the Alternatives sector which they collectively serve. With our developing critical mass, today´s acquisition and the early months of the global pandemic behind us, we are in a better position now to model the impact of the pandemic and assess our prospects for the current year. We should not ignore the risk posed by a sustained Coronavirus pandemic and its impact on global stock markets and investing, as well as business confidence, but we remain cautiously confident about the Alternatives industry we serve and the strength of our multi divisional business model in the current financial year."

For further information contact:

This announcement contains inside information as defined in Article 7 of the Market Abuse Regulation

Alternative or Alternatives - A subsector of the global asset management industry which comprises: private equity funds; real estate funds; hedge funds; infrastructure funds; and, alternative credit funds

Chief Executive's Statement

MJ Hudson, the international asset management consultancy, is pleased to report its preliminary results for the twelve months ended 30th June 2020. As it was for many, the financial year to 30 June 2020 was a period of unprecedented changes for our group. Some of these changes were put upon us and some were of our own creation. I am proud of the way the business has both driven and responded to these changes and evolved as a result.

The business has achieved a certain critical mass on a number of fronts after a transformative year. We came to the AIM market in December to raise capital so we could continue to invest in our business and make acquisitions. During FY20, we made three acquisitions (compared with one in the prior period): we completed the acquisition of our ESG business, Spring Associates (July 2019), received regulatory approval for our acquisition of Anglo Saxon Trust (January 2020) and announced the March 2020 acquisition of Meyler LLC, a North American marketing services and analytics business, with an Alternatives client base. All operate under the MJ Hudson brand. The Group now presents three divisions with more economic balance than at any prior point. This greater stability has been a factor as the Group has navigated the impact of Covid 19. As at the end of June 2020, we had net cash resources of £10.0m following £8.3m of acquisition payments in the year.

Separately today we will release simultaneously, the acquisition of Bridge Group, an Irish funds service provider. Regulated by the Central Bank of Ireland, Bridge Group is a Dublin based provider of specialist support services to the funds sector, with more than 27 staff, including senior account managers and an experienced regulatory department. Bridge Group adds an Irish domicile to our network and doubles our capacity to service post-Brexit client demand in the Business Outsourcing division. The transaction is conditional upon regulatory approval from the Central Bank of Ireland.

1 Group growth

*6m Dec 2019 growth in Data & Analytics distorted by consolidation of Amaces in only part of historic period

Group underlying revenues grew by 22% to £20.3m. On an organic basis, revenue grew by 4% compared with 5% in 2019. Our second half coincided with start of the Covid 19 outbreak and whereas performance at the interim stage was 13%, organic growth in the second half was (4)%. As set out below, this was mainly driven by weakness in our legal practice given the pandemic´s impact on new fund launches. Pleasingly, in the months after the year end, both activity levels and revenue generation in this segment has begun to normalise. Excluding our Advisory division, organic growth in all other segments accelerated in the second half of the financial year compared with the first.

2 Segment adjusted performance

1. Organic investments represent investment into start-up AIFM operations in Luxembourg, fund administration and regulatory consulting (see glossary for more detail)

2. Underlying continuing EBITDA is segment profit/(loss) before: share based payments expense (including LTIP), fundraising and acquisition costs, nonrecurring costs, unallocated group expenses and discontinued business losses.

At the Group level, Underlying EBITDA grew to £4.2m as at June 2020 compared with £2.7m last period, with associated margins for the period improving from 16% to 21% as at June 2020.

With the benefit of organic growth and recent acquisitions, our Business Outsourcing division is now the most significant contributor to group EBITDA. This division did not exist four years ago and will see further benefit from the acquisition announced today. The Group now presents three divisions with more economic balance than at any prior point. This greater stability has been a factor as the Group has navigated the impact of Covid 19.

Performance for the individual segments is as follows:

· Advisory - This segment comprises the Group's Law and Investment Advisory business units. Underlying revenue was slightly under 50% of the Group total at £10.0m. Advisory saw 7% revenue contraction in the year due to a reduction of Law revenues in the second half of the financial year of 22%. Led by a pause in new fund launches, this reversed the growth in the division in the first half. Investment Advisory, meanwhile, was more resilient and benefitted from healthy new business activity in the first half. Although we were able to makes some changes to the cost structure, the Underlying EBITDA margin reduced to 14% from 17% in FY19. As per the COVID section below, activity levels in law - a forward indicator of revenues - in recent months have been ahead of the previous year. With effect from August 2020 the Group has closed down its small loss-making Guernsey law operation.

· Business Outsourcing - Through this segment the Group provides ongoing business support for fund managers and funds. Specifically, this is provided through fund management solutions, international administration and IR & reporting business units. This segment achieved 49% revenue growth in the year, of which 21% was organic. The MJ Hudson Anglo Saxon Trust Limited Jersey administration business was acquired on 31 January 2020. Total underlying revenue for this segment was £4.7m (FY19 - £3.2m) and underlying EBITDA margin increased from 34% to 45%. The division saw double digit growth in all its business units in FY20.

· Data & Analytics - This segment comprises the Group's benchmarking business (acquired in 2018), ESG operations (acquired July 2019) and North American Alternative marketing and analytics business (acquired March 2020). The Group decided to discontinue loss making elements of its small Wealth Management operations in April 2020 (2020 revenue to March was £0.3m) - part of this business has been transferred into the Investment Advisory business unit. Revenue growth in the segment was largely via acquisition and underlying revenue increased to £4.6m from £2.4m in FY19. Underlying EBITDA margin reduced to 33% from 42%. This reflects the change in the mix of businesses, with the earlier stage ESG business unit blending with a more established margin in benchmarking. Including Meyler after the acquisition in March, the division saw good demand across all its service lines despite the impact of Covid 19.

· Organic Investments - This segment includes three investments are at different stages of maturity. In aggregate, underlying revenues increased 190% on an organic basis with an improving first half second half trend. Our AIFM platform in Luxembourg accounts for over half of the divisions´ revenues and built on the strong gains in the first half. A start-up team three years ago, we have added capacity to meet sustained levels of demand. Going forward, the Luxembourg team will be a natural beneficiary of our acquisition announced today as we are now able to present post-Brexit funds solutions to a wider group of clients across a wider network. In our risk and regulatory business, the roll out of the new services continued following the launch in the first half with a healthy forward pipeline.

3 New Business activity

We now have over 943 clients, an increase of 48% in the year. Part of this is as result of the businesses we have acquired, but it is also a result of our natural organic growth. One factor in this improvement has been the establishment of a dedicated business development function within the business and further investment in our marketing team. As we continue to build out our services, we are also starting to see the effects of scale across our three divisions. This is impacting the size of the clients we can do business with; the entry level for our top 10 clients is now over £260,000 whereas it was just over £210,000 in 2019 and none of these 10 names in either year came from acquisitions. It is also impacting our ability to refer. We now have 91 clients taking services from more than 1 division.

We also benefit from a largely homogeneous client base. For the most part clients, whether asset owners or asset managers, are active in the Alternative investments area.

In particular -

· The total number of clients we deal with across 2 continents (Europe and North America) increased considerably with a targeted expansion of staff and offices.

· Our revenues now include over 200 clients from the US. We expect to increase this figure in absolute terms and as a % of our group total, as we continue to extend in North America, the largest addressable market for the Alternatives sector.

· Our clients included 18 constituents of the FTSE100 index; this is a comment on both the continued growth of the Alternatives sector and the stature of clients we are increasingly doing business with.

· We have extended our list of large and multi divisional clients by 4 since the IPO.

4 Reconciliation of Adjusted Performance Measures

Adjusted financial measures are presented to provide additional information to best represent the underlying performance of the business.

Significant drivers of the operating loss of £4.8m (FY19 - £1.1m) are:

· Fundraising / Acquisition costs of £4.0m (FY19 - £1.4m). Fundraising and acquisition costs include direct IPO costs of £2.3m, accelerated share option costs that crystallised at IPO of £0.3m and acquisition costs of £1.3m.

· Non-recurring costs £0.9m (FY19 - £0.8m) include London office move costs £0.3m, IT infrastructure costs (move from Jersey to London) £0.2m, US launch costs (suspended due to COVID) £0.2m.

· Group expenses - Integration infrastructure project (FY20 - £0.6m) includes central costs not passed on to segments in respect of improving business integration processes and dedicated IT infrastructure. The aim of the project is to enable the group as a whole to scale at an accelerated pace and in a more cost efficient manner. Included within depreciation is £0.3m in respect of doubled rent depreciation for the period from December 2019 to April 2020 where the new and former London office leases overlapped.

5 Cashflow and conversion

Statutory net cash generated from operating activities for FY20 was an outflow of £4.7m before tax (2019: £1.6m). The Group has had a £3.1m increase in its operating cash loss this year due to similar factors noted within the analysis of operating loss detailed above. After adjusting for the cash impact of these items, the underlying operating cash flow of the Group is a positive inflow of £1.9m (FY19 - £1.1m)

A portion of the IPO proceeds of £28.1m (net of management shares not paid) have been discharged against covering the £4.8m operating outflow and supporting investment cash flows of £10.6m and finance outflows of £2.4m (separate analysis of which is documented in the consolidated cash flow statement), resulting in an 30 June 2020 balance of £13.4m (2019: £3.1m).

6 Acquisitions and investing

We came to the AIM market last year to raise capital so we could continue to invest in our business and make acquisitions. During FY 2020, we made three acquisitions (compared with one in the prior period): we completed the acquisition of our ESG business, Spring Associates (July 2019), received regulatory approval for our acquisition of Anglo Saxon Trust (January 2020) and announced (March 2020) the acquisition of Meyler LLC, a North American marketing services and analytics business, with an Alternatives client base. All now operate under the MJ Hudson brand and have been integrated in line with management expectations.

Covid 19 has had an impact on our acquisition efforts both in terms of raised levels of due diligence on our part and our ability to manage pricing expectations. This was particularly apposite at the mid-point of FY 2020 however in subsequent months vendors have become more willing to engage on valuation and performance-based considerations.

We have announced today the acquisition of Bridge Group, an Irish funds service provider. Bridge Group add an Irish domicile to our network and doubles our capacity to service post-Brexit client demand in the Business Outsourcing division. The transaction is conditional upon regulatory approval from the Central Bank of Ireland. This is our first acquisition in the current period.

Over the financial year 2020 as whole, we invested a total of £9.2m in the business, including acquisitions and the funding of organic investments (FY19 - £5m) and will serve to underpin future growth. We will continue to prioritise a mix of investment activity going forward, meanwhile our opportunity set is expanding.

7 Dividend update

In our admission document on admission to AIM in December 2019 we said that we would adopt a progressive dividend policy. On the strength of these results we expect to be able to pay our maiden dividend in respect of FY 2021 with reference to the normalised profits at that point.

8 Board & Staff

Unprecedented change brings its own challenges. As our Chairman noted to me, we have now spent more than 70% of our time as a quoted company in a lock down arrangement, whether formally or informally. Adapting to change is unquestionably harder without the camaraderie and support of the shared office space and I thank all our staff and also our board for all of their hard work and concerted efforts this last year. There are numerous names I could mention who have made a real difference, but I would like to single out our enormously effective People & Wellbeing team who have shouldered these challenges and helped everybody through.

9 Coronavirus and market volatility

The COVID-19 pandemic has impacted the Group in a number of ways. Operationally, all of our offices have been subject to lockdowns of varying lengths and severity. In lockdown, all the offices have been made COVID compliant ready for the phased return to normal working. Increased flexible working is now expected as part of a move to the 'new normal' and the Group is well placed to support this. At the time of writing, the easing of lockdown varies considerably by jurisdiction. Guernsey now has no restrictions so that office is fully reopened. Other offices have gradual easing plans and will reopen in line with local government and medical guidance. The London office has been operating a phased voluntary return since July in line with government and medical guidance.

In March a shortfall of revenue, compared to prior year, in the Advisory division of between 20% to 25% emerged and this continued through April to June. This revenue shortfall was due to the temporary suspension of client new fund launches and M&A activity. In recent months this shortfall has closed considerably and the 4 week average for 2020 as at mid-September was running consistently ahead of 2019 levels. Business Outsourcing and Data & Analytics divisions have remained busy throughout the period and continued to grow. Just under 80% of law firm revenue in FY20 (and previous years) comes from clients onboarded in earlier financial years - this reflects the repeating nature of the work over the 10 to 12 year typical closed ended fund lifecycle once the Group has been appointed as the legal adviser to the fund.

In response to the COVID-19 pandemic the Group took swift and decisive action as a result of the anticipated reduction in revenue and put in place a series of cost saving measures in April 2020 in order to preserve cash and liquidity to create a cash buffer cushion in the event of a possible protracted downturn. We brought these measures to an end with the start of the current financial year.

10 Current Trading & Outlook

The business has achieved a certain critical mass after a transformative year. Our balance sheet was improved following the successful AIM flotation at the end of last year. Our business model has evolved and we now provide services and advice over three divisions of comparable financial scale. The Global Financial Crisis was a learning experience for us when our business was formed. Then as now we are exposed to an industry, the Alternative investment industry, with persuasive growth potential and our activities are internationally scalable. The Group now presents three divisions with more economic balance than at any prior point.

The Covid-19 pandemic caused a freezing of new private funds launches and thus held back revenue in our advisory division in the four months to the end of June 2020. Despite that, June remained the strongest revenue month for the Group. Activity levels in law - a forward indicator of revenues - in recent months have been ahead of the previous year. Outside of our advisory division, the Group´s growth accelerated in the second half.

In terms of outlook, the Board is encouraged by the Group´s resilience across its three divisions and the continuing growth of the Alternatives sector which they collectively serve. With our developing critical mass, today´s acquisition and the early months of the global pandemic behind us, we are in a better position now to model the impact of the pandemic and assess our prospects for the current year. We should not ignore the risk posed by a sustained Coronavirus pandemic and its impact on global stock markets and investing, as well as business confidence, but we remain cautiously confident about the Alternatives industry we serve and the strength of our multi divisional business model in the current financial year,

14 October, 2020

Financial statements

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2020

Consolidated Statement of Financial Position

As at 30 June 2020

Consolidated Statement of Changes in Equity

For the year ended 30 June 2020

Consolidated Statement of Cash Flows

For the year ended 30 June 2020

This document does not constitute the Group's statutory accounts for the years ended 30 June 2019 or 30 June 2020 but is derived from those accounts. Statutory accounts for 30 June 2019 have been delivered to the Registrar of Companies, and those for 2020 will be delivered to the Registrar of Companies following the Group's annual general meeting.

MJ Hudson Group plc (the "Company") is a company incorporated in Jersey, Channel Islands under the Companies (Jersey) Law 1991. The address of the registered office is 2nd Floor, Hilgrove House, Hilgrove Street, St Helier, JE2 4SL. The financial statements consolidate the financial statements of the company and its subsidiary undertakings (together the "Group").

The principal activity of the Group is acting as an independent advisory and infrastructure business, serving fund managers, investors and advisers active in private equity, venture capital, hedge, credit, real estate and infrastructure. The group owns two full scope AIFM management platform to fund managers, one in the UK and another in Luxembourg.

2.1 Basis of Preparation

The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS").

The financial statements are prepared on a going concern basis, under the historical cost convention, except for certain financial assets and liabilities, which are revalued and measured at fair value through profit or loss. The financial statements are presented in pounds sterling and all values are rounded to the nearest thousand (£000), except when otherwise indicated.

The accounting policies are the same as those that will be disclosed in the annual report and accounts for the year ended 30 June 2020.

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.

2.2 Going concern

The financial statements have been prepared on a going concern basis. In adopting the going concern basis, the Directors have considered the group's operations and principal risks and uncertainties (as detailed below along with the impact of the COVID-19 pandemic. A summary of the impact of Covid-19 on the Group's operational performance between March 2020 and June 2020 s is provided below (refer to section 2.3)

As at 30 June 2020 the Group had cash and cash equivalent balances of £13 million and net cash after debt (excluding lease liabilities) of £10 million. Cash balances as at 30 September were £11 million (September 2019: £1.1m).

To assess going concern the Directors have prepared 'Base case' financial forecasts for FY21 and FY22 to cover the going concern review. In addition, the Directors have also carried out sensitivity analysis on those 'Base case' financial forecasts to reflect a more prolonged COVID impact than is currently expected by the Board. The uncertainty as to the future impact of the COVID-19 pandemic has been considered as part of the Group's adoption of the going concern basis.

The following table shows the assumed reductions applied to the 'Base case' financial forecasts to reflect a 'Worst-case' financial forecast:

In addition to the above 'Worst-case' revenue assumptions the Directors have assumed an increase in debtor days to 60 days (from forecast 45 days) across all business units. This was to reflect a possible slowdown in cash collection as a result of a prolonged lockdown and slow wider economic recovery.

The Directors 'Worst-case' financial modelling showed that the Group could withstand both revenue reductions and an increased debt collection period (as noted) and still operate within existing borrowing facilities to enable the Group to meet its liabilities as they fell due. In the event that the 'Worst case' scenario arose the Directors would also take appropriate cost mitigating actions not currently included within the 'Worst case' forecast. It is estimated that cost mitigating factors could generate savings in excess of £1.5million in FY21. In addition, non-essential spending could be deferred e.g. launch of US Law operations. If cost mitigation factors are necessary, they may include reductions in FY21 salary reviews and bonuses, further reduction in holiday pay accrual and restructuring. The Group has a £500,000 overdraft facility with Metro Bank to call upon if needed for short-term liquidity needs and the Group's IPO proceeds are not specifically earmarked for acquisitions. Further information on borrowing and deferred consideration payments in respect of acquisitions are included in note 8 to the financial statements.

Based on the Group's trading through March 2020 to September 2020 and the assumptions included in the 'Worst-case' financial forecasts, together with the possible cost mitigating actions available, the Board has a reasonable expectation that the Group has adequate financial resources to continue in operational existence for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparing its financial statements.

The period considered by the Board in preparing the financial statements on a going concern basis is a period of not less than 12 months from the expected date of signing these financial statements.

2.3 COVID-19 impact

The Covid-19 pandemic has impacted the Group in a number of ways. Operationally, all of our offices have been subject to lockdowns of varying lengths and severity. In lockdown, all of the offices have been made COVID compliant ready for the phased return to normal working. Increased flexible working is now expected as part of a move to the 'new normal' and the Group is well placed to support this. At the time of writing, the easing of lockdown varies considerably by jurisdiction. Guernsey now has no restrictions so that office is fully reopened. Other offices have gradual easing plans and will reopen in line with local government and medical guidance. The London office has been operating a phased voluntary return since July in line with government and medical guidance.

The Group introduced full remote working for all of its offices on Monday 16th March 2020 - one week prior to the full lockdown announced in the UK.

In March 2020 a shortfall of revenue in the Advisory division of between 20% to 25% emerged and this continued through April to June. This revenue shortfall was due to the temporary suspension of client new fund launches and M&A activity. In July this shortfall closed considerably and the 4 week average for 2020 as at mid-September was running consistently ahead of 2019 levels. Business Outsourcing and Data & Analytics divisions have remained busy throughout the period and continued to grow. Just under 80% of law firm revenue in FY20 (and previous years) comes from clients onboarded in earlier financial years - this reflects the recurring nature of the work over the 10 to 12 year typical closed ended fund lifecycle once the Group has been appointed as the legal adviser to the fund.

The Executive Committee meet weekly specifically to discuss impact of Covid. In response to the Covid-19 pandemic the Group took swift and decisive action as a result of the anticipated reduction in revenue and put in place a series of cost saving measures in April 2020 in order to preserve cash and liquidity to create a cash buffer cushion in the event of a possible protracted downturn. These measures included groupwide salary reductions for the quarter ending 30 June 2020 - ranging from 5% to 20% based on bandings linked to base salary (including non-executive directors); cancellation of bonuses in respect of FY20; reduction in holiday pay accrual by requirement for staff to take accrued leave by 30 June 2020 and discretionary spend over £1,000 or equivalent to be approved by an Executive Committee member. Other factors including reduced travel and entertainment costs, office costs and marketing events costs also assisted. The Group has also taken advantage of the UK HMRC VAT deferral scheme with amounts scheduled for repayment in the Group Base and Worst case financial models in March 2021. Trading in the first two months of the financial year is showing double digit growth in organic and acquired Underlying revenue compared to FY20 at the same stage.

The combined impact of the savings (net of increased costs in Technology and telecommunications) totalled £1.2 million.

In addition to the cost saving measures put in place, management also considered the potential accounting impact of Covid-19. While preparing the analysis for going concern and value in use models management reduced forecasts to a conservative basis to reflect a potential slow recovery of the business following the impact of Covid-19. As a result, there are two cash generating units that have a reasonably possible chance of impairment when sensitivities are applied to the variables as described in note 6 below.

Consideration of provisions for trade receivables and contract assets was performed on a more robust basis. Particular focus was given to any indicators of liquidity concerns for customers. We have increased ECL provisions as a result.

We also performed a detailed review of investment balances. Challenging current fair values to confirm that these appear to be recoverable based on the future forecast performance of those investees and share prices for transactions throughout the Covid-19 period.

For management purposes, the Group is organised into business units based on its products and services and has three reportable segments as follows:

· Advisory: the provision of legal and consultancy services for alternative asset management across all areas of the alternative investment industry. This includes services to alternative asset managers, corporate entities and institutional investors to advise on M&A and establishing investment funds along with support for primary fund investments, co-investments and secondaries. MJ Hudson Allenbridge provides individual independent investment advisers and professional trustees to corporate pension schemes, local government pension schemes and charitable organisations.

· Business outsourcing: a multi-service platform providing regulatory cover and a variety of management, operations and marketing support services to asset managers and advisers. This includes the provision of all key front, middle and back office functions, including investor relations, portfolio management, risk management, fund and corporate administration, accounting and fiduciary services.

· Data & analytics: Research, consulting, benchmarking services and tools to support sustainable investment, tax-advantaged investing and stronger relationships with investors, custodian banks and others. This includes providing assistance to clients to make strategic choices, improve investment performance and obtain better value from their service providers.

No operating segments have been aggregated to form the above reportable operating segments. Key management are the Chief Operating Decision Makers (CODM) and monitor the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on adjusted operating profit or loss. The adjustments include unallocated central costs, organic investments, fundraising and acquisition costs, non-recurring items, and depreciation and amortisation. Unallocated central costs (Group expenses) are items incurred centrally which are neither directly attributable nor can be reasonably allocated to individual segments, but are considered recurring in nature. The organic investments are revenues and costs related to newly formed businesses which are still considered to be in their start-up phase. Fundraising and acquisition costs are professional fees incurred relating to new debt or equity issuances and acquisition of new entities. Non-recurring costs are one-off in nature such as office relocation costs, and other one-off costs.

Business unit performance is not driven from assets given the nature of business being primarily the provision of services. For this reason, the CODM does not regularly obtain the split of asset and liabilities by reporting segment, which are monitored on a Group basis. The Group's depreciation and amortisation, financing costs (including finance costs, finance income and other income), fair value movements and income taxes are also managed on a Group basis and are not allocated to operating segments.

The following instruments are not included in the diluted EPS calculation because they would have an antidilutive effect on EPS. The number of instruments outstanding is as follows:

At each statement of financial position date non-financial assets not carried at fair value are assessed to determine whether there is an indication that the asset may be impaired. If there is such an indication the recoverable amount of the asset is compared to the carrying amount of the asset.

Goodwill acquired through business combinations are allocated to cash generating units (CGU) and there are no other intangibles with indefinite useful lives. The goodwill as summarised by the operating segments to which its CGU belongs is as follows:

The goodwill allocated to each CGU is tested annually for impairment. The VIU calculations use pre-tax cash flow projections covering a three year period. Cash flows beyond the three year period are extrapolated using long term average growth rates.

The key assumptions in the discounted cash flow projections for the CGU's are as follows: 

· the future level of revenue - which is based on past performance and expected changes based on management knowledge of the business

· long term growth rate - which has been assumed to be 2.0% (2019 - 2.0%) per annum based on the average historical growth in gross domestic product in the United Kingdom over the past fifty years

· the discount rate - which is the Group's pre-tax weighted average cost of capital and has been assessed at 12.1% (2019 - 10.1%), and is applied uniformly to each CGU

Based on the discounted cash flow projections, the value in use exceeds recoverable amount. The Group performed sensitivity analysis by adjusting the discount rate and reducing revenues. The decrease in future forecast revenues was performed without a corresponding reduction in costs for each of the CGUs. The recoverable amount and sensitivity analysis are provided below:

The percentage decrease in future forecast revenues and the increase in the discount rate noted above are the amounts that would be required for the carrying amounts to exceed the recoverable amount under the VIU calculation. Management believes that the carrying value of goodwill remains recoverable given the conservative nature of the underlying forecasts prepared.

Within the reportable segment total above there are two CGU's which have a reasonably possible risk of impairment and one in which we recorded an impairment. Goodwill of £155,000 was recognised in the year ended 30 June 2017 with the acquisition of Infomain PTY Limited within the Business outsourcing segment. This business was since wound up and the company's workforce subsumed into the Group, as such the goodwill balance related to this acquisition has been impaired to nil.

The CGU's at risk of potential impairment are the Amaces CGU (acquired in the year ended 30 June 2019) within the Data & analytics segment and the MJH Investment Advisors CGU within the Advisory segment the headroom and sensitivities are outlined in the following table:

The changes to CAGR and discount rate to trigger an impairment have been evaluated independently of each other. The percentages stated above would result in the CGU's headroom being completely eliminated and therefore are considered to be sensitive input assumptions. Management concludes there are sufficient cashflow projections to support the carrying value and associated goodwill, but continues to monitor as the threshold for impairment is reasonably close to being breached.

The Group leases a number of assets including buildings and office equipment in the jurisdictions from which it operates in. Leases generally have lease terms between 3 and 10 years. The Group's obligations under its leases are secured by the lessor's title to the leased assets. Generally, the Group is restricted from assigning and subleasing the lease. The majority of lease payments fixed are over the lease term or are linked with an inflation index.

There are several lease contracts that include extension and termination options, which have been taken into consideration upon recognition of the right-of-use asset and reassessed annually. During the year, one of the Group's leases was terminated in respect of its London property. This termination did not result in the recognition of any accelerated depreciation of the right of use asset or amendment to the accounting for the lease liability since the Group originally made the assessment that the Group would take advantage of the early termination option on this lease.

The Group also has certain leases with lease terms of 12 months or less and leases of office equipment with low value. The Group applies the 'short-term lease' and 'lease of low-value assets' recognition exemptions for these leases. The short-term and low-value leases portfolio at 30 June 2020 and 2019 is materially consistent with the ongoing costs of the leases as seen below during the year of £54k (2019: £16k).

Right-of-use assets

Lease liability and movements during the period

Amounts recognised in profit or loss

Borrowings

Bank loans and other loans

During the 2016 financial year, the Group borrowed £2,000,000 from Bermuda Commercial Bank under a debt instrument that is repayable in April 2021. Interest of 7% is payable 6-monthly in arrears.

Metro bank lending to MJ Hudson Limited is secured by a fixed rate of 4.25% plus an additional floating charge on the assets of that company, which was 0.5% at the commencement of the loan. The loan commenced in May 2018 and has a five year term. The balance outstanding on that loan at 30 June 2020 was £214,000 (2019 - £281,000).

The remaining loan balances of £1,200,000 (2019 - £1,160,000) are working capital loans to facilitate cashflow management and come from a variety of loan providers. These all have fixed payment terms with fixed interest rates. The length of the loans vary from 3 months to 5 years and the interest rates are between 0.6% - 1.9%.

Convertible bonds

The Group had seven convertible bond instruments which have all been repaid or converted into equity during the year ended 30 June 2020. The fair value loss recorded to the consolidated statement of comprehensive income for the year ended 30 June 2020 was £543,000 (2019 - £808,000).

Deferred consideration

Deferred consideration relates to outstanding payments due on acquisitions. This includes payments that are due after the passage of time with no other conditions attached to payments and contingent consideration. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rates used are selected on the basis of the assessed risks and expected returns. A market rate on cash flows of high certainty are assumed to be at a risk free rate, while cash flows contingent on business performance are discounted based on the acquiree's WACC.

Included in the above total deferred consideration that amounts due after the passage of time is £1,979,000 (2019 - £3,764,000). The remaining £8,498,000 contingent consideration is linked to the achievement of future performance criterion by the businesses acquired. If these performance thresholds are not met the total consideration will decrease, or if the thresholds initially considered to not be probable are met or exceeded the total consideration may increase.

For those acquisitions that have a cap on the maximum amount of consideration this could result in an additional £1,400,000 of undiscounted consideration in addition to the amounts currently recognised. For other acquisitions there is no cap on the amount of consideration as the subsequent amounts paid out are set at a percentage of financial performance metrics. If the revenue of all acquisitions were to increase by 10% with no corresponding increase in costs this would result in an additional £742,000 of consideration. A decrease of 10% would result in a decrease to consideration of £664,000. 

MJ Hudson Group plc was incorporated on 29 July 2019 and was admitted to the Alternative Investment Market (AIM) on 12 December 2019. Prior to admission the Group undertook a reorganisation such that acquired MJ Hudson Group plc was established as the parent and holding company of MJH Group Holdings Limited. MJ Hudson Group plc determined that the acquisition of MJH Group Holdings Limited did not represent a business combination as defined by IFRS 3 Business Combinations. The appropriate accounting treatment for recognising the new group structure has been determined to be a continuation of the business.

1. The sum of these share issuances agrees with the net shares issued of £28,861,000 on the Consolidated Statement of Changes in Equity

2. The share premium amount recorded represents the shares issued at £0.57 per share net of cash payments to employees to settle fully vested equity options

At the time of the reorganisation the ordinary share capital of MJH Group Holdings Limited contained 2 classes of shares - A and B shares. The A ordinary shares were all acquired by MJ Hudson Group plc in exchange for 45 shares in MJ Hudson Group plc and each share issued carries one voting right. The B Share capital of MJH Group Holdings Limited, a subsidiary of MJ Hudson plc, was not acquired under the takeover. The B Shares were issued during the period at market value of £201,000 to senior management under a subsidiary growth share plan. The 20,000 B shares issued have no voting rights and a par value of £0.01 each. There are no restrictions on the distribution of dividends and the repayment of capital.

Fair value movement on convertible debt

The adjustment to reserves on issue of the stepped interest bond dated April 2016 and convertible bond dated March 2016 (which were separated into an equity and liability component) were recognised in other reserves. As part of the IPO process during the year ended 30 June 2020 this debt was converted into equity the reserves were transferred into retained earnings.

Share based payments

Employees of the Group are granted options to acquire shares in the Group. The charge for the period was £437,000 ended 30 June 2020 (2019 - £301,000). As part of the IPO process during the year ended 30 June 2020 options were exercised and the reserves were transferred into share premium.

The following is a reconciliation of cash flow and non-cash flow movements relating to financing of the Group, in accordance with the requirements of IAS 7.44(A).

The non-cash decrease in long term borrowings of £12,757,000 for the year ended 30 June 2020 is due to the conversion of convertible loan notes into equity of £10,706,000 and the transfer from long term to short term borrowings of £2,051,000.

The non-cash movements of long term borrowings of £1,323,000 for the year ended 30 June 2019 is primarily comprised of the fair value movement on the Group's convertible bonds and interest unwinding on the stepped interest bonds dated April 2016 and convertible bonds dated March 2016.

On 10 July 2019, the Group acquired 100% of Saris B.V. an environmental, social and corporate governance consultancy company based in the Netherlands for £3,591,000 paid in cash, shares and deferred consideration. The business was subsequently renamed to MJ Hudson Spring B.V. (Spring). The Group acquired Spring in order extend the global reach of the Group and expand the services that are offered to its customers.

On 31 January 2020, the Group acquired 100% of Anglo Saxon Trust Limited and its subsidiaries for £6,208,000. Anglo Saxon Trust Limited is an administrator based in Jersey. The business was subsequently renamed to MJ Hudson Anglo Saxon Trust Limited (AST). The Group acquired AST in order extend the global reach of the Group and expand the services that are offered to its customers.

On 17 March 2020, the Group acquired 100% of Meyler LLC a marketing services and analytics business based in the United States for £1,940,000. The business was subsequently renamed to MJ Hudson Meyler LLC (Meyler). The Group acquired Meyler to create transatlantic marketing services offering for alternative assets fund managers.

The goodwill represents the experience and expertise of the staff of businesses acquired and non-contractual relationships. In calculating the goodwill arising on acquisition, the fair values of net assets of businesses have been assessed and adjustments from book value have been made where necessary. The goodwill values recorded upon acquisition are not deductible for tax purposes.

In the current period £5,939,000 has been settled of the total consideration of £11,739,000 noted above. Included within the remaining £5,800,000 of consideration to be paid to the vendors of businesses acquired £5,182,000 is contingent upon the achievement of future performance criterion by those businesses. This consideration is based on the estimated fair value where the achievement of targets is probable and can be measured reliably.

If these performance thresholds are not met the total consideration will decrease, or if the thresholds initially considered not probable are met or exceeded the total consideration may increase. For one of the acquisitions noted above this could result in an additional £900,000 of undiscounted consideration in addition to the amounts currently recognised. For the other two acquisitions there is no cap on the amount of consideration as the subsequent amounts paid out are set at a percentage of financial performance metrics. Refer to note 8 above for further details on contingent consideration.

The useful economic life of customer relationships has been estimated to be 12 years for Spring and 10 years for AST and Meyler based on estimates of the timing of the expected future net present cashflows attributable to the business.

The results of the businesses since their acquisition for the year ended 30 June 2020 are as follows:

On 7 July 2020, MJ Hudson Group PLC made a £1 million loan to Apex Financial Services ("Apex Trustee") in relation to the establishment of The MJ Hudson Group Plc Employee Benefit Trust ("The Trust"). The loan will be on-lent to The Trust to fund acquisition of shares in MJ Hudson Group Plc.

With effect from August 2020, the Group has put its Guernsey legal operation into run-off and plans to wind up MJH Services (Guernsey) Limited during the financial year ending 30 June 2021. The impact of this closure is not expected to have a material impact on performance in that financial year.

On 13 October 2020, the Group entered into a share purchase agreement relating to the purchase of the entire issued share capital of Bridge Consulting Limited. Based in the Republic of Ireland, Bridge Consulting Limited provides governance, compliance and risk services to the fund management industry and owns Bridge Fund Management Limited which is an Irish domiciled super management company which provides fund management services. This is subject to approval by the local regulator, Central Bank of Ireland. The approximate net value of the assets to be acquired (subject to performance of a full purchase price allocation) is £2.1m whilst the consideration payable for the acquisition is subject to further agreement. The expected impact of the acquisition on the results of the Group cannot yet be identified with any certainty.

There are no other transactions which occurred in the period after the consolidated statement of financial position date up to the date of the authorisation of these financial statements which would affect the figures stated within these financial statements.