RIV.L Regulatory News (RIV)

27 Feb 2015 07:00

River and Mercantile Group PLC

Interim Financial Report for the six months ended 31 December 2014

Financial Highlights

 Chairman's statement

Report of the Chief Executive Officer

Key Performance Indicators

Financial Review

Principal risks and uncertainties

Responsibility statement

Independent auditor's review report

Condensed consolidated interim financial statements

Condensed consolidated income statement

Condensed consolidated statement of comprehensive income

Condensed consolidated statement of financial position

Condensed consolidated statement of cash flows

Condensed consolidated statement of changes in shareholders' equity

Notes to the condensed consolidation interim financial statements

Paul Bradshaw

Non-Executive Chairman

I am pleased to present our interim report for the 6 months ending 31st December 2014.

The Statutory profit after tax was £4.2 million and the Adjusted profit after tax was £6.3 million for the period. The board has declared a total interim dividend of 4.6 pence per share, of which 1.0 pence is a special dividend and relates to net performance fees.

The business performed well during a volatile period. Mike's CEO report provides a full overview, but I would just like to highlight:

Fiduciary management generated particularly strong client returns through our Total Investment Governance Solution (TIGS) strategy. We are leveraging that expertise in the Dynamic Asset Allocation Fund which we launched in the period and which is beginning to enjoy strong interest. We used capital raised at the IPO to effect swift and effective seeding of that fund.

We were pleased to raise just over £50m for the launch of our UK Micro Cap investment company. This is part of our, largely complete, reconfiguration of our equity solutions business where we now have a structure enabling us to focus on our proven Potential, Value and Timing ('PVT') processes long term. Our new global high alpha fund, based on this methodology, is generating interest and more generally, we have been pleased with the manner in which our equities team has found synergy with our derivatives team on recent client presentations. 

The next six months to the end of our financial year in June will perhaps provide greater clarity (or conceivably greater confusion) on two key external influences:  

As Mike highlights in his report, our fundamental strength is in understanding our clients' needs. As the nature and expectation of pensions changes, it is likely that the importance of understanding these specific needs will become greater still. We therefore expect to remain in the vanguard of maximising client outcomes. 

As ever, change equals opportunity for a young, talented and responsive company such as ours and, as ever, it is a pleasure to be part of that team.

Report of the Chief Executive Officer

Mike Faulkner

Chief Executive Officer

The first six months of our financial year have occurred during a period of significant market, economic and political uncertainty. I would therefore like to review the performance of the business in light of this backdrop, and against the strategic objectives we set out at IPO and in our Annual Report. I will also describe how we see opportunities in the near term.

What we said we would do

We identified four broad themes that would be represented in the execution of our strategy:

· Strong organic growth in Fiduciary Management and Advisory;

· Equity mandates to grow - both wholesale and institutional. The focus for wholesale will be specialist products, and outcome-led products for institutional (particularly those combining active equity management and derivatives);

· Derivatives growth further fuelled through consultant relationships; and

· New product launches to accelerate growth.

I take each of these in turn in reviewing the performance of the business.

Fiduciary Management and Advisory

Whilst we represent these revenue lines separately, in practice they are strongly linked. They both represent a basis for client engagement that typically involves applying investment thinking to all or the majority of a client's assets, rather than a component. A significant proportion of Fiduciary Management clients have started as Advisory clients.

During the first six months of the year, this part of our business has performed well. The growth in advisory revenue was supported in part by the significant amount of work generated by the departure of the Barings Dynamic Asset Allocation team. It is a facet of our Advisory division that environments of uncertainty can lead to more work in response to changing conditions, be they market driven or at investment organisations appointed by clients.

We have seen very significant growth in mandated and fee earning Fiduciary Management Assets under Management (AUM) during the six month period. This growth splits evenly between fund inflows and investment returns. The investment return has been particularly strong, given the volatile market conditions, due to effective rotation of client assets between different asset classes and effective hedging, particularly of interest rate risk. In an environment where bond yields have fallen significantly, interest rate hedging strategies perform well and this is supportive of performance.

Our margins on Fiduciary Management business have been trading slightly higher in the six month period. However, this is expected to fall back, due to the effect of recently being appointed by larger fiduciary clients.

Our strategy remains to continue the strong growth of existing products, and we are confident in the strength of our pipeline. In particular, this is consistent with industry expectations that demand for fiduciary management will continue to grow.

Derivative Solutions

During the six month period, we have seen growth in mandated Notional under Management (NUM) of 7%, to around £9.6bn. This growth comprises new mandates and rebalancing of existing mandates (this is where clients decide to change the level of hedging employed).

The success of Fiduciary Management has been a significant support to the Derivative Solutions division. However, one of our stated aims is to develop this business through our consultancy partners, and this has been a key focus during the six month period. I am happy to report that we have so far made progress in this regard. We are already buy-rated by a top consultancy, and have been put forward for our first consultant-led pitch during the period.

The general level of economic and political uncertainty should be positive for this division, as the desire by institutions to mitigate key financial risks is heightened. Furthermore, we know that equity hedging is a key theme for a number of institutional investors. As a result, we are seeing demand from prospects for structured equity mandates and we are confident about the outlook for this business line.

Equity Solutions

AUM in the Equity Solutions division is marginally down, as one might expect in more volatile market conditions, particularly when some institutions are expressing concerns over valuation levels and the length of the equity bull market. Equity Solutions - wholesale is the AUM raised via financial intermediaries to the investing public, as opposed to institutions. We had stated that our intention was to grow our wholesale activities through more specialist product. We have seen nearly 13% growth in wholesale AUM during the six month period, a strong result. This includes the successful launch of the River & Mercantile UK Micro Cap Investment Company, where we raised approximately £50 million. In prevailing conditions, we believe this was highly successful and a reflection of the high regard in which R&M's PVT equity team is held. Additional growth has continued as planned in the range of wholesale specialist products we offer.

Within the institutional space, we have seen net outflows, primarily as a result of weak performance in our thematic global equity products. We have seen around £200 million of outflows since the end of 2014 and this has led to the closure of the thematic global equity strategies and the departure of the team, the impact of which is discussed in the Financial Review.

During the six month period, we have been working to develop a broader-based global equity product to be run by the PVT team, known as Global High Alpha. Design of this product was completed during the six month period, and early marketing has already been conducted. The results of this early marketing are encouraging and we are expecting to see flows into this product and World Recovery (also run by the PVT team) in the next 12 months from institutions.

I had identified in our annual report that demand for composite equity mandates - active equity plus derivatives - was a key theme. We still believe this will be an important trend, but expect that demand for Global High Alpha will be more immediate and that is therefore where our time has been spent.

New product development

New product development is a key strategic theme for us. I have already addressed the development of the Global High Alpha product and the UK Micro Cap Investment Company in the previous section as new product development. In September we also launched the R&M Dynamic Asset Allocation (DAA) fund. This fund was seeded with £5m of Group capital, having previously identified seeding as one of the reasons for the raise on IPO.

We have subsequently received commitments into the DAA fund from three clients for a total of around £60m of assets. We will be reporting these inflows for now within the Fiduciary Management division, until the DAA fund has greater scale. We have already begun marketing this fund to consultancies. Given the demand for multi-asset class funds in general, we are optimistic for the fund's outlook in the medium term.

Comments on outlook

The uncertainty theme is occupying the minds of many investors and we are no different. As a company seeking to deliver strong, stable, long term returns to shareholders, the six month period illustrates some important facets of our business lines that allow us to deliver stable profit growth:

· Our divisions are all expected to grow in the medium term, offering products that are in demand and consistent with the direction of travel for investors; and

· We have strong revenue diversification between the business lines, which mitigates volatility. In a period of market volatility, while we see some weakness in the short run from Equity Solutions, we see strength and stability in our derivatives and fiduciary activities. We have also seen growth in our advisory revenues.

As a result, I consider that we are well positioned to weather short and even medium term uncertainty if it persists, on the way to longer term growth in a portfolio of services that all have sustainable demand.

Summary

In summary, this has been a good six months for the business in difficult conditions. We are confident of our near term pipeline in Fiduciary Management and Derivative Solutions, and can see demand for our existing wholesale specialist products, as well as our global PVT strategies from institutions. The launch of our DAA fund has attracted assets and we will continue to work with our consultant partners with the aim of growing this strategy further. As a result, I consider the business to be well placed to grow. Finally, I would like to thank our shareholders for their support during this period.  

Key Performance Indicators

(Figures in brackets are for the six months ended 30 June 2014, which include the merger of RAMAM from 27 March 2014)

1. Growth in Mandated AUM/NUM: 5% / (29%)

(Mandated AUM/NUM: £18.92 billion, £18.09 billion and £14.07 billion as at 31 December 2014, 30 June 2014 and 31 December 2013 respectively).

The growth in Mandated AUM/NUM is a key indicator of the client engagement process. The growth in Mandated AUM/NUM is a function of new mandates, low attrition rates, and aggregate investment performance. New mandates include flows from existing clients where we have increased the breadth of our relationship, or flows from new clients. Low attrition rates result from being able to retain previous client flows as a result of meeting their outcome expectations.

Aggregate investment performance arises from both asset and liability investing. Negative investment performance can occur provided it is within the outcome expectation of the client. The expectation is that, in aggregate, the investment performance has to be positive to sustain the business.

2. Growth in net management and advisory fees (annualised): 33% / (30%)

(Net management and advisory fees: £23.3 million for the six months ended 31 December 2014; £17.5 million for the six months ended 30 June 2014; and £26.8 million for the year ended 31 December 2013.)

Management and advisory fees net of rebates and third party revenue shares, represent the underlying revenues generated by the business. The growth of AUM/NUM at stable management fee margins, and the absolute growth in advisory clients and revenue per client results in growth in management and advisory fees. This metric measures the sustainability of the business.

3. Adjusted underlying pre-tax margin: 26% / (23%)

Adjusted net profit before tax for the six months ended 31 December 2014 was £7.9 million. Performance fees and other revenue, net of associated remuneration expense was £1.8 million. Adjusted underlying pre-tax profit was £6.1 million. Total net management and advisory fees are £23.3 million.

Adjusted net profit before tax for the six months ended 30 June 2014 was £5.6 million. Performance fees and other revenue, net of associated remuneration expense was £1.7 million. Adjusted underlying pre-tax profit was £3.9 million. Total net management and advisory fees are £17.5 million.

Adjusted net profit before tax for the year ended 31 December 2013 was £7.8 million. Performance fees and other revenue, net of associated remuneration expense was £2.2 million. Adjusted underlying pre-tax profit was £5.6 million. Total net management and advisory fees are £26.8 million.

Adjusted underlying pre-tax margin represents net management and advisory revenue less the related expense base, adjusted for the amortisation of intangible assets, share-based remuneration relating to EPSP and the costs arising from the IPO. Adjusted underlying pre-tax margin is an indication of the ability to achieve scale though increased management and advisory revenues, at a lower marginal increase in related expenses. The progression over time is an indication of the scale achieved. The target in the medium term is to increase the adjusted underlying pre-tax margin to 30%.

4. Percentage of adjusted Basic Earnings Per Share distributed: 60%

Adjusted Basic Earnings Per Share was 7.70 pence per share for the six months ended 31 December 2014. The total interim dividend in respect of the period ended 31 December 2014 is 4.6 pence per share.

Adjusted Basic EPS is the Adjusted profit after tax before discontinued operations, adjusted to add back the amortisation of intangible assets, share-based remuneration relating to EPSP, and IPO costs, net of tax, divided by the weighted average number of shares outstanding in the period, excluding shares that are dilutive in period.

Distributions to shareholders include cash dividends and the cash value of shares repurchases for cancellation.

The Group's dividend policy is to pay at least 60% of the Group's adjusted underlying profits available for distribution by way of ordinary dividends. In addition, the Group expects to generate surplus capital over time, primarily from net performance fee earnings. The Group intends to distribute such available surpluses, after taking into account regulatory capital requirements at the time and potential strategic opportunities, to shareholders primarily by way of special dividends. Whilst the Board considers dividends as the primary method of returning capital to shareholders, it may execute share repurchases, when advantageous to shareholders and where permissible.

The distributions as a percentage of adjusted Basic EPS reflects the amount of the earnings per share actually distributed to shareholders.

Financial Review

The Assets under Management and Notional under Management for the 6 months ended 31 December 2014 is shown in the table below:

AUM/NUM Highlights

· Mandated AUM/NUM has increased by 5% from 30 June 2014 to £18.9 billion, with fee earning AUM/NUM increasing by 10% to £19.1 billion.

· AUM/NUM inflows from sales in the period were £1.7 billion and positive rebalancing flows in Derivative Solutions were £485 million.

· Investment performance increased AUM by £572 million, due to strong performance from Total Investment Governance Solution (TIGS) in Fiduciary Management.

· Redemptions were £1.0 billion including £235 million relating to institutional AUM managed by the thematic global equity team and included in Equity Solutions - Institutional. Redemptions in transitions were £256 million, which included £205 million relating to the thematic global equity team.

Fiduciary Management mandated AUM increased 9%. Fee earning AUM has increased 18% as a result of the transition of mandates at the beginning of the period, as well as inflows from existing clients and new mandates of £150 million. Redemptions included five clients that moved into the Pension Protection Fund (PPF) and benefit payments to existing client schemes of £110 million. The investment strategy within Fiduciary Management 'Total Investment Governance Solution' (TIGS), including liability hedging, was up 12%, generating £548 million of positive investment performance. Included under Fiduciary Management is £57 million of AUM relating to the DAA fund, including £33 million of mandates in transition.

Derivative Solutions mandated and fee earning NUM increased by 7% and 8%, respectively, as a result of £377 million of new mandates and £485 million of net rebalancing from existing mandates. Redemptions relate to the schemes that transitioned to the PPF.

Equity Solutions - Wholesale mandated and fee earning AUM increased 13% and includes £50 million from the new River & Mercantile UK Micro Cap Investment Company. Redemptions include £33 million of redemptions from the World Recovery Fund following strong investment performance.

Equity Solutions - Institutional mandated AUM decreased by 28% and fee earning AUM has decreased by 9% primarily due to £440 million of redemptions and redemptions in transition from the thematic global equity team.

Combined historical financial information

The following tables show the combined historical financial information as if the acquisition of RAMAM had occurred on 1 January 2013. This information is based on the historical information of the separate businesses and does not assume any revenue or cost synergies. It also excludes IPO and reorganisation costs, intangible amortisation, depreciation and share based payments expense.

Combined historical net management fees

The following tables show the net management fees and margins by business:

Net management fees increased by 13% in line with the growth and mix of fee earning AUM/NUM at stable margins.

Closing mandated AUM/NUM is 3% above average fee earning AUM/NUM indicating increasing underlying revenue growth. Annual In-force management and retained advisory revenues is £40.4 million at 31 December 2014, an increase of 5% over 30 June 2014.

Advisory revenues

Advisory revenues before revenue share increased 11% over the previous six months as a result of increased solution implementation fees and additional advisory work for clients relating to their dynamic asset allocation strategies. The decrease in retainer fees reflects the movement of clients from advisory mandates to fiduciary management mandates.

Performance Fees

Performance fees relate to the realisation of deferred performance fees in TIGS. No performance fees were recorded in Equity Solutions at the 31 December performance fee anniversary date.

Combined historical administration expenses

Total administration expenses were £4.7 million for the six months ended 31 December 2014, an increase of £0.4m over the previous six months as a result of increased fund administration expense and the inclusion of Governance costs. Fund administration expense increased in the period due to legal costs related to launching new funds, fund closures and settlement costs. Governance costs include incremental costs of £200,000 which were incurred in the period relating to the preparation and audit of the Group's first Annual Report and Accounts. These costs included the full adoption of the UK Corporate Governance Code and the Remuneration Policy of the Group.

Combined Historical Remuneration

The ratio of fixed and variable remuneration (excluding share based remuneration) to total revenue is 52% compared to 55% and 53% for the six months ended 30 June 2014 and 31 December 2013 respectively. Fixed remuneration expense includes the establishment of an accrual for untaken annual leave of £305,000 which is not expected to fluctuate significantly in future periods.

As a result of the operating leverage of the combined business it is anticipated that the remuneration to total revenue ratio will trend to a range of 45-50% of revenues over the next three years.

Non-Statutory Accounting measures

The Group assesses its performance (including key performance indicators) based upon a number of non-statutory accounting measures, the most significant being adjusted profits, adjusted underlying profits and adjusted EPS. The Directors consider that these measures give investors a better indication of the recurring earnings of the business on a basis which is comparable between periods. A reconciliation between statutory profit, adjusted profit and adjusted underlying profit including the bases by which each is arrived at, can be found in note 11 to the condensed consolidated interim financial statements.

Adjusted pre-tax profit and margin

Adjusted profit before tax for the six months ended 31 December 2014 was £7.9 million compared to £5.6 million for the six months ended 30 June 2014. The increase is the result of increased revenue from the inclusion of RAMAM for the full period, increased revenue from increased fee earning AUM/NUM, partly offset by increases in administrative expenses. The adjusted pre-tax margin was 30% compare to 28% in the previous period as a result of increased revenue and lower remuneration expense partly offset by increases in administrative expenses. Adjusted pre-tax profit and margin are defined in Note 11 in the condensed consolidated interim financial statements.

Adjusted underlying pre-tax margin and profits

The adjusted underlying pre-tax profit for the six months ended 31 December 2014 was £6.2million compared to £4.0million in the previous period. The adjusted underlying pre-tax margin was 26% compared to 23% in the previous period. The increase is the result of increased net management and advisory fees and a lower marginal increase in expenses, primarily remuneration. The target in the medium term is to increase the adjusted underlying pre-tax margin to 30%, primarily through increased revenue and a scalable expense base.

Net performance fee pre-tax profit was £1.8 million compared to £1.7 million in the previous period. The average remuneration accrual rate on performance fees is approximately 42%.

Adjusted underlying pre-tax margin and profits and Net performance fee pre-tax profit are defined in Note 11 in the condensed consolidated interim financial statements.

Adjusted Basic Earnings Per Share

Adjusted Basic EPS was 7.70 pence per share for the six months ended 31 December 2014, compared with 7.74 pence for the six months ended 30 June 2014. The decrease is primarily due to the increase in the weighted average number of shares which has offset the increase in adjusted profit after tax. Adjusted Basic EPS is defined in Note 11 in the condensed consolidated interim financial statements.

Key management personnel compensation

Key management personnel compensation has increased due to the inclusion of RAMAM for a full six month period combined with the increased level of executive and non-executive Directors as a result of the IPO (refer to Note 15 in the Condensed Consolidated interim financial statements).

Subsequent Events - Equity Solutions thematic global equity team

After a prolonged period of underperformance of the strategies operated by the thematic global equity team, the majority of the investors have redeemed and this has led to the departure of the team after the reporting period end. The remaining assets, which total £300 million, have been transferred to other portfolio managers within Equity Solutions. The loss of assets and the departure of the team is not expected to have a significant impact on the Group results or financial position. Approximately £430,000 of non-recurring costs will be incurred in the next reporting period relating to the closure of the thematic global equity strategies, which will be offset by reduced run rate costs of the team over the next reporting period.

Dividends

As outlined in the Chairman's Report, the Board of Directors have declared a total interim dividend of 4.6 pence per share, of which 1.0 pence is a special dividend and relates to net performance fees.

Capital and liquidity

At 31 December 2014 the Group had net assets of £67.1 million and cash balances of £14.3 million.

The Group operates through three regulated entities, each is capitalised in accordance with the applicable regulatory capital requirements. There are no significant regulatory changes anticipated affecting the Group's regulatory capital requirements. Total excess regulatory capital held at the Group level is £17.0 million; the declared dividend will reduce this amount to £13.2 million.

Principal risks and uncertainties

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. The directors do not consider that the principal risks and uncertainties have changed since the publication of the annual report for the six months ended 30 June 2014. At that date, they were:

· We do not fully identify or understand the client's desired investment outcomes;

· The design of the investment strategy does not deliver investment performance consistent with the range of articulated outcomes;

· The execution of the investment strategy is not in accordance with the agreed investment strategy;

· The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events;

· The Group and the investment advisory and investment management industries as a whole are sensitive to adverse economic, political and market factors and volatility in financial markets. A significant deterioration or sustained decline in economic conditions or financial markets could impact investor sentiment and adversely affect the Group's performance;

· The Group operates in an evolving regulatory environment and is subject to wide-ranging legal and regulatory (including capital) requirements and supervision; changes to which may result in additional compliance costs or adverse changes in the Group's business. Failure to comply with such requirements may result in investigations, disciplinary action, fines, reputational damage and the revocation of the Group's licences, permissions, waivers or authorisations;

· The Group is dependent on the continued services of its senior management and key personnel. The loss of key individuals or a failure to have effective succession plans could reduce our ability to service our clients; and

· Damage to the Group's reputation could affect the perception that clients and potential clients have of our abilities as an investment partner.

The directors do not expect the principal risks and uncertainties to change for the remainder of the financial year.

A more detailed explanation of the risks relevant to the Group is on pages 30 and 31 of the annual report which is available at www.riverandmercantile.com.

Responsibility statement

The Directors confirm to the best of their knowledge:

· The unaudited condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the EU and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Group;

· The interim management report includes a fair review of the information required by sections 4.2.7R and 4.2.8R of the Disclosure and Transparency Rules of the UK Financial Conduct Authority.

By order of the Board

A copy of this interim report will be posted on the Company's website on the date of this statement at www.riverandmercantile.com

Independent auditor's review report

Introduction

We have been engaged by the company to review the condensed set of financial statements in the interim financial report for the six months ended 31 December 2014 which comprises the condensed consolidated income statement, condensed consolidated statement of financial position, condensed consolidated statement of comprehensive income, condensed consolidated statement of cash flows and condensed consolidated statement of changes in shareholder's equity and the related explanatory notes.

We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The interim financial report is the responsibility of and has been approved by the directors. The directors are responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed set of financial statements included in this interim financial report has been prepared in accordance with International Accounting Standard 34, ''Interim Financial Reporting'', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the interim financial report based on our review.

Our report has been prepared in accordance with the terms of our engagement to assist the company in meeting its responsibilities in respect of interim financial reporting in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the six months ended 31 December 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the European Union, and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

BDO LLP

Chartered Accountants

London

United Kingdom

26 February 2015

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

Condensed consolidated interim financial statements

On 27 March 2014, the acquisition of River and Mercantile Asset Management LLP ('RAMAM') was completed in a share for LLP interest exchange by P-Solve Limited. The results of operations of RAMAM have been consolidated as a 100% owned entity from the date of acquisition. P-Solve Limited (P-Solve) changed its name to River and Mercantile Group Limited (R&M) on 9 April 2014 and registered as a public limited company on 2 June 2014. On 26 June 2014 the Group was admitted to the London Stock Exchange as a public listed company. The Group changed its financial year end to 30 June effective 30 June 2014.

The Interim Report should be read in conjunction with the Annual Report of the Group for the period ended 30 June 2014.

Condensed consolidated income statement

Condensed consolidated statement of comprehensive income

The notes to the condensed consolidated interim financial statements form part of and should be read in conjunction with these financial statements.

Condensed consolidated statement of financial position

The notes to the condensed consolidated interim financial statements form part of and should be read in conjunction with these financial statements.

The financial statements were approved by the Board and authorised for issue on 26 February 2015.

Mike Faulkner Kevin Hayes

Chief Executive Officer Chief Financial Officer

Condensed consolidated statement of cash flows

The significant non-cash transaction during the six months ended 30 June 2014 was a capital contribution from the parent company, Punter Southall Group Limited, to discharge a loan liability of £3.9m that was due to it under the intercompany borrowing facility (note 15).

The notes to the condensed consolidated interim financial statements form part of and should be read in conjunction with these financial statements.

Condensed consolidated statement of changes in shareholders' equity

The notes to the condensed consolidated interim financial statements form part of and should be read in conjunction with these financial statements.

Notes to the condensed consolidation interim financial statements

River and Mercantile Group PLC (the Company), is a company domiciled in England. The condensed consolidated interim financial statements of the Company for the six months ended 31 December 2014 comprise the Company and its subsidiaries (together referred to as the "Group").

These condensed consolidated financial statements have been prepared in accordance with IAS 34, "Interim Financial Reporting", as adopted by the European Union. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2014 Annual Report. The financial information for the six months ended 31 December 2014 and 31 December 2013 does not constitute statutory accounts within the meaning of Section 434(3) of the Companies Act 2006 and is unaudited.

The financial information for the six months ended 30 June 2014 does not constitute statutory accounts within the meaning of Section 434(3) of the Companies Act 2006 but is audited.

The annual financial statements of River and Mercantile Group PLC are prepared in accordance with IFRSs as adopted by the European Union. The Independent Auditors' Report on that Annual Report and financial statements for 2014 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the interim condensed consolidated financial statements.

The same accounting policies, presentation and methods of computation are followed in these condensed consolidated financial statements as were applied in the Group's latest annual audited financial statements.

Some of the significant accounting policies require management to make difficult, subjective or complex judgements or estimates. The policies which management consider critical because of the level of complexity, judgement or estimation involved in their application and their impact on the financial statements are:

· The determination of the fair value of consideration exchanged in the acquisition of RAMAM;

· Fair value of the Investment Management Agreements (IMAs) identifiable intangible asset in the acquisition accounting for RAMAM, including the discount rate used and the period over which the IMA intangibles will be amortised;

· Consideration of whether previously recorded goodwill is impaired, including the goodwill arising from the acquisition of RAMAM;

· The revenue recognition of management and performance fees; and

· Share-based payment expense for awards under performance share plans.

The significant estimates and judgements made by management in preparing these interim condensed consolidated financial statements were consistent with those applied to the consolidated financial statements for the year ended 30 June 2014. There have been no changes in estimates reported in prior periods.

The Group earns net management fees evenly throughout the year based on the AUM/NUM during the month or quarter.

The retainer element of net advisory fees are generally earned evenly throughout the year, however implementation and project fees are earned as specific projects are undertaken.

Performance fees are earned on crystallisation dates, which vary throughout the year but for the Equity Solutions division are generally on a calendar year basis.

The business operates through four divisions, however these are not considered as segments for the purposes of IFRS 8. Management however feel that it is useful to the understanding of the period under review to include certain information.

The net revenue for the six months ended 31 December 2014, 30 June 2014 and 31 December 2013 together with the period end fee earning assets under management (AUM) and the notional under management (NUM), reflect the measure of the products' activities of the respective divisions.

The Equity Solutions division represents the RAMAM business which was acquired on 27 March 2014 and was not part of the group during the six months ended 31 December 2013.

Performance fees of £3.1 million (June 2014: £2.4 million, 2013: £3.7 million) were earned by the Fiduciary Management division.

No single client accounts for more than 10% of the revenue or profits of the Group (June 2014: none; 2013: none).

On a geographic basis the majority of the revenues are earned in the UK. The Group has an advisory and fiduciary management business in the US and net revenue earned in the US for the six months ended 31 December 2014 was £2.4 million (June 2014: 2.4 million, 2013: £2.5 million). The fee earning AUM/NUM of the US business was £632 million (June 2014: £575 million, 2013: £434 million).

Non-current assets held by the US business include £1.4 million (June 2014: £1.4 million, 2013: £1.4 million) of goodwill arising from the acquisition of Cassidy and Palisades, and property plant and equipment of £49,000 (June 2014: £54,000, 2013: £48,000).

In the six months ended 30 June 2014 the Group incurred £4.0m of professional and commission fees in relation to its listing on the London Stock Exchange and a further £0.5m costs in relation to its corporate reorganisation and integration of RAMAM following its acquisition (note 12).

These costs are one-off in nature and do not reflect the underlying performance of the business and therefore have been presented separately on the condensed consolidated income statement.

Governance expenses include the remuneration of Non-Executive Directors and the costs of advisors and legal fees relating to the governance framework of becoming a listed public company. The Group became a public listed company on 26 June 2014. Governance costs include incremental costs of approximately £200,000 which were incurred in the period relating to the preparation and audit of the Group's first Annual Report and Accounts. These costs included the full adoption of the UK Corporate Governance Code and the Board's Remuneration Policy.

Fund administration expense increased in the period due to legal costs related to launching new funds, fund closure of certain thematic global equity strategies.

Included in Other costs is the cost of insurance, staff training and recruiting and a provision for irrecoverable receivables.

Share based remuneration: EPSP

Prior to Group's admission to the London Stock Exchange ("Admission") on 26 June 2014, the Board of Directors established the Executive Performance Share Plan (EPSP) to grant the Executive Directors and certain members of senior management performance shares. At the date of admission two classes of performance shares were awarded: Performance Condition A Awards and Performance Condition B Awards. The maximum aggregate number of Performance Condition A Awards and Performance Condition B Awards which may be issued under the EPSP was limited to 10% of the issued ordinary share capital of the Company on Admission. The Company granted 4,843,626 performance shares under Performance Condition A Awards and 2,462,860 performance shares under Performance Condition B Awards.

The vesting of Performance Condition A Awards is conditional upon achieving a total shareholder return of at least 12% compounded over the four-year performance period. Vesting starts at 12% compound annual total shareholder return and 100% vests at 24% compound annual total shareholder return over the four-year period. Vesting will be pro-rated on a straight-line basis between 12% and 24%.

The vesting of Performance Condition B Awards is conditional on achieving a total shareholder return of at least 25% compounded over the four-year performance period. Vesting starts at 25% compound annual total shareholder return and 100% vests at 30% compound annual total shareholder return over the four-year period. Vesting will be pro-rated on a straight-line basis between 25% and 30%.

Performance Condition A and B Awards are not eligible for dividends during the vesting period.

Any shares which vest are subject to a holding period of 12 months following the vesting date. Shares which do not vest will be forfeited. The vesting is also subject to the participant's continued employment by the Group during the vesting and holding period or, if employment ceases, being classified as a good leaver at the discretion of the Remuneration Committee. As at 31 December 2014, no shares had vested under either the A or B Awards (June 2014: none; 2013: none).

The fair value of the Performance shares was determined by a valuation undertaken by an independent advisor on behalf of the Remuneration Committee of the Board. This fair value was based on a Monte Carlo simulation of possible outcomes based on the returns and volatility characteristics of comparable publicly listed investment management businesses in the FTSE.

The key assumptions used in the valuation were: a mean expected total shareholder return (TSR) growth rate in line with the risk free rate (1.72%), a TSR volatility derived from the TSR volatilities of listed comparable companies of 30%, and a dividend yield of 4.5%. These assumptions are referred to by IFRS 13 Fair Value Measurement as Level 3 inputs.

The fair value of the Performance A shares is 38 pence per share and the fair value of the Performance B shares is 17 pence per share. The total fair value of Performance Condition A Awards is estimated at £1.84 million and Performance Condition B Awards at £0.42 million. The fair value is amortised into share-based remuneration expense over the vesting period and a charge of £226,000 was recognised for the six months ended 31 December 2014 (June 2014: nil: 2013: nil).

The directors expect that any shares that vest will be subject to applicable employer taxes at the date of vesting and at the end of the holding period. An accrual for this cost has been calculated based on the current rate of national insurance of 13.8%, the estimated number of the shares that could vest and the share price at the reporting date. The movement in the accrual in the six months ended 31 December 2014 was £292,000 (June 2014: nil; 2013: nil) and was included in the share-based remuneration expense.

The share-based remuneration expense relating to the EPSP, together with the associated employer taxes are treated as an adjusting item. The treatment of the corporate tax deductions associated with the EPSP is described in note 9.

The Performance Share Plan (PSP) was also established prior to Admission. The Plan allows for the grant of: Nil Cost Options, Contingent Share Awards or Forfeitable Share Awards. As at 31 December 2014 no grants had been made under the PSP (June 2014: none). At the date of Admission the Group established an Employee Benefit Trust, at 31 December 2014, the Trust did not hold any ordinary shares of the Company (June 2014: none; 2013: none).

Performance Share Plan

Prior to 26 June 2014 the Group operated a share based remuneration scheme for employees. Shares granted had performance conditions linked to the growth of the adjusted enterprise value of P-Solve and its subsidiaries. Each vesting was exchanged for shares in Punter Southall Group Limited (PSG). On 20 December 2013 the Plan was modified to provide that performance shares could, at the option of PSG, convert either into PSG shares or P-Solve shares and any unconverted shares would automatically convert on the occurrence of a corporate transaction. On 27 March 2014, upon the completion of the acquisition of RAMAM, all performance shares were converted, at PSG option, into shares in the Group. Details of the Performance Share Plan can be found in the Annual Report: note 22 and note 45.

During the six months ended 31 December 2014, the Group invested £5.0m of seed capital in the River and Mercantile Dynamic Asset Allocation fund (the 'DAA fund'). At 31 December 2014, this investment is recognised as an available-for-sale financial asset, with unrealised fair value movements recognised in Other Comprehensive Income.

The fair value of the Group's investment in the fund is derived from the fair value of the underlying investments which are traded in an active market and therefore IFRS 13 Fair Value Measurement refers to such inputs as Level 2.

The movement in the carrying value of the available-for-sale investment is analysed below:

Tax charge consists of current tax and deferred tax. Current tax represents the estimated tax payable on the taxable profits for the period. Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements.

The most significant deferred tax items are the deferred tax liability established against the IMA intangible asset arising from the acquisition of RAMAM and the deferred tax asset recognised in respect of the EPSP share-based payment expenses. The amortisation of the IMA intangible asset is not tax deductible for corporate tax purposes therefore the deferred tax liability is released into the Income Statement to match the amortisation of the IMA intangibles. At each reporting date the Group estimates the corporation tax deduction that might be available on the vesting of EPSP shares and the corresponding adjustment to deferred tax asset is recognised in the Income Statement and Equity.

The current tax charge in respect of the six months ended 31 December 2013 was paid by Punter Southall Group and its subsidiaries (PSG).

The tax assessed for the period is lower (June 2014: higher, 2013: lower) than the average standard rate of corporation tax in the UK. The differences are explained below:

The analysis of deferred tax assets and liabilities is as follows:

During the six months ended 31 December 2013 two interim dividends in respect of the year ended 31 December 2013 of £5,996,537 (51 pence per share) and £14,416,985 (122 pence per share) were declared.

 During the six months ended 31 December 2014 a final dividend in respect of the six months ended 30 June 2014 of £1,888,193 (2.3 pence per share) was declared. No dividends were declared during the six months ended 30 June 2014.

The basic and diluted earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares of the Company in issue during the period.

 To the extent that any of the EPSP performance shares (Note 7) vest they will have a dilutive effect on the equity holders of the Company. The potential dilution effect of the EPSP performance shares will be considered in the calculation of diluted earnings per shares.

The compound return to shareholders is based on share price and dividends received by shareholders from the date of grant until the reporting date and will be compared against the respective performance criteria of the performance shares to determine if the shares are dilutive as of the reporting date.

Based on the Group's share price at 31 December 2014 and dividends paid, all of the EPSP performance shares would have met the vesting criteria and were therefore considered dilutive for purposes of calculating diluted earnings per share (June 2014: none; 2013: n/a).

Adjusted profit after tax represents profit after tax before discontinued operations, adjusted to add back the amortisation of intangible assets, share-based remuneration relating to EPSP, and IPO costs, net of tax.

Adjusted underlying profit represents net management and advisory fees less the related expense base, adjusted for the amortisation of intangible assets, share based payments and costs associated with the IPO and restructuring.