RIV.L Regulatory News (RIV)

27 July 2020

LEI: 2138005C7REHURGWHW31

River and Mercantile Group PLC

Fourth Quarter Trading Update

to 30 June 2020

"A strong rebound following the challenges of Covid-19"

River and Mercantile Group PLC ("R&M"), the asset management business, today provides its unaudited trading update for the three and twelve months ended 30 June 2020.

James Barham, Group Chief Executive commented:

"We look forward to the new financial year with confidence. We have and will continue to make some significant investments in our business to boost our distribution capabilities and to enhance and deepen our investment resources to meet our clients' needs. We are beginning to see some very positive signs following the investment in distribution we have made over the past year and this places us in a strong position as we head into the new financial year."

Summary of the three months ended 30 June 2020:

• Fee earning AUM/NUM increased in the quarter by 9.3% to £44.2 billion.

- Gross sales were £3.1 billion;

- Net flows were £1.5 billion;

- Net flow ratio was +3.7% of opening AUM/NUM; and

- Investment performance was positive £2.3 billion or +5.6% of opening AUM/NUM.

Summary of the twelve months ended 30 June 2020:

• Fee earning AUM/NUM increased in the twelve months by 11.1% to £44.2 billion.

- Gross sales were £8.2 billion;

- Net flows were £3.7 billion;

- Net flow ratio was +9.3% of opening AUM/NUM; and

- Investment performance was positive £0.7 billion or +1.8% of opening AUM/NUM.

Group highlights

• The Group continued to perform well and delivered strong gross sales across each area of the business;

• Significant positive net flows in the quarter following a challenging period in the previous quarter;

• Positive investment performance despite volatile market conditions;

• Recruitment of new Head of Wholesale to improve distribution capabilities and support growth in the wholesale channel;

• Targeted investment for profitable growth in distribution and manufacturing capabilities to further diversify the

business; and

• Effective transition of the business to the working from home environment, with notable increase in client

communications and engagement.

Introduction

The unprecedented market volatility which we witnessed in the early stages of the Covid-19 pandemic have abated somewhat over the last quarter as markets have accepted the current position and have begun to digest the implications. The impact of any form of vaccine or drug that remediates the disease will be interesting to watch and the market is becoming somewhat twitchy to any news emerging on the issue. The scientific advisers believe the reoccurrence of the disease more widely in our communities is likely as we enter the winter months and the impact of another shut down on the economy would be significant. There are a range of other events and issues that could cause further volatility and disruption to markets more generally. The geopolitical tensions as a result of the US elections later this year and the increasing likelihood of a hard Brexit are both examples of issues that will likely lead to higher levels of volatility and may challenge current market levels.

That said, the Bank of England have stood by their forecast of a rapid 'V-shaped' recovery, and since the re-opening of the physical high street, early sales figures are positive. Estimates suggest circa £120bn has been deposited during the lockdown and it would appear we are seeing signs of consumers willing to spend. Whilst there may be nuggets of positive news, there are still large sectors of our economy such as travel and hospitality where consumer attitudes and behaviour will have changed. The move by the Chancellor earlier this month to encourage everyone to return to our pubs and restaurants will help, but often events such as the one we have just experienced can lead to permanently reduced or changed demand. The termination of the furlough scheme in October will, despite subsidies to keep people in work, lead to an increase in unemployment. The reality of this will weigh on consumers' minds and further dampen demand.

Group performance during the quarter

The Group in general has continued to perform well through the period and delivered strong gross sales of £3.1 billion across its diversified business activities as follows:

· Fiduciary sales of £480 million and a further £362 million of net rebalancing/ transfers;

· Derivatives sales of £2.5 billion and a further £400 million of net rebalancing/ transfers;

· Equity sales of £83 million spread across both wholesale and institutional; and

· Investment performance contributed £2.3 billion of additional growth.

The business delivered positive net flows of £1.5 billion during the quarter following the challenging period in the previous quarter. We have continued to see some weakness in our Equities division and in wholesale, however, this is against a backdrop of some specific factor and sector challenges impacting our product set.

The wholesale market is a strategically important growth market for the Group and I am delighted to report the recruitment of Simon Smith who joins us from Merian as Head of Wholesale. During his time at Merian he was responsible for driving significant growth in their wholesale business and we all look forward to working with him and reinvigorating this critical component of our distribution network.

Our Derivatives and Fiduciary businesses have continued to perform very well during the period and we are seeing increased opportunities to pitch for new mandates as the market begins to adapt to the new remote operating environment. We have seen a number of new tenders defer pitches until physical meetings can be undertaken however, many of these are now proceeding in remote form. Our Derivatives business experienced a significant increase in activity during the period, as many of our clients have taken advantage of the market conditions to increase or reposition hedging strategies.

Investing for profitable growth

I set out in my statement in our annual report last year some clear views about our direction of travel as a business and, as we make progress, I will expand upon this in more detail in our preliminary results later this year. We have a fantastic business rich in talent and expertise and are diversified across some of the key growth sectors of our industry.

However, there are parts of our business where I would like to see greater diversification and in particular in some of our manufacturing capabilities. We have continued to develop highly relevant strategies where we are utilising the IP from across the Group and delivering these in product form where the needs they meet are widespread across our client base. We have also continued to add to our existing investment activities such as the recent recruitment of James Sym from Schroders to work with Hugh Sergeant and the PVT team and also to develop a European Equity strategy to meet demand in the wholesale market. Further we are also looking to add a Global Quality/Growth equity team to complement the existing PVT team and we continue to seek the right alternative credit team to meet the needs for these skills across our Group and of our diverse client base.

I have previously reported on the importance of distribution and the steps to transform our capabilities in this regard started last year with the recruitment of David Hanratty as Global Head of Distribution. I have been working with David to finesse our plans for the future and we have made some great strides this year on which we will continue to build over the coming twelve months. Our own distribution network will be concentrated in our core markets of United Kingdom and Europe, North America and Australia. These are large institutional and sophisticated wholesale markets where our existing and planned product line-up is well aligned with the deepest asset pools and the arrival of Simon Smith will be an important part of our plans in this area.

We have already recruited our first dedicated Head of Fiduciary and Advisory Sales with the arrival of Ronan O'Riordan earlier this year and we have been building a specialist team around him to ensure that we drive profitable growth in this core market. As highlighted earlier, we have just recruited Simon Smith from Merian and he has already started work with the existing team to develop this important distribution line and add more resource as required. We have also announced additional support for Tim Horan in Australia and we will continue to invest in all our distribution teams to make sure that we have the right teams in place in our core markets and this process of "Upskilling and Upscaling" in distribution is firmly underway.

Our continuing investment in distribution, and where appropriate investment manufacturing, is a key part of our medium-term strategy. Supporting this with an efficient and aligned operating platform across the entirety of our business is critical and we plan to increase our investment in this part of our operations over the next few years to enhance operational efficiency over the medium term.

Working practices

In our last trading statement, I reported that the business continues to function effectively on a remote basis having responded quickly to the restrictions imposed as a result of the global pandemic. We have provided timely and regular information to our clients, keeping them updated on our thoughts and actions through these challenging times using a variety of media.

One of the great positive lessons emanating from this period is how creative use of these communication platforms and systems is effective in ensuring our clients and potential clients are kept informed. We will continue to use these as part of our overall communications planning as we all, hopefully, return to some form of normality. There are other positives around working practices more generally that we have learnt over the last few months and will be looking to incorporate these more broadly in the future. We now have a programme in place for a gradual return to our offices in accordance with Government guidelines which protects the wellbeing of our staff and visiting clients.

We have also taken the opportunity to look at our longer-term real estate requirements and are in the fortunate position of not being locked into long-term leases. This provides us with a degree of optionality to ensure that whilst we will remain a predominantly office-based business, we will be incorporating an element of agility and flexibility to our working practices. Providing a high quality and flexible environment for our employees and clients is central to our forward planning as a business over the coming years.

Summary

We look forward to the new financial year with confidence. We have and will continue to make some significant investments in our business to boost our distribution capabilities and to enhance and deepen our investment resources to meet our clients' needs. We are beginning to see some very positive signs following the investment in distribution we have made over the past year and this places us in a strong position as we head into the new financial year.

I would like to take the opportunity to thank all our employees for their incredible support and hard work over the last year, a year which I doubt any of us could have forecast this time last summer. I would also like to thank our clients for their support through what have been challenging markets. Finally, our thoughts continue to be with all those families, businesses and communities who have had their health affected by the global spread of Covid-19 and of course with the emergency services on whom we all depend so heavily during these periods. Our approach through this crisis continues to prioritise the safety and health of all River and Mercantile employees, as well as the health of the employees of our clients, whilst still being able to continue to effectively advise on and manage their portfolios.

James Barham

Group Chief Executive

River and Mercantile Group PLC

Assets Under Management (AUM) and Notional Under Management (NUM)

AUM/NUM for the three months ended 30 June 2020

AUM/NUM for the year ended 30 June 2020.

Additional information

Performance and advisory fees

For the year ended June 2020, performance fee revenues are estimated to be approximately £1.2 million. Advisory fee revenues for the year are estimated to be approximately £10.9 million.

Mandates in transition

In Derivative Solutions there are £351 million of new LDI and £37 million of new Structured Equity mandates that are expected to transition into fee earning AUM/NUM during the next quarter.

Mandates in redemption

A client has given notice of its intention to redeem which constituted £317 million of Fiduciary AUM and £368 million of Derivative Solutions LDI NUM as at 30 June 2020. These assets are expected to redeem by the end of September 2020.

For further information, please contact:

Simon Wilson

Chief Financial Officer

River and Mercantile Group PLC

Tel: 020 7601 6262

Forward-looking statements

This announcement contains forward-looking statements with respect to the financial conditions, results and business of R&M. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. R&M's actual results may differ materially from the results expressed or implied in these forward-looking statements. Nothing in this announcement should be construed as a profit forecast.

Notes:

Assets Under Management (AUM) represents the assets over which we act either as a discretionary investment manager on a partial or fully delegated basis in accordance with an investment management agreement.

Fee earning AUM/NUM represents amounts on which management fees and performance fees are charged.

Notional Under Management (NUM) represents the aggregate billing notional of derivative contracts and is the basis on which management fees are charged.

Net rebalance and transfers represents the net change in billing notional values of Derivatives (including Gilts) from existing client mandates and can increase or decrease based on changes in the underlying hedging strategies. The category also represents transfers of client assets between divisions. The different billing structures between divisions, including the use of AUM or NUM, means that transfers will not net to zero.

Net Sales Ratio represents gross sales, redemptions, net re-balance and transfers divided by opening AUM/NUM

LDI refers to Liability Driven Investing which relates to the management of interest rate and inflation risk in the underlying pension liabilities.

S. Equity refers to Structured Equity capabilities which provide strategies to shape the return profile of clients' equity portfolios.

Liquid Alts refers to Liquid Alternatives which currently only represents the fee earning AUM of the Dynamic Asset Allocation Fund. The redemption reported for the twelve months ended June 2020 was a single client redemption in January as previously reported in our interim results.