30 Jul 2018 07:00
30 July 2018
LEI: 2138005C7REHURGWHW31
River and Mercantile Group PLC
Fourth quarter trading update
30 June 2018
River and Mercantile Group PLC (R&M), the investment solutions business, today provides a trading update for the three and twelve months ended 30 June 2018.
Highlights for the three months ended 30 June 2018:
· Fee earning AUM/NUM increased by 2.7% to £33.8bn.
· Net inflows for the quarter were £0.6bn, equivalent to 1.8% of opening AUM/NUM.
· Sales for the period were £1.1bn, including £0.4bn of new structured equity derivatives.
· Redemptions in the period were £0.5bn, including £0.1bn of maturing structured equity derivatives.
· Investment performance added £0.3bn and was positive across all divisions.
Highlights for the 12 months ended 30 June 2018:
· Fee earning AUM/NUM increased by 9.0% in the year to £33.8bn.
· Net inflows for the 12 months were £2.1bn, equivalent to 6.8% of opening AUM/NUM.
· Sales for the period were £5.7bn, including £3.9bn from Derivative Solutions and £1.3bn from Equity Solutions.
· Redemptions in the period were £4.6bn, including £1.5bn of maturing structured equity derivatives from a single client which had met its investment objectives.
· Investment performance generated £0.7bn and was positive across all divisions.
Mike Faulkner, CEO of River and Mercantile, said:
"During the quarter we experienced solid growth during a period of financial market volatility. Derivative Solutions performed particularly well delivering strong flows in the period. Fiduciary Management and Equity Solutions experienced tougher conditions with respect to flows, but investment performance in these areas supported overall AUM growth. This demonstrates again the benefit of how the diversified nature of our business lines produces stable growth.
Our progress during the twelve months and our strong pipeline means that we end our financial year well positioned to continue our revenue growth in line with our strategic objectives.
The long term investment performance of our funds and mandates1 remains above benchmark.
As a result of investment in people during the year we anticipate that our remuneration ratio on underlying revenue will be approximately 54% for the year, representing around 52% of ongoing underlying revenue and 2% for investment initiatives. We have continued to expand our distribution and client engagement capabilities, most recently in New York and Australia, to help drive growth in our business in addition to the existing pipeline. We continue to invest in our research and development activities, in particular in solutions that can deliver scalable investment capacity, for example global macro and emerging markets."
Notes:
1 Investment performance is measured for those funds and mandates where investment outperformance is the relevant outcome for clients. Investment performance is measured gross of management fees.
Assets Under Management (AUM) and Notional Under Management (NUM)
AUM/NUM for the three months ended 30 June 2018.
Equity Solutions | |||||||||||
£'m | Fiduciary Management | Derivative Solutions | Wholesale | Institutional | Total | Total AUM/NUM | |||||
(AUM) | (NUM) | (AUM) | (AUM) | (AUM) | |||||||
Opening fee earning AUM/NUM | 10,686 | 17,828 | 1,933 | 2,504 | 4,437 | 32,951 | |||||
Sales | 80 | 787 | 98 | 119 | 217 | 1,084 | |||||
Redemptions | (92) | (101) | (275) | (46) | (321) | (514) | |||||
(12) | 686 | (177) | 73 | (104) | 570 | ||||||
Net rebalance and transfers | (98) | 108 | - | - | - | 10 | |||||
Net flow | (110) | 794 | (177) | 73 | (104) | 580 | |||||
Investment performance | 66 | - | 131 | 115 | 246 | 312 | |||||
Fee earning AUM/NUM | 10,642 | 18,622 | 1,887 | 2,692 | 4,579 | 33,843 | |||||
Mandates in transition (30 June 2018) | 12 | 12 | - | 188 | 188 | 212 | |||||
Redemptions in transition (30 June 2018) | (49) | (18) | - | - | - | (67) | |||||
Mandated AUM/NUM | 10,605 | 18,616 | 1,887 | 2,880 | 4,767 | 33,988 | |||||
Increase/(decrease) in fee earning assets | (0.4%) | 4.5% | (2.4%) | 7.5% | 3.2% | 2.7% | |||||
Increase/(decrease) in mandated assets | (0.7%) | 7.9% | (2.4%) | 15.0% | 7.4% | 5.0% | |||||
AUM/NUM for the 12 months ended 30 June 2018.
Equity Solutions | |||||||||||
£'m | Fiduciary Management | Derivative Solutions | Wholesale | Institutional | Total | Total AUM/NUM | |||||
(AUM) | (NUM) | (AUM) | (AUM) | (AUM) | |||||||
Opening fee earning AUM/NUM | 10,528 | 16,888 | 1,821 | 1,812 | 3,633 | 31,049 | |||||
Sales | 535 | 3,855 | 726 | 583 | 1,309 | 5,699 | |||||
Redemptions | (419) | (3,094) | (847) | (194) | (1,041) | (4,554) | |||||
116 | 761 | (121) | 389 | 268 | 1,145 | ||||||
Net rebalance, acquisitions and transfers | (280) | 973 | - | 2802 | 280 | 973 | |||||
Net flow | (164) | 1,734 | (121) | 669 | 548 | 2,118 | |||||
Investment performance | 278 | - | 187 | 211 | 398 | 676 | |||||
Fee earning AUM/NUM | 10,642 | 18,622 | 1,887 | 2,692 | 4,579 | 33,843 | |||||
Mandates in transition (30 June 2018) | 12 | 12 | - | 188 | 188 | 212 | |||||
Redemptions in transition (30 June 2018) | (49) | (18) | - | - | - | (67) | |||||
Mandated AUM/NUM | 10,605 | 18,616 | 1,887 | 2,880 | 4,767 | 33,988 | |||||
Opening mandated AUM/NUM | 10,526 | 16,316 | 1,821 | 1,812 | 3,633 | 30,475 | |||||
Increase/(decrease) in fee earning assets | 1.1% | 10.3% | 3.6% | 48.6% | 26.0% | 9.0% | |||||
Increase/(decrease) in mandated assets | 0.8% | 14.1% | 3.6% | 58.9% | 31.2% | 11.5% | |||||
2 The acquisition of the Emerging Markets Industrial Lifecycle (ILC) team from Credit Suisse resulted in £280m of AUM transitioning to the Group in December 2017.
Performance fees
Performance fees earned in the 12 months ended 30 June 2018 are estimated to be £10.0m, of which £7.6m relates to the Fiduciary Management division with the balance from Equity Solutions.
This figure excludes the recently announced River and Mercantile UK Micro Cap Investment Company Limited performance fee of approximately £2m, which will be recognised in the first quarter of the 2019 financial year.
FCA competition matter
As announced on 6 July 2018, the Group has reduced the amounts recognised in respect of the FCA competition matter to a provision of £109,000, from a provision of £1 million3 following guidance from the FCA on the likely quantum of penalty should one be imposed.
Notes to editors:
River and Mercantile Group PLC (R&M) is an investment solutions business with a broad range of services, from consulting and advisory, to fully delegated fiduciary management and asset management.
R&M is focussed on creating investment solutions for institutional pension schemes, insurance and financial intermediaries.
For further information please contact:
River & Mercantile Group PLC +44 (0)20 3327 5100
Chris Rutt, Deputy Chief Financial Officer and Investor Relations
Forward-looking statements
This announcement contains forward-looking statements with respect to the financial conditions, results and business of the Group. 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. River and Mercantile Group'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:
3 The Group recognised a provision of £1m in the December 2017 Interim Report, net of a reduction in remuneration of £0.5m. The provision will be reduced to £109,000 and the reduction in remuneration removed.
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. The acquisition of AUM as part of the Credit Suisse ILC Co-operation agreement has also been recognised on this line.