RIV.L Regulatory News (RIV)

8 April 2020

LEI: 2138005C7REHURGWHW31

River and Mercantile Group PLC

Third Quarter Trading Update

31 March 2020

"The Group continued to perform well through the period"

River and Mercantile Group PLC (R&M), the asset management and investment solutions business, today provides a trading update for the three months and nine months ended 31 March 2020.

Summary of the three months ended 31 March 2020:

· Fee earning AUM/NUM decreased in the quarter by 4.3% to £40.5 billion.

- Gross Sales were £2.2 billion;

- Net flows were £434 million;

- Net Sales ratio was 1.0% of opening AUM/NUM; and

- Investment performance was negative £2.25 billion or 5.3% of opening AUM/NUM.

Summary of the nine months ended 31 March 2020:

· Fee earning AUM/NUM increased in the nine months by 1.6% to £40.5 billion.

- Gross Sales were £5.2 billion;

- Net flows were £2.2 billion;

- Net Sales ratio was 5.5% of opening AUM/NUM; and

- Investment performance was negative £1.6 billion or 3.9% of opening AUM/NUM.

First Interim Dividend

The Group confirms that, as announced in the Interim Results, the first interim dividend of 4.39 pence per share will be paid on 16 April 2020 to Shareholders on the register on 27 March 2020.

As a reminder, 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 which, the Group intends to distribute as dividends, after taking into account regulatory capital requirements at the time and, potential strategic opportunities, to shareholders primarily by way of special dividends. The Group has in practice paid out 80% of adjusted underlying profits and 100% of net performance fees to shareholders since its IPO in 2014.

These payments are spread across a first and second interim dividend at the 60% rate and a final balancing dividend where any additional sums are paid.

Introduction

This is a longer statement than we would normally provide for a trading statement, however given the circumstances we felt that this would be helpful.

We have seen unprecedented market volatility over the last three weeks as the world has come to terms with the fast evolving COVID-19 crisis. Volatility closed above levels last seen in the Global Financial Crisis over 12 years ago and equity markets along with a range of other asset classes have seen dramatic falls. As events have unfolded, it has become increasingly likely that a global economic downturn is now almost a certainty and that large parts of the global economy will enter recession this year.

As the initial pressures subside, return seeking assets may well find some temporary respite, however we believe markets do remain vulnerable. It is the unknown scale of the pandemic and the potential prolonged impact on the economy that provides potential for further uncertainty if economic data surprises to the downside. It is worth noting that consensus growth expectations for the latter part of the year and into 2021 are still positive. Whilst we hope to be wrong, we think current estimates maybe somewhat optimistic.

The scale and speed of the response to this crisis is unprecedented. Across the world, central banks and governments have taken dramatic steps to minimise the impact of COVID-19 on society and the economy. In many countries these steps are being taken at the same breakneck speed of both the virus' spread and the economic slowdown that is unfolding. It is easy to criticise in this environment, but I believe that the leadership that has been shown has been courageous and inspirational and we owe a debt not only to the brave emergency services who are on the front line on our behalf on a daily basis in the fight against this virus, but also to the UK Prime Minister in these troubled times.

Business Continuity

As a Group we initially moved to a separated structure in order that there was a lead group and a mirror group working in different office and/or home locations so that they would not come into contact with each other. This was done to try and minimise the risk to our people and the business, whilst at the same time ensuring the continuity of service to our clients. In both the US and Australia, we took the precaution of advising our people to work from home a week earlier. Following the change in advice from the UK Government we moved to the next stage in our contingency planning and with the exception of a skeleton staff in London, we moved to a remote working basis. Since then, and following the "lock down" instruction issued by the Prime Minister, we have closed all our offices and we are now operating on a fully remote working basis.

The COVID-19 pandemic has fundamentally changed the way people interact and the ongoing restrictions on travelling and physical meetings mean that companies more generally need to adapt their working practices and implement alternative methods of communication with clients, potential investors and shareholders. However, the development of technology over the last decade has allowed us to embrace this remote working protocol quickly and effectively. This has meant that the way we engage has adapted and that online communication whether voice, video or email has been able to ensure that our clients and shareholders have been kept up to date with developments in our business and their portfolios. We have been in touch with all our clients updating them on our communication plans over the next few months to ensure where possible it is business as usual and, critically, they are kept up to date with developments in their portfolios and the views of our investment teams across the business.

Group performance during the Quarter

The Group has continued to perform well through the period and delivered strong gross sales of £2.2 billion across the diversified business entities as follows:

· Fiduciary sales of £865m which includes the previously announced Fiduciary Management mandate of which £325m is still to transition. In the quarter we also won a further Fiduciary Management mandate of £341m which will transition by year end.

· Derivatives sales of £1bn and a further £326m of net rebalancing

· Equity sales of £281m spread across both wholesale and institutional.

· The majority of the redemptions in both Equity Solutions and Liquid Alternatives in the quarter were previously noted as redemptions in transition in the Interim Results.

It is pleasing to see that Derivative Solutions had positive net flows in the quarter as clients increased their hedging strategies in both interest rates and equities using our Structured Equity and Liability Driven Investing capabilities.

The business delivered positive net flows of £434m during the period.

It will come as no surprise that during the quarter our view on markets turned negative with our River FOURcast indicating a "Downturn" in market conditions. We came off risk during the last week of February and we remain conservatively positioned.

One of the attributes of our business is the fact that our revenues are less exposed to equity market movements. Approximately 60% of our revenues are not exposed to equity market beta and therefore while the equity markets will directly affect the Equity Solutions business and the equity investment portfolio in Fiduciary Management (although this was reduced significantly in the early stages of the crisis), the revenue generated in the Derivative Solutions business, the bond portfolios in the Fiduciary Management and our advisory revenues are not affected by equity market beta. This results in a business model that is more sustainable in significant equity market declines as we have seen recently.

As announced in our Interim Results announcement on the 16 March 2020, the first interim dividend of 4.39 pence per share will be paid on 16 April 2020 to Shareholders on the register on 27 March 2020. Whilst we are conscious that a number of businesses have taken the decision to cancel/postpone or defer their dividends as a result of the extreme market volatility, we are a cash generative business, have a strong balance sheet and therefore it remains our intention to continue to pay our dividends to shareholders. Many of our shareholders manage assets on behalf of income seeking investors and therefore cashflow for these investors is particularly critical at times such as these.

We are all acutely aware of our responsibility to our clients as the steward of their assets and financial strategy, and whatever the circumstances, we will continue to fulfil our commitments to them in the weeks and months ahead.

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 challenging times. Our approach through this crisis remains prioritising 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 advise on and manage portfolios for clients.

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 31 March 2020.

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

AUM/NUM for the nine months ended 31 March 2020.

Pensions Buy ins and Buy outs

Included in Derivative Solutions LDI redemptions in the three months ended 31 March 2020 are £205m of LDI mandates where the client undertook a pension buy in transaction.

Performance and advisory fees

As a result of the extreme market conditions we do not anticipate any performance fees will be earned in the six months ended 30 June 2020.

Advisory fee revenues for the quarter are estimated to be £2.7m.

Additional Information:

Mandates in Redemption

Included in Derivative Solutions NUM at 31 March 2020 are £1.45bn of Structured Equity transactions which will reach their contractual maturity in June 2020.

Included in Equity Solutions Institutional AUM at 31 March 2020 are £174m of mandates that have notified that they will redeem during the next quarter.

Mandates in Transition

In Fiduciary Management and Derivative Solutions (LDI) there are £341m and £325m, respectively of new mandates that will transition in to fee earning AUM/NUM during the next quarter.

Notes to editors:

R&M is an asset management and 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.

River FOURcast is a proprietary economic model developed by R&M which is used to indicate our future views of the financial markets. The model uses a number of economic and sentiment indicators to determine the potential future direction of financial markets as being: "STABLE", "UPWARD RERATING", "APPREHENSION" or "DOWNTURN".

For further information, please contact:

River and Mercantile Group PLC

Chris Duncan

MRM Communications

Tel:+44 (0)2033269907

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 rebalance and transfers divided by opening AUM/NUM

Net Investment Ratio represents investment performance 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.