Tatton Asset Management Regulatory News (TAM)

11 November 2019

Tatton Asset Management plc

Interim results for the six months ended 30 September 2019

"Continued good progress and reached £7.0bn AUM milestone"

Tatton Asset Management plc (the "Group") (AIM: TAM), the on-platform discretionary fund management (DFM) and support services business for independent financial advisers (IFAs), today issues its interim results for the six-month period ended 30 September 2019.

FINANCIAL HIGHLIGHTS

OPERATIONAL HIGHLIGHTS

* Alternative performance measures are detailed in note 18 of this interim report

Paul Hogarth, Chief Executive, commented: "It is particularly pleasing to have reached the important milestone of £7bn of AUM with monthly net flows continuing to perform well from both existing and new IFAs despite an uncertain and volatile market. We have also reorganised our IFA support services businesses under the existing Paradigm brand but with one simplified operational and management structure from which we expect to see improved efficiencies and opportunities in the future. While we are mindful of the current political and macro-economic factors, the Group continues to trade in line with the Board's full year expectations and the Board remains optimistic regarding the prospects of the Group."

For further information please contact:

For more information, please visit: www.tattonassetmanagement.com

Analyst presentation

An analyst briefing is being held at 9.30am on 11 November 2019 at the offices of Zeus Capital, 10 Old Burlington St, London, W1S 3AG.

GROUP RESULTS

The Group has delivered a solid first half performance driven by continued growth in Tatton Investment Management (Tatton). We continue to deliver increasing assets under management (AUM) and reached the £7.0bn milestone at the end of September 2019.

Group revenue for the period increased 15.2% to £9.73m (2018: £8.45m). Adjusted operating profit* for the period increased 23.2% to £4.13m (2018: £3.35m) with adjusted operating profit margin* increasing to 42.4% (2018: 39.7%).

Pre-tax profit after exceptional items and share-based payment charges increased 17.1% to £3.61m (2018: £3.08m). Taxation charges for the period were £0.67m (2018: £0.68m). This gives an effective tax rate of 18.5% when measured against profit before tax. Adjusting for exceptional costs and share-based payments the effective tax rate is 19.7%.

The basic earnings per share was 5.26p (2018: 4.30p). When adjusted for exceptional items and share-based payment charges, earnings per share was 5.92p (2018: 4.97p) and earnings per share fully diluted for the impact of share options was 5.39p (2018: 4.57p), an increase of 17.9%.

STRATEGIC PRIORITIES AND BUSINESS OBJECTIVES

TATTON INVESTMENT MANAGEMENT

Against a backdrop of a global economic slowdown and the rising investor hesitance due to Brexit uncertainty, Tatton has made a solid start to the financial year.

Tatton completed its first acquisition, Sinfonia Asset Management Limited (SAM), for a consideration of up to £2.7m. SAM contributed £135m of assets to the total AUM of £7.0bn (2018: £5.7bn). This represents an increase in AUM of 22.8% on the prior year (organic 21.1%) and 14.8% since the last full year results at the end of March 2019. Increasing AUM through new and existing adviser relationships remains at the core of Tatton's strategy, both organically and through acquisition. We will continue to develop our market leading managed portfolio service and enhance our other products to ensure they remain at the cutting edge of centralised investment propositions (CIP) for financial advisers. We continue to make good progress in adding new firms and associated clients with firm numbers increasing to 522 (2018: 405), an increase of 28.9%, and clients increasing to 61,250 (2018: 53,500), an increase of 14.5%. We are very pleased with the progress we are making with the Tenet Group following the signing of the strategic partnership agreement in June this year. Results are already very positive with 40 new firms (included in the 522 above) and £24.5m of associated AUM added in the period to September 2019. We look forward to making further progress in the year ahead.

Revenue for Tatton (excluding wrap income, as previously presented) grew 35.2% to £5.45m (2018: £4.03m) and adjusted operating profit* grew 42.0% to £2.91m (2018: £2.05m). Margins increased to 53.3% (2018: 50.9%) reflecting the operational gearing of the business. We anticipate that this will continue as the business continues to grow.

PARADIGM MORTGAGES

Paradigm Mortgages started the year well and continues to deliver good growth through increasing market share despite the headwinds in the mortgage market. New members in the period increased the number of firms by 13.6% to 1,466 (2018: 1,290).

Paradigm Mortgages' strategy remains to assist Financial Advisers and intermediaries in benefiting from economies of scale in lending and insurance provision through access to lenders covering the whole of market, together with a full range of mortgage-related support services. The increase in new members helps to drive applications which is a key indicator for future performance and also benefits the general drive towards increased customer retention with intermediaries taking an increasing share of the channel which feeds through to increased completions and associated revenue.

Revenue for Paradigm Mortgages grew 11.4% to £1.42m (2018: £1.28m) and adjusted operating profit grew 11.3% to £0.80m (2018: £0.72m) with margins remaining strong at 56.1% (2018: 56.2%).

PARADIGM CONSULTING

The business continues to provide regulatory compliance support and bespoke consultancy to IFAs and acts as a channel for intelligence and insight into the IFA community for the wider Group. The number of Paradigm Consulting firms slightly increased to 385 (2018: 382), while the market experiences transactional activity and continues to consolidate. Revenue in the period reduced 9.3% to £2.83m (2018: £3.12m) and adjusted operating profit* reduced 3.8% to £1.48m (2018: £1.54m).

REORGANISATION

Since the IPO in July 2017 we have operated three distinct businesses, each with its own strategic goals and priorities. As the Group has evolved over the last two years, we have continued to develop our approach to how the Group businesses operate in their respective markets. As such the decision has been made to simplify the business units to better reflect their offerings of investment management and adviser support services. Therefore, the two existing Paradigm businesses will amalgamate to operate under a single operational and reporting control structure, resulting in a change to the operating segment reporting. They will continue to deliver financial adviser support services, consulting, pooled protection and the mortgage club under the existing Paradigm brand. Further, all end client-related investment income to the Group will now be presented under Tatton Investment Management (Tatton), meaning the investment and wrap income of £1.6m including associated costs of £0.3m, which were historically presented under Paradigm Consulting, will now be presented under Tatton to better reflect its nature and the operational activity which supports it. A summary of the segmental results for the period (together with prior period comparatives) for the Tatton and Paradigm businesses, on both the new and old basis of presentation, is set out in the Divisional Results section below and in Note 2.2 to these condensed financial statements. 

As we look to the future, we will leverage the closer relationship in the Paradigm businesses through improved cross-fertilisation and co-operation and see this as a logical step to a more cohesive proposition to the markets in which we operate. We have shown both the new and historical presentation for clarity and understanding on the following pages. Any additional costs incurred in the second half of the year in relation to the reorganisation will be separately disclosed in the income statement.

DIVISIONAL RESULTS

The impact of the change in the Group's operating divisions as detailed above is illustrated in note 2.6 of these condensed financial statements.

HISTORICAL PRESENTATION

ACQUISITION

A key part of the Group's strategy is to make acquisitions that fit the business model and fulfil the key strategic aims of the business. On 30 September 2019 the Group acquired the entire issued share capital of Sinfonia Asset Management Limited (SAM), a wholly owned subsidiary of the Tenet Group for a consideration of up to £2.7m. SAM comprises five risk-targeted funds with a total AUM of £135m. These five additional funds will complement Tatton's existing fund range and expand the access IFAs' clients have to a range of diversified investments portfolios on investment platforms that cannot yet accommodate discretionary portfolio services.

Of the consideration of up to £2.7m, £2.0m was payable on completion with the remaining balance becoming payable in two equal instalments subject to meeting specific AUM targets at the end of years one and two post completion as set out in note 16 to these condensed financial statements.

EXCEPTIONAL ITEMS

The exceptional items totalling £0.1m in the period relate to the acquisition of Sinfonia Asset Management Limited. Exceptional items along with share-based payment charge are both reported separately to give a better understanding of the Company's underlying performance.

BALANCE SHEET

The balance sheet remains healthy with net assets at 30 September 2019 totalling £15.3m (2018: £13.9m) reflecting the continued growth and profitability of the Group. Property, plant and equipment has increased to £1.1m (2018: £0.3m), with £0.6m of the increase relating to the recognition of right-of-use assets following the adoption of IFRS 16 'Leases' from 1 April 2019. Lease liabilities of £0.7m have also been recognised at the period end resulting in a net decrease to net assets of £0.1m.

Intangible assets of £1.8m have been recognised (2018: £nil), of which £1.5m relates to the preliminary valuation of customer relationship intangibles recognised on the acquisition of SAM. This business combination has also resulted in an increase to goodwill of £1.1m.

CASH RESOURCES

The Group continues to generate strong cash flows. Net cash generated from operations was £3.8m, £3.9m before exceptional items (2018: £4.3m) and was 105% of operating profit. The Group remains debt free with closing net cash at the end of the period of £9.2m (2018: £11.6m or £9.4m excluding non-shareholder cash). The cash resources are after the acquisition of Sinfonia of £2.0m, corporation tax of £1.4m and dividend payments of £3.1m relating to the final dividend for the year ended 31 March 2019.

DIVIDEND

The Board is pleased to recommend an interim dividend of 3.2p per share, an increase of 14.3% on the prior period interim dividend. The interim dividend reflects both our cash performance and our underlying confidence in the business. The interim dividend of 3.2p per share, totalling £1.8m, will be paid on 13 December 2019 to shareholders on the register at close of business on 22 November 2019 and will have an ex-dividend date of 21 November 2019. In accordance with IFRS, the interim dividend has not been included as a liability in this interim statement.

BUSINESS RISK

The Board identified principal risks and uncertainties which may have a material impact on the Group's performance in the Group's 2019 Annual Report and Accounts (pages 24 to 25) and believes that the nature of these risks remains largely unchanged at the half year. The Board will continue to monitor and manage identified principal risks throughout the second half of the year.

BREXIT

The Group has continued to review the implications of the result of the UK referendum to leave the EU on our business model. As the Group has no direct exposure to cross-border trading and has no overseas operations, the direct impact of Brexit will be limited. However, we remain mindful of the uncertainty Brexit has created and its potential to impact markets and the wider consumer sentiment. The Board will continue to assess the implications of the changes as they emerge.

GOING CONCERN

As stated in note 2.2 of these condensed financial statements, the Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing these condensed financial statements.

SUMMARY AND OUTLOOK

The Group continues to make good progress against its stated strategy. We continue to see net new inflows supporting an increasing AUM. The Group has delivered a solid first half performance with increasing revenues, profit and margins. As in prior periods we will continue to maintain a disciplined approach to executing our strategy and we remain excited by the opportunities that exist in the markets in which we operate. While we are mindful of the current political and macro-economic factors, the Group continues to trade in line with the Board's full year expectations and the Board remains optimistic regarding the prospects of the Group.

* Alternative performance measures are detailed in note 18 of this interim report

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2019

There were no other recognised gains or losses other than those recorded above in the current or prior period and therefore a statement of other comprehensive income has not been presented.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2019

The financial statements were approved by the Board of Directors on 11 November 2019 and were signed on its behalf by:

PAUL EDWARDS

Director

Company registration number: 10634323

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2019

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2019

The accompanying notes are an integral part of the interim financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 GENERAL INFORMATION

Tatton Asset Management plc ("the Company") is a public company limited by shares. The address of the registered office is Paradigm House, Brooke Court, Lower Meadow Road, Wilmslow, SK9 3ND, United Kingdom. The registered number is 10634323.

The Group comprises the Company and its subsidiaries. The Group's principal activities are discretionary fund management, the provision of compliance and support services to independent financial advisers (IFAs), the provision of mortgage adviser support services and the marketing and promotion of the funds run by the companies under Tatton Capital Limited.

The condensed consolidated interim financial statements for the six months ended 30 September 2019 do not constitute statutory accounts as defined under Section 434 of the Companies Act 2006. The Annual Report and Financial Statements (the 'Financial Statements') for the year ended 31 March 2019 were approved by the Board on 3 June 2019 and have been delivered to the Registrar of Companies. The Auditor, Deloitte LLP, reported on these financial statements; its report was unqualified, did not contain an emphasis of matter paragraph and did not contain statements under s498 (2) or (3) of the Companies Act 2006.

News updates, regulatory news, and financial statements can be viewed and downloaded from the Group's website, www.tattonassetmanagement.com. Copies can also be requested from: The Company Secretary, Tatton Asset Management plc, Paradigm House, Brooke Court, Lower Meadow Road, Wilmslow, SK9 3ND.

2 ACCOUNTING POLICIES

The principal accounting policies applied in the presentation of the interim financial statements are set out below.

2.1 BASIS OF PREPARATION

The unaudited condensed consolidated interim financial statements for the six months ended 30 September 2019 have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union. The condensed consolidated interim financial statements should be read in conjunction with the Financial Statements for the year ended 31 March 2019, which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed consolidated interim financial statements were approved for release on 11 November 2019.

The condensed consolidated interim financial statements have been prepared on a going concern basis and prepared on the historical cost basis.

The condensed consolidated interim financial statements are presented in sterling and have been rounded to the nearest thousand (£'000). The functional currency of the Company is sterling.

The preparation of financial information in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual events may ultimately differ from those estimates.

The key accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in the consolidated financial statements. The accounting policies adopted by the Group in these interim financial statements are consistent with those applied by the Group in its consolidated financial statements for the year ended 31 March 2019, except for the adoption of new standards effective as of 1 April 2019.

2.2 GOING CONCERN

These financial statements have been prepared on a going concern basis. The Directors have prepared cash flow projections and are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group's forecasts and projections, which take into account reasonably possible changes in trading performance, show that the Group will be able to operate within the level of its current facilities. The Directors have considered the risks associated with Brexit, including considering the effect on clients' wealth, attitude towards savings and investment, and changes in government policy. The Directors do not consider that the impact of Brexit will affect the Group continuing as a going concern. Accordingly, the Directors continue to adopt the going concern basis in preparing these condensed consolidated interim financial statements.

2.3 BASIS OF CONSOLIDATION

On 23 February 2017 the Company was incorporated under the name Tatton Asset Management Limited. On 19 June 2017 Tatton Asset Management Limited acquired the entire share capital of Nadal Newco Limited via a share for share exchange with the shareholders of Nadal Newco Limited. On 19 June 2017 Tatton Asset Management Limited was re-registered as a public company with the name Tatton Asset Management plc. Following the share for share exchange referred to above, Tatton Asset Management plc became the ultimate legal parent of the Group.

2.4 STANDARDS IN ISSUE NOT YET EFFECTIVE

The following IFRS and IFRIC Interpretations have been issued but have not been applied by the Group in preparing the historical financial information, as they are not yet effective. The Group intends to adopt these Standards and Interpretations when they become effective, rather than adopt them early.

- Amendments to IFRS 3, IAS 1, IAS 8, IFRS 9, IAS 39 and IFRS 7

A number of IFRS and IFRIC interpretations are also currently in issue which are not relevant for the Group's activities and which have not therefore been adopted in preparing the interim financial statements.

The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group in future periods.

2.5 LEASES

In the current period, the Group, for the first time, has applied IFRS 16 Leases (as issued by the IASB in January 2016) which became effective for accounting periods beginning on or after 1 January 2019. The date of initial application of IFRS 16 for the Group was 1 April 2019.

IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to the lessee accounting by removing the distinction between operating and finance lease and requiring the recognition of a right-of-use asset and a lease liability at commencement for all leases, except for short-term leases and leases of low value assets. In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged. The impact of the adoption of IFRS 16 on the Group's consolidated financial statements is described below.

The Group has applied IFRS 16 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of internally applying IFRS 16 is recognised in retained earnings at the date of initial application, however there is no impact on the net assets and retained earnings of the Group at 1 April 2019.

Impact on the new definition of a lease

The Group has made use of the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or contains a lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to be applied to those leases entered or modified before 1 April 2019. The change in definition of a lease mainly relates to the concept of control. IFRS 16 determines whether a contract contains a lease on the basis of whether the customer has the right to control the use of an identified asset for a period of time in exchange for consideration.

The Group applies the definition of a lease and related guidance set out in IFRS 16 to all lease contracts entered into or modified on or after 1 April 2019 (whether it is a lessor or a lessee in the lease contract). In preparation for the first-time application of IFRS 16, the Group has carried out an implementation project. The project has shown that the new definition in IFRS 16 will not change significantly the scope of contracts that meet the definition of a lease for the Group.

Impact on Lessee Accounting

Former operating leases

IFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17, which were off-balance sheet.

Applying IFRS 16, for all leases (except as noted below), the Group:

Lease incentives (e.g. rent-free period) are recognised as part of the measurement of the right-of-use assets and lease liabilities whereas under IAS 17 they resulted in the recognition of a lease liability incentive, amortised as a reduction of rental expenses on a straight-line basis.

Under IFRS 16, right-of-use assets will be tested for impairment in accordance with IAS 36 Impairment of Assets. This replaces the previous requirement to recognise a provision for onerous lease contracts.

For short-term leases (lease term of 12 months or less) and leases of low-value assets (such as personal computers and office furniture), the Group has opted to recognise a lease expense on a straight-line basis as permitted by IFRS 16. This expense is presented within Other operating expenses in the Consolidated Statement of Total Comprehensive Income.

Financial impact of initial application of IFRS 16

The tables below show the amount of adjustment for each financial statement line item affected by the application of IFRS 16 for the current period.

1 The application of IFRS 16 to leases previously classified as operating leases under IAS 17 resulted in the recognition of right-of-use assets and lease liabilities. It resulted in a decrease in Other operating expenses and an increase in depreciation and interest expense.

The application of IFRS 16 has an impact on the consolidated cash flows of the Group. Under IFRS 16, lessees must present:

Under IAS 17, all lease payments on operating leases were presented as part of cash flows from operating activities. At the reporting date there is no impact on net cash generated by operating activities as no payments have been made against the relevant lease in the period. The adoption of IFRS 16 did not have an impact on net cash flows.

The Group as lessee

The Group assesses whether a contract is or contains a lease, at inception of the contract.

The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate.

Lease payments included in the measurement of the lease liability comprise:

The lease liability is presented within Trade and other payables in the Consolidated Statement of Financial Position.

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.

The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:

The Group did not make any such adjustments during the periods presented.

The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.

Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under IAS 37. The costs are included in the related right-of-use asset, unless those costs are incurred to produce inventories.

Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.

The right-of-use assets are within Property, plant and equipment in the Consolidated Statement of Financial Position. The Group applies IAS 36 Impairment of Assets to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the Property, plant and equipment policy.

As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement. The Group has not used this practical expedient.

2.6 OPERATING SEGMENTS

The Group comprises the following two operating segments which are defined by trading activity:

- Tatton - investment management services

- Paradigm - the provision of compliance and support services to IFAs and mortgage advisers

The Board is considered to be the chief operating decision maker.

Following changes to the structure of the Group's internal organisation, and subsequent changes to the way in which financial and management information is presented to both the Board and the Executive Committee, the composition of the Group's Reportable Segments changed in the financial period ended 30 September 2019.

The change to the Group's organisation structure was the establishment of the Paradigm division in order to bring together the activities of Paradigm Consulting and Paradigm Mortgages under single leadership. The change allows the needs of IFAs and mortgages advisers to be better met through an integrated approach. The services being provided to these customers include compliance and support services. In addition, the Tatton division now includes wrap-related revenue which was previously included in the Paradigm Consulting division.

This change brings the management and responsibility for all asset-related management and services into one division.

As a result of these changes, activities previously reported under Paradigm Consulting have been split between Tatton and Paradigm, with Paradigm Mortgages being reported under Paradigm.

The Revenue by segment disclosure note for the period to September 2018 and the year to March 2019 has been amended as follows:

(i) Revenue by segment

* Alternative performance measures are detailed in note 18 of this interim report

2.7 SIGNIFICANT JUDGEMENTS, KEY ASSUMPTIONS AND ESTIMATES 

In the process of applying the Group's accounting policies, which are described above, management have made judgements and estimations about the future that have the most significant effect on the amounts recognised in the financial statements. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period. If the revision affects both current and future periods, it is revised in the period of the revision and in future periods. Changes for accounting estimates would be accounted for prospectively under IAS 8.

Share-based payments

Given the significance of share-based payments as a form of employee remuneration for the Group, share-based payments have been included as a significant accounting estimate. The principal estimations relate to:

- forfeitures (where awardees leave the Group as "bad" leavers and therefore forfeit unvested awards); and

- the satisfaction of performance obligations attached to certain awards.

These estimates are reviewed regularly and the charge to the income statement is adjusted appropriately (at the end of the relevant scheme as a minimum). The sensitivity analysis carried out shows that if it was considered that 100% of the options would vest, the charge for the period would increase by £389,000.

Business combinations and acquisitions

Business combinations and acquisitions require a fair value exercise to be undertaken to allocate the purchase price to the fair value of the identifiable assets acquired and the liabilities assumed. The determination of the fair value of the assets and liabilities is based, to a considerable extent, on management's judgement. The amount of goodwill initially recognised as a result of a business combination is dependent on the allocation of this purchase price to the identifiable assets and liabilities with any unallocated portion being recorded as goodwill. Business combinations are disclosed in note 16.

There are no other judgements or assumptions made about the future, or any other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

2.8 ALTERNATIVE PERFORMANCE MEASURES

In reporting financial information, the Group presents alternative performance measures "APMs" which are not defined or specified under the requirements of IFRS. The Group believes that these APMs provide users with additional helpful information on the performance of the business. The APMs are consistent with how the business performance is planned and reported within the internal management reporting to the Board. Some of these measures are also used for the purpose of setting remuneration targets. Each of the APMs used by the Group are set out in note 18 including explanations of how they are calculated and how they can be reconciled to a statutory measure where relevant.

3 SEGMENT REPORTING

Information reported to the Board of Directors as the chief operating decision maker for the purposes of resource allocation and assessment of segmental performance is focused on the type of revenue. The principal types of revenue are discretionary fund management and the marketing and promotion of the funds run by the companies under Tatton Capital Limited ("Tatton") and the provision of compliance and support services to independent financial advisers and mortgage advisers ("Paradigm").

The Group's reportable segments under IFRS 8 are therefore Tatton, Paradigm, and "Central" which contains the Group's central overhead costs. The operating segments disclosed have changed during the reporting period, see note 2.6.

The principal activity of Tatton is that of Discretionary Fund Management ("DFM") of investments

on-platform and the provision of investment wrap services.

The principal activity of Paradigm is that of provision of support services to IFAs and mortgage advisers.

For management purposes, the Group uses the same measurement policies used in its financial statements. 

The following is an analysis of the Group's revenue and results by reportable segment:

All turnover arose in the United Kingdom.

* Alternative performance measures are detailed in note 18 of this interim report

4 OPERATING PROFIT

The operating profit and the profit before taxation are stated after:

Separately disclosed items included within administrative expenses reflect costs and income that do not relate to the Group's normal business operations and are considered material (individually or in aggregate if of a similar type) due to their size or frequency.

On 30 September 2019 the Group acquired the share capital of Sinfonia Asset Management Limited (see note 16) and incurred acquisition related costs of £102,000. These costs are part of separately disclosed items within administrative expenses in the Consolidated Statement of Total Comprehensive Income.

During the financial year ended 31 March 2019, the Group incurred exceptional one-off costs of £496,000 which related to the funds in Tatton Investment Management Limited ("Tatton"). Tatton transferred its Authorised Corporate Director who acts on behalf of the Company to administer the funds and this transfer incurred significant project management charges. In addition, Tatton launched new funds in the year and incurred material set-up costs as part of the process; both are included within exceptional items and separately disclosed items within administrative expenses in the Consolidated Statement of Total Comprehensive Income.

Various legal and professional costs incurred in relation to the IPO of the Group in July 2017 are shown as part of separately disclosed items within administrative expenses in the Consolidated Statement of Total Comprehensive Income in the prior year.

6 FINANCE (COSTS)/INCOME

The reasons for the difference between the actual tax charge for the period and the standard rate of corporation tax in the UK applied to profit for the period are as follows:

The UK corporation tax rate will reduce to 17% with effect from 1 April 2020. This will reduce the Company's future current tax credit/charge accordingly. The deferred tax asset as at 30 September 2019 has been calculated based on a rate of 17% based on when the Company expects the deferred tax liability to reverse.

8 EARNINGS PER SHARE AND DIVIDENDS

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares during the period.

For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The dilutive shares are those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period.

NUMBER OF SHARES

DIVIDENDS

The Directors consider the Group's capital structure and dividend policy at least twice a year ahead of announcing results and do so in the context of its ability to continue as a going concern, to execute the strategy and to invest in opportunities to grow the business and enhance shareholder value.

In July 2019, Tatton Asset Management plc paid the final dividend related to the year ended 31 March 2019 of £3,131,000 representing a payment of 5.6p per share.

In the year ended 31 March 2019, Tatton Asset Management plc paid the final dividend related to the year ended 31 March 2018 of £2,460,000, representing a payment of 4.4p per share. In addition, the Company paid an interim dividend of £1,565,000 (2018 £1,230,000) to its equity shareholders. This represents a payment of 2.8p per share (2018: 2.2p per share).

At 30 September 2019 the Company's distributable reserves were £22.4 million (2018: £20.9 million).

9 STAFF COSTS

KEY MANAGEMENT COMPENSATION

The remuneration of the statutory Directors who are the key management of the Group is set out below in aggregate for each of the key categories specified in IAS 24 Related Party Disclosures.

In addition to the remuneration above, the Non-Executive Chairman and Non-Executive Directors have submitted invoices for their fees as follows:

The goodwill of £4.9 million at 31 March 2019 relates to £2.9m arising from the acquisition in 2014 of an interest in Tatton Oak Limited by Tatton Capital Limited consisting of the future synergies and forecast profits of the Tatton Oak business and £2.0 million arising from the acquisition in 2017 of an interest in Tatton Capital Group Limited.

On 30 September 2019 the Group acquired the share capital of Sinfonia Asset Management Limited (note 16) which generated a provisional goodwill value of £1.1 million. This goodwill consists of future synergies and forecast profits of the Sinfonia business.

None of the goodwill is expected to be deductible for income tax purposes.

IMPAIRMENT LOSS AND SUBSEQUENT REVERSAL

Goodwill is subject to an annual impairment review based on an assessment of the recoverable amount from future trading. Where, in the opinion of the Directors, the recoverable amount from future trading does not support the carrying value of the goodwill relating to a subsidiary company an impairment charge is made. Such impairment is charged to the Combined Statement of Total Comprehensive Income.

IMPAIRMENT TESTING

For the purpose of impairment testing, goodwill is allocated to the Group's operating companies which represents the lowest level within the Group at which the goodwill is monitored for internal management accounts purposes.

Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating units (CGUs) or group of units that are expected to benefit from that business combination. The Directors test goodwill annually for impairment, or more frequently if there are indicators that goodwill might be impaired. The Directors have considered the carrying value of goodwill at 30 September 2019 and do not consider that it is impaired.

GROWTH RATES

The value in use is calculated from cash flow projections based on the Group's forecasts for the year ending 31 March 2020 which are extrapolated for a further four years. The Group's latest financial forecasts, which cover a three-year period, are reviewed by the Board.

DISCOUNT RATES

The pre-tax discount rate used to calculate value is 8.3% (2018: 8.3%). The discount rate is derived from a benchmark calculated from a number of comparable businesses.

CASH FLOW ASSUMPTIONS

The key assumptions used for the value in use calculations are those regarding discount rate, growth rates and expected changes in margins. Changes in prices and direct costs are based on past experience and expectations of future changes in the market. The growth rate used in the calculation reflects the average growth rate experienced by the Group for the industry.

The headroom compared to the carrying value of goodwill as at 30 September 2019 is £214 million. Increasing the discount rate to 171% and leaving all other factors the same would lead to the recoverable amount being equal to the carrying value of the goodwill attributed to the cash-generating unit.

11 INTANGIBLES

All amortisation charges are included within administrative expenses in the Consolidated Statement of Total Comprehensive Income.

The valuation of the customer relationships intangible asset is provisional, see note 16.

12 PROPERTY, PLANT AND EQUIPMENT