Interim Results

RNS Number : 8806S

Tatton Asset Management PLC

11 November 2019

 

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

-	Discretionary assets under management ("AUM") increased 22.8% to £7.0bn (2018: £5.7bn)
-	Average AUM inflows over £73.0m per month
-	Group revenue increased 15.2% to £9.73m (2018: £8.45m)
-	Adjusted operating profit* up 23.2% to £4.13m (2018: £3.35m)
-	Profit before tax increased to £3.61m (2018: £3.08m)
-	Return on capital employed increased by 1.1% to 25.2% (2018: 24.1%)
-	Adjusted fully diluted EPS* increased 17.9% to 5.39p (2018: 4.57p)
-	Proposed interim dividend increased 14.3% to 3.20p (2018: 2.80p)
-	Strong financial position, with net cash of £9.2m

OPERATIONAL HIGHLIGHTS

-	Acquired Sinfonia Asset Management Limited, five Funds with AUM of £135m for a consideration of up to £2.7m
-	Tatton Investment Management (Tatton) increased its number of firms to 522 (2018: 405) and number of accounts to 61,250 (2018: 53,500)
-	Strong start to Tenet Partnership since June announcement - 40 new firms and £24.5m of AUM
-	Paradigm Mortgages Services, the Group's mortgage and protection distribution business, performed strongly, with gross lending via its channels during the period of £4.8bn (2018: £4.0bn), an increase of 20.0% and with 1,466 mortgage firms using its services (2018: 1,290)
-	Amalgamation of Consulting and Mortgages creating a simplified IFA support services business, allowing the Group to better meet the needs of IFAs through an integrated approach

* 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:

Tatton Asset Management plc	[phone]
Paul Hogarth (Chief Executive Officer) Paul Edwards (Chief Financial Officer) Lothar Mentel (Chief Investment Officer) Roddi Vaughan-Thomas (Head of Communications)
Nomad and Broker
Zeus Capital	[phone]
Martin Green (Corporate Finance)
Dan Bate (Corporate Finance and QE) Pippa Hamnett (Corporate Finance)
Media Enquiries
Powerscourt	[phone]
Justin Griffiths

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

	Tatton	Paradigm	Paradigm
	Investment	Consulting	Mortgages	Central	Total
	£'000	£'000	£'000	£'000	£'000
30 September 2019
Revenue	5,453	2,828	1,424	24	9,729
Adjusted operating profit*	2,906	1,478	799	(1,057)	4,126
Adjusted operating profit margin*	53.3%	52.3%	56.1%	-	42.4%
30 September 2018
Revenue	4,025	3,118	1,278	24	8,445
Adjusted operating profit*	2,050	1,537	718	(955)	3,350
Adjusted operating profit margin*	50.9%	49.3%	56.2%	-	39.7%
NEW PRESENTATION
		Tatton	Paradigm	Central	Total
		£'000	£'000	£'000	£'000
30 September 2019
Revenue		7,102	2,603	24	9,729
Adjusted operating profit*		4,273	910	(1,057)	4,126
Adjusted operating profit margin*		60.2%	35.0%	-	42.4%
30 September 2018
Revenue		5,987	2,434	24	8,445
Adjusted operating profit*		3,482	823	(955)	3,350
Adjusted operating profit margin*		58.2%	33.8%	-	39.7%

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

			Unaudited six	Unaudited six	Audited
			months ended	months ended	year ended
			30-Sep 2019	30-Sep 2018	31-Mar 2019
		Note	(£'000)	(£'000)	(£'000)
	Revenue		9,729	8,445	17,518
Administrative expenses			(6,118)	(5,473)	(11,593)
Operating profit		4	3,611	2,972	5,925
	Share-based payment costs	5	413	365	874
	Exceptional items	5	102	13	509
	Adjusted operating profit (before		4,126	3,350	7,308
	separately disclosed items)1
	Finance (costs)/income	6	(1)	112	187
	Profit before tax		3,610	3,084	6,112
	Taxation charge	7	(667)	(681)	(1,255)
	Profit attributable to shareholders		2,943	2,403	4,857
	Earnings per share - Basic	8	5.26p	4.30p	8.69p
	Earnings per share - Diluted	8	4.79p	3.95p	7.92p
	Adjusted earnings per share - Basic2	8	5.92p	4.97p	10.99p
	Adjusted earnings per share - Diluted2	8	5.39p	4.57p	10.02p

1	Adjusted for exceptional items and share-based payment costs. See note 18.
2	Adjusted for exceptional items and share-based payment costs and the tax thereon. See note 18.

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

		Unaudited six	Unaudited six	Audited
		months ended	months ended	year ended
	Note	30-Sep 2019	30-Sep 2018	31-Mar 2019
		(£'000)	(£'000)	(£'000)
Non-current assets
Goodwill	10	6,060	4,917	4,917
Intangible assets	11	1,750	-	223
Property, plant and equipment	12	1,094	310	349
Deferred income tax asset		101	-	104
Total non-current assets		9,005	5,227	5,593
Current assets
Trade and other receivables		2,639	3,410	2,508
Corporation tax asset		118	-	-
Cash and cash equivalents		9,174	11,622	12,192
Total current assets		11,931	15,032	14,700
Total assets		20,936	20,259	20,293
Current liabilities
Trade and other payables		(4,579)	(5,775)	(4,521)
Corporation tax		-	(600)	(484)
Total current liabilities		(4,579)	(6,375)	(5,005)
Non-current liabilities
Deferred tax liabilities		-	(15)	-
Other payables		(1,008)	-	-
Total non-current liabilities		(1,008)	(15)	-
Total liabilities		(5,587)	(6,390)	(5,005)
Net assets		15,349	13,869	15,288
Equity attributable to equity
holders of the entity
Share capital		11,182	11,182	11,182
Share premium account		8,718	8,718	8,718
Other reserve		2,041	2,041	2,041
Merger reserve		(28,968)	(28,968)	(28,968)
Retained earnings		22,376	20,896	22,315
Total equity		15,349	13,869	15,288

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

	Share	Share	Other	Merger	Retained	Total
	capital	premium	reserve	reserve	earnings	equity
	(£'000)	(£'000)	(£'000)	(£'000)	(£'000)	(£'000)
At 1 April 2018	11,182	8,718	2,041	(28,968)	20,588	13,561
Profit and total comprehensive
income	-	-	-	-	2,403	2,403
Dividends	-	-	-	-	(2,460)	(2,460)
Share-based payments	-	-	-	-	365	365
At 30 September 2018	11,182	8,718	2,041	(28,968)	20,896	13,869
Profit and total comprehensive
income	-	-	-	-	2,454	2,454
Dividends	-	-	-	-	(1,565)	(1,565)
Share-based payments	-	-	-	-	400	400
Deferred tax on share-based
payments	-	-	-	-	130	130
At 31 March 2019	11,182	8,718	2,041	(28,968)	22,315	15,288
Profit and total comprehensive
income	-	-	-	-	2,943	2,943
Dividends	-	-	-	-	(3,131)	(3,131)
Share-based payments	-	-	-	-	379	379
Deferred tax on share-based
payments	-	-	-	-	(130)	(130)
At 30 September 2019	11,182	8,718	2,041	(28,968)	22,376	15,349

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2019

		Unaudited	Unaudited
		six months	six months	Audited
		ended	ended	year ended
		30-Sep	30-Sep	31-Mar
		2019	2018	2019
	Note	(£'000)	(£'000)	(£'000)
Operating activities		2,943
Profit for the period			2,403	4,857
Adjustments:
Income tax expense	7	667	681	1,255
Depreciation of property, plant and equipment	12	145	46	91
Amortisation of intangible assets	11	57	-	43
Share-based payment expense	15	413	365	874
Finance costs/(income)	6	1	(112)	(187)
Changes in:
Trade & other receivables		(79)	(958)	78
Trade & other payables		(357)	1,853	491
Exceptional costs	5	102	13	509
Cash generated from operations before exceptional costs		3,892	4,291	8,011
Cash generated from operations		3,790	4,278	7,502
Income tax paid		(1,396)	(687)	(1,366)
Net cash from operating activities		2,394	3,591	6,136
Investing activities
Payment for the acquisition of subsidiary, net of		(1,960)
cash acquired	16		-	-
Purchase of intangible assets		(115)	-	(266)
Purchase of property, plant and equipment		(202)	(251)	(336)
Net cash used in investing activities		(2,277)	(251)	(602)
Financing activities		10
Interest received			112	53
Dividends paid		(3,131)	(2,460)	(4,025)
Repayment of the lease liabilities		(14)	-	-
Net cash used in financing activities		(3,135)	(2,348)	(3,972)
Net (decrease)/increase in cash and cash equivalents		(3,018)	992	1,562
Cash and cash equivalents at beginning of period		12,192	10,630	10,630
Net cash and cash equivalents at end of period		9,174	11,622	12,192

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:

-	recognises right-of-use assets and lease liabilities in the Consolidated Statement of Financial Position, initially measured at the present value of the future lease payments;
-	recognises depreciation of right-of-use assets and interest on lease liabilities in the Consolidated Statement of Total Comprehensive Income;
-	separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating activities) in the Consolidated Statement of Total Comprehensive Income.

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.

Impact on profit or loss in the period	£'000
Increase in depreciation1	(69)
Increase in finance costs1	(11)
Decrease in other operating expenses1	77
Decrease in profit for the period	(3)
Impact on earnings per share	p
Increase in earnings per share from continuing operations
Basic	0.01p
Diluted	0.01p

Impact on assets, liabilities and equity as at	As if IAS 17 still	IFRS 16
	applied	adjustments	As presented
30 September 2019	£'000	£'000	£'000
Right-of-use asset1	-	620	620
Net impact on total assets	-	620	620
Trade and other payables	(63)	63	-
Lease liabilities1	-	(686)	(686)
Net impact on total liabilities	(63)	(623)	(686)
Retained earnings	(63)	(3)	(66)

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.

	£'000
Operating lease commitments disclosed as at 31 March 2019	778
(Less): short-term leases recognised on a straight-line basis as expense	(28)
	750
Lease liability recognised as at 1 April 2019 discounted using the lessee's
incremental borrowing rate at the date of initial application	689
Of which are:
Current lease liabilities	40
Non-current lease liabilities	649
	689

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

-	short-term lease payments and payments for leases of low-value assets as part of operating activities (the Group has included these payments as part of payments to suppliers and employees);
-	cash paid for the interest portion of lease liability as either operating activities or financing activities, as permitted by IAS 7 (the Group has opted to include interest paid as part of operating activities); and
-	cash payments for the principal portion for lease liability, as part of financing activities.

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:

-	fixed lease payments (including in substance fixed payments), less any lease incentives;
-	the amount expected to be payable by the lessee under residual value guarantees;
-	the exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and
-	payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.

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 lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate;
-	the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used); and
-	a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.

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

	Period ended 30 September 2018
	As reported	Adjustment	Restated
	£'000	£'000	£'000
Tatton	4,025	1,962	5,987
Paradigm	-	2,434	2,434
Paradigm Consulting	3,118	(3,118)	-
Paradigm Mortgages	1,278	(1,278)	-
Central	24	-	24
Total	8,445	-	8,445
	Year ended 31 March 2019
	As reported	Adjustment	Restated
	£'000	£'000	£'000
Tatton	8,732	3,789	12,521
Paradigm	-	4,949	4,949
Paradigm Consulting	6,049	(6,049)	-
Paradigm Mortgages	2,689	(2,689)	-
Central	48	-	48
Total	17,518	-	17,518
(ii) Operating profit by segment
	Period ended 30 September 2018
	As reported	Adjustment	Restated
	£'000	£'000	£'000
Tatton	1,955	1,432	3,387
Paradigm	-	810	810
Paradigm Consulting	1,524	(1,524)	-
Paradigm Mortgages	718	(718)	-
Central	(1,225)	-	(1,225)
Total	2,972	-	2,972

	Year ended 31 March 2019
	As reported	Adjustment	Restated
	£'000	£'000	£'000
Tatton	4,098	2,743	6,841
Paradigm	-	1,805	1,805
Paradigm Consulting	2,983	(2,983)	-
Paradigm Mortgages	1,565	(1,565)	-
Central	(2,721)	-	(2,721)
Total	5,925	-	5,925
(iii) Adjusted operating profit* by segment
	Period ended 30 September 2018
	As reported	Adjustment	Restated
	£'000	£'000	£'000
Tatton	2,050	1,432	3,482
Paradigm	-	823	823
Paradigm Consulting	1,537	(1,537)	-
Paradigm Mortgages	718	(718)	-
Central	(955)	-	(955)
Total	3,350	-	3,350
	Year ended 31 March 2019
	As reported	Adjustment	Restated
	£'000	£'000	£'000
Tatton	4,628	2,743	7,371
Paradigm	-	1,818	1,818
Paradigm Consulting	2,996	(2,996)	-
Paradigm Mortgages	1,565	(1,565)	-
Central	(1,881)	-	(1,881)
Total	7,308	-	7,308

* 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:

	Tatton	Paradigm	Central	Group
Period ended 30 September 2019	(£'000)	(£'000)	(£'000)	(£'000)
Revenue	7,102	2,603	24	9,729
Administrative expenses	(2,956)	(1,693)	(1,469)	(6,118)
Operating profit/(loss)	4,146	910	(1,445)	3,611
Share-based payments costs	25	-	388	413
Exceptional charges	102	-	-	102
Adjusted operational profit/(loss) (before
separately disclosed items)*	4,273	910	(1,057)	4,126
Finance (costs)/income	(8)	8	(1)	(1)
Profit/(loss) before tax	4,138	918	(1,446)	3,610

	Tatton	Paradigm	Central	Group
Period ended 30 September 2018 restated (note 2.6)	(£'000)	(£'000)	(£'000)	(£'000)
Revenue	5,987	2,434	24	8,445
Administrative expenses	(2,600)	(1,624)	(1,249)	(5,473)
Operating profit/(loss)	3,387	810	(1,225)	2,972
Share-based payments	95	-	270	365
Exceptional charges	-	13	-	13
Adjusted operating profit/(loss) (before separately
disclosed items)*	3,482	823	(955)	3,350
Finance income	-	111	1	112
Profit/(loss) before tax	3,387	921	(1,224)	3,084
	Tatton	Paradigm	Central	Group
Year ended 31 March 2019 restated (note 2.6)	(£'000)	(£'000)	(£'000)	(£'000)
Revenue	12,521	4,949	48	17,518
Administrative expenses	(5,680)	(3,144)	(2,769)	(11,593)
Operating profit/(loss)	6,841	1,805	(2,721)	5,925
Share-based payments	34	-	840	874
Exceptional charges	496	13	-	509
Adjusted operating profit/(loss) (before separately
disclosed items)*	7,371	1,818	(1,881)	7,308
Finance income	-	185	2	187
Profit/(loss) before tax	6,841	1,990	(2,719)	6,112

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:

	30-Sep	30-Sep	31-Mar
	2019	2018	2019
	(£'000)	(£'000)	(£'000)
Amortisation of intangible assets	57	-	43
Depreciation of property, plant and equipment	76	46	91
Depreciation of right-of-use assets	69	-	-
Separately disclosed items (note 5)	515	378	1,383
Services provided to the Group's auditor
Audit of the statutory consolidated and
Company financial statements of Tatton Asset	17
Management plc		17	33
Audit of subsidiaries	21	20	40
Other fees payable to auditor:
Other taxation advisory services	-	20	38
Non-audit services	67	15	10
5 SEPARATELY DISCLOSED ITEMS
	30-Sep	30-Sep	31-Mar
	2019	2018	2019
	(£'000)	(£'000)	(£'000)
IPO costs	-	13	13
Project set-up costs related to transferring	-
Authorised Corporate Director		-	293
New fund set-up costs	-	-	203
Acquisition-related expenses	102	-	-
Total exceptional items	102	13	509
Share-based payments	413	365	874
Total separately disclosed items	515	378	1,383

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

	30-Sep	30-Sep	31-Mar
	2019	2018	2019
	(£'000)	(£'000)	(£'000)
Bank interest income	2	2	2
Other interest income	8	124	214
Interest expense on lease liabilities	(11)	-	-
Bank charges	-	(14)	(29)
	(1)	112	187
7 TAXATION
	30-Sep	30-Sep	31-Mar
	2019	2018	2019
	(£'000)	(£'000)	(£'000)
Current tax expense
Current tax on profits for the period	779	681	1,318
Adjustment for under-provision in prior periods	-	-	(74)
	779	681	1,244
Deferred tax expense
Share-based payments	(9)	-	(19)
Origination and reversal of temporary differences	15	-	30
Adjustment for under-provision in prior periods	(118)	-	-
	(112)	-	11
Total tax expense	667	681	1,255

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:

	30-Sep	30-Sep	31-Mar
	2019	2018	2019
	(£'000)	(£'000)	(£'000)
Profit before taxation	3,610	3,084	6,112
Tax at UK corporation tax rate of 19% (2018: 19%)	686	586	1,161
Expenses not deductible for tax purposes	37	115	25
Capital allowances in excess of deprecation	-	(20)	-
Adjustments in respect of previous years	(117)	-	(74)
Differences in tax rates	-	-	(2)
Share-based payments	61	-	145
Total tax expense	667	681	1,255

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

	30-Sep 2019	30-Sep 2018	31-Mar 2019
Basic
Weighted average number of shares in issue	55,907,513	55,907,513	55,907,513
Diluted
Share options	5,472,238	4,915,047	5,406,199
Weighted average number of shares (diluted)	61,379,751	60,822,560	61,313,712

	30-Sep	30-Sep	31-Mar
	2019	2018	2019
	(£'000)	(£'000)	(£'000)
Earnings attributable to ordinary shareholders
Basic and diluted profit for the period	2,943	2,403	4,857
Share-based payments	413	365	874
Exceptional costs - see note 5	102	13	509
Tax impact of adjustments	(146)	-	(97)
Adjusted basic and diluted profits for the period	3,312
and attributable earnings		2,781	6,143
Earnings per share (pence) (basic)	5.26	4.30	8.69
Earnings per share (pence) (diluted)	4.79	3.95	7.92
Adjusted earnings per share (pence) (basic)	5.92	4.97	10.99
Adjusted earnings per share (pence) (diluted)	5.39	4.57	10.02

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.

	30-Sep	30-Sep	31-Mar
	2019	2018	2019
	(£'000)	(£'000)	(£'000)
Short-term employee benefits	515	493	884
Post-employment benefits	-	13	14
Other long-term benefits	-	1	3
Share-based payments	244	294	587
	759	801	1,488

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

	30-Sep	30-Sep	31-Mar
	2019	2018	2019
	(£'000)	(£'000)	(£'000)
Total fees	80	80	160
10 GOODWILL
			Goodwill
			(£'000)
Cost
Balance at 1 April 2018, 30 September 2018 and 31 March 2019			4,917
Additions			1,143
Balance at 30 September 2019			6,060
Carrying amount
Balance at 1 April 2018, 30 September 2018 and 31 March 2019			4,917
Balance at 30 September 2019			6,060

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

	Customer	Computer
	relationships	software	Total
	(£'000)	(£'000)	(£'000)
Cost
Balance at 1 April 2018 and 30 September 2018	-	-	-
Reclassifications from property, plant and
equipment	-	109	109
Additions	-	157	157
Balance at 31 March 2019	-	266	266
Additions	1,469	115	1,584
Balance at 30 September 2019	1,469	381	1,850
Accumulated depreciation and impairment
At 1 April 2018 and 30 September 2018	-	-	-
Reclassifications from property, plant and
equipment		(10)	(10)
Charge for the period	-	(33)	(33)
Balance at 31 March 2019	-	(43)	(43)
Charge for the period	-	(57)	(57)
Balance at 30 September 2019	-	(100)	(100)
Carrying amount
As at 1 April 2018 and 30 September 2018	-	-	-
As at 31 March 2019	-	223	223
As at 30 September 2019	1,469	281	1,750

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

	Computer, office		Right-of-use
	equipment and	Fixtures and	assets -
	motor vehicles	fittings	buildings	Total
	(£'000)	(£'000)	(£'000)	(£'000)
Cost
Balance at 1 April 2018	435	214	-	649
Additions	133	119	-	252
Balance at 30 September 2018	568	333	-	901
Additions	48	144	-	192
Reclassifications to intangible
assets	(109)	-	-	(109)
Balance at 31 March 2019	507	477	-	984
Additions	42	160	-	202
Increase attributable to change in
accounting standards (note 2.5)	-	-	689	689
Balance at 30 September 2019	549	637	689	1,875
Accumulated depreciation
and impairment
Balance at 1 April 2018	(331)	(214)	-	(545)
Charge for the period	(42)	(4)	-	(46)
Balance at 30 September 2018	(373)	(218)	-	(591)
Reclassifications to intangible
assets	10	-	-	10
Charge for the period	(34)	(21)	-	(55)
Balance at 31 March 2019	(397)	(239)	-	(636)
Charge for the period	(36)	(40)	(69)	(145)
Balance at 30 September 2019	(433)	(279)	(69)	(781)
Carrying amount
As at 1 April 2018	104	-	-	104
As at 30 September 2018	195	115	-	310
As at 31 March 2019	110	238	-	348
As at 30 September 2019	116	358	620	1,094

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

The Group leases buildings and IT equipment. The average lease term is five years.

No leases have expired in the current financial period.

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

RIGHT-OF-USE ASSETS

	Unaudited six months ended 30-Sep 2019 (£'000)
Amounts recognised in profit and loss
Depreciation on right-of-use assets	(69)
Interest expense on lease liabilities	(11)
Expense relating to short-term leases	(87)
Expense relating to low value assets	(3)
	(170)

At 30 September 2019, the Group is committed to £nil for short-term leases.

The total cash outflow for leases amounts to £104,000.

13 FINANCIAL INSTRUMENTS

The Group finances its operations through a combination of cash resource and other borrowings. Short-term flexibility is satisfied by overdraft facilities in Paradigm Partners Limited which are repayable on demand.

Fair value estimation IFRS 7 requires disclosure of fair value measurements of financial instruments by level of the following fair value measurement hierarchy:

-	Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
-	Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
-	Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

The Group holds loan notes due from Perspective Financial Group Limited (see note 17). Due to the short-term nature of the Loan notes, the carrying value is a reasonable approximation of their fair value.  The loan notes are repayable on demand, carry an interest rate of 6%, and are classified as level 2.

INTEREST RATE RISK

The Group finances its operations through a combination of retained profits and bank overdrafts. The Group has an exposure to interest rate risk, as the overdraft facility is at an interest rate of 3.2% above the base rate. At 30 September 2019 total borrowings were £nil.

14 EQUITY

	30-Sep	30-Sep	31-Mar
	2019	2018	2019
	(number)	(number)	(number)
Authorised, called up and fully paid
£0.20 Ordinary shares	55,907,513	55,907,513	55,907,513
	55,907,513	55,907,513	55,907,513

15 SHARE-BASED PAYMENTS

During the period, a number of share-based payment schemes and share options schemes have been utilised by the Company,

(A) SCHEMES

(i) Tatton Asset Management plc EMI Scheme ("TAM EMI Scheme")

On 7 July 2017 the Group launched an EMI share option scheme relating to shares in Tatton Asset Management plc to enable senior management to participate in the equity of the Company. A total of 3,022,733 options with a weighted average exercise price of £1.89 were granted during the prior period, each exercisable in July 2020.

The scheme was extended on 8 August 2018 and a total of 1,720,138 zero cost options were granted during the year ended 31 March 2019, each exercisable in August 2021. The scheme was further extended on 1 August 2019 and a total of 193,000 zero cost options were granted, each exercisable in August 2022. A total of 4,800,768 options remain outstanding at 30 September 2019, none of which are currently exercisable.

No options were exercised during the period. A total of 23,288 options were forfeited in the period (111,815 options were forfeited in the prior year).

The options vest in July 2020, August 2021 or August 2022 provided certain performance conditions and targets, set prior to grant, have been met. If the performance conditions are not met, the options lapse.

Within the accounts of the Company, the fair value at grant date is estimated using the appropriate models including both Black Scholes and Monte Carlo modelling methodologies.

	Number of	Weighted
	share options	average
	granted	price
	(number)	(£)
Outstanding at 1 April 2018	3,022,733	1.89
Granted during the period	1,720,138	-
Forfeited during the period	(111,815)	1.89
Outstanding at 30 September 2018	4,631,056	1.19
Exercisable at 30 September 2018	-	-
Outstanding at 1 October 2018	4,631,056	1.19
Outstanding at 31 March 2019	4,631,056	1.19
Exercisable at 31 March 2019	-	-
Outstanding at 1 April 2019	4,631,056	1.19
Granted during the period	193,000	-
Forfeited during the period	(23,288)	-
Outstanding at 30 September 2019	4,800,768	1.15
Exercisable at 30 September 2019	-	-

(ii) Tatton Asset Management plc Sharesave Scheme ("TAM Sharesave Scheme")

On 7 July 2017, 5 July 2018 and 3 July 2019 the Group launched all employee Sharesave schemes for options over shares in Tatton Asset Management plc, administered by Yorkshire Building Society. Employees are able to save between £10 and £500 per month over a three-year life of each scheme, at which point they each have the option to either acquire shares in the Company, or receive the cash saved.

Over the life of the 2017 Sharesave scheme it is estimated that, based on current saving rates, 204,671 share options will be exercisable at an exercise price of £1.70. Over the life of the 2018 Sharesave scheme it is estimated, based on current saving rates, 48,695 share options will be exercisable at an exercise price of £1.90. Over the life of the 2019 Sharesave scheme it is estimated that, based on current savings rates, 87,687 share options will be exercisable at an exercise price of £1.79. No options have been exercised or expired in the period and 10,183 options have been forfeited in the period.

Within the accounts of the Company, the fair value at grant date is estimated using the Black Scholes methodology for 100% of the options. Share price volatility has been estimated using the historical share price volatility of the Company, the expected volatility of the Company's share price over the life of the options and the average volatility applying to a comparable group of listed companies. Key valuation assumptions and the costs recognised in the accounts during the period are noted in (b) and (c) overleaf respectively.

	Number of	Weighted
	share options	average
	granted	price
	(number)	(£)
Outstanding at 1 April 2018	63,344	1.70
Granted during the period	41,331	1.72
Forfeited during the period	(8,353)	1.70
Outstanding at 30 September 2018	96,322	1.71
Exercisable at 30 September 2018	-	-
Outstanding at 1 October 2018	96,322	1.71
Granted during the period	40,991	1.76
Forfeited during the period	(5,337)	1.72
Outstanding at 31 March 2019	131,976	1.72
Exercisable at 31 March 2019	-	-
Outstanding at 1 April 2019	131,976	1.72
Granted during the period	49,721	1.75
Forfeited during the period	(10,183)	1.86
Outstanding at 30 September 2019	171,514	1.73
Exercisable at 30 September 2019	-	-

(B) VALUATION ASSUMPTIONS

Assumptions used in the option valuation models to determine the fair value of options at the date of grant were as follows:

		EMI Scheme		Sharesave Scheme
	2019	2018	2017	2019	2018	2017
Share price at grant (£)	2.12	2.40	1.89	2.14	2.34	1.89
Exercise price (£)	0.00	0.00	1.70	1.79	1.90	1.70
Expected volatility (%)	30.44	28.48	26.00	30.44	28.48	26.00
Expected life (years)	3.00	3.00	3.00	3.00	3.00	3.00
Risk free rate (%)	0.35	0.81	0.66	0.35	0.81	0.66
Expected dividend yield (%)	3.96	2.75	4.50	3.96	2.75	4.50

(C) IFRS2 SHARE-BASED OPTION COSTS

	30-Sep	30-Sep	31-Mar
	2019	2018	2019
	(£'000)	(£'000)	(£'000)
TAM EMI Scheme	402	355	839
TAM Sharesave Scheme	11	10	35
	413	365	874

16 BUSINESS COMBINATION

On 30 September 2019, the Group acquired 100 per cent of the issued share capital of Sinfonia Asset Management Limited ("Sinfonia"), obtaining control of Sinfonia. Sinfonia is an administration services company which facilitates the sale of investment products. Sinfonia holds funds within the IFSL Sinfonia Open-Ended Investment Companies. Sinfonia was acquired in order to complement Tatton's existing fund range and give IFAs' clients further access to a range of investments balanced to reflect a particular risk profile.

The provisional amounts recognised in respect of the identifiable assets acquired and liabilities assumed upon acquisition of Sinfonia are set out in the table below:

	£'000
Identifiable intangible assets	1,469
Financial assets	51
Financial liabilities	(12)
Total identifiable assets	1,508
Goodwill	1,143
Total consideration	2,651
Satisfied by:
Cash	1,961
Contingent consideration arrangement	690
Total consideration transferred	2,651
Net cash outflow arising on acquisition:
Cash consideration	1,961
Less: cash and cash equivalent balance acquired	(1)
Net cash outflow	1,960

The fair value of the financial assets includes accrued income and prepayments with a fair value of £51,000. The best estimate at acquisition date of the contractual cash flows not to be collected is £nil.

The fair value of Sinfonia's client relationship intangible assets has been measured using a multi-period excess earnings method. The model uses estimates of client longevity and the level of activity driving commission income to derive a forecast series of cash flows, which are discounted to a present value to determine the fair value of the client relationships acquired. The useful economic life of the client relationships has been determined to be ten years.

The goodwill of £1,143,000 arising from the acquisition consists of future income expected to be generated from the funds. None of the goodwill is expected to be deductible for income tax purposes.

The contingent consideration arrangement requires the value of assets held in the funds to meet specific criteria agreed between the parties. The potential undiscounted amount of all future payments that the Group could be required to make under the contingent consideration arrangement is between £nil and £690,000.

The fair value of the contingent consideration arrangement of £690,000 was estimated by calculating the expected future value of assets held in the Sinfonia funds. The liability of £690,000 has been recognised in Other payables in the Consolidated Statement of Financial Position.

Acquisition-related costs (included in administrative expenses and separately disclosed in the Consolidated Statement of Total Comprehensive Income) amount to £102,000.

As Sinfonia was acquired on the last day of the reporting period, it contributed £nil to revenue and to the Group's profit for the period between the date of acquisition and the reporting date.

The Group has not completed its assessment or valuation of certain assets acquired and liabilities assumed in connection with the acquisition. Therefore, the information disclosed above for identifiable intangible assets, financial assets and financial liabilities is completed on a provisional basis and is subject to change based on further review of assumptions and if any new information is obtained about facts and circumstances that existed as of the acquisition date. No deferred tax on intangible assets has yet been recognised. This will be recognised once the valuation assessment has been completed.

17 RELATED PARTY TRANSACTIONS

ULTIMATE CONTROLLING PARTY

The Directors consider there to be no ultimate controlling party.

RELATIONSHIPS

The Group has trading relationships with the following entities in which Paul Hogarth, a Director, has a beneficial interest:

Entity	Nature of transactions
Amber Financial Investments Limited	The Group provides discretionary fund management services, as well as accounting and administration services.
Jargonfree Benefits LLP	The Group provides accounting and administration services.
Paradigm Investment Management LLP	The Group incurs finance charges.
Perspective Financial Group Limited	The Group provides discretionary fund management
	services and compliance advisory services.
Suffolk Life Pensions Limited	The Group pays lease rental payments on an office building
	held in a pension fund by Paul Hogarth.

RELATED PARTY BALANCES

	30-Sep	30-Sep	30-Sep	30-Sep	31-Mar	31-Mar
	2019	2019	2018	2018	2019	2019
	Value of	Balance	Value of	Balance	Value of	Balance
	income/	receivable/	income/	receivable/	income/	receivable/
	(cost)	(payable)	(cost)	(payable)	(cost)	(payable)
	(£'000)	(£'000)	(£'000)	(£'000)	(£'000)	(£'000)
Amber Financial	146	-
Investments Limited			160	6	239	(42)
Jargon Free Benefits LLP	12	58	24	28	24	43
Paradigm Management	-	5
Partners LLP			-	4	-	4
Paradigm Investment	(8)	(285)
Management LLP			-	(315)	(11)	(304)
Perspective Financial	191	73
Group Limited			204	560	369	72
Suffolk Life Pensions	(29)	5
Limited			(29)	(5)	(56)	9

There is a loan note receivable from Perspective Financial Group Limited which at 30 September 2019 has a balance of £144,000 (September 2018: £526,000 and March 2019: £134,000).

KEY MANAGEMENT PERSONNEL REMUNERATION

Key management includes Executive and Non-Executive Directors. The compensation paid or payable to key management personnel is as disclosed in note 9. 

18 ALTERNATIVE PERFORMANCE MEASURES

INCOME STATEMENT MEASURES

	Closest equivalent	Reconciling items to
APM	measure	their statutory measure	Definition and purpose
Adjusted operating	Operating profit	Exceptional costs	This is considered to be an
profit before		and share-based	important measure where
Separately		payments.	exceptional items distort the
disclosed items		See note 5.	understanding of the operating
			performance of the business
			and allow comparability
			between periods. See also
			note 2.8.
Adjusted operating	Operating profit	Exceptional costs	This is considered to be an
profit margin before		and share-based	important measure where
separately disclosed		payments.	exceptional items distort the
items		See note 5.	understanding of the operating
			performance of the business
			and allow comparability
			between periods. See also
			note 2.8.
Adjusted profit	Profit before tax	Exceptional costs	This is considered to be an
before tax; before		and share-based	important measure where
separately disclosed		payments.	exceptional items distort the
items		See note 5.	understanding of the operating
			performance of the business
			and allow comparability
			between periods. See also
			note 2.8.
Adjusted earnings	Earnings per	Exceptional costs	This is considered to be an
per share - basic	share - basic	and share-based	important measure where
		payments, and the	exceptional items distort the
		tax thereon. See	understanding of the operating
		note 8.	performance of the business
			and allow comparability
			between periods. See also
			note 2.8.
Adjusted earnings	Earnings per	Exceptional costs	This is considered to be an
per share - fully	share - fully diluted	and share-based	important measure where
diluted		payments, and the	exceptional items distort the
		tax thereon. See	understanding of the operating
		note 8.	performance of the business
			and allow comparability
			between periods. See also
			note 2.8.
Net cash generated	Net cash	Exceptional costs.	Net cash generated from
from operations	generated from	See note 5.	operations before
before exceptional	operations		exceptional costs. To show
costs			underlying cash performance.
			See also note 2.8.

OTHER MEASURES

	Closest equivalent	Reconciling items to
APM	measure	their statutory measure	Definition and purpose
Tatton - Assets	None	Not applicable	AUM is representative of the
under management			customer assets and is a
("AUM")			measure of the value of the
			customer base. Movements in
			this base are an indication of
			performance in the period and
			growth of the business to
			generate revenues going
			forward.
Paradigm	None	Not applicable	Alternative growth measure to
Consulting members			revenue, giving an operational
and growth			view of growth.
Paradigm	None	Not applicable	Alternative growth measure to
Mortgages member			revenue, giving an operational
firms and growth			view of growth.
Dividend cover	None	Not applicable	Dividend cover (being the
			ratio of diluted earnings per
			share before exceptional items
			and share-based charges) is
			1.7 times, demonstrating ability
			to pay.

19 EVENTS AFTER THE REPORTING PERIOD

There were no material events after the reporting period.

20 CONTINGENT LIABILITIES

At 30 September 2019, the Directors confirmed there were contingent liabilities of £nil (2018: £nil).

 

END

 

 

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