Tatton Asset Management plc (LON: TAM), the on-platform discretionary fund management and support services business for independent financial advisers, has today issued its interim results for the six-month period ended 30 September 2018.
· Tatton Investment Management’s (“TIML”) discretionary assets under management (“AUM”) increased 29.5% to £5.7bn (2017: £4.4bn)
· Average AUM inflows increased to ~£90m per month, up from ~£80m per month at September 2017
· Group Revenue increased 15.7% to £8.45m (2017: £7.30m)
· Adjusted Operating profit1 up 8.3% to £3.35m (2017: £3.09m)
· Reported profit before tax increased to £3.08m (2017: £0.56m)
· Interim dividend increased 27.3% to 2.80p (2017: 2.20p)
· Adjusted F.Dil EPS2 increased 8.6% to 4.57p (2017: 4.21p)
· Strong financial position, with net cash of £11.6m (2017: £10.5m)
· TIML delivered strong organic growth and client portfolio returns ahead of peer group averages
· TIML increased its member firms by 41.6% to 405 (2017: 286) and number of accounts by 21.5% to 53.5k (2017: 44.1k)
· Further investment and strengthened business development team
· Pipeline of new IFA businesses continues to grow, as more IFAs that are not clients of Paradigm Partners (or “PPL”) use TIML. IFAs that use PPL account for 42% of the total number of TIML firms and 79% of the assets under management
· Paradigm Mortgages (or “PMS”), the Group’s mortgage and protection distribution business, performed strongly, with gross lending via its channels during the period of £4.0bn (2017: £3.2bn), an increase of 25.0%. PMS now has 1,290 mortgage firms using its services (2017: 1,143)
· Balance sheet remains healthy with net assets as at 30 September 2018 totalling £13.9m (2017: 12.5m)
1. Operating profit before exceptional items and IFRS2 share-based costs
2. Adjusted for exceptional items and share based payments and the tax thereon
Paul Hogarth, Tatton Asset Management plc Chief Executive Officer, commented:
“We have delivered a positive first half with continued growth in revenue, profit and earnings underlining the strong demand by independent financial advisers for our low-cost discretionary fund management service for the mass affluent. This is particularly reflected in the strong growth of our assets under management and in the increasing number of IFAs and clients we are working with. We are an investment manager of choice for IFAs, who are attracted by our low-cost DFM proposition and consistent investment performance, while maintaining the highest investment management standards. Paradigm Mortgages performed very well and continues to gain market share and we look forward to the re-branding of Paradigm Partners in January 2019. We remain confident of achieving further progress through the rest of the financial year.”
An analyst briefing is being held at 9.30am on 15 November 2018 at the offices of Zeus Capital, 10 Old Burlington St, London, W1S 3AG.
Strategic priorities and business objectives
The Group has delivered a good start to its first full year as a listed business with good growth in both revenue and profits. We continue to deliver increasing assets under management, new customer acquisition and improving financial results against the back drop of a volatile market. We operate three distinct businesses each with its own strategic goals and priorities.
· TIML, as the leading provider of platform only managed portfolio services, our goal is to make discretionary investment management accessible and affordable to Financial Advisers and their clients. We look to leverage demand by lowering the burden on the Financial Adviser, while lowering the cost for the client, providing consistent investment returns coupled with the highest levels of service;
· PPL strives to be the leading provider of compliance support and advice services to directly authorised financial advisers in the UK; and
· PMS aims to be the leading Mortgage Distributor in the UK providing intermediaries with access to lenders and a full range of mortgage related support services.
As the Group continues to develop we will also look to supplement our organic growth with acquisitions that fit the size and strategic direction of the business.
Group revenue for the period increased 15.7% to £8.45m (2017: £7.30m). Adjusted operating profit for the period increased 8.3% to £3.35m (2017: £3.09m) with margins decreasing to 39.6% (2017: 42.5%) as a consequence of central costs in 2017 not reflecting a full year of increased governance and compliance costs associated with being a listed company.
Operating profit after accounting for share based charges and exceptional items increased to £2.97m (2017: £0.57m). Pre-tax profit after exceptional items and share based charges increased 454.4% to £3.08m (2017: £0.56m).
Taxation charges for the period were £0.68m (2017: £0.43m). This gives an effective tax rate of 22.1% 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 4.30p (2017: 0.21p). When adjusted for exceptional items and share based charges earnings per share was 4.97p (2017: 4.36p) and earnings per share fully diluted for the impact of share options was 4.57p (2017: 4.21p) an increase of 8.6%.
Tatton Investment Management
TIML has had a very positive start to the new financial year with continuing momentum increasing assets under management by £1.3bn or 29.5% to £5.7bn (2017: £4.4bn). The strategy for TIML remains to be the DFM provider of choice for the IFA community. The platform agnostic approach of our discretionary portfolio management service as a centralised investment proposition continues to resonate with Financial Advisers as they seek to grow and expand their businesses. This coupled with consistent investment performance has seen the number of firms who use TIML increase to 405 (2017: 286) an increase of 41.6% year on year, and the number of associated clients increased 21.5% to 53.5k clients (2017: 44.1k) over the same period.
The pipeline of new IFA businesses continues to grow as we attract more IFAs that are not clients of PPL. IFA’s that use PPL account for 42% of the total number of firms and 79% of the assets under management. Growth in new assets from new firms over the last calendar year has been 81.5% and now accounts for over £1.2bn of assets under management.
Revenue for TIML grew 45.0% to 4.03m (2017: £2.78m) and operating profit grew 60.2% to £2.05m (2017: £1.28m). Margins increased to 50.9% (2017: 46.0%) reflecting the operational gearing of the business, we anticipate that this will continue as the business continues to grow.
The number of new firms in PPL grew 7.3% to 382 (2017: 356) in the period. New firm growth continues to give the Group reach into the IFA community and creates deep longstanding relationships through the quality of our proposition and level of service.
While the new firms have grown in the period revenue year on year was down 10.3% to £3.12m (2017: £3.48m) and operating profit reduced 14.4% to £1.54m (2017: £1.80m). The period has been a transition post the IPO and following the rebrand of the business in early 2019 it is expected to return to growth.
PMS’s strategy is to continue 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 delivered by a diverse range of commercial partners.
While data released by UK Finance (formerly Council of Mortgage Lenders) shows that gross mortgage lending fell slightly year on year, PMS’s completion volume over the period under review grew 26.4%, with applications also up 24.1%. Our focus on member growth is key to this outperformance with 147 new firms joining PMS year on year with the number of firms increasing to 1,290 (2017: 1,143) at the end of the period.
Revenue for PMS grew 24.3% to £1.28m (2017: £1.03m) and operating profit grew 35.8% to £0.72m (2017: £0.53m). Margins increased to 56.3% (2017: 51.5%) as costs are maintained.
The exceptional items in the period and in the prior year relate to costs incurred as a consequence of the IPO in July 2017.
The balance sheet remains healthy with net asset at 30 September 2018 totalling £13.9m (2017: £12.5m) reflecting the improving profitability of the Group. Fixed assets have increased to £0.3m (2017: £0.1m) and predominantly reflect the investment in IT systems to support the growth and development of the Group.
The Group continued to see healthy cash generation and closing net cash was £11.6m (2017: £10.5m).
Net cash generated from operating operations was £4.4m (2017: £1.0m). During the period net cash interest received was £0.1m and relates to interest received on a £0.5m loan note which is redeemable on 28 December 2018. Income tax of £0.69m (2017: nil) was paid during the period and dividends paid in the period of £2.46m related to the prior year final dividend.
At the time of the successful IPO last year the Group raised an additional £10.0m. This cash remains in place and will be utilised for future capital investments to support growth and any potential acquisitions that fit the profile and strategic direction of the Group.
The board is pleased to recommend an interim dividend of 2.8p per share, an increase of 27.3% 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 2.8p per share will be paid on 14 December 2018 to shareholders on the register at close of business on 23 November 2018 and will have an ex-dividend date of 22 November 2018. In accordance with IFRS, the interim dividend has not been included as a liability in this interim statement.
As the Group continues to grow the Board believe it is important to align employee remuneration and incentives with the interests of shareholders, principally by increasing the level of employee ownership of Tatton Asset Management Plc shares. In July 2017 the board approved an Enterprise Management Initiative (EMI) scheme for key staff and executives, and an all-employee save as you earn (SAYE) share save scheme. Both schemes allow staff to benefit from the execution of appropriate long-term strategies and growth in shareholder value over multi-year periods.
In August 2018 the board approved extensions of both schemes. New awards made under the EMI scheme will be in the form of zero cost options which give key staff and executives the opportunity to own shares at the end of a three-year period. The SAYE scheme will allow participating employees to acquire ordinary shares using savings of up to £500 per month.
The Board identified principle risks and uncertainties which may have a material impact on the Group’s performance in the Group’s 2018 Annual Report and Accounts (pages 16 to 17) and believe that the nature of these risks remains largely unchanged at the half year. The board will continue to monitor and manage identified principle risks throughout the second half of the year.
The Board continues to closely monitor and evaluate the potential consequences of Brexit. It is the Boards assessment that direct impacts will be manageable due to the Group’s strategic focus on UK markets, but remain conscious that the process may result in unforeseen challenges to which the Board will remain vigilant.
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 has delivered a good first half performance with growth in revenue, profit and earnings. Growth is supported by strong growth in asset under management and in partner firms and clients as we continue to support the Financial Adviser community and help to grow their businesses. We will continue to maintain a disciplined approach to executing our strategy of organic growth and are excited by the opportunities that exist in our chosen markets in the Financial Service sector. The Board remains optimistic regarding the prospects of the Group.