Annual Report • Mar 31, 2017
Annual Report
Open in ViewerOpens in native device viewer
Liontrust Asset Management Plc (the "Company" or "Liontrust", or together with its subsidiary entities, the "Group", as the context requires) is a specialist fund management company that takes pride in having a distinct culture and approach to running money:
Our fund managers are independent thinkers and have the courage of their convictions in making investment decisions.
Our fund managers have the freedom to manage their portfolios according to their own investment processes and market views without being distracted by other day-to-day aspects of running a fund management company.
Sustained growth of our AuM from £4,791 million to £6,523 million demonstrates the substantial progress made in this year. To have recorded 7 consecutive years of net inflows shows the progress the business has made.
| 2017 | 2016 | ||
|---|---|---|---|
| Assets under management |
£6,523 million | £4,791 million | 36% increase |
| Net flows | £482 million | £255 million | 89% increase |
| Gross profit | £51.5 million | £44.9 million | 15% increase |
| Profit before tax | £9.1 million | £9.4 million | 3% decrease |
| Adjusted profit before tax1 |
£17.2 million | £14.6 million | 18% increase |
| Adjusted diluted earnings per share1 |
29.8 pence | 25.7 pence | 16% increase |
| Net cash2 | £22.1 million | £22.3 million | 1% decrease |
| Total Dividend per share3 |
15.0 pence | 12.0 pence | 25% increase |
This is an alternative performance measure 'APM' see page 18. 1.
Cash and Cash equivalents plus other current assets less current liabilities. 2.
Total dividend shown for the relevant financial year. 3.
| Introduction | |
|---|---|
| Highlights | 1 |
| Chairman's Statement | 3 |
| Strategic Report | |
| Chief Executive's report | 6 |
| Vision and Strategic objectives | 7 |
| Business model | 7 |
| Key performance measures | 7 |
| Fund Management review | 8 |
| Distribution review | 14 |
| Operations review | 14 |
| Financial review | 14 |
| Principal risks and mitigations | 18 |
| Corporate and social responsibility | 20 |
| Governance | |
| Board of Directors | 24 |
| Directors' report | 25 |
| Directors' responsibility statement | 28 |
| Corporate Governance report | 29 |
| Risk management and internal controls report | 31 |
| Directors' Board Attendance report | 34 |
| Audit & Risk Committee report | 35 |
| Nomination Committee report | 38 |
| Remuneration report | 40 |
| Financial Statements – Group and Company | |
| Consolidated Statement of Comprehensive Income | 60 |
| Consolidated Balance Sheet | 61 |
| Consolidated Cash Flow Statement | 62 |
| Consolidated Statement of Changes in Equity | 63 |
| Notes to the Financial Statements | 64 |
| Liontrust Asset Management Plc Financial Statements | 85 |
| Liontrust Asset Management Plc Notes to the Financial Statements | 89 |
| Independent Auditors' Report | 97 |
This report contains certain forward-looking statements with respect to the financial condition, results of operations and businesses and plans of the Group. These statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that have not yet occurred. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this report should be construed as a profit forecast.
In my Chairman's Statement for last year's Annual report, I wrote that "we also face challenges from outside our industry, including yet another year of political uncertainty". It is now clear this was a great understatement and there can be few 12-month periods that have produced such a series of political shocks culminating in last week General Election.
Stock markets, however, have brushed off the vote for Brexit and Donald Trump becoming US President in January to such an extent that the FTSE 100 has reached an all-time high in 2017 and we have been experiencing the second longest bull market in history. I doubt many people would have said this time last year that markets would be where they are today if they had known in advance the result of the UK Referendum and the US Presidential election even if sterling has depreciated as most commentators expected following the Brexit vote.
Now we are faced with a hung Parliament at Westminster with all the political uncertainty that this brings, along with the possibility of another General Election later this year. Once again, at the time of writing, there has been a benign reaction from the stock market in contrast to performance of Sterling.
The last year has been an important reminder of the difficulty of predicting and timing market movements and the benefits and value of financial advice and long-term investment as opposed to knee-jerk reactions. Economies, markets and investors will always be confronted by challenges and potential threats as well as opportunities. Therefore, the key for investors is to stay focused on what will enable them to achieve their long-term goals rather than obsess over intra-day movements in equity markets.
At Liontrust, we have brought together a talented group of fund management teams who believe that rigorous investment processes are key to longterm performance and risk control. They do not get distracted by shortterm events and noise but stay true to their own documented investment processes. The success of this disciplined approach is shown by our teams' long-term performance records, which also demonstrate the value that active management can deliver for investors. The addition of our new European Income and Sustainable Investment teams over the last year have strengthened further our fund management capability.
Like investors, asset management businesses are continually confronted by potential challenges and threats along with plenty of opportunities. It is easy to list the challenges that the industry is or could be facing, whether it is political uncertainty, current valuations in equity markets, the growth in flows into passive investments or technological disrupters.
None of these are reasons why we cannot continue to grow Liontrust, however, as we have done so successfully over the past few years through generating net sales and acquisitions. We have shown that sectors do not need to be in favour with investors for us to enjoy net positive sales into our funds.
This growth has been achieved through strong leadership and management, delivering value to investors over the long term and continuing to develop our sales and marketing capability. We focus on our strengths in running the business and are disciplined in enacting our strategy to grow our AuM, earnings and profitability as our Results for the 2016-17 financial year demonstrate.
The general election campaign in the UK has highlighted very clearly yet again the importance of every individual taking on responsibility for ensuring they have sufficient funds for their retirement and to achieve their other financial goals. Financial advice and fund management will become increasingly, not less, important in the future to help people achieve this.
I would like to thank our shareholders, investors and staff for all their support and loyalty to Liontrust. Due to the leadership of the business and the hard work of everyone at the Company, we are in a great position to continue to overcome any challenges and benefit from the tailwinds behind the industry.
Adjusted profit before tax was £17.235 million (2016: £14.623 million). Adjusted profit before tax is disclosed in order to give shareholders an indication of the profitability of the Group excluding non-cash (depreciation, intangible asset amortisation and share incentivisation related) expenses and non-recurring (professional fees relating to acquisition, cost reduction, restructuring, share incentivisation and severance compensation related) expenses ("Adjustments"), see note 5 below for a reconciliation of adjusted profit (or loss) before tax.
Profit before tax is £9.103 million (2016: £9.404 million).
The success in fund performance and distribution has resulted in an increase in revenues excluding performance fees of 26% and an 18% increase in our adjusted profit before tax to £17.2 million. This has enabled the Board to declare a Second Interim dividend of 11.0 pence per share (2016: 9.0 pence) which will be payable on 19 July 2017 to shareholders who are on the register as at 23 June 2017, the shares going ex-dividend on 22 June 2017. The total dividend for the financial year ending 31 March 2017 is 15.0 pence per share (2016: 12.0 pence per share), an increase of 25% compared with last year.
Chairman 14 June 2017
LIONTRUST ASSET MANAGEMENT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2017
| Chief Executive's report | 6 |
|---|---|
| Vision and Strategic objectives | 7 |
| Business model | 7 |
| Key performance measures | 7 |
| Fund Management review | 8 |
| Distribution review | 14 |
| Operations review | 14 |
| Financial review | 14 |
| Principal risks and mitigations | 18 |
| Corporate Social Responsibility | 20 |
The growth of Liontrust over the past seven years has been driven by the Company focusing on what we can control and not being distracted by events we cannot manage. The core of our strategy has been to generate strong investment performance for our investors over the long term, deliver a firstclass service, communicate clearly and frequently with our investors, broaden our distribution, deepen our client relationships and engagement, and raise our brand awareness and profile. The expansion of the Company over the last financial year is evidence of the continued success of this strategy.
We generated gross sales of more than £2 billion and net inflows of £482 million in the financial year to 31 March 2017, with our AuM increasing by 36% to £6.5 billion. The adjusted profit before tax increased by 18% to £17.2 million and revenues were up 15% to £51 million. At a time when the ability of asset managers to grow organically is being questioned, these figures are especially pleasing.
This is even more so when it is considered that our expansion over the past year has been achieved against a challenging background for selling equity funds in general and the UK All Companies sector in particular in the UK. The Investment Association reported that from April 2016 to March 2017, there were net retail outflows from equity funds in eight of the 12 months. The Investment Association's UK All Companies sector was the worst performing for net retail sales in seven of these months although it was the best seller in March 2017.
The continued strength of our fund management capability is evidenced by our long-term performance. Take the Liontrust Special Situations Fund as an example. Since launch on 10 November 2005 to 31 March 2017, the Fund generated a total return of 333.28% compared to 118.64% by the FTSE All-Share index. Our other teams have delivered strong performance as well. The Cashflow Solution's European Growth Fund has returned 153.24% since launch on 15 November 2006 compared to 77.22% by the MSCI Europe ex UK index. These returns demonstrate the mistake of dismissing all active fund management.
We have further expanded our fund management capability over the past year by completing the acquisition of the Argonaut European Income business and announcing the purchase of Alliance Trust Investments Limited ("ATI"). The acquisition of ATI was completed on 1 April 2017 and added £2.5 billion to take our AuM to £9.1 billion on 3 April.
The addition of the Sustainable Investment team gives us a strong proposition in an area of investment that we believe will only grow in demand and significance. According to the European SRI Study of 2016, £11 trillion (£9.5 trillion) is currently invested in sustainable and responsible investment across Europe with £1.5 trillion coming from the UK.
We now have a presence in many of the core asset classes for UK investors. These are UK and continental European growth funds; equity income funds; risk-targeted solutions for investors seeking to accumulate wealth and in retirement; and sustainable investment.
We have also strengthened further our distribution capability in the UK and internationally. Ian Chimes joined us in February 2017 as Head of Global Distribution and he has recruited two regional salesmen for the North of England and Scotland and the Midlands. This will enhance our client service further through understanding and engaging with a broader range of clients.
The brand awareness and understanding of Liontrust and the engagement with the Company has grown among intermediaries and consumers and reflects our distinct identity and strong messaging. This is being driven particularly by our advertising, press coverage, investor communications and sponsorships. Our new website and expanding digital activity will enhance further our marketing capability and engagement with intermediaries and consumers.
On 31 March 2017, our AuM stood at £6,523 million (2016: £4,791 million) an increase of 36% over the financial year. A reconciliation of AuM as at 31 March 2017 is as follows:
| Process | Total (£m) |
Institutional (£m) |
UK Retail (£m) |
MPS(1) (£m) |
Offshore Funds (£m) |
|---|---|---|---|---|---|
| Cashflow Solution | 927 | 525 | 307 | – | 95 |
| Economic Advantage | 3,926 | 265 | 3,596 | – | 65 |
| Macro Thematic | 653 | 254 | 369 | – | 30 |
| European Income | 240 | – | 240 | – | – |
| Asia | 94 | – | 85 | – | 9 |
| Structural Opps | 20 | – | – | – | 20 |
| Multi-Asset | 612 | 352 | – | 260 | – |
| Indexed | 51 | – | 51 | – | – |
| Total | 6,523 | 1,396 | 4,648 | 260 | 219 |
(1) Managed Portfolio Services are where we act as discretionary fund manager to a range of model portfolios which are marketed to advisory intermediaries in the UK.
Liontrust recorded net inflows of £482 million in the financial year to 31 March 2017 (2016: £255 million). A reconciliation of fund flows over the financial year is as follows:
| Total £m |
Institutional £m |
UK Retail £m |
MPS(1) £m |
Offshore Funds £m |
|
|---|---|---|---|---|---|
| Opening AuM - 1 April 2016 | 4,791 | 1,138 | 3,330 | 204 | 119 |
| Net flows | 482 | 3 | 368 | 32 | 79 |
| Acquisitions | 272 | – | 272 | – | – |
| Market and Investment | |||||
| performance | 978 | 255 | 678 | 24 | 21 |
| Closing AuM - 31 March 2017 6,523 | 1,396 | 4,648 | 260 | 219 |
(1) Managed Portfolio Services are where we act as discretionary fund manager to a range of model portfolios which are marketed to advisory intermediaries in the UK.
There has been much discussion about the squeezed middle in the asset management industry. Companies either have to be global players or niche boutiques to survive and prosper, so goes the argument. We believe this is a simplistic and incorrect view of the development of the market.
Liontrust is not alone in showing that you do not have to be a boutique or a global group to be able to generate growth year after year. We have also delivered value for our investors through strong fund performance over the long term.
Following the investment we have made in the infrastructure of the business over the past few years, Liontrust is now both larger and more robust and this will enable us to drive forward the next phase of our growth strategy.
Chief Executive 14 June 2017
Our vision is to be one of the leading fund management companies in the UK and internationally, renowned for consistently adding value to clients' investment portfolios. We will attain this vision by achieving the following strategic objectives.
One of our key objectives is for all Liontrust funds and portfolios to outperform relevant benchmarks and the average returns of their respective peer groups over the medium to long term. We achieve this by retaining and recruiting fund managers who have excellent track records, expertise in their respective asset classes and who use rigorous investment processes that are clearly documented. There is an acceptance that no process will work 100% of the time but there is also an understanding that processes which are robust and scalable have the potential to deliver excellent long-term returns. We provide an environment that enables fund managers to focus on managing funds according to their own investment processes and market views and not be distracted by taking on responsibilities associated with running the business.
We distribute our funds to as broad a client base in the UK and internationally as possible, striving continually to raise awareness and knowledge of Liontrust and our funds, widen the number of clients who invest with us, deepen our relationships with existing investors and increase our assets under management.
We pride ourselves on providing our investors with exceptional service and support and place treating customers fairly as one of our principles for business and at the cornerstone of our efforts to ensure customers get a fair deal. Treating customers fairly is central to how we conduct business across all our departments and functions.
We communicate clearly and frequently with our investors and shareholders, regularly updating them on the performance of each of our funds and portfolios, the effectiveness of the investment processes applied to each of our funds and portfolios and the progress of the business as a whole. This is a key part of our objective of being as transparent as possible with all investors and stakeholders.
Effective management of risk is essential for the Group's success; Liontrust has developed risk frameworks to ensure appropriate levels of risk across all areas of the Group including our funds and portfolios.
All stakeholders, including investors, members, employees and shareholders, benefit from a successful and stable business. We aim to increase profitability by growing our revenues faster than our costs through continued expansion in assets under management and by increasing margins through the focused management and control of costs.
Our business model operates in the manner to best serve our strategic objectives, comprising three interdependent divisions: Fund Management, Distribution and Operations.
We have a single fund management division of seven fund management teams who manage a range of funds, portfolios and segregated accounts using distinct investment processes and a centralised trading team.
Our sales and marketing teams distribute our funds and portfolios in the UK and internationally. In the UK, we market to institutional investors, wealth managers, financial advisers and private investors. Outside the UK, we are focused on the wholesale market, primarily family offices, private banks, wealth managers and multi-managers in a number of countries, especially the Channel Islands, Ireland, Benelux, Malta, Germany, Italy and the Nordic region.
We maintain a consistent brand across all our marketing activities which reflects the values and culture of Liontrust. We are an independent business with no corporate parent, we are transparent and consistent in everything we do and operate with integrity, our fund managers are independent thinkers and have the courage of their convictions in making investment decisions, we have distinct and rigorous investment processes and we specialise in those asset classes where we have particular expertise. We have distinctive branding across all our marketing and sales material that features images of lions. This ties in with our partnership with ZSL London Zoo to support its campaign to protect the last remaining Asiatic lions in India. In addition, as part of being Principal Partner of Oxford United football club, we have been developing our community engagement programme.
We have a single Operations division, designed to support a fast growing business. Having a single Operations function ensures the fund management and distribution divisions have the appropriate tools to be effective, provides executive management with the performance and risk monitoring information required to manage the business and supports the requirements of external stakeholders such as customers, shareholders and regulators.
The strength of Liontrust's fund managers is shown by the fact that over the period from launch or fund manager appointment to the end of each of the last three financial years, on an AuM weighted basis, we have consistently had over 80% of our actively managed AuM in first quartile funds (see Figure 1).
Figure 1 – AuM weighted quartile ranking since launch or manager inception.
Net flows in the year have remained positive, and increased from £255 million to £482 million.
Note: FY15 includes £315 million of Institutional net inflows from a single client, FY16 includes a net outflow of £35 million in relation to the closure of the Liontrust Global Strategic Bond fund.
Our AuM has increased by 45% from 31 March 2015 to 31 March 2017 and by 36% from 31 March 2016 to 31 March 2017, reflecting market performance and net flows (see figure 3).
Our adjusted profit before tax* increased by 42% from 31 March 2015 to 31 March 2017 and by 18% from 31 March 2016 to 31 March 2017 (see figure 4).
* This is an alternative performance measure ('APM'). See page 18 for further details.
Currently, Liontrust has seven fund management teams each with distinct investment processes.
Anthony Cross and Julian Fosh manage the Liontrust UK Growth and Liontrust Special Situations funds while they co-manage the Liontrust UK Smaller Companies and Liontrust UK Micro Cap funds with Victoria Stevens and Matt Tonge. The team also manages segregated accounts using the Economic Advantage investment process. Anthony Cross and Julian Fosh have 55 years of combined investment experience. Anthony, who was previously at Schroders, has managed the Liontrust Special Situations and UK Smaller Companies funds since launch and he started working with Julian at Liontrust in 2008. Julian has previously managed money at Scottish Amicable Investment Managers, Britannic Investment Managers, Scottish Friendly Assurance Society and Saracen Fund Managers. Victoria Stevens and Matt Tonge joined the team in 2015 to research and analyse investment opportunities primarily across the small cap universe. In Victoria's previous role as deputy head of corporate broking at FinnCap, she built up an extensive knowledge of the smaller company investment universe. Matt added trading and analytical expertise to the team, having spent the previous nine years on the Liontrust dealing desk, latterly winning an industry award for his work in mid and small cap stocks.
Anthony, Julian, Victoria and Matt believe the secret to successful investing is to identify those few companies with a durable competitive advantage (Economic Advantage) that allows them to defy industry competition and sustain a higher than average level of profitability for longer than expected. This can surprise the market and can lead to strong share price appreciation. The Liontrust Economic Advantage process identifies companies which possess intangible assets that produce barriers to competition and are
capable, in the opinion of the fund managers, of reaping a financial advantage in the form of cash flow returns in excess of the cost of capital. In the fund managers' experience, the hardest characteristics for competitors to replicate are three classes of intangible asset: intellectual property, strong distribution channels and significant recurring business. All smaller companies in the funds must have a minimum 3% directors' equity ownership. Equity ownership motivates key employees, helps to secure a company's competitive edge and leads to better corporate performance.
Liontrust Special Situations Fund, for example, is in the first quartile of its IA sector over five and 10 years to 31 March 2017 and since launch on 11 November 2005.
Stephen Bailey and Jamie Clark, who manage the Liontrust Macro Equity Income and Liontrust Macro UK Growth funds and a segregated account using the Macro-Thematic investment process, have 46 years of combined investment experience and moved to Liontrust in 2012. Stephen started his career in the mid-1980s and joined Walker Crips in 1987 as investment director. Jamie joined Walker Crips in 2003 and prior to that was a Junior Proprietary Trader at First New York Securities. Stephen is one of only 24 fund managers who have been named FE Alpha Manager every year since the award was created in 2009, including 2017, and has also been named in FE's "Hall of Fame". Jamie Clark became co-manager of the Macro-Thematic funds in 2007.
At the core of the investment philosophy of the Macro-Thematic process lies the belief that macro-thematic analysis – the identification and interpretation of major economic, political and social developments affecting the UK and the rest of the world – offers scope to add long-term investment value. A Macro-Theme is defined as an undiscounted, structural change in the process of realization, and the related passage to theme-maturity, is the macrotrend. Macro-Thematic analysis tends to identify long duration investment opportunities that persist beyond market cycles. The fund managers believe a "top-down" approach is the most appropriate in identifying episodes of change, their drivers and the resultant investment opportunities. The process consists of four stages: theme discovery, identification of theme-assisted and theme-impaired companies, bottom-up analysis of prospective investments and portfolio construction and management.
Liontrust Macro Equity Income Fund, for example, was in the first quartile of its IA sector since launch on 31 October 2003 to 31 March 2017.
James Inglis-Jones and Samantha Gleave have 40 years of combined experience and first worked together in 1998. James has previously managed money at Fleming Investment Management, JP Morgan Fleming and Polar Capital while Samantha formerly worked at Sutherlands Limited, Fleming Investment Management, Credit Suisse First Boston and Bank of America Merrill Lynch. Samantha was in a No 1 ranked equity research sector team (Extel & Institutional Investor Surveys) at Credit Suisse and won awards for Top Stock Pick and Earnings Estimates at Bank of America Merrill Lynch.
The Cashflow Solution investment process is based on the belief that the most important determinant of shareholder return is company cash flows. Cash flows determine the ability of a business to grow in a self-sustaining way and to return money to shareholders through dividend yield and share buybacks. The fund managers seek to own companies that generate significantly more cash than they need to sustain their planned growth, yet are lowly valued by investors on that measure. They sell short stocks that are expensive, are struggling to generate any cash and are run by management investing heavily for future growth. To identify companies' annual cash flow, balance sheet development and valuation efficiently across all equity markets the fund managers have developed a simple screen as a starting point for further qualitative analysis. The investment screen consists of two cash flow ratios that are combined equally to highlight the process characteristics that they seek. These cash flow measures are: cash flow relative to operating assets and cash flow relative to market value.
Liontrust European Growth Fund, for example, was in the first quartile of its IA sector over one year and since launch on 15 November 2006 to 31 March 2017.
Mark Williams, Carolyn Chan and Shashank Salva manage the Liontrust Asia Income and Liontrust GF Asia Income funds. They have more than 60 years of combined experience in analysing Asian companies. Mark, with 23 years' experience in investing, has previously run funds at F&C and Occam. While managing the F&C Pacific Growth Fund, it was awarded first place in the Equity Asia Pacific (ex-Japan) sector over five years (out of 52 funds) by the S&P European awards in 2007. Carolyn has 24 years of experience and was previously at Hampton Investment Management. Shashank has 13 years of experience of experience in financial markets and has also previously worked in the Consumer Goods and Telecoms industries.
The investment process is based on the belief that the dominant influences on Asian equities will vary as cycles and environments change. The approach is also shaped by the fund managers' view that the region will generate long-term growth and companies are increasingly paying dividends back to shareholders. While expectations will alter as events unfold across Asia, the end aim of the investment process remains constant. The process seeks to identify companies that will benefit from the growth in the region, have an attractive yield and give a greater chance of expectations being beaten. The process aims to avoid those stocks that are likelier to miss expectations. The process is also designed to enable the fund managers to compare companies on a like-for-like basis across countries and sectors. By targeting at least 1.1 times the dividend yield of the region across the portfolio, the fund managers believe this will ensure the equities they invest in are amongst the more conservative, better managed companies. To filter the potential universe of stocks and to enable the fund managers to focus resources and time on the areas of the Asia Pacific ex-Japan market that they believe will generate the greatest returns, the fund managers identify what are likely to be the key drivers of equities in the region over the following six to 12 months. They then determine the impact and the winners and losers of these drivers before selecting companies based on yield, earnings growth and cheap valuations.
Peter Michaelis, Simon Clements and Neil Brown are the lead managers of a team of 10 experienced investment professionals. The team transferred to Liontrust from Alliance Trust Investments (ATI) in April 2017 and were previously running the Sustainable Future Fund range at Aviva Investors. Peter, with 16 years' experience in investing, was previously Head of SRI at Aviva Investors and has been running the funds since their launch in 2001. Simon has been in fund management for 18 years and was previously Head of Global Equities at Aviva Investors. Neil has 14 years' experience in financial markets and was an SRI Fund Manager at Aviva Investors.
In a fast changing world, we believe the companies that will survive and thrive are those which improve people's quality of life, be it through medical, technological or educational advances; driving improvements in the efficiency with which we use increasingly scarce resources; and helping to build a more stable, resilient and prosperous economy. The process seeks to invest in high-quality organisations with robust business fundamentals, strong management and attractive valuations; adaptors and innovators capitalising on change, accessing new markets and opportunities and outperforming their competitors; and companies that are creating real and lasting value for shareholders and society, now and in the future. For the fund managers, highquality companies must exhibit the following three characteristics: excellent management and core products or services that are making a positive contribution to society; strong growth prospects; and the ability to translate these into leading returns on equity.
Stuart Steven, Kenny Watson and Aitken Ross have more than 57 years of combined investment experience in managing fixed income. The team transferred over from ATI in April 2017. Stuart has 25 years of fixed income investment experience and was previously Investment Director of Scottish Widows Investment Partnership. Kenny has 26 years of fund management experience and was formerly at Ignis Asset Management where he was responsible for the sub investment grade bond portfolios. Aitken has six years of financial experience and started his career in the graduate scheme at ATI.
The process invests in a focused portfolio of bonds that are attractively valued and also take into consideration environmental, social and governance (ESG) factors by investing in companies that manage these exposures to minimise risk. The fund managers believe in a high conviction approach to ensure they develop a thorough understanding of their holdings and the factors that influence their long-term value. There are two main stages to the process: seeking to identify superior bonds and constructing resilient portfolios. The fund managers combine credit analysis with in-depth analysis of issuer specific factors, including ESG and macro-economic analysis.
Olly Russ, who joined Liontrust in July 2016, manages the Liontrust European Enhanced Income and Liontrust European Income funds. Olly started his career at investment boutique Orbitex in 1998, where he worked on European Equity and UK Income funds and was responsible for running the Orbitex UK Equity Fund from its inception in March 2000. In 2002, Olly moved to Invicta Investment Management, a privately owned hedge fund, before joining Neptune Investment Management as a fund manager and financial analyst. He moved to Argonaut Capital in 2005. Olly has 19 years of investment experience.
Olly Russ has three objectives in managing his funds: a yield that is higher than the market; an income stream that grows in the long run faster than inflation; and long-term capital growth that is at least in line with inflation. Olly seeks to achieve these aims through investing in growing companies with low capital requirements that pay out expanding dividends. He uses dividend growth as a proxy for earnings growth – Olly expects to see dividends rising over time as companies increase pay outs to shareholders while earnings grow. Since dividends are paid out in cash, companies with increasing pay outs will need to produce high-quality cash earnings, with less scope for artificial inflation through financial manipulation or lower quality numbers. Olly believes a company targeting shareholder pay outs should help improve management focus on capital discipline, which can help to sustain higher valuations and avoid value-destroying actions. They are typically more stable, mature and secure companies, whose asset base and business has been built up over many years and is defended by an economic moat – an economic edge, competitive advantage or assets that are hard to replicate by new entrants, such as a strong brand, niche products or a dominant market position. Owning the types of companies described above may not alone produce market outperformance. To produce superior risk-adjusted returns, Olly looks for companies with these characteristics that are also undervalued.
John Husselbee and Paul Kim manage the Liontrust Wealth Solutions Service (WSS) and Liontrust Managed Portfolio Service (MPS) using the Liontrust Multi-Asset investment process. They are two of the most high-profile multiasset managers with 62 years of combined investment experience. John launched the portfolio management service at Rothschild Asset Management, was Director of Multi-Manager at Henderson Global Investors, where he was responsible for portfolio construction and fund selection of a range of portfolios totalling over £650 million, and founded North Investment Partners. Paul was instrumental in setting up Investment Manager Selection Ltd (IMS), was Head of Fund Selection and Multi-Manager at Liverpool Victoria Asset Management (LVAM) and has also managed portfolios at Capel Cure Myers, Sun Life Portfolio Counselling Services (AXA Sun Life), Christie Group Investment Management and Spencer Thornton Investment Management Services.
The Liontrust Multi-Asset investment process is designed to achieve two main objectives. The first is to target the outcome expected by investors in terms of the level of risk, as measured by volatility, of each portfolio. Volatility is a statistical measure of variation of returns over time, which is defined as the
Split of AuM
annualised "standard deviation" of monthly investment returns. This can enable investors to match the appropriate portfolio to their desired risk profile. The second objective is to maximise returns while still targeting the risk profile of each portfolio. These two objectives are pursued through a quantitative and qualitative approach. The fund managers use a scientific approach to target the risk outcome expected but consider the maximisation of returns to require an additional element of experience, knowledge and qualitative interpretation. There are four key stages to the investment process: strategic asset allocation, tactical asset allocation, fund selection and portfolio construction. Risk management is central to each of these stages and the portfolios are designed to provide diversification across asset classes, geographical regions and investment styles to enhance the returns for the level of risk taken. Each portfolio targets the appropriate volatility by combining fund selection with the strategic asset allocation, adjusted for the short-term tactical weightings. The fund managers then examine each portfolio from a top-down perspective to ensure that its characteristics are in line with the risk controls.
The strength of Liontrust's fund management capability is shown by the weighted average AuM of our actively managed unit trusts. Since launch or since the fund managers were appointed 89% were in the first quartile (see Figure 1 below).
Figure 1 – AuM weighted quartile ranking since launch or launch/manager inception
Detailed quartile rankings by fund over one, three and five years and since launch or the fund manager was appointed are shown in the table below:
| Quartile ranking - 1 year |
Quartile ranking - 3 year |
Quartile ranking - 5 year |
Quartile ranking – Since Manager tenure |
Launch / Manager appointed |
|
|---|---|---|---|---|---|
| Liontrust UK Growth Fund | 1 | 1 | 2 | 1 | 25/03/2009 |
| Liontrust Special Situations Fund | 1 | 1 | 1 | 1 | 10/11/2005 |
| Liontrust UK Smaller Companies Fund | 1 | 1 | 1 | 1 | 08/01/1998 |
| Liontrust UK Micro Cap Fund | 2 | – | – | 2 | 09/03/2016 |
| Liontrust Macro Equity Income Fund | 3 | 4 | 3 | 1 | 31/10/2003 |
| Liontrust Macro UK Growth Fund | 4 | 4 | 4 | 1 | 01/08/2002 |
| Liontrust European Growth Fund | 1 | 1 | 2 | 1 | 15/11/2006 |
| Liontrust Asia Income Fund | 2 | 2 | 1 | 1 | 05/03/2012 |
| Liontrust European Income Fund | 4 | 3 | 3 | 3 | 15/12/2005 |
| Liontrust European Enhanced Income Fund | 4 | 4 | 4 | 4 | 30/04/2010 |
| Liontrust Global Income Fund | 3 | 4 | – | 4 | 03/07/2013 |
Source: Financial Express, total return, bid to bid, to 31 March 2017 unless otherwise stated. The above funds are all UK authorised unit trusts (retail share class). Liontrust FTSE 100 Tracker Fund (index fund) not included. Liontrust Global Income Fund's investment objective changed to Global Income on 3 July 2013. Past performance is not a guide to the future; the value of investments and the income from them can fall as well as rise. Investors may not get back the amount originally subscribed.
| Fund vs Benchmark - 1 year |
Fund vs Benchmark – Since Manager tenure |
Launch | |
|---|---|---|---|
| Liontrust GF Macro | |||
| Equity Income Fund | 12.4% vs 22.0% 15.5% vs 23.1% | 04/04/2014 | |
| Liontrust GF European | |||
| Strategic Equity Fund | 10.7% | 23.1% | 25/04/2014 |
| Liontrust GF Special | |||
| Situations Fund | 21.5% vs 22.0% 57.9% vs 54.1% | 08/11/2012 | |
| Liontrust GF Asia | |||
| Income Fund | 15.2% | (1.6%) | 23/06/2015 |
| Liontrust GF UK | |||
| Growth Fund | 21.0% vs 22.0% 28.8% vs 18.9% | 03/09/2014 | |
| Liontrust GF European | |||
| Small Cap Fund | – | 3.91% vs 4.7% | 01/02/2017 |
Source: Financial Express, total return for the base currency class, to 31 March 2017 unless otherwise stated. The above funds sub-funds of Liontrust Global Funds Plc, an open ended umbrella type investment company with variable capital incorporated with limited liability under the laws of Ireland. The Liontrust Global Strategic Equity Fund and the Liontrust GF Water & Agriculture Fund closed in May 2017 and are not included in the above table. Past performance is not a guide to the future; the value of investments and the income from them can fall as well as rise. Investors may not get back the amount originally subscribed.
We are proud to announce the following awards for Liontrust's fund management teams in the financial year ended 31 March 2017:
We have had another successful year in distribution. This has included generating gross sales of more than £2 billion and net inflows of £482 million for the financial year to 31 March 2017. Our AuM increased by £1.7 billion or 36% to £6.5 billion and the completion of Alliance Trust Investments Limited on 1 April 2017 then added another £2.5 billion to take our AuM on 3 April to £9.1 billion.
Our gross sales and net inflows demonstrate the strength of our distribution capability through an uncertain political environment. We have continued to broaden our client base in the UK and internationally and have enhanced our distribution team over the past year. Ian Chimes joined Liontrust in February 2017 as Head of Global Distribution and Simon Hildrey became Chief Marketing Officer, with both reporting to Chief Executive John Ions.
The strength of our client relationships has once again been shown by the attendance at our Annual Investment Conference in January. For the first time, we took the Conference on the road, with our fund management teams also presenting in Edinburgh, Harrogate, Birmingham, Bristol and Luxembourg. In total, the fund managers presented to more than 350 fund buyers.
We have continued to invest in our internal infrastructure, including the integration of our sales and marketing systems, notably through our CRM, and developing our digital marketing capability. This is enabling us to use more targeted, consistent and structured communications with intermediaries.
The launch of our new website in the 2016-17 financial year is a key part of developing our digital marketing capability and communications to clients and investors. The objective of the new website is to be accessible to and engaging for all types of investors, regardless of their experience and knowledge of investment. Most of the content and information is open to all investors. We have a section on the website entitled "Benefits of Investing", which includes an introduction to investment, discusses the benefits of longterm investment and explains common investment and financial words, terms and phrases. This section also has a downloadable guide to the world of investment and is part of our increasing focus on financial education.
The website is one part of our focus on engaging with our investors, whether they are institutional investors, professional advisers or private investors. This is essential if we are really to understand their needs and objectives.
We have completed the second year as Principal Partner of Oxford United football club and continued our partnership with ZSL London Zoo to support its conservation work with Asiatic lions in India. Oxford United have enjoyed another successful season, which is helping to enhance Liontrust's profile. Oxford reached the FA Cup Fifth Round, having beaten Newcastle United in the Fourth Round, and reached the Final of the Checkatrade Trophy at Wembley for the second year running while finishing eighth in their first season in League One.
The effectiveness of our marketing and brand is shown by the relatively high recognition and positive awareness figures we gain among intermediaries relative to how much we spend compared with competitors.
We are focused on maintaining an operations team that is efficient, scalable and that gives us the ability to continue our growth whilst delivering returns to shareholders. With the growth in our business, we performed a strategic review of our Front Office IT infrastructure, and as a result strengthened our IT governance arrangements and also restructured and expanded our IT support team.
Our three key operations team are:
In the financial year to 31 March 2017, the Operations teams, amongst other things, achieved the following:
Adjusted profit before tax* increased to £17.235 million from £14.623 million last year, reflecting increased AuM.
| Year ended 31-Mar-17 £'000 |
Year ended 31-Mar-16 £'000 |
Year on Year Change |
|
|---|---|---|---|
| Gross profit | 51,458 | 44,940 | 15% |
| Realised and unrealised gain/(loss) on | |||
| sale of financial assets | 140 | (1) | n/a |
| Directors, employee and members | |||
| compensation(1) | (25,088) | (22,341) | 12% |
| Other Administration expenses | (9,286) | (7,991) | 16% |
| Adjusted operating profit* | 17,224 | 14,607 | 18%* |
| Interest receivable | 11 | 16 | (31)% |
| Adjusted profit before tax(1)* | 17,235 | 14,623 | 18%* |
(1) See note 7 on page 74 for reconciliation of adjusted profit before tax to profit for the year.
* This is an alternative performance measure ('APM'). See page 18 for further details.
Average AuM increased by 23% compared to last year and by 39% over two years (see Figure 1 below), reflecting net flows and market performance.
Revenues excluding performance fees increased by 26% compared to last year and by 41% compared to two years ago, equivalent to an annualised growth rate of 19% over the three years (see Figure 2 below).
Revenue margin (Gross profit (excluding performance fees) divided by average AuM) remains unchanged at 0.83% compared to last year and 0.79% two years ago, reflecting the increased impact of higher average AuM and improving revenue margin.
Adjusted operating profit* increased to £17.224 million from £14.607 million last year and from £12.081 million two years ago reflecting the increase in average AuM, this in turn is reflected in strong growth in basic and diluted earnings per share (see Figures 3 and 4).
Figure 3 – Adjusted operating profit* £'000
* This is an alternative performance measure ('APM'). See page 18 for further details.
* This is an alternative performance measure ('APM'). See page 18 for
further details.
Adjusted operating margin (calculated as Adjusted operating profit divided by Gross profit) reflects the strong operating gearing in the business (see Figure 5 below).
* This is an alternative performance measure ('APM'). See page 18 for further details.
Figure 6 – Adjusted operating profit as % of AuM
(3) Adjusted for expenses for share incentivisation, severance compensation and related legal costs, acquisitions related costs, professional services (restructuring, acquisition related and other), depreciation and intangible asset amortisation, and the Financial Services Compensation Scheme Interim Levy.
* This is an alternative performance measure ('APM'). See page 18 for further details.
The largest component of our costs, in common with other service companies, is Director, member and employee related expenses. Director, member/employee compensation as a percentage of Gross profit reduced by 1% reflecting higher fees and cost controls. (see Figure 7 below).
(4) Member and employee related costs are the sum of Director and employee costs, pensions, members drawings charged as an expense, and members' advance drawings (where applicable).
* This is an alternative performance measure ('APM'). See page 18 for further details.
Other administration expenses as a percentage of Gross Profit is at 18%, as a result of strong cost control within the business (see Figure 8 below).
The Board has considered current market environment, the financial performance for the Group in the current year and its cash generation abilities in future years, and is declaring a second interim dividend of 11.0 pence per share (2016: 9.0 pence) which will result in total dividends for the financial year ending 31 March 2017 of 15.0 pence per share (2015: 12.0 pence) (See Figure 9 below). This reflects a dividend margin (dividend per share divided by Adjusted diluted earnings per share) of 51%, an increase of 8% on last year (See Figures 9 and 10 below).
* This is an alternative performance measure ('APM'). See page 18 for further details.
Our policy is to grow our dividend progressively in line with our view of the underlying adjusted earnings per share on a diluted basis (excluding performance fees) and cash flow of Liontrust;
When setting the dividend, the Board looks at a range of factors, including:
It is our intention that dividends will be declared and paid half yearly.
• future plans.
In accordance with provision C.2.2 of the 2014 revision of the Code, the Directors have assessed the prospects of the Group over a longer period than the 12 months required by the Going Concern provision.
The Directors confirm that they have a reasonable expectation that the Group will continue to operate and meet its liabilities, as they fall due, up to 31 March 2020. The Directors' assessment has been made with reference to the Group's current position and strategy, the Group's risk appetite, the Group's financial forecasts, and the Group's principal risks and mitigations, as detailed in the Strategic Report.
The three-year period is consistent with the Group's current strategic forecast and ICAAP. The forecast incorporates both the Group's strategy and principal risks. The forecast is approved by the Board at least annually. This formal approval is underpinned by regular Board discussions of strategy and risks, in the normal course of business. The forecast is updated as appropriate.
The three-year strategic forecast considers the Group's profitability, cash flows, dividend payments, share purchases, seed capital and other key variables. These metrics are subject to sensitivity analysis, which involves flexing a number of the main assumptions in the forecast, both individually and in unison. Scenario analysis is also performed as part of the Group's ICAAP, which is approved by the Board.
The Group uses the following APMs:
Definition: Profit before interest, taxation, depreciation and amortisation, share incentivisation expenses and non-recurring items.
Reconciliation: Note 7 on page 74.
Reason for use: This is used to present a measure of profitability of the Group which is aligned to the requirements of shareholders and potential shareholders and which removes the effects of financing and capital investment which eases the comparison with the the Group's competitors who may use different accounting policies and financing methods.
Definition: Profit before interest, depreciation and amortisation, share incentivisation expenses and non-recurring items.
Reconciliation: Note 7 on page 74.
Reason for use: This is used to present a measure of profitability of the Group which is aligned to the requirements of shareholders and potential shareholders and which removes the effects of financing and capital investment which eases the comparison with the the Group's competitors who may use different accounting policies and financing methods.
Definition: Adjusted operating profit divided by Gross profit.
Reconciliation: Note 7 on page 74.
Reason for use: This is used to present a consistent year on year measure of revenues compared to costs, identifying the operating gearing within the business.
Definition: Gross profit less any any revenue attributable to performance related fees.
Reconciliation: Note 4 on page 71.
Reason for use: This is used to present a consistent year on year measure of revenues within the business, removing the element of revenue that may fluctuate year on year.
Definition: Earnings before interest, depreciation and amortisation, share incentivisation expenses and non-recurring items divided by the weighted average number of shares in issue.
Reconciliation: Note 7 on page 75.
Reason for use: This is used to present a measure of profitability per share in line with the adjusted operating profit as detailed above.
Definition: A component of Administration expenses costs related to compensation costs of people within the business.
Reconciliation: Note 5 on page 72.
Reason for use: This is used to present a consistent year on year measure of staff cost within the business and is used relative to Gross profit.
Definition: a component of Administration expenses related to non-people related costs within the business.
Reconciliation: Note 5 on page 72.
Reason for use: This is used to present a consistent year on year measure of cost control within the business and is used relative to Gross profit.
The Group takes a cautious and pro-active approach to risk management, recognising the importance of understanding risks to the business, setting and monitoring risk appetite and implementing the systems and controls required to mitigate them. A Risk Register is maintained that captures the core risks inherent in our business and assesses how those risks are managed and mitigated, the key indicators that would suggest if the risk is likely to materialise together with an assessment that each risk may have on our regulatory capital.
Our Professional Indemnity Insurance covers us for losses, errors, and fraud. Our current assessment of our key operational risks and our risk management framework suggest that we are not at material risk of breaching our insurance limits, although all our risk appetite and prudential planning incorporates the scenario of a failure of insurance cover.
In order to help identify, manage and control risk, Liontrust breaks it down into four categories. On the basis of disciplined risk assessment, the principal risks to the Group's business are considered. A high level summary is shown below with details of any mitigating factors and the risks are also discussed in the Risk Management and Internal Controls section of the Directors' Report on page 31.
Credit risk covers the risk of loss due to a debtor's inability to pay. The Liontrust Group maintains a liquidity policy document which identifies the credit risks that may affect any area of the business and details how these risks are monitored and controlled. These risks include: failure of banks / credit institution / significant counterparties; failure of a client to pay fees; failure of a client to pay funds for an investment; failure of a fund to pay redemption monies. Major counterparties are reviewed at least monthly and this covers, for each institution, agency ratings, interest rates currently offered and credit default swap spreads (where these measures are applicable or available). These are all indicators of any potential problems. If any such issues are identified the Group will take action to either move any functions or cash away from the institution or closely monitor the institution as per our counterparty selection and business continuity policies.
Market risk is the risk that the value of assets will decrease due to the change in value of the market risk factors. Common market risk factors include asset prices, interest rates, foreign exchange rates, and commodity prices. Liontrust as an investment management company is exposed to market risk in several forms, these include: seed investments; box management; funds under management; and management fee income.
Liontrust has only minor direct exposure to market risk through manager box positions and small holdings in the sub-funds of Liontrust Global Funds Plc which have been undertaken to aid incorporation and are redeemed when funds grow in size. The Group has a regular review process for any assets subject to market risk which identifies specific criteria to ensure that these remain within agreed limits.
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. The management of operational risk is formalised in a number of ways including risk assessments
and scorecards, documented procedures and compliance manuals, a comprehensive compliance monitoring programme (both internal and external), issue tracking and a regular assessment of third party providers. Liontrust manages its operational risk with a framework based upon the Basel Committee on Banking Supervision's paper "Sound Practices for the Management and Supervision of Operational Risk" using seven operational risk event types that may result in substantial losses including:
| Operational Risk Event Type |
Description |
|---|---|
| Internal Fraud | Misappropriation of assets, tax evasion, intentional mismarking of positions, bribery |
| External Fraud | Theft of information, hacking damage, third-party theft and forgery |
| Employment Practices and Workplace Safety |
Discrimination, workers' compensation, employee health and safety |
| Clients, Products, & Business Practice |
Market manipulation, antitrust, improper trade, product defects, fiduciary breaches, account churning |
| Damage to Physical Assets |
Natural disasters, terrorism, vandalism |
| Business Disruption & Systems Failures |
Utility disruptions, software failures, hardware failures |
| Execution, Delivery, & Process Management |
Data entry errors, accounting errors, failed mandatory reporting, negligent loss of client assets |
These risk event types are further broken down into 36 sub-categories. Each operational department undergoes a risk assessment for each of these risks to identify the likelihood of a risk materialising as well as the impact of the risk. The impact is the likely effect of a risk crystallising; these are two measures, the cost of a typical event as well as the cost of an extreme case. The output from the departmental risk assessments or risk registers are co-ordinated with the Group's Risk Register to ensure that we are capturing evolving risks for the Group as they emerge. The risk assessment and risk scorecard can then be used to create risk maps which visually model and communicate risks and their trends.
As we outsource many of our labour intensive operational functions, we commit high levels of resource to the management of these third party providers. We work hard to ensure that the relationship is a collaborative one and that both parties are working together towards the same goals, via a dedicated relationship management team and through a comprehensive monitoring programme. Failure of any outsource provider presents a real threat to the business and our continuity planning incorporates a stepped approach to manage and control these risks.
The key operational risks that have been identified as potentially having a significant impact on our business or capital are as follows:
Liontrust has made a number of acquisitions over the last few years and during any period of integration (of systems, controls and procedures) there is a higher risk of failure of controls due to an increase in counterparties, more similar but not identical procedures and changing staff responsibilities. Liontrust devotes considerable management time to integrating each acquisition and aims to minimise operational risk arising from consolidation.
Liontrust also commissions an external accountancy firm to report on internal controls in accordance with AAF 01/06.
The firm also faces other risks such as regulatory risk, key employee risk, market changes, mis-selling and the underperformance of one, or more, of the investment processes.
The regulatory environment that the Group operates in continues to grow more complex. PRIIPS and MiFID II become effective on 1st Jan 2018 and considerable time and resources are allocated to ensure the business meets its new regulatory obligations which will impact both the Group and the investment vehicles operated by the Group. Increasing and changing regulations bring additional, or increased, risks of errors or omissions which can result in financial or other penalties and could result in a loss of confidence by our clients. Regulatory changes may also affect the products and services the Group offers, to whom or where it may offer them and the fees and charges it is able to charge. Liontrust's Compliance department operates a comprehensive compliance monitoring programme to confirm regulatory obligations are met and works with industry bodies, lawyers and consultants to ensure all regulatory change is appropriately managed. Brexit will also bring additional disruption although it is not expected to have a significant impact on our business model - we continue to review and plan as we receive more clarity on the process.
Liontrust operates within a highly competitive environment with both local and global businesses, many of which have greater scale and resources. The changes to the regulatory and business landscape have resulted in a greater focus on fees & charges, a growing importance of brand & marketing and distributor relationships. Failure to compete effectively in this environment may result in loss of existing clients and a reduced opportunity to capture new business which may have a material adverse impact on the Group's financial wellbeing and growth.
People are a key part of our business and the stability of our investment and operational expertise is critical to the success of the business. The Group takes appropriate steps to manage expectations and minimise the loss of good quality staff. Any departure of significant personnel may result in a loss of funds under management, especially the loss of one of our fund management teams. Liontrust believes building and maintaining our distinct culture is key to the future success of our business and the engagement and retention of its staff, therefore, we invest significantly in our people, including through training and qualifications.
The development of our business and increasing the diversification of our fund management talent is a core objective of the Group and as recently demonstrated, the business is willing to finance acquisitions, etc. to achieve this diversification where it is prudent to do so while leaving sufficient capital to operate the business.
Liontrust provides specialist, actively managed portfolios to its clients aiming to produce good relative investment returns over the medium to long term. There may be periods where the portfolios have a weaker performance record and clients may redeem their investments during these periods potentially impacting the Group's earnings. It is also harder to attract new clients during periods of under-performance in a fund, or across the Group's portfolios which may impact the ability for the Group to grow.
It is a key aim of the Group to ensure our clients and customers understand the products and services we offer and for us to ensure that the products deliver what a client expects. All our investment processes are fully documented, which enables clients to understand clearly how we manage assets. For private investors investing through intermediaries, the process documents are supplemented by simplified monthly fund factsheets, the key investor information document and other reports and marketing literature available via the website or direct from us, which are clear and concise. For our institutional clients, we produce quarterly investment commentaries and regular detailed reports. Ensuring that our clients understand the product is a core element in treating them fairly. We believe our documented processes, detailed reports and literature reduce the likelihood of a product either being misunderstood or not delivering the appropriate customer outcomes, this may also reduce the risk of client losses in the event of portfolio underperformance.
Liontrust has several large, key clients and relationships. Should a large client leave (or conversely a new large client be acquired) there is a risk that earnings may be impacted. The largest client represents approximately 4% of the Group's assets under management and the concentration is lower than this by revenue. Clients are also able to withdraw their assets at short notice. The retail funds have daily liquidity and most institutional mandates have no lock in periods or liquidity constraints. This may mean that in times of crisis assets under management may fall quickly increasing the potential volatility of earnings.
Liontrust is dependent on our IT infrastructure and systems. A successful cyber-attack could result in the loss of data; disrupt our ability to service our customers or in a worst case scenario – a loss of clients' assets. Liontrust has included the management of cyber security into our governance framework for a number of years and use specialist external consultants to review and test our IT infrastructure and security including penetration testing. Staff awareness and training is an important part of our defence against attack. Liontrust demands the same commitment to tackling cybersecurity from its key outsourced providers.
Liontrust is committed to the principle of Corporate Social Responsibility ("CSR") and intends that it should become embedded, where appropriate, into its policies and practices, to the benefit of stakeholders as well as the wider community. Liontrust aims to be recognised as an organisation that is transparent and ethical in all its dealings as well as making a positive contribution to the community in which it operates. The Board and the Health and Safety Committee have reviewed the current and potential ESG risks and believe that adequate procedures are in place to identify and assess these risks.
Liontrust is committed to the following core values in all aspects of its work, including the fulfilment of its social responsibility:
Liontrust seeks to achieve its corporate and social objectives by focusing on the following areas:
Liontrust has committed to the promotion of equal opportunities and the preservation of human rights. Liontrust is vehemently opposed to the use of slavery in all forms; cruel, inhuman or degrading punishments; and any attempt to control or reduce freedom of thought, conscience and religion. Liontrust will not knowingly enter into any business arrangement with any person, company or organisation which fails to uphold the human rights of its workers or who breach the human rights of those affected by the organisation's activities.
Liontrust has put in place a series of policies, including a recruitment policy, parental leave policy, and a discipline and grievance policy which aims to ensure that all partners/directors, employees and associated persons have equal opportunities.The Board recognises the importance of diversity, including gender and recognises the benefits it brings to the Board and Group. The Board is committed to ensuring its composition is appropriate for the business and that members and candidates should possess the broad range of skills, expertise, industry knowledge, and other experience necessary for the effective oversight and management of the Group.
Liontrust believes that its people should be appointed to their roles based on skills, merit and performance and makes all appointments within the guidelines of its equal opportunities policy. Fundamental to increasing diversity is the development of a pipeline of talented and diverse employees within the business. We do not support quotas or to set prescriptive, quantitative diversity targets however, we endeavour to have a proactive and coordinated approach to attracting, retaining and developing a diverse workforce. As at 31 March 2016 the gender diversity within the group was as follows:
| 2016 | Male | Female |
|---|---|---|
| Directors | 6 | – |
| Members of LLP's | 28 | 2 |
| Employees | 21 | 18 |
Liontrust manages all investments using different proprietary investment processes, and the rationale around Environmental, Social and Governance ("ESG") issues depends on the underlying investment process. Good governance is important to all investment processes and so Liontrust are committed to the Financial Reporting Council's Stewardship Code. Liontrust's response to the stewardship code and how Liontrust complies with the responsibilities laid out in the code is available on our website: www.liontrust.co.uk.
Liontrust is committed to adhering to the highest standards of business conduct; compliance with the law and regulatory requirements; and best practice. The firm has established an anti-bribery policy to aid Liontrust's partners/directors, employees and associated persons in ensuring that they comply at all times with relevant anti-bribery laws. In implementing this policy the firm demonstrates its commitment to preventing bribery, and establishing a zero-tolerance approach to bribery in all parts of the firm's operations.
Liontrust is committed to procuring its works, goods and services in an ethically and environmentally sensitive way, yet with proper regard to its commercial obligations, ensuring that suppliers deliver to agreed timescales, quality and cost. Purchasing is undertaken in a manner that encourages competition, and offers fair and objective evaluation of offers from all potential suppliers. Any significant transaction or agreement is reviewed by the Board.
Liontrust believes that businesses are responsible for achieving good environmental practice and operating in a sustainable manner. We are therefore committed to minimising our environmental impact and continually improving our environmental performance as an integral and fundamental part of our business strategy and operating methods. Liontrust has put in place an environmental policy that details the key points of our strategy on the environment.
As part of our selection and review process, we encourage our suppliers, service providers and all business associates to do the same and where appropriate we have obtained the environmental policies of these counterparties. Not only is this sound commercial sense for all; it is also a matter of delivering on our duty of care towards future generations.
Liontrust aims, to minimise its commercial waste and to recycle as much of its commercial waste as possible, with any non-recyclable items being incinerated to produce energy. In the year to 31 March 2017, Liontrust recycled 6,030kg of materials saving 8,030kg of CO2 (year to 31 March 2016: 5,820kg, 7,890kg CO2).
Using the most recent data available from our landlords, we have identified an emissions intensity per member of staff (employees and members) of 1.6 tC02 per annum (2016: 1.6 tCO2 per annum).
The Health and Safety committee monitor the KPIs as part of their review of the ESG policy.
We are carrying out our community engagement through two major sponsorships, with three key objectives.
Liontrust has been the principal partner of Oxford United football club since July 2015. We are supporting a wide range of community initiatives via the Oxford United Community Trust to work together to improve the lives of the people of Oxfordshire and along with the club's Family Days. We have been developing projects to work with Oxford United Community Trust to support its four themes for community engagement:
We are proud to be supporting ZSL's Asiatic lion campaign, dedicated to protecting the last remaining lions that reside as a single population in Western India's Gir National Forest. With Liontrust's support, ZSL is actively working with local partners in a variety of ways to ensure the survival of this population of just over 500 Asiatic lions:
In addition to their work in the field, ZSL opened a brand new conservation breeding centre, Land of the Lions, on 17 March 2016 at ZSL London Zoo. The exhibit was opened by HM The Queen, and its purpose is to ensure a 'safety net' against extinction as well as protecting the genetic viability of species.
The Strategic Report was approved by the Board on 14 June 2017 and Signed on its behalf by:
Chief Executive 14 June 2017
LIONTRUST ASSET MANAGEMENT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2017
| Board of Directors | 24 |
|---|---|
| Directors' report | 25 |
| Directors' responsibility statement | 28 |
| Corporate Governance report | 29 |
| Risk management and internal controls report | 31 |
| Directors' Board Attendance report | 34 |
| Audit and Risk Committee report | 35 |
| Nominations Committee report | 38 |
| Remuneration report | 40 |
Adrian Collins, 63, (Chairman). Joined the Board in June 2009. Adrian has worked in the fund management business for over 30 years, a large part of which was at Gartmore Investment Management Limited where, latterly, he was the Managing Director. He was a consultant to Strand Partners Limited, a corporate finance business based in the West End of London. He is also a Director of Bahamas Petroleum Company Plc, City Natural Resources High Yield Trust Plc, Tristar Resources Plc, and New City High Yield Trust Plc.
John Ions, 51, (Chief Executive). Joined the Board in May 2010. Prior to joining Liontrust in February 2010, John was Chief Executive of Tactica Fund Management since it was established in 2005. Previously, John was Joint Managing Director of SG Asset Management and Chief Executive of Société Generale Unit Trusts Limited, having been a co-founder of the business in 1998. John was also formerly Head of Distribution at Aberdeen Asset Management.
Vinay Abrol, 52, (Chief Operating Officer & Chief Financial Officer). Joined the Board in September 2004. Vinay is responsible for overseeing all finance, information technology, operations, risk and compliance of the Group. After obtaining a first class degree in computing science from Imperial College London, Vinay worked for W.I. Carr (UK) Limited specialising in the development of equity trading systems for their Far East subsidiaries, and then at HSBC Asset Management (Europe) Limited where he was responsible for global mutual funds systems. Following a short period at S.G. Warburg and Co., he joined Liontrust in 1995.
Alastair Barbour, 64, (Non-executive Director). Joined the Board in April 2011. Alastair is a chartered accountant with 25 years' experience spent auditing and advising boards and management of public companies in the UK and internationally, principally in the financial services industry. He trained with Peat, Marwick, Mitchell & Co in London before being admitted as a partner with KPMG in Bermuda in 1985. Alastair returned to the UK as a partner of KPMG in 1991 and has specialised in financial services with extensive experience in advising on accounting, financial reporting and corporate governance. He is also a Director of RSA Insurance Group Plc, Phoenix Group Holdings, The Bank of N.T. Butterfield & Son Limited, Standard Life European Private Equity Trust Plc and CATCo Reinsurance Opportunities Fund Ltd.
Mike Bishop, 66, (Senior Independent Director). Joined the Board in May 2011. Mike has more than forty years' experience as a fund manager and is currently a Non-executive Director of RWC Focus Asset Management and an adviser to its UK equity activist funds. Before joining Hermes in 2005, Mike was Head of Pan-European Equities at Morley Fund Management Limited and a Director and fund manager at Gartmore Investment Management.
George Yeandle, 59, (Non-executive Director). Joined the Board in January 2015. George is a chartered accountant with over 30 years' experience having specialised throughout most of his career in advising clients on executive pay and remuneration issues. He has also held a number of internal leadership roles. He trained with Coopers & Lybrand (now PricewaterhouseCoopers LLP) before being admitted as a partner in 1989. More recently, George was Operational Leader of the London Region Human Resource Services Business and a Senior Partner of PricewaterhouseCoopers LLP, retiring in December 2013.
The Directors present their report and the audited consolidated financial statements of Liontrust Asset Management PLC for the year ended 31 March 2017.
Liontrust Asset Management PLC is a holding company whose shares are quoted on the Official List of the London Stock Exchange and is domiciled and incorporated in the UK. It has three operating subsidiaries as follows:
| Subsidiary name | % owned by the Company |
Subsidiary principal activities |
|---|---|---|
| Liontrust Fund Partners LLP |
100% | A financial services organisation managing unit trusts, authorised and regulated by the Financial Conduct Authority. |
| Liontrust Investment Partners LLP(1) |
100% | A financial services organisation offering investment management services to professional investors directly, through investment consultants and through other professional advisers, which is authorised and regulated by the Financial Conduct Authority. Liontrust Investment Partners LLP is also approved as an Investment Manager by the Central Bank of Ireland. |
| Liontrust Investment Solutions Limited |
100% | A financial services organisation offering discretionary fund management services to the advisory intermediary market in the UK (formerly North Investment Partners Limited), authorised and regulated by the Financial Conduct Authority. |
In addition to the operating subsidiaries listed above, Liontrust Asset Management PLC has two other 100% owned subsidiaries. Liontrust Investment Funds Limited and Liontrust Investment Services Limited which act as a corporate member in Liontrust Fund Partners LLP and Liontrust Investment Partners LLP respectively.
Profit before tax was £9.103 million (2016: £9.404 million).
Adjusted profit before tax was £17.235 million after adding back expenses such as, share incentivisation, severance compensation and related legal costs, acquisitions related costs, professional services (restructuring, acquisition related and other), members advanced drawings, depreciation and intangible asset amortisation, and the Financial Services Compensation Scheme Interim Levy (2016: £14.623 million).
The Directors declare a second interim dividend of 11.0 pence per share (2016: 9.0 pence). This results in total dividends of 15.0 pence per share for the financial year ending 31 March 2017 (2016: 12.0 pence per share).
A review of the business and future developments is set out in the Chairman's statement, Chief Executive's statement and Strategic Report on page 3 and 6 to 21 respectively.
The Directors of the Company during the year and up to the date of the signing of the financial statements were as follows. Their interests in the share capital of the Company at 31 March 2017 are set out in the Remuneration report on page 40.
Adrian Collins(1) John Ions Vinay Abrol Alastair Barbour Mike Bishop George Yeandle
(1) Adrian Collins stepped down as Executive Chairman on 14 September 2016 to become Non-executive Chairman.
Information which is the required content of the management report can be found in the Strategic report and in this Directors' report.
The following table is disclosed pursuant to Listing Rule 9.8.4R. The information required to be disclosed, where applicable to the Company, can be located in these Annual Report and Financial Statements at the references set out below:
| Information required | Location |
|---|---|
| Interest capitalised | Not applicable |
| Shareholder waiver of dividends | Note 21 page 82 |
| Shareholder waiver of future dividends | Note 21 page 82 |
| Agreements with controlling shareholders | Not applicable |
| Provision of services by a controlling shareholder | Not applicable |
| Key contracts | Risk Management and |
| Internal Controls Report | |
| Details of long-term incentive schemes | Remuneration report |
| Waiver of emoluments by a Director | Not applicable |
| Waiver of future emoluments by a Director | Not applicable |
| Non-pre-emptive issues of equity for cash | Not applicable |
| Non-pre-emptive issues of equity for cash in | Not applicable |
| relation to major subsidiary | |
| Participation by parent of a placing by a | Not applicable |
| listed subsidiary | |
| Publication of unaudited financial information | Historical Summary |
All the information cross referenced above is incorporated by reference into this Directors' report.
As at 31 March 2017, there were 45,471,555 fully paid ordinary shares of 1p amounting to £454,716. As at 14 June 2017 there were 49,532,347 fully paid ordinary shares of 1p amounting to £495,323. Each share in issue is listed on the Official List maintained by the FCA in its capacity as the UK Listing Authority. There was no change to the issued share capital during the year.
The Company has one class of ordinary shares which carry the right to attend, speak and vote at general meetings of the Company. The holders of ordinary shares have the right to participate in dividends and other distributions according to their respective rights and interests in the profits of the Company and a return of capital on a winding-up of the Company. Full details regarding the exercise of voting rights in respect of the resolutions to be considered at the Annual General Meeting to be held on 12 September 2017 are set out in the Notice of Annual General Meeting.
To be valid, the appointment of a proxy to vote at a general meeting must be received not less than 48 hours before the time appointed for holding the meeting. None of the ordinary shares carries any special rights with regard to control of the Company.
Under Resolution 14 of the Annual General Meeting held on 8 September 2016, the shareholders authorised the Company to purchase its own shares pursuant to section 701 of the Companies Act 2006. This authority is limited to the maximum number of 4,547,155 Ordinary shares of 1 pence each (equivalent to approximately ten per cent of the issued share capital of the Company). This authority expires at this year's Annual General Meeting of the Company or 9 December 2017 (whichever is the earlier). The maximum price that may be paid for an Ordinary share will be the amount that is equal to 5 per cent above the average of the middle market prices shown in quotations for an Ordinary share in the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which that Ordinary share is purchased. The minimum price which may be paid for an Ordinary share is 1 pence.
A report on corporate governance appears on pages 29 to 30.
A report on principal risks appears in the Strategic Review on pages 18 to 21 and a report on the risk management and internal controls appear on pages 31 to 33.
Liontrust aims to be recognised as an organisation that is transparent and ethical in all its dealings as well as making a positive contribution to the community in which it operates. The Board recognises the Group's impact, responsibilities and obligations on and towards society and aims to promote equal opportunities and human rights, reduce environmental risk and operate in a sustainable manner.
The Group is committed to the highest standards of business conduct. Policies and procedures are in place to facilitate the reporting of suspect and fraudulent activities, including money laundering and anti-bribery policies.
The Group's health and safety policy aims, insofar as it is reasonably practical, to ensure the health and safety of all employees and other persons who may be affected by the Group's operations and provide a safe and healthy working environment. The Group has a good record of safety.
The Group gives fair consideration to any application for employment from disabled persons, where the person can adequately fulfil the job's requirements. Should any existing employee become disabled, the Group will aim to ensure, as far as is practicable, to provide continuing employment under normal terms and conditions and to provide training and career development to disabled employees.
The Group's financial instruments at 31 March 2017 comprise cash and cash equivalents, financial assets and receivable and payable balances that arise directly from its daily operations.
Receivables arise principally in respect of fees receivable on funds under management, cancellations of units in unit trusts and sales of units in unit trusts, title to which are not transferred until settlement is received. The Group's credit risk is assessed as low.
Financial assets comprise assets held at fair value through profit or loss and assets held as available-for-sale.
Assets held at fair value through profit or loss are unit trust units held in the 'manager's box' to ease the calculation of daily creations and cancellations.
Assets held as available-for-sale are shares in the sub-funds of the Liontrust Global Funds Plc.
Cash flow is managed on a daily basis, both to ensure that sufficient cash is available to meet liabilities and to maximise the return on surplus cash through use of overnight and monthly deposits. The Group is not reliant on income generated from cash deposits.
Deposit banks are selected on the basis of providing a reasonable level of interest on cash deposits together with a strong independent credit rating from a recognised agency. Any banks selected for holding cash deposits are selected using a detailed counterparty selection and monitoring policy which is approved by the Board.
Based on holding the financial instruments as noted above the Group does not feel subject to any significant liquidity risks.
Full details of the Group's financial risk management can be found in note 2 on page 68.
On 1 April 2017 the Group completed the acquisition of Alliance Trust Investments Limited. See note 25 on page 84.
The Annual General Meeting of the Company will be held in the Pinafore Room at The Savoy, London WC2R 0EU on 12 September 2017 at 2 p.m. A notice convening this meeting will be sent to shareholders in August 2017.
The Following information is disclosed in accordance with section 992 of the Companies Act 2006:
Having given consideration to the uncertainties and contingencies disclosed in the financial statements, the Directors have satisfied themselves that the Group has adequate resources to continue in operation and they continue to adopt the going concern basis of accounting in preparing the annual financial statements.
As so far as the Directors are aware, there is no relevant information of which the Company's independent auditors are unaware. The Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company's independent auditors are aware of that information.
PricewaterhouseCoopers LLP were the independent auditors to the Company during the year and have confirmed their willingness to continue in office. A resolution to reappoint PricewaterhouseCoopers LLP as auditors to the Company and to authorise the Directors to fix their remuneration will be proposed at the 2017 Annual General Meeting.
The Group made no political donations or contributions during the year. (2016: £nil).
Mark Jackson Company Secretary 14 June 2017
The Directors are responsible for preparing the Annual Report and Financial Statements and the Remuneration Report in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the company and Group for that period. In preparing these financial statements, the directors are required to:
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.
The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors consider that the annual report and financial statements taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company's, performance, business model and strategy.
Each of the Directors, whose names and functions are listed on page 24 confirm that, to the best of their knowledge and belief:
In the case of each director in office at the date the Directors' Report is approved:
Vinay Abrol Chief Operating Officer & Chief Financial Officer 14 June 2017
The Company is committed to the principles of the UK Corporate Governance Code (September 2014) (the "Code"). During the year the Company has applied the main principles and complied with the provisions of the Code.
The Board is responsible for organising and directing the affairs of the Company and the Group in a manner that is in the best interests of the shareholders, meets legal and regulatory requirements and is also consistent with good corporate governance practices. There is a formal document setting out the way in which the Board operates, which is available upon request from the Company Secretary.
The division of responsibilities between Adrian Collins, Chairman, and John Ions, Chief Executive, has been clearly established by way of written role statements, which have been approved by the Board. The Chairman's main responsibilities are to lead the Board, ensure that shareholders are adequately informed with respect to the Company's affairs and that there are efficient relations and communication channels between management, the Board and shareholders, liaising as necessary with the Chief Executive on developments, and to ensure that the Chief Executive and his executive management team have appropriate objectives and that their performance against those objectives is reviewed.
The Chief Executive's main responsibilities are the executive management of the Group, liaison with the Board and shareholders (as required by the Chairman), to manage the strategy of the Group, to manage the senior management team, oversee and manage the sales and marketing teams, and to be an innovator and facilitator of change. The Chief Executive discharges his responsibilities in relation to the executive management of the Group via two partnership management committees as detailed in the Risk management and internal controls report on page 31 to 33.
The Chairman and Chief Executive are responsible to the Board for the executive management of the Group and for liaising with the Board and keeping it informed on all material matters.
The Non-executive Director's role has the following key elements:
Under the Company's articles of association, one third of the Directors must retire from office by rotation at each Annual General Meeting and may offer themselves for re-election (this does not include Directors appointed to the Board since the last Annual General Meeting). Under the Company's Corporate Governance Guidelines, which reflect the provisions of the Code on Corporate Governance, Non-executive Directors must retire and may offer themselves for re-election annually once they have served nine or more years on the Board. The UK Corporate Governance Code recommends that all Directors of FTSE 350 companies retire and are put up for re-election at the Annual General Meeting. Although the Company is not a FTSE 350 company; the Board considers this to be best practice and, accordingly, has decided to go beyond the requirements of the Company's Corporate Governance Guidelines and articles of association and require that all Directors of the Company retire and offer themselves for re-election.
The Board met ten times during the year. In addition, there were occasions when the Directors met as a committee of the Board in order to authorise transactions already agreed in principle at Board meetings. On those occasions, a quorum of either two or three Directors was required.
Biographical details of all current Directors can be found on page 24.
There were no changes to the Board during the financial year and up to the date of the signing of the financial statements. Attendance at meetings of the Board and the Audit & Risk, Nomination and Remuneration Committees is shown in the table on page 34.
At all times during the year there have been at least three Non-executive Directors. The Board believes that the balance achieved between Executive and Non-executive Directors is appropriate and effective for the control and direction of the business.
The Chairman has met during the year with the Non-executive Directors both individually and collectively without the other Executive Directors.
Having duly evaluated each of the Non-executive Directors, the Board considers that, all such Directors are independent, in that they neither represent a major shareholder group nor have any involvement in the day to day management of the Company or its subsidiaries. As such they continue to bring objectivity and independent judgement to the Board and complement the Executive Directors' skills, experience and detailed knowledge of the business.
None of the Executive Directors nor the Chairman are on the board of a FTSE 100 company.
Non-executive Directors are aware that they have to report any change in their circumstances or those of the members of their families that might lead to the Board reconsidering whether they are independent. Directors are also aware that they have to inform the Board of any conflict of interest they might have in respect of any item of business and absent themselves from consideration of any such matter.
The Non-executive Directors have disclosed to the Company Secretary their significant commitments other than their directorship of the Company and have confirmed that they are able to meet their respective obligations to the Company.
Directors have the right to have any concerns about the running of the Company minuted and documented in a written statement on resignation.
The Company has arranged insurance cover in respect of legal action against its Directors and Officers.
The Board conducts a formal review and rigorous evaluation of individual Directors, its own performance and that of its committees. The evaluation process is constructively used to improve Board effectiveness, maximise strengths and address any weaknesses.
The Executive Directors have been subject to a formal performance appraisal. These appraisals were carried out in May 2017 and in all cases their performance was appraised as continuously effective. The performance of the Non-executive Directors during the year to 31 March 2017 has been reviewed by the Executive Directors. The review has confirmed that the performance of the Non-executive Directors is effective and appropriate.
In addition to the individual appraisals, the Board considers its overall performance as a body and of its committees. This review has confirmed that the performance of the Board and its committees is effective and appropriate.
Every Director is entitled to receive appropriate training and guidance on their duties and responsibilities. Continuing professional development is offered to all Directors and the Board is given guidance and training on new developments, such as new regulatory requirements.
In order to promote awareness and understanding of the Group's operations, the Chairman ensures there are additional opportunities for the Non-executive Directors to meet with senior management outside of the Board and its committees.
The Chairman regularly meets with major shareholders and the Chief Executive and Chief Operating Officer & Chief Financial Officer also have regular meetings with existing and potential new shareholders. The views of the shareholder are conveyed to Non-executive Directors by the presentation at Board meetings of surveys of shareholder opinion carried out by the Group's brokers and of analysts' reports and also by feedback from the Executive Directors who regularly meet with shareholders.
The Company has received notifications in accordance with the Financial Conduct Authority's ("FCA") Disclosure and Transparency Rule 5.1.2R of the following interests in 3% or more of the voting rights attaching to the Company's issued share capital as follows:
| Name | Number of voting rights |
Percentage of voting rights |
|---|---|---|
| Schroders Plc | 8,179,646 | 18.0 |
| Polygon Global Partners LLP | 4,535,724 | 10.0 |
| BlackRock Inc. | 3,806,620 | 8.4 |
| Hargreaves Hale Limited | 2,305,931 | 5.1 |
| Jonathan Hughes-Morgan | 2,167,709 | 4.8 |
| Legal & General Group Plc | 2,140,010 | 4.7 |
| Artemis Investment Management LLP | 2,100,000 | 4.6 |
| Name | Number of voting rights |
Percentage of voting rights |
|---|---|---|
| Schroders Plc | 7,872,310 | 15.9 |
| Polygon Global Partners LLP | 4,535,724 | 9.2 |
| Alliance Trust Plc | 4,060,792 | 8.2 |
| BlackRock Inc. | 3,806,620 | 7.7 |
| Hargreaves Hale Limited | 2,305,931 | 4.7 |
| Legal & General Group Plc | 2,140,010 | 4.3 |
| Artemis Investment Management LLP | 2,100,000 | 4.2 |
Directors have access to the services and advice of the Company Secretary, and may take additional independent professional advice at the Group's expense in furtherance of their duties. The terms of reference of the Audit & Risk, Nomination and Remuneration Committees have been considered by their members with a view to ensuring they have available adequate resources to discharge their duties.
Details of the chairmen and membership of the Audit & Risk, Nomination and Remuneration Committees are set out in the table on page 34 together with details of attendance at meetings.
At the 2016 Annual General Meeting shareholders gave approval for the Company to buy back up to 4,547,155 Ordinary shares. Shareholders have also renewed the Directors' authority to issue ordinary shares up to an aggregate nominal value of £151,571.
Notices convening Annual General Meetings are despatched to shareholders at least twenty working days before the relevant meeting and contain separate resolutions on each issue, including a resolution to adopt the annual report and financial statements. At every Annual General Meeting, the Chairman of the Group and the chairmen of the Audit & Risk, Nomination and Remuneration Committees make themselves available to take questions from shareholders.
The Company has put arrangements in place with its registrars to ensure that all proxy votes are received and accurately accounted for. The level of proxies lodged on each resolution, including votes for, against and abstained, will be available on the Company's website or upon request from the Company Secretary after the Annual General Meeting.
The Board is ultimately responsible for determining the risk appetite, risk strategy and risk management framework of the Group. The FCA have noted that it is for each individual firm to determine, based on its nature, scale and complexity, as well as its attitude to exposure to risk, whether or not to establish a Risk Committee of the governing body. The Group has determined not to establish a separate Risk Committee but to combine it with the Audit Committee, although this is reviewed on an annual basis.
The Audit & Risk Committee, on behalf of the Board, is accountable for, and responsible for, overseeing the Group's financial reporting, risk management and system of internal controls, including suitable monitoring procedures, which are designed to provide reasonable, but not absolute, assurance against material misstatement or loss. The Audit & Risk Committee, on behalf of the Board, is also responsible for keeping under review the scope, results, fees and the independence of the external auditors.
The Head of Risk is responsible for overseeing all risk management of the Group and monitors the Group's risks in a pro-active manner, with all departments fully aware of and managing the key risks appropriate to their responsibilities. All material risks to the business are monitored, appropriate mitigations for each risk are recorded and identified to the Board with markers for those with increased risk levels. Management recognise the importance of risk management and view risk management as an integral part of the management process which is tied into the business model and is described further in the Principal risks and mitigations section of the Strategic Report on pages 18 to 20.
The Corporate Governance report on page 29 details the Board's and the Chief Executive's responsibilities for organising and directing the affairs of the Company. The Board has delegated a number of its powers to three subcommittees; the Audit & Risk Committee, the Nomination Committee and the Remuneration Committee.
The Board has delegated the authority for the executive management of the Group to the Chief Executive except where any decision or action requires approval as a Reserved Matter in accordance with the Schedule of Matters Reserved for the Board. The Group have set up two management committees to assist the Chief Executive, namely the:
operations, risk management (including portfolio risk), and investment processes (including performance of the process, outlook, amendments or enhancements to the investment processes and new instruments within funds).
Fig 2: Board and Management committees and sub-committees
There are usually at least ten Partnership Management Committee Meetings held over the course of a financial year.
There are several sub-committees of the Partnership meetings that have been set up including the Treating Customers Fairly Committee, the Financial Crime Prevention Committee, the Portfolio Risk Committee, the Client Assets Committee and the Health and Safety Committee.
The Treating Customers Fairly Committee ("TCFC") oversees the management of the Group's Treating Customers Fairly initiatives throughout the business, reviewing the suitability of products for clients and monitoring customer outcomes. The TCFC agrees and monitors the Group's approach to clients and how our responsibilities are discharged. It keeps track of any regulatory developments and also manages the training programmes. The core to the TCFC's work is the management of our TCF programme in relation to the six outcomes that the FCA has set out for the industry. This work includes an ongoing assessment of our business against those outcomes with any actions tracked accordingly.
The Financial Crime Prevention Committee ("FCPC") oversees the effectiveness, scope and performance of the procedures throughout the business to prevent money laundering (including the review of any sanctions breaches, review of politically exposed persons and suspicious activity reports), fraud including excessive or inappropriate gifts and entertainment given and received, cybersecurity and anti-bribery and corruption policies and procedures within Liontrust including the due diligence of third parties.
The Portfolio Risk Committee ("PRC") oversees the management of portfolio risk throughout the business. This oversight encompasses portfolio risk management systems and operations together with the monitoring of portfolio risk investment restrictions. The PRC has documented the approach to risk management in the Risk Management Process document ("RMP"). The PRC also monitors portfolio performance and investment processes, establishing parameters for exception reporting and ensuring that appropriate client communications are prepared as necessary.
The Portfolio Risk Committee ensures that investment teams have appropriate risk processes in place and that each fund has an agreed risk profile which details all the monitored risk controls and the risk limits for each fund.
The Client Asset Committee ("CAC") is responsible for how client money and assets are held by the Group or its outsourced providers. Identifying all client assets, the controls and procedures in place for handling client assets and identifying, managing and monitoring the risks to keep the money and assets as safe as possible in all circumstances.
The Health and Safety Committee ("HSC") is responsible for all health and safety matters for the Group including the health and safety policy statement, any required health and safety related risk assessments for the Group, the first aid requirements, all fire safety and emergency procedures, the environmental policy and any other matters relating to the general health and safety requirements of the Group's staff.
There are Terms of Reference for all committees, setting out the way in which the meetings operate. The Terms of Reference are formally adopted by the Liontrust Board and are reviewed annually. Minutes are taken of each meeting and are circulated to the main board for review and challenge where appropriate.
In order to ensure that the Group regularly reviews and monitors all the potential areas of risk to the business, Liontrust has implemented a risk management framework which allows management, the Audit & Risk Committee and the Board to be kept fully informed of potential risks to the business and also how these risks would impact the group's capital adequacy.
The diagram below summarises the Group's Risk Framework.
There are two main elements to capturing and reviewing risk within the Group; the Risk Register and the Internal Capital Adequacy Assessment Process ("ICAAP"). The Risk Register records potential risks, their materiality and their likelihood of occurrence and is updated regularly with input from executives and function heads. The most material and likely risks from the complete Risk Register are reported to the main Board at each Board Meeting in a Key Risk Report. The ICAAP sets out the Group's risk appetite for the different business areas and brings the Risk Register together with scenario analysis and stress testing to determine how the realisation of risks might impact on the Group's financial position.
The Group breaks risk down into four main categories that feed into the Risk Register and the ICAAP: Credit Risk, Market Risk, Operational Risk and Other Risk. Further details of the risks are listed in the principal risks and mitigations section of the Strategic Report on pages 18 to 20. Each element of risk is formally reviewed by the Audit & Risk committee on a minimum of an annual basis, and the Group ensures appropriate controls are in place to manage these risks.
The risk and uncertainties that affect the Group's business can also be broken down into risks that are within the management's influence and risks that are outside it. Risks that are within management's influence include areas such as the expansion of the business, prolonged periods of underperformance, loss of key personnel, human error, poor communication and service leading to reputation damage and fraud. Risks outside the management's influence include regulatory change, Brexit, falling markets, terrorism, a deteriorating UK economy, investment industry price competition and hostile takeovers.
The internal control system is designed to manage, rather than eliminate, the risk of failure to achieve business objectives. The Group's internal control system is based on a "three lines of defence" model summarised in the diagram below:
Liontrust's Business Departments, supervised by the Partnership Committees, are responsible for identifying and managing risk and control activities within their business lines. This is the first line of defence. The Control Departments supervised by the Audit & Risk Committee develop and implement risk frameworks to support the front line and objectively challenge the identification of risk and the design of the controls within the business as a whole. The third line is a review of the risk and control activities in the Company by parties independent from the design, implementation and execution to highlight weaknesses, and provide assurance on the effectiveness and suitability of the internal controls.
The main elements of the Internal Controls which have operated throughout the year are as follows:
The Board has reviewed the effectiveness of the Group's system of internal controls for the financial year and up to the date of this annual report and financial statements. The Board has carried out a robust assessment of the principal risks affecting the business and has a process in place within the business to control and monitor risks on an ongoing basis, in accordance with the guidance from the Financial Reporting Council's Guidance on risk management, internal control and related financial and business reporting ('GRM') The Board is of the view that all necessary actions have been, or are being, taken to address matters identified as part of the ongoing risk management process and that no significant weaknesses were identified during the year.
Additionally the Group has a significant number of stakeholders whose future risks and uncertainties are linked to the Group. These significant stakeholders are: shareholders; clients; members; employees; service providers that provide the Group with outsourced functions; and industry bodies.
Each of these groups presents different risks and uncertainties and the Group ensures that there is regular contact and monitoring of the various bodies. Outsourcing is an integral part of the Liontrust operating model. Recent changes in legislation and renewed interest by the FCA in the topic have prompted the documenting of how the model operates and determining if any changes are required within the new regulatory environment. Liontrust outsources in two key areas, Transfer Agency and Fund Accounting & Fund Valuation Services across two main jurisdictions.
Liontrust appoints a trust company, bank or similar institution to maintain records of investors and account balances and transactions, to cancel and issue certificates, to process investor mailings and to deal with any associated problems.
Liontrust appoints a trust company, bank or similar institution to perform Net Asset Value ("NAV") calculations for each of the funds. The following services are also typically included in this service: processing of corporate actions and dividends, expense accrual management, cash management and reconciliation, calculation and timely payment of all management and performance fees, and preparation of interim and annual financial statements.
The table below details the companies that provide these outsourced functions:
| Jurisdiction | Transfer Agent | Fund Accounting & Fund Valuation |
|---|---|---|
| UK | International Financial Data | State Street Bank & |
| Services Limited | Trust Company | |
| Ireland | Northern Trust International | Northern Trust International |
| Fund Administration Services | Fund Administration Services | |
| (Ireland) Limited | (Ireland) Limited |
Liontrust has detailed service level agreements in place with these key outsource providers and they are closely monitored to ensure these standards are met. The Board have agreed a counterparty selection policy and has appropriate business continuity plans in place with details on monitoring, contingency and resilience plans for all counterparties.
The senior management arrangements, systems and controls environment in place across the Group are reviewed by the Board and Audit & Risk Committee each year. It was decided in 2016 that, given the growth and increased complexity of the business, it was appropriate for the Group to appoint an internal audit function and delegate much of the task of monitoring the appropriateness and effectiveness of its systems and controls to this internal audit function. The Audit & Risk Committee and the Internal Auditors have agreed a rolling three year Internal Audit plan. This includes the following Audit areas: front office controls; data protection, security and governance; risk management; significant financial systems; outsourcing arrangements and CASS. The Internal Auditors will also perform a full systems and controls review every three years.
On an annual basis, Liontrust commissions Deloitte LLP, an external accountancy firm, to perform testing of integrity of aspects of the Groupwide control environment. Liontrust has adopted the principles established in the "Assurance Reports on internal controls of service organisations made available to third parties" as recommended by the Institute of Chartered Accountants of England and Wales in the March 2011 technical release of AAF 01/06. The results of this testing, including any exceptions identified, are made available to senior management, the Board, Audit & Risk Committee and our institutional customers as appropriate.
The number of Board and Board committee meetings attended by Directors in the year ended 31 March 2017 was as follows:
| Board1 | Audit & Risk Committee |
Remuneration Committee |
Nomination Committee |
|
|---|---|---|---|---|
| Total number of meetings during the year |
10 | 5 | 7 | 3 |
| Adrian Collins | 9 | – | – | 3 |
| John Ions | 10 | – | – | 3 |
| Vinay Abrol | 10 | – | – | – |
| Alastair Barbour | 8 | 5* | 6 | 3 |
| Mike Bishop | 10 | 4 | 6 | 3* |
| George Yeandle | 10 | 5 | 7* | 3 |
* Chairman of the Board or Committee
(1) Of the 10 board meetings that took place during the year, 6 were scheduled
On behalf of the Audit & Risk Committee (the "Committee"), I am pleased to present the Audit & Risk Committee report for the financial year ended 31 March 2017.
The Committee's principal duties are as follows:
The terms of reference of the Committee, which explain its role and the authority delegated to it by the Board of Directors, are published on the Company's website or are available upon request from the Company Secretary.
This introduction is intended to provide a summary of key events during the year from a Committee perspective and to give further insight into the workings of the Committee and its approach.
During the year, a significant proportion of the Committee's time was spent reviewing the Group's system of risk management and internal control; the integrity of financial reporting; and the effectiveness of the Group's Finance, Risk and Compliance functions, and external audit. The Committee's focus was on the continuing appropriateness of the Group's financial reporting. In particular this included the significant financial judgements taken in the financial year ended 31 March 2017, and the ongoing assessment of risks faced by the business and management's response to these risks.
During the year, the Committee comprised of independent Non-executive Directors:
The attendance record of members of the Committee during the year is shown in the table on page 34.
All of the Committee's members who served during the year are considered by the Board to be appropriately experienced and sufficiently qualified to fulfil their duties. The Board considers Alastair Barbour to have recent and relevant financial experience.
The Committee members' profiles are set out in full in the Board members' biographies.
The Chief Operating Officer & Chief Financial Officer, Head of Compliance and Financial Crime, Head of Finance and Head of Risk were regular attendees at the Committee meetings and reported on their respective areas. The external auditor, PricewaterhouseCoopers LLP, attended the meetings following the half and full year ends and met privately with the Committee.
Chairman of the Audit & Risk Committee 14 June 2017
The Committee has a formal programme of issues which it covers during the year. This programme is formulated by the Committee Chairman and the Chief Operating Officer & Chief Financial Officer and is designed to ensure that all matters that fall within the Committee's remit are reviewed during the year. The Committee has access to external independent advice at the Company's expense.
In respect of the financial year to 31 March 2017, the Committee met 5 times and discussed, amongst other things, the subjects described below:
During the year the Committee considered key accounting issues, matters and judgement in relation to the Group's financial statements and disclosures relating to:
i) Revenue recognition
The risk of recognising revenue in incorrect periods via management manipulation is significant in that revenue levels may affect management's levels of remuneration and incentivisation. Risks of such manipulation are heightened where there is judgement applied in calculation or recognition of revenue. Any such calculations are subject to internal approvals and sign offs and are subject to independent verification. Revenue is recognised in accordance with the accounting policy on Note 1m) on page 67. The Committee discussed recognition of revenue with management and questioned them on the application of the group's accounting policy with particular emphasis on fee income, performance fees and profits from dealing in unit trusts. Revenue recognition was also a key focus for the auditors and they reported to the Committee on their work and findings. ii) Risk of management override of controls
International Standards on Auditing ('ISA's') require that this is identified as a significant risk by our auditors and, as such, it is treated as a significant risk by the Committee. Management have the potential to manipulate accounting records and financial reports by overriding controls. Reported financial information is regularly reviewed and discussed by the Committee and the Board with any significant deviations from expectations being queried. Findings from the audit are discussed with the external auditor. iii) Share based payments
Share based payments are a focus for the Committee in view of the complexity of accounting, interpretation of the reporting standard and valuation of awards. The Committee receives information and explanations from management which is discussed with them and the auditors, taking into account the results of their audit work.
As part of its annual review of systems and controls, the Committee considered whether to establish a separate internal audit function. It was decided that, given the growth and increased complexity of the business, it was appropriate for the Group to appoint an internal audit function and delegate much of the task of monitoring the appropriateness and effectiveness of its systems and controls to this internal audit function. After a rigorous selection process, Minerva Management Consulting Limited ("Minerva" or "Internal Auditor") were appointed as the Group's internal auditors with a direct reporting line to the Head of the Audit and Risk Committee. The Committee believe that using an external firm will ensure that the internal audit function will be adequately resourced and staffed by competent individuals and be independent of the day-to-day activities of the firm whilst still having appropriate access to a firm's records. The Committee and the Internal Auditors have agreed a rolling three year Internal Audit plan. This includes the following Audit areas: front office controls; data protection, security and governance; risk management; significant financial systems; outsourcing arrangements and CASS. The Internal Auditors will also perform a full systems and controls review every three years.
The Committee regularly meets with Minerva, with and without management present, throughout the year to receive updates and to review its findings. Each year the Committee considers the performance and scope of the Internal Auditors prior to the commencement of the next year's internal audit programme to ensure they remain consistent with the Group's requirements.
PricewaterhouseCoopers LLP ("PwC") are the Group's external auditors and were re-appointed following a tender of the audit during 2015. Each year they present to the Committee the proposed scope of their full-year audit plan. This includes their assessment of the material risks to the Group's audit and their proposed materiality levels, for the Committee's discussion and agreement.
The Committee meets regularly with the external auditors without management present. The audit engagement partner attends the committee meetings at which the half yearly and annual reports are reviewed. Each year, the Committee considers the performance of the external auditors prior to proposition of a resolution on their reappointment and remuneration at the Annual General Meeting.
Based on the satisfactory conclusions of the work described above carried out by the Committee to assess the performance of the external auditors and safeguard their independence, the Committee has recommended this to the Board. The Board has accepted the Committee's recommendation a resolution will be proposed at the 2017 Annual General Meeting for the reappointment of PwC as external auditors.
The Committee has developed and implemented a policy and guidelines on use of non-audit services from the external auditors to safeguard the objectivity and independence of the external auditors. This policy has been approved by the Board. The policy provides that provision of certain types of non-audit services are allowed ("Allowed Services"), whilst others are not permitted under any circumstances ("Prohibited Services"). Prohibited Services are those where the Committee considers that the possibilities of a threat to auditor independence is high.
Allowed Services are those considered to have a low threat to auditor independence. Nonetheless, Allowed Services still need the Committee's approval if the expected fee exceeds £25,000. The policy also sets out certain disclosures the external auditors must make to the Committee, restrictions on employing the external auditors' former employees, partner rotation and the procedures for approving non-audit services provided by the auditors. The policy is reviewed regularly and updated to ensure compliance with all applicable regulations such as the new EU audit reform regulation.
During the year, the external auditors were, on a number of occasions, engaged as advisers. The range of non-audit services provided included tax compliance services, and technical support in relation to employee and member incentivisation services. The Committee is satisfied that the external auditors were best placed to provide these services because of their familiarity with the relevant areas of Group's business and that there are no matters that would compromise the independence of the external auditors or affect the performance of their statutory duties. The Committee receives a regular report setting out the non-audit services provided by the external auditors during the year and the fees charged. Details of fees paid to the auditors can be found in Note 6 of the financial statements on page 74. The non-audit services as identified in Note 6 have all complied with the policy as detailed above.
Chairman of the Audit & Risk Committee 14 June 2017
On behalf of the Nomination Committee (the "Committee"), I am pleased to present the Nomination Committee report for financial year ended 31 March 2017.
The Committee's principal duties are as follows:
The terms of reference of the Committee, which explains its role and the authority delegated to it by the Directors, are available on the Company's website or upon request from the Company Secretary. The terms and conditions of appointment of the Directors will be available for inspection at the 2017 Annual General Meeting.
This introduction is intended to provide a summary of key events during the year from a Committee perspective and to give further insight into the workings of the Committee and its approach. During the year, the Board's structure, size, composition and succession planning remained a major focus. After the changes of last year, we had no changes to the Board in this financial year ended 31 March 2017.
Chairman of the Nominations Committee 14 June 2017
During the year, the Committee comprised of independent Non-executive Directors and Executive Directors:
The attendance record of members of the Committee during the year is shown in the table on page 34.
In the financial year ended 31 March 2017, the Committee met three times and discussed, amongst other things, the subjects described below:
renewal process for the appointment to Board committees and confirmation of current appointments;
consideration of succession planning for Directors and key executives, and initiating a Detailed Succession Planning and Talent Management Review, which is due to report back to the Committee at the June 2017 Committee meeting;
The Committee received information and support from the Chief Operating Officer & Chief Financial Officer during the year. In order to enable the Committee to carry out its duties and responsibilities effectively the Committee has the right to appoint external recruitment consultants or external advisers to fill vacancies where it believes that to be appropriate.
See below for two charts showing the split between Non-executive/Executive Directors and tenure:
Board Split
Tenure of Non-executive Directors (including the executive Chairman)
As part of the review of the time required of Non-executive Directors to discharge their responsibilities, the Committee noted that:
The Committee and Board confirmed their satisfaction with the time and overall commitment given to Liontrust by Mr Barbour and Mr Collins and all other Directors.
The Committee considers diversity when looking to appoint additional Directors. It is a prerequisite that each Director or proposed Director must have the skills, experience and character to contribute both individually and as part of the Board, to the effectiveness of the Board and the success of the Company and Group. Subject to this overriding principle, the Board believes that diversity, amongst its members, including gender diversity, is of great value and it is the Board's policy to give careful consideration to issues of overall Board balance and diversity, in making new appointments to the Board. The Company currently has no female Directors and the Committee aims to recommend the appointment and to increase the number of female Directors if appropriate candidates are available when Board vacancies arise.
The Company operates a policy of equal opportunity, details of which can be found in the Corporate Social Responsibility section of the Strategic Report.
Chairman of the Nominations Committee 14 June 2017
On behalf of the Remuneration Committee (the "Committee"), I am pleased to present the Remuneration report for year ended 31 March 2017.
Our full Directors' remuneration policy, which was approved by shareholders in February 2016 with 96% of votes in favour, is available on the Company's website (in the Investor Relations section) and we have therefore only included the policy's Elements of reward table in this year's report.
The Annual report on remuneration outlines how our policy has been implemented in financial year ended 31 March 2017 and how we intend to implement it in the financial year ending 31 March 2018. As noted in my report last year I am committed to increased openness and consultation on remuneration matters and have ensured there is greater transparency of, and weighting to, performance and outcomes and how this effects annual bonus/ variable allocation in this year's report. The Annual report on remuneration and this letter will be subject to an advisory vote at our 2017 Annual General Meeting, to be held on 12 September 2017. Note that no changes are being proposed to the remuneration policy.
The Committee is charged with determining remuneration policy for, and setting pay and other benefits of, the Executive Directors of the Company and reviewing pay and other benefits of the Group's members and employees. All its recommendations are referred to the Board. Any Director, who has an interest in the matter which is the subject of a recommendation to the Board, abstains from the Board's vote in relation to that matter and takes no part in its deliberations. The Committee may use external advisors if required. The terms of reference of the Committee, which explains its role and the authority delegated to it by the Board, are available on the Company's website or upon request from the Company Secretary.
This introduction is intended to provide a summary of key events during the year from a Committee perspective and to give further insight into the workings of the Committee and its approach.
The Committee considered the Group's overall performance in the financial year ended 31 March 2017 and the impact of awards under the LTIP on total remuneration when assessing Executive Directors' annual bonus/variable allocation for the financial year ended 31 March 2017 and LTIP allocations for the financial year ended 31 March 2018.
Over the past year the Group has continued the excellent progress made in previous years in:
All this, is in a challenging operating environment for fund managers with many fund management companies reporting net outflows. These achievements alongside performance against the key performance indicators set by the Committee for the Executive Directors (see the Annual report on remuneration for further details) are an important consideration in relation to the overall remuneration package for the Executive Directors, and have been reflected when determining the Executive Directors' overall remuneration package and can be summarised as follows:
The Committee believes that the level of annual bonus/variable allocation and LTIP awards are commensurate with the exceptional corporate and personal performance of the Executive Directors over the financial year ended 31 March 2017, please see the Annual report on remuneration for further details.
Two important components of the Company's remuneration policy are requiring a strong alignment between shareholders and the Executive Directors by requiring the Executive Directors to build up and retain a significant shareholding in the Company (2.5x salary/fixed allocation) and the significant deferral of variable remuneration. I am pleased to be able to confirm that John Ions and Vinay Abrol each have over 10x salary/fixed allocation in Ordinary shares and each are subject to the deferral of 70% of variable remuneration.
The annual bonus/variable allocation for all employees and members including the Executive Directors for the financial year ended 31 March 2017, which is capped at 30% of pre-cash bonus/variable allocation Adjusted Profit before tax, is 25% of pre-cash bonus/variable allocation Adjusted Profit before tax (2016: 25%).
We hope to continue to receive your support at the forthcoming AGM.
Chairman of the Remuneration Committee 14 June 2017
This section of the Remuneration report provides an overview of the key remuneration elements in place for Executive Directors. After the strong support received from shareholders at the 24 February 2016 General Meeting at which the revised Directors' remuneration policy was approved, we have not made any changes to our remuneration policy and as such remain bound
by the policy. We have not reproduced the full policy report in this report. The below presents our approved Elements of reward table for Executive Directors' and Non-executive Directors' for reference. A copy of our full Directors' remuneration policy as approved by shareholders can be found in the February 2016 Notice of General Meeting, on pages 13 to 20 (available on our website: www.liontrust.co.uk in the Report & Accounts sub-section of the Investors Relation section).
The following table summarises each of the elements of Liontrust's total compensation package and the ongoing remuneration policy for the Executive Directors:
| Objective and Link to strategy | Operation | Maximum opportunity | Performance measures and assessment |
|
|---|---|---|---|---|
| Base salary or Fixed | To provide a satisfactory base | Salaries and fixed allocations are | There is no guaranteed or | Not applicable. |
| allocations | salary/fixed allocation within | reviewed annually effective in | maximum annual increase. The | |
| a total package comprising | April taking account of market | Committee considers it important | ||
| salary/fixed allocation and | levels, corporate performance, | that base salary and fixed | ||
| bonus/variable allocation. The | individual performance and | allocation increases are kept under | ||
| level of salary/fixed allocation | levels of increase for the broader | tight control given the potential | ||
| broadly reflects the value of the | employee/member population. | multiplier effect of such increases | ||
| individual, their role, skills and | Reference is made to median – | on future costs. The Committee | ||
| experience. It is also designed | upper quartile levels within the | will aim to keep, on a rolling five | ||
| to attract and retain talent in the | FTSE and industry comparators. | year basis, base salaries/fixed | ||
| market in which the individual is | allocations in line with the cost | |||
| employed and/or a member. | of living. |
The annual bonus or variable allocation rewards good performance of the Group and individual Executive Director and is based on the Group's profits, which is considered one of the most prominent KPIs.
The annual bonus pool or variable allocation pool is based on a percentage of the Group's precash bonus/variable allocation Adjusted Profit before tax. The Committee believes that this ensures that annual bonuses or variable allocations are affordable. Annual bonus/variable allocation payments to Executive Directors are made from this aggregate annual bonus/variable allocation pool in which all employees and members participate and which is approved by the Committee each year. The actual level of annual bonus/variable allocation payment to the individual Executive Director takes into account a number of factors relating to the individual's role and performance from both a personal and corporate perspective. In addition, the Committee will also apply further measures such as assets under management, gross/net flows, cost control, corporate governance and risk management. Details of the performance metrics used to measure performance in each financial year will be disclosed where appropriate in the annual report on remuneration. The structure of the annual bonus or variable allocation is reviewed annually at the start of the financial year to ensure that it is appropriate and continues to support the Group's strategy. The Committee will determine how much of the bonus/variable allocation is deferred into funds.
Liontrust does not explicitly link total incentive awards to a multiple of base salary or fixed allocation or cap total awards to individuals but it should be noted that the aggregate annual bonus and variable allocation pool for all employees and members including Executive Directors is capped. This is to ensure that high performers can be rewarded in line with the market on a total cash (salary/ fixed allocation plus bonus/ variable allocation) basis. This also reduces the need to increase base salaries/fixed allocations and thereby increase fixed costs. The aggregate pool is capped at no more than 30% of pre-cash bonus/variable allocation Adjusted Profit before tax. There will also be an individual cap for Executive Directors in relation to the cash element of the annual bonus/ variable allocation of 200% of salary/fixed allocation, in order to increase deferral potential and place more value at risk for the Executive Directors. The Committee will review these caps after three years to ensure that they remain appropriate. Due to the nature of the factors used by the Committee to determine level of annual bonus/variable allocation it is not possible to set out the minimum level of performance and any further levels of performance. However, annual bonuses/variable allocations will be conservative at threshold levels of corporate performance. The risk controls incorporated in the Group's investment process and financial controls ensures that the uncapped annual bonus and variable allocations encourage both excellent performance and prudent risk management.
Individual risk and compliance behaviour is also considered in detail for relevant roles and factored into the assessment of performance and the determination of the bonus/variable allocation amount payable. The Chief Operating Officer & Chief Financial Officer, who is responsible for risk and compliance at board level, attends at least two Committee meetings each year to provide input on risk and compliance. A claw back principle applies to the annual bonus and/or variable allocations. This enables the Committee to recoup annual bonus or variable allocations in the exceptional event of: misstatement or misleading representation of performance, a significant failure in risk management and control, or serious misconduct of an individual.
| Objective and Link to strategy | Operation | Maximum opportunity | Performance measures and assessment |
|
|---|---|---|---|---|
| Deferred Bonus and Variable Allocation Plan ("DBVAP") |
The DBVAP provides a deferral element to annual bonuses and variable allocations, to ensure a link to longer term performance and to align the interests of Executive Directors with shareholders. |
The DBVAP offers deferral into Liontrust funds, in line with the current regulatory landscape and to create alignment directly with core business performance. Release will occur annually over three years (subject to a continuing employment and/or membership requirement). The Committee may award dividend/ distribution equivalents on Liontrust funds to the extent that awards are released. |
Awards under the DBVAP are compulsory and are calculated on a formulaic basis such that a proportion of annual bonuses or variable allocations take the form of an award under the DBVAP, subject to an individual cap for Executive Directors in relation to the cash element of the annual bonus/variable allocation of 200% of salary/fixed allocation. The deferred amount will be a minimum of 33.3% of the (total) annual bonus/variable allocation, subject to the cap on the cash bonus and variable allocation as detailed above. |
No further performance conditions apply to DBVAP awards as, in determining the original annual bonus or variable allocation amount, the Committee has been satisfied that performance objectives have been met. |
Long Term Incentive Plan ("LTIP")
The LTIP is intended to provide long term reward, incentivise strong performance and retain the Executive Directors. Vesting will be subject to a continuing employment/membership requirement and performance conditions which are linked to the Company's strategy/KPIs.
LTIP awards are granted annually and vesting is dependent on the achievement of performance conditions (including a shareholding requirement). Performance is measured over a three-year period. The operation of the LTIP is reviewed annually to ensure that grant levels, performance criteria and other features remain appropriate to the Company's current circumstances. Awards will then be released on a staggered basis over five years as follows:
The Committee may award dividend equivalents on shares to the extent that they vest.
The maximum annual award which can be made under the LTIP relating to any financial year is equal to 250% of base salary/ fixed allocation (based on the market value at the grant date). At target performance 20% of the award vests.
Performance measures and assessment
Awards are subject to continued employment and achievement of a range of balanced and holistic performance conditions that are linked closely to the Company's business strategy/KPIs. The current performance criteria are total shareholder return (40%), earnings per share (30%) and other strategic objectives (30%) which include net inflows, growth in assets under management, fund performance and other strategic measures. There is also a shareholding requirement of 2.5x salary/fixed allocation for Executive Directors that is linked to LTIP awards as follows:
| Objective and Link to strategy | Operation | Maximum opportunity | Performance measures and assessment |
|
|---|---|---|---|---|
| Share Incentive Plan ("SIP") |
The SIP allows the Executive Directors to purchase Company shares with a matching element, to build up an interest in Company shares and increase alignment of interests with shareholders. |
An all-employee HMRC approved share plan that allows the Executive Directors to purchase shares, in a tax efficient manner and subject to limits, which are matched by the Company. In line with the normal operation of a SIP envisaged by HMRC, there are no performance conditions on |
The maximum opportunity for benefits is defined by the nature of the benefit itself and the cost of providing it. As the cost of providing such insurance benefits varies according to premium rates and the cost of other benefits is dependent on market rates and other factors, there is no formal |
No performance conditions apply. Claw back provisions apply on matching shares during the vesting period in the event the recipient is a bad leaver. |
| Benefits | To provide benefits which are appropriately competitive. |
matching shares. Executive Directors are entitled to a range of benefits including: • Private Medical Insurance • Life Assurance; • Disability Assurance; and • access to an Employee / Member Assistance Programme Where relocation payments or allowances are paid it will be limited to 50% of salary/ fixed allocation. |
maximum monetary value. The maximum opportunity for other benefits is defined by the nature of the benefit itself and the cost of providing it. As the cost of providing such insurance benefits varies according to premium rates and the cost of other benefits is dependent on market rates and other factors, there is no formal maximum monetary value. |
Not applicable. |
| Pension | To provide competitive levels of retirement benefit |
Executive Directors' pension contributions are made at percentage of salary/fixed allocation into the Liontrust Group Pension Plan. Executive Directors have the choice of taking an equivalent cash payment/fixed allocation in lieu of pension contributions. |
The current Executive Directors receive a contribution or cash equivalent payment equal to 15% of base salary or fixed allocation. |
Not applicable. |
The following table summarises each of the elements of Liontrust's total compensation package and the ongoing remuneration policy for the Non-executive Directors:
| Objective and Link to strategy | Operation | Maximum opportunity | Performance measures and assessment |
|
|---|---|---|---|---|
| Non-executive Director fees |
To provide a satisfactory level of Non-Executive Director fees which is sufficient to attract individuals with appropriate knowledge and experience to review and support the implementation of the Group's strategy. |
Non-Executive Director fees are reviewed annually effective April. This is reflected in the policy of positioning Non-Executive Director fees at, generally, around what the Executive Directors believe is median in the market for a company of similar size and complexity from the FTSE and industry comparators. This may also include fees for membership/chairmanship of subcommittees of the Board or other Group committees. The Executive Directors are responsible for setting the remuneration of the Non-Executive Directors. Non-Executive Directors do not participate in any variable remuneration element. |
Non-Executive Chairman fees are capped at £200,000. Other Non-Executive Director fees are capped at £150,000. Fee increases are determined by reference to individual responsibilities, inflation and an appropriate comparator group. |
Not applicable. |
During the year, the Committee comprised entirely independent Nonexecutive Directors:
The attendance record of members of the Committee during the year is shown in the table on page 34.
In the financial year to 31 March 2017, the Committee met seven times and discussed, amongst other things, the subjects described below:
Review and approval of the bonuses and variable allocations for the employees and members (excluding the Executive Directors and Executive Chairman) for the financial year ended 31 March 2016;
Approval of the mechanism to implement DBVAP and the approval and granting of DBVAP awards for the financial year ended 31 March 2016; • Review and approval of the Bonus/Variable Allocation Methodology and
Executive Directors (audited information)
| Adrian Collins(1) Year to 31 March |
John Ions Year to 31 March |
Vinay Abrol Year to 31 March |
|||||
|---|---|---|---|---|---|---|---|
| 2017 £'000 |
2016 £'000 |
2017 £'000 |
2016 £'000 |
2017 £'000 |
2016 £'000 |
||
| A. Fixed pay | |||||||
| Base salary/Fixed allocation | 69 | 153 | 332 | 332 | 312 | 312 | |
| Benefits in kind(2) | 2 | 4 | 4 | 3 | 3 | 3 | |
| Cash in lieu of pension | 7 | 15 | 33 | 33 | 31 | 31 | |
| Total Fixed pay | 78 | 172 | 369 | 368 | 346 | 346 | |
| B. Annual Bonus/Variable Allocation | |||||||
| Cash bonus/variable allocation | – | 75 | 663 | 650 | 402 | 375 | |
| DBVAP(3) | – | 65 | 715 | 550 | 402 | 325 | |
| Total Annual Bonus/Variable Allocation | – | 140 | 1,378 | 1,200 | 804 | 700 | |
| C. Total pay for the financial year | |||||||
| Sub-total (A+B) | 78 | 312 | 1,747 | 1,568 | 1,150 | 1,046 | |
| D. Vesting of LTIP awards | – | – | – | – | – | – | |
| Total LTIP awards vesting | – | – | – | – | – | – | |
| E. Other | |||||||
| SIP matching shares(4) | 4 | 4 | 4 | 4 | 4 | 4 | |
| Total Other | 4 | 4 | 4 | 4 | 4 | 4 | |
| Total remuneration (C+D+E) | 82 | 316 | 1,751 | 1,572 | 1,154 | 1,050 |
(1) Adrian Collins stepped down as Executive Chairman on 14 September 2016 to become Non-executive Chairman and the fixed pay relates to that period. No variable .pay award was made to Adrian Collins for the financial year ended 31 March 2017;
(2) Benefits in kind comprise private medical insurance.
(3) Deferred Bonus (for employees) or Variable Allocations (for members) to be linked to the performance of Group managed funds and deferred over the period 1 April 2017 to 31 March 2020 for awards for the financial year ended 31 March 2017 (2016: 1 April 2016 to 31 March 2019) and to be linked to the performance of the relevant Group managed funds. For the year ended 31 March 2017, between 52% (for John Ions) and 50% (for Vinay Abrol) of the annual bonus/variable allocation has been deferred (2016: 46%). The vesting of DBVAP Awards are not subject to any performance condition, but are subject to continuous service conditions
(4) Matching shares granted under the SIP (Adrian Collins, John Ions and, Vinay Abrol on 20 June 2016). The vesting of matching shares awarded are not subject to any performance condition, but are subject to continuous service conditions.
Non-executive Directors (audited information)
| Adrian Collins(1) Year to 31 March |
Alastair Barbour Year to 31 March |
Mike Bishop Year to 31 March |
George Yeandle Year to 31 March |
|||||
|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Basic fee | 55 | – | 48 | 48 | 50 | 48 | 48 | 48 |
| Benefits(2) | 7 | – | 5 | 6 | – | – | – | – |
| Total | 62 | – | 53 | 54 | 50 | 48 | 48 | 48 |
(1) Adrian Collins stepped down as Executive Chairman on 14 September 2016 to become Non-executive Chairman.
(2) In addition, Non-executive Directors are entitled to the reimbursement of expenses in relation to the performance of their duties.
The Remuneration Committee adopts the following process to determine the annual bonus/ variable allocations.
The annual bonus/variable allocations for the financial year ended 31 March 2017 are based on the following key performance metrics. The performance outcomes for each key performance indicator are also shown below:
| Performance Metric | Threshold | Target | Actual | Result |
|---|---|---|---|---|
| Financial Measures | ||||
| Change in Adjusted Profit Before Tax (excluding Performance fees profits) | 12% | 15% | 30% | |
| Operating Margin | 32.5% | 33.5% | 33.4% | |
| Non-Financial Measures | ||||
| Distribution effectiveness | ||||
| Net flows compared to budget of £480 million (percentage of budget) | 75% | 100% | 100% | |
| Broadening International sales (increase in AuM compared to last year) | 30% | 50% | 85% | |
| Broadening Multi-Asset sales (increase in AuM compared to last year) | 30% | 50% | 77% | |
| Investment performance, (Percentage of AuM over 1, 3 and 5 years | 50% | 75% | 83% | |
| in 1st or 2nd Quartile) | ||||
| Strategic Measures | ||||
| Broadening the product range | Two Discussions | One Addition | Two additions | |
| announced | ||||
| Medium | Low | Low turnover, and | | |
| Talent management (Key Executive turnover) | one key addition | |||
| Risk management, compliance and conduct | n/a | Strong | Strong | |
| Personal performance | n/a | Strong | Strong | |
| Overall outcome | |
In assessing personal performance for the Executive Directors, the following sets out the supporting commentary to the personal performance rating above:
| Executive Director | Result | Key performance in the financial year ended 31 March 2017 |
|---|---|---|
| John Ions | | John Ions has led the senior executive team to achieve continued strong investment outperformance, excellent financial results and nearly £0.5 billion net flows despite a challenging environment. In addition, further progress has been made on the key strategic objectives set by the Board to broaden our product range with the acquisitions of Argonaut's European Income business and Alliance Trust Investments Limited. |
| Alongside Vinay Abrol, led external shareholder relations, with positive feedback on strategy and performance from these meetings. |
||
| Led the recruitment of Ian Chimes as Head of Global Distribution. | ||
| Alongside Vinay Abrol, successfully led the process to acquire Alliance Trust Investments Limited from Alliance Trust Plc. | ||
| Vinay Abrol | | Vinay Abrol has shown strong leadership of the Finance, Operations, Risk, Compliance, IT and HR functions. Delivered budget and cost controls in the financial year, and led the Group through the annual report and results cycle. |
| Alongside John Ions, led external shareholder relations, and also led the initiative to have greater engagement with the Proxy Voting Agencies. Vinay has been instrumental in leading the Group's relationships with the Financial Analysts, with Canaccord Geniity initiating coverage during the financial year, bringing the total number of broker forms covering Liontrust to six. |
||
| Vinay Abrol successfully led the integration project to bring the Argonaut European Income funds on to the Liontrust platform and the pre-completion integration project for the Alliance Trust Investments Limited acquisition. Alongside John Ions, successfully led the process to acquire Alliance Trust Investments Limited from Alliance Trust Plc. |
See below for a summary of the outcomes, results and percentage ratings used above, and how percentage results translate to outcomes and results:
| Outcome | Result |
|---|---|
| Above Target | |
| Around Target | |
| Between Target & Threshold | |
| Around Threshold | |
| Below Threshold | È |
The Committee has used the above performance outcomes of Above Target performance to approve annual bonuses/variable allocations to the Executive Directors of between 258% and 416% of base remuneration, with between 50% and 52% deferred into Group managed funds. This represents a 15% increase in the aggregate annual bonus/variable allocation pool for the Executive Directors, which when compared to the 30% increase in Adjusted Profit before tax (excluding performance fee profits) supports the aim of the Committee to keep the change in the aggregate bonus/variable allocation pool for the Executive Directors to 50% of the change in Adjusted Profit before tax (excluding performance fee profits).
John Ions' cash bonus has been capped at 200% of salary/fixed remuneration, and for the year ended 31 March 2017, between 52% (for John Ions) and 50% (for Vinay Abrol) of the annual bonus/variable allocation has been deferred (2016: 46%) into Group managed funds and deferred over the period 1 April 2017 to 31 March 2020 and therefore linked to the performance of the relevant Group managed funds. The vesting of DBVAP Awards are not subject to any performance condition, but are subject to continuous service conditions.
In determining the Annual bonus/variable allocations for the Executive Directors, the allocation of awards under the LTIP for the financial year ending 31 March 2018 (see below) has been taken into consideration in terms of total variable remuneration for the Executive Directors. There is no vesting of awards previously granted under the LTIP until 2019.
The Company's shareholders approved the LTIP on 24 February 2016 and the LTIP was adopted by the Board on 21 March 2016. The rules of the LTIP state that awards may be granted to participants within the 42 day period following the date of publication of the annual results of the Company, approval of the LTIP by shareholders, or such other period as may be determined by the Committee in exceptional circumstances.
LTIP awards for the financial year ending 31 March 2018 will be 250% and 175% of base annual remuneration for John Ions and Vinay Abrol respectively and will be awarded later within a 42 day period following the date of the preliminary announcement of the Company's annual results for the financial year ended 31 March 2017.
LTIP awards are subject to continued employment and achievement of a range of balanced and holistic performance conditions that are linked closely to the Company's business strategy/KPIs. The current performance criteria are:
There is also a shareholding requirement of 2.5x salary/fixed allocation for Executive Directors that is linked to LTIP awards as follows:
participants will be required to build up and retain at least one-third of their target shareholding within 12 months of the date of grant of the first award and must maintain at least 50% of the target during the following two-year period. Failure to do so will impact the grant of subsequent awards;
for subsequent LTIP awards, vesting is conditional on the target shareholding level being maintained; and
The significant deferral of variable remuneration (deferral of bonus/variable allocation and LTIP awards) is an important component of the Company's remuneration policy, and I am pleased to be able to confirm that John Ions and Vinay Abrol are each deferring 70% of their variable remuneration.
| Director | Type of variable remuneration | Value (£'000) | % deferred |
|---|---|---|---|
| John Ions | Cash bonus/variable allocation | 663 | n/a |
| DBVAP | 715 | 32% | |
| LTIP award(1) | 829 | 38% | |
| Total | 2,207 | 70% | |
| Vinay Abrol | Cash bonus/variable allocation | 402 | n/a |
| DBVAP | 402 | 30% | |
| LTIP award(1) | 546 | 40% | |
| Total | 1,350 | 70% |
A key component of the Company's remuneration policy is a shareholding requirement of 2.5x salary/fixed allocation for Executive Directors. As at 31 March 2017 the Executive Directors held:
| Ordinary shares held(1) |
Value(2) (£'000) |
Multiple of salary/fixed allocation |
|
|---|---|---|---|
| Executive Directors | |||
| John Ions | 909,608 | 3,547 | 10.7x |
| Vinay Abrol | 894,393 | 3,493 | 11.2x |
(1) Ordinary shares held include unvested Ordinary shares, but exclude unvested LTIP awards and DBVAP share options; and
(2) Value calculated using the closing share price on 31 March 2017, which was 390p per share.
For the annual bonus and variable allocation in respect of the financial year ended 31 March 2016 and onwards, malus and claw back provisions will apply whereby the payment of such cash bonus and variable allocation, and the unvested amount deferred into Group managed funds can be reduced, withheld or reclaimed in the exceptional event of: misstatement or misleading representation of performance, a significant failure in risk management and control, or serious misconduct for which the individual is personally responsible or directly accountable.
For the LTIP awards, Claw back and malus provisions will apply whereby the LTIP awards can be reduced, withheld or reclaimed in the exceptional event of: misstatement or misleading representation of performance, a significant failure in risk management and control, or serious misconduct for which the individual is personally responsible or directly accountable.
No payments for loss of office were made during the financial year ended 31 March 2017 (2016: Nil).
Jonathan Hughes-Morgan stepped down from the Board on 15 December 2014. He continues to work, as a member of Liontrust Fund Partners LLP ("LFP"), for the Group as Co-Head of International Sales on a fixed allocation of £162,690 per annum. He received no payment for loss of office. As Jonathan Hughes-Morgan remains a member of LFP, he retains his unvested DBVAP awards. His DBVAP awards relate to the deferral of bonus/variable allocation in prior years.
The Committee has increased the base remuneration of the Executive Directors by 5% for the financial year ending 31 March 2018, this is the first increase for in fixed remuneration for the Executive Directors for three years and compares to an increase of 12% for the average employee/member over the same period and retail price index of 5.6% over the period March 2014 to March 2017.
The base remuneration for each of the Directors for the financial year ended 31 March 2018 and the increase compared to the previous year is as follows:
| Director | Salary (for employees), Fixed Allocations (for members) and Fees for the year ending 31 March 2018 (£) |
Increase compared to the previous year (%) |
|---|---|---|
| Adrian Collins | 102,500(1) | (33%) |
| John Ions | 348,500 | 5% |
| Vinay Abrol | 327,700 | 5% |
| Alastair Barbour | 47,500(2) | Nil |
| Mike Bishop | 50,000(3) | Nil |
| George Yeandle | 47,500(4) | Nil |
(1) Base fee plus Nomination Committee Member fee.
The Board itself determines the fees of the Non-executive Directors of the Company, each of whom abstains in respect of matters relating to his own position. After having introduced fee elements last year, the Board has frozen base and elements fees for the Non-executive Directors for the financial year ending 31 March 2018. The annual fee rates applicable for Non-executive Directors for financial year ended 31 March 2018 are as follows:
Non-executive Directors are reimbursed for reasonable business expenses.
Annual bonus/variable allocation for the financial year ending 31 March 2018 will be determined using the same structure that was used in the financial year ended 31 March 2017. In summary, this will comprise:
The Committee sets ranges ("Target" and "Threshold") around the agreed budget figures for the main financial measures and non-financial measures. There ranges consider the level of stretch in the budget and perceived potential for out-performance and under-performance. There will be disclosure of the ranges for the relevant performance metrics in the 2018 Annual report on remuneration as the Board consider the ranges to be commercially sensitive.
The results against the performance metrics will be determined using the same structure that was used in the financial year ended 31 March 2017. In summary, this will comprise of rating performance into one of five bands from Above Target to Below Threshold, with the Committee's aim that Above Target performance will mean that the aggregate bonus pool for the Executive Directors will increase by 50% of the change in Adjusted Profit before tax (excluding performance fee profits).
The Committee will determine the appropriate allocation for each Executive Director's variable remuneration between annual bonus/variable allocation and LTIP awards taking into account regulatory requirements, market practice and the Committee's aim of ensuring that a significant proportion of the relevant Executive Director's variable remuneration is deferred into the Company's shares and Group managed funds.
Adrian Collins is a Non-executive director of the following companies (and retains fees as detailed) Bahamas Petroleum Company Plc (US\$ 38,000), City Natural Resources High Yield Trust Plc (£18,000), Tristar Resources Plc (£30,000), and New City High Yield Trust Plc (£24,000).
The interests of the Directors and their families in the share capital of the Company at 31 March 2017 were as follows:
| Ordinary shares |
Unvested Ordinary shares(2) |
Total Ordinary shares |
Vested but unexercised options |
Unvested options subject to performance conditions |
Unvested options not subject to performance conditions(2) |
Total options over Ordinary shares |
|
|---|---|---|---|---|---|---|---|
| Executive Directors | |||||||
| John Ions(1) | 798,446 | 111,162 | 909,608 | – | 624,932 | 209,863 | 834,795 |
| Vinay Abrol(1) | 819,284 | 75,609 | 894,893 | – | 409,677 | 131,164 | 540,841 |
| Non-executive Directors | |||||||
| Adrian Collins(1) | 206,067 | – | 206,067 | – | – | 48,220 | 48,220 |
| Alastair Barbour(1) | 32,000 | – | 32,000 | – | – | – | – |
| Mike Bishop | 25,106 | – | 25,106 | – | – | – | – |
| George Yeandle | 20,000 | – | 20,000 | – | – | – | – |
(1) Includes holdings of persons closely associated with the relevant Director.
(2) Unvested Ordinary shares and unvested options are not subject to any performance condition but are subject to continuing service conditions.
There were the following changes to the Directors' interests between 1 April 2017 and 14 June 2017: John Ions and Vinay Abrol each purchased 410 additional Ordinary shares and were each allocated 820 unvested Ordinary shares pursuant to their participation in the SIP.
LTIP awards (audited information)
| Director | Financial year ended 31-Mar |
Face value(1) | Share price used to determine the award(2) |
Options granted |
Number of options held at 31 March 2017 |
Exercise Price |
Date of grant |
|---|---|---|---|---|---|---|---|
| 2016 | |||||||
| John Ions | (in respect of 2016/17/18) | £828,750 | 254.0p | 329,279 | 329,279 | Nil | 20 June 2016 |
| 2017 | 5 September | ||||||
| (in respect of 2017/18/19) | £828,750 | 280.6p | 295,353 | 295,353 | Nil | 2016 | |
| 2016 | |||||||
| Vinay Abrol | (in respect of 2016/17/18) | £546,175 | 254.0p | 215,029 | 215,029 | Nil | 20 June 2016 |
| 2017 | 5 September | ||||||
| (in respect of 2017/18/19) | £546,175 | 280.6p | 194,648 | 194,648 | Nil | 2016 |
(1) Face value of the option grants is equivalent to 250% and 175% of base annual remuneration for John Ions and Vinay Abrol respectively;
(2) For the LTIP awards for the financial year ended 31 March 2016 the share price used to determine the awards is the share price as at close of business on 21 March 2016, which is the date on which the LTIP was adopted by the Board and the date on which the Committee intended to grant LTIP awards to the Executive Directors, but due to the proposed acquisition of the European Income fund management business of Argonaut Capital Partners LLP, which was announced on 7 April 2016, the Committee was unable to grant these awards prior to entering into a close period for dealing in the Company's shares. For the LTIP awards for the financial year ended 31 March 2017 the share price used to determine the awards is the 30 day average closing share price to 9 August 2016, which is the previous business day to the Remuneration Committee meeting that approved the granting of these awards. The share price on 20 June 2016 was 295.0p and 344p on 5 September 2016;
(3) LTIP awards are exercisable between 20 March 2019 and 20 March 2026 for the LTIP awards granted on 20 June 2016, and between 10 August 2019 and 10 August 2026 for the LTIP awards granted on 5 September 2016;
(4) For the LTIP awards granted on 20 June 2016 the performance period ends on 20 March 2019 and for LTIP awards granted on 5 September 2016 the performance period ends on 10 August 2019;
(5) For the LTIP awards granted on 20 June 2016, 60% of vested awards are released on 20 March 2019, 20% released on 20 March 2020 and 20% released on 20 March 2021. For the LTIP awards granted on 5 September 2016, 60% of vested awards are released on 10 August 2019, 20% released on 10 August 2020 and 20% released on 10 August 2021;
(6) Performance measures are attached to options granted, which are total shareholder return (40%), earnings per share (30%) and other strategic objectives (30%) which include net inflows, growth in assets under management, fund performance and other strategic measures. For threshold performance, 20% of the LTIP awards will vest;
(7) Claw back and malus provisions apply, see Directors' remuneration policy table for further details.
| Director | Financial year ended 31-Mar |
Face value(3) | Share price used to determine the grant or award |
Options/ Shares held 1 April 2016 |
Options/ Shares exercised/ vested(4) |
Options/ Shares awarded |
Number of shares/ options held at 31 March 2017 |
Exercise price |
Issue date |
|---|---|---|---|---|---|---|---|---|---|
| 2014 | |||||||||
| Adrian Collins(1) | (in respect of 2013) | £25,000 | 183.5p | 13,623 | (13,623) | – | – | Nil | 21-Jun-13 |
| 2015 | |||||||||
| (in respect of 2014) | £57,500 | 261.5p | 21,988 | – | 21,988 | Nil | 19-Jun-14 | ||
| 2016 | |||||||||
| (in respect of 2015) | £75,000 | 285.9p | 26,232 | – | 26,232 | Nil | 18-Jun-15 | ||
| 2017 | |||||||||
| (in respect of 2016) | £65,000 | See Group managed funds table below for further details | Nil | 21-Jun-16 | |||||
| 2014 | |||||||||
| John Ions | (in respect of 2013) | £150,000 | 192.5p | 59,146 | (59,146) | – | n/a | 21-Jun-13 | |
| 2015 | |||||||||
| (in respect of 2014) | £345,000 | 253.0p | 106,657 | 106,657 | n/a | 30-Jun-14 | |||
| 2016 | |||||||||
| (in respect of 2015) | £600,000 | 285.9p | 209,863 | – | 209,863 | Nil | 18-Jun-15 | ||
| 2017 | |||||||||
| (in respect of 2016) | £550,000 | See Group managed funds table below for further details | Nil | 21-Jun-16 | |||||
| 2014 | |||||||||
| Vinay Abrol | (in respect of 2013) | £100,000 | 192.5p | 39,602 | (39,602) | – | – | n/a | 21-Jun-13 |
| 2015 | |||||||||
| (in respect of 2014) | £230,000 | 253.0p | 71,104 | 71,104 | n/a | 30-Jun-14 | |||
| 2016 | |||||||||
| (in respect of 2015) | £375,000 | 285.9p | 131,164 | – | 131,164 | Nil | 18-Jun-15 | ||
| 2017 | |||||||||
| (in respect of 2016) | £325,000 | See Group managed funds table below for further details | Nil | 21-Jun-16 |
(1) Adrian Collins stepped down as Executive Chairman on 14 September 2016 to become Non-executive Chairman;
(2) DVBAP awards for the financial year ended 2016 have been deferred into Group managed funds;
(3) Face value of the share or option award is equivalent to 50% of the annual bonus/variable allocation for the financial year ended 31 March 2014 and 31 March 2015, and 46% for the financial year ended 31 March 2016. For the year ended 31 March 2016, between 52% (for John Ions) and 50% (for Vinay Abrol) of the annual bonus/variable allocation has been deferred. The number of share options granted is calculated as the face value divided by the share price used to determine the grant or award, which is calculated as average share price during the period of five business days prior to the date of grant. For shares awarded the number of shares is calculated as the number of shares purchased on the Issue date;
(4) For Adrian Collins, Options exercised on 5 September 2016; For John Ions and Vinay Abrol, shares vested on 20 June 2016. The market value of Adrian Collins share options on the date of exercise were £46,863 (13,623 share options at 344p per share, the market value of John Ions and Vinay Abrol's vested shares on the date of vesting was £174,481 (59,146 shares at 295p per share) and £116,826 (39,602 shares at 295p per share) respectively;
(5) Share options issued under the DVBAP in June 2014 are exercisable between 18 June 2017 and 18 June 2018, share options issued under the DVBAP in June 2015 are exercisable between 17 June 2018 and 17 June 2019 and options on Group managed funds issued under the DVBAP in June 2016 are exercisable between 21 June 2017 and 21 June 2020;
(6) Shares issued and share options awarded in June 2013 vested on 21 June 2016. Shares issued and share options awarded in June 2014 vest on 19 June 2017. Share options awarded in June 2015 vest on 18 June 2018. Options over Group managed funds awarded in June 2016 vest on 21 June 2017 (33.3%), 21 June 2018 (33.3%) and 21 June 2019 (33.3%);
(7) No performance conditions are attached to options granted or shares awarded under the DBVAP but they are subject to continuing service conditions. Claw back provisions apply, see Directors' remuneration policy table for further details;
(8) Exercise price for options granted is nil pence; and
(9) The share price used to determine the number of shares which shall be subject to the option grant or share award is calculated using the average share price during the period of five business days prior to the date of option grant or share award.
Group managed funds for 2017 (in respect of 2016):
| Director | Face Value | Fund name | Unit price (pence) used to determine grant(1) |
Options over units held on 1 April 2016 |
Options vested/exercised over units |
Options granted over units |
Options over units held on 31 March 2017 |
|---|---|---|---|---|---|---|---|
| Adrian Collins | £13,000 | Liontrust Global Income Fund | 139.85 | – | – | 9,295.6710 | 9,295.6710 |
| Liontrust Macro Equity | |||||||
| £13,000 | Income Fund | 187.24 | – | – | 6,942.9600 | 6,942.9600 | |
| £13,000 | Liontrust UK Growth Fund | 343.62 | – | – | 3,783.2490 | 3,783.2490 | |
| Liontrust GF Global Strategic | |||||||
| £13,000 | Opportunities Fund(1) | 862.61 | – | – | 1,507.0539 | 1,507.0539 | |
| £13,000 | Liontrust Asia Income Fund | 103.86 | – | – | 12,516.8490 | 12,516.8490 | |
| £65,000 | |||||||
| John Ions | £110,000 | Liontrust Global Income Fund | 139.85 | – | – | 78,655.7010 | 78,655.7010 |
| Liontrust Macro Equity | |||||||
| £110,000 | Income Fund | 187.24 | – | – | 58,748.1300 | 58,748.1300 | |
| £110,000 | Liontrust UK Growth Fund | 343.62 | – | – | 32,012.1060 | 32,012.1060 | |
| Liontrust GF Global Strategic | |||||||
| £110,000 | Opportunities Fund(1) | 862.61 | – | – | 12,751.9968 | 12,751.9968 | |
| £110,000 | Liontrust Asia Income Fund | 103.86 | – | – | 105,911.8020 | 105,911.8020 | |
| £550,000 | |||||||
| Vinay Abrol | £65,000 | Liontrust Global Income Fund | 139.85 | – | – | 46,478.3670 | 46,478.3670 |
| Liontrust Macro Equity | |||||||
| £65,000 | Income Fund | 187.24 | – | – | 34,714.8030 | 34,714.8030 | |
| £65,000 | Liontrust UK Growth Fund | 343.62 | – | – | 18,916.2450 | 18,916.2450 | |
| Liontrust GF Global Strategic | |||||||
| £65,000 | Opportunities Fund(1) | 862.61 | – | – | 7,535.2707 | 7,535.2707 | |
| £65,000 | Liontrust Asia Income Fund | 103.86 | – | – | 62,584.2480 | 62,584.2480 | |
| £325,000 |
(1) The Liontrust Global Opportunities Fund closed in May 2017 and was replaced by the Liontrust SF Managed Fund.
(1) The unit price used to determine the number of units which shall be subject to the option grant is calculated using the unit price on the date of grant.
| Awards held start of year | Awards held at the end of the year |
||||||
|---|---|---|---|---|---|---|---|
| Director | Number of shares as at 01-Apr-16 |
Face value |
Grant/Vesting date |
Face value |
Number of shares granted/ (vested) |
Number of shares as at 31-Mar-17 |
Earliest vesting date |
| Adrian Collins(1) | 1,276 | £3,000 | 14-Sep-16 | (1,276) | – | 25-Mar-17 | |
| 1,368 | £3,600 | 14-Sep-16 | (1,368) | – | 25-Apr-17 | ||
| 1,250 | £3,600 | 14-Sep-16 | (1,250) | – | 29-Apr-18 | ||
| John Ions | 1,276 | £3,000 | 25-Mar-16 | (1,276) | – | 25-Mar-17 | |
| 1,368 | £3,600 | 1,368 | 25-Apr-17 | ||||
| 1,250 | £3,600 | 1,250 | 29-Apr-18 | ||||
| 27-Jun-16 | £3,600 | 1,396 | 1,396 | 27-Jun-19 | |||
| Vinay Abrol | 1,276 | £3,600 | 25-Mar-17 | £3,600 | (1,276) | – | 25-Mar-17 |
| 1,368 | £3,600 | 1,368 | 25-Apr-17 | ||||
| 1,250 | £3,600 | 1,250 | 29-Apr-18 | ||||
| 27-Jun-16 | £3,600 | 1,396 | 1,250 | 27-Jun-19 |
(1) Adrian Collins stepped down as Executive Chairman on 14 September 2016 to become Non-executive Chairman. Under the rules of the SIP any unvested shares automatically vested on Adrian Collins stepping down as Executive Chairman;
(2) The vesting of shares awarded are not subject to any performance condition, but are subject to continuous service conditions and claw back provisions, see Directors' remuneration policy table for further details; and
(2) The vesting of shares awarded are not subject to any performance condition, but are subject to continuous service conditions and claw back provisions, see Directors' remuneration policy table for further details.
(3) Vested shares may remain in the SIP after vesting.
All employees and members (including Executive Directors) are eligible to receive employer pension contributions of 10% of base salary (for employees) or to receive additional fixed allocation of 10% in lieu of pension contributions (for members).
None of the Executive Directors have a prospective entitlement to a defined benefit pension by reference to qualifying service.
The Director service contracts (Director appointment letter and limited liability partnership ("LLP") Deed of Adherence) are as follows:
| Director | Type of contract | Date of contract Notice period | |
|---|---|---|---|
| Executive Directors | |||
| John Ions | Director Letter of appointment |
23 January 2014 | 6 months |
| LLP membership Deed of Adherence |
08 July 2010 | 6 months | |
| Vinay Abrol | Director Letter of appointment |
23 January 2014 | 12 months |
| LLP membership Deed of Adherence |
08 July 2010 | 12 months | |
| Non-executive Directors | |||
| Adrian Collins | Director Letter of appointment |
8 September 2016 | 6 months |
| Alastair Barbour | Director Letter of appointment |
1 April 2011 | 3 months |
| Mike Bishop | Director Letter of appointment |
1 May 2011 | 3 months |
| George Yeandle | Director Letter of appointment |
16 December 2014 | 3 months |
Our policy regarding dilution from employee share awards and member incentivisation has been, and will continue to be, to ensure that dilution will be no more than 10% in any rolling ten year period.
The Committee intends to utilise the Company's existing discretionary employee benefit trust (the "Employee Trust") to reduce and manage dilution. The Employee Trust will have full discretion with regard to the application of the trust fund (subject to recommendations from the Committee). The Company will be able to fund the Employee Trust to acquire shares in the market and/or to subscribe for shares at nominal value in order to satisfy option awards granted under the LTIP, Liontrust Option Plan and DBVAP. Any shares issued to the Employee Trust in order to satisfy awards will be treated as counting towards the dilution mentioned earlier. For the avoidance of doubt, any shares acquired by the Employee Trust in the market will not count towards these limits. Share awards under the SIP and the DBVAP are satisfied by market purchased shares, so have no dilutive effect.
The graph below illustrates the performance of the Group, based on total shareholder returns, compared to two indices from 7 May 2010 (which was the point that the senior management team was appointed):
The indices were chosen as follows:
| Year ended 31 March |
Name | Single figure of total remuneration (£'000) |
Long term incentive vesting rates (as % maximum opportunity) |
|---|---|---|---|
| 2017 | John Ions | 1,751 | Not applicable |
| 2016 | John Ions | 1,572 | Not applicable |
| 2015 | John Ions | 1,544 | Not applicable |
| 2014 | John Ions | 2,271 | 100% |
| 2013 | John Ions | 2,186 | Not applicable |
| 2012 | John Ions | 1,891 | Not applicable |
| John Ions/ | |||
| 2011 | Nigel Legge(1) | 659 | Not applicable |
| 2010 | Nigel Legge | 445 | Not applicable |
(1) John Ions appointed Chief Executive on 6 May 2010 and Nigel Legge resigned as Chief Executive on 6 May 2010. The Single figure of total remuneration for the year ended 31 March 2011 is the summation of the remuneration for John Ions and Nigel Legge when holding the position of Chief Executive, but excludes Nigel Legge's severance compensation.
The percentage change in the Chief Executive's pay (defined for these purposes as salary, fixed allocation, taxable benefits, annual bonus/variable allocation and DBVAP awards in respect of the relevant year) between the year ended 31 March 2017 and the prior year and the same information, on an averaged basis, for all employees and members (excluding the Chief Executive and fund managers) is shown in the table below:
| Chief Executive percentage change year ended 31 March 2016 to 2017 |
Employees and Members year ended 31 March 2016 to 2017 |
|
|---|---|---|
| Salary/Fixed allocation | Nil | 1% |
| Benefits(1) | 1% | Nil |
| Bonus/Variable allocation(2) | 15% | 22% |
(1) Benefits comprise private medical insurance and pension contributions.
(2) Includes the DBVAP, but excludes any revenue share arrangements for fund managers.
The table below shows the advisory vote on the 2016 Directors' Remuneration Report at the Annual General Meeting held on 13 September 2016:
| Votes for |
% | Votes Against |
% | Votes withheld |
|
|---|---|---|---|---|---|
| 2016 Annual report on | |||||
| remuneration | 22,960,130 | 90.6 | 2,395,296 | 9.4 | 1,133 |
The table below shows the vote on the Directors' remuneration policy at the February 2016 General Meeting held on 24 February 2016:
| Votes for |
% | Votes Against |
% | Votes withheld |
|
|---|---|---|---|---|---|
| Directors' remuneration policy |
24,522,957 | 95.9 | 1,051,496 | 4.1 | 6,000 |
The following chart shows the Group's Adjusted Profit after tax (excluding and including performance fee profits), total member and employee remuneration and dividends declared on Ordinary shares for the financial year ended 31 March 2017 and 31 March 2016.
The Committee invites individuals to attend meetings as it deems beneficial to assist it in reviewing matters for consideration. During the year, these individuals included the Chairman of the Company, the Chief Executive Officer, the Chief Financial Officer & Chief Operating Officer and the Company Secretary.
In the performance of its duties, the Committee is able to seek assistance from external advisers. However, during the year ended 31 March 2017 no external advisers were appointed by the Committee.
Liontrust is a level three company for the purposes of the FCA Remuneration Code. The Committee fulfils all of its requirements under the FCA Remuneration Code and ensures that the principles of the FCA Remuneration Code are adhered to in the remuneration policy. The Company has followed the requirements of the UK Corporate Governance Code.
The Committee believes that the Group has complied with the new directors' remuneration report regulations issued by the United Kingdom Department for Business, Innovation and Skills, Schedule B of the Code and has given full consideration to Schedule A of the Code in formulating the remuneration packages of the Executive Directors and other senior members of the Group.
The Chairman of the Committee will attend the 2017 Annual General Meeting and will be available to answer Shareholders' questions regarding remuneration.
Chairman of the Remuneration Committee 14 June 2017
| Consolidated Statement of Comprehensive Income | 60 |
|---|---|
| Consolidated Balance Sheet | 61 |
| Consolidated Cash Flow Statement | 62 |
| Consolidated Statement of Changes in Equity | 63 |
| Notes to the Financial Statements | 64 |
| Liontrust Asset Management Plc Financial Statements | 85 |
| Liontrust Asset Management Plc Notes to the Financial Statements | 89 |
| Independent Auditors' Report | 97 |
for the year ended 31 March 2017
| Year ended |
Year ended |
|
|---|---|---|
| Note | 31-Mar-17 £'000 |
31-Mar-16 £'000 |
| Revenue 4 |
51,508 | 44,991 |
| Cost of sales 4 |
(50) | (51) |
| Gross profit | 51,458 | 44,940 |
| Realised profit/(loss) on sale of financial assets | 6 | (1) |
| Unrealised profit on financial assets | 134 | – |
| Administration expenses 5 |
(42,506) | (35,551) |
| Operating profit 6 |
9,092 | 9,388 |
| Interest receivable 8 |
11 | 16 |
| Profit before tax | 9,103 | 9,404 |
| Taxation 10 |
(2,275) | (2,094) |
| Profit for the year | 6,828 | 7,310 |
| Other comprehensive income: | ||
| Other Comprehensive income | – | – |
| Total comprehensive income | 6,828 | 7,310 |
| Pence | Pence | |
| Earnings per share | ||
| Basic earnings per share 12 |
15.15 | 16.48 |
| Diluted earnings per share 12 |
14.75 | 16.06 |
The notes on pages 64 to 96 form an integral part of these consolidated financial statements.
as at 31 March 2016
| As at | As at | ||
|---|---|---|---|
| Note | 31-Mar-17 £'000 |
31-Mar-16 £'000 |
|
| Assets | |||
| Non current assets | |||
| Intangible assets | 13 | 3,640 | 2,550 |
| Property, plant and equipment | 14 | 195 | 247 |
| Deferred tax assets | 11 | 964 | 1,052 |
| Total non current assets | 4,799 | 3,849 | |
| Current assets | |||
| Trade and other receivables | 15 | 68,066 | 35,413 |
| Financial assets | 16 | 1,404 | 139 |
| Cash and cash equivalents | 1(j) | 16,956 | 18,967 |
| Total current assets | 86,426 | 54,519 | |
| Liabilities | |||
| Non current liabilities | |||
| DBVAP liability | (322) | – | |
| Total non current liabilities | (322) | – | |
| Current liabilities | |||
| Trade and other payables | 17 | (63,960) | (31,279) |
| Corporation tax payable | (393) | (911) | |
| Total current liabilities | (64,353) | (32,190) | |
| Net current assets | 22,073 | 22,329 | |
| Net assets | 26,550 | 26,178 | |
| Shareholders' equity | |||
| Ordinary shares | 18 | 454 | 454 |
| Share premium | – | 17,692 | |
| Capital redemption reserve | 19 | 19 | |
| Convertible unsecured loan stock - Equity component | – | – | |
| Retained earnings | 28,936 | 9,330 | |
| Own shares held | 21 | (2,859) | (1,317) |
| Total equity | 26,550 | 26,178 |
The notes on pages 64 to 96 form an integral part of these consolidated financial statements.
The financial statements on pages 60 to 84 were approved and authorised for issue by the Board of Directors on 14 June 2017 and signed on its behalf by V.K. Abrol, Chief Operating Officer and Chief Financial Officer.
Company Number 2954692
for the year ended 31 March 2017
| Period 31-Mar-17 £'000 |
Year ended 31-Mar-16 £'000 |
|
|---|---|---|
| Cash flows from operating activities | ||
| Cash received from operations | 56,460 | 48,614 |
| Cash paid in respect of operations | (42,489) | (38,337) |
| Net cash paid from changes in unit trust receivables and payables | (363) | (583) |
| Net cash generated from operations | 13,608 | 9,694 |
| Interest received | 11 | 16 |
| Tax paid | (2,705) | (1,833) |
| Net cash generated from operating activities | 10,914 | 7,877 |
| Cash flows from investing activities | ||
| Purchase of property and equipment | (73) | (93) |
| Acquisition of investment management contracts | (4,083) | – |
| Purchase of ICIs | (95) | (207) |
| Purchase of DBVAP Financial Asset | (940) | – |
| Purchase of Seeding investments | (252) | (98) |
| Sale of Seeding investments | 151 | 191 |
| Net cash used in investing activities | (5,292) | (207) |
| Cash flows from financing activities | ||
| Purchase of own shares | (1,738) | (1,136) |
| Dividends paid | (5,895) | (3,960) |
| Net cash used in financing activities | (7,633) | (5,096) |
| Net increase in cash and cash equivalents* | (2,011) | 2,574 |
| Opening cash and cash equivalents* | 18,967 | 16,393 |
| Closing cash and cash equivalents* | 16,956 | 18,967 |
* Cash and cash equivalents consist only of cash balances.
The notes on pages 64 to 96 form an integral part of these consolidated financial statements.
for the year ended 31 March 2017
| Note | Ordinary shares £'000 |
Share premium £'000 |
Capital redemption £'000 |
Retained earnings £'000 |
Own shares held £'000 |
Total Equity £'000 |
|
|---|---|---|---|---|---|---|---|
| Balance at 1 April 2016 brought forward | 454 | 17,692 | 19 | 9,330 | (1,317) | 26,178 | |
| Profit for the year | – | – | – | 6,828 | – | 6,828 | |
| Total comprehensive income for the year | – | – | – | 6,828 | – | 6,828 | |
| Dividends paid | 9 | – | – | – | (5,895) | – | (5,895) |
| Capital reduction | 19 | – | (17,692) | – | 17,692 | – | – |
| Purchase of own shares | – | – | – | – | (1,738) | (1,738) | |
| Purchase of ICI's | 21 | – | – | – | (95) | – | (95) |
| EBT share option settlement | 21 | – | – | – | (133) | 196 | 63 |
| Equity share options issued | 5 | – | – | – | 1,209 | – | 1,209 |
| Balance at 31 March 2017 | 454 | – | 19 | 28,936 | (2,859) | 26,550 |
for the year ended 31 March 2016
| Note | Ordinary shares £'000 |
Share premium £'000 |
Capital redemption £'000 |
Retained earnings £'000 |
Own shares held £'000 |
Total Equity £'000 |
|
|---|---|---|---|---|---|---|---|
| Balance at 1 April 2015 brought forward | 454 | 17,692 | 19 | 11,395 | (5,812) | 23,748 | |
| Profit for the year | – | – | – | 7,310 | – | 7,310 | |
| Total comprehensive income for the year | – | – | – | 7,310 | – | 7,310 | |
| Dividends paid | 9 | – | – | – | (3,960) | – | (3,960) |
| Purchase of own shares | – | – | – | – | (1,136) | (1,136) | |
| Purchase of ICI's | 21 | – | – | – | (5,838) | 5,631 | (207) |
| Equity share options issued | 5 | – | – | – | 423 | – | 423 |
| Balance at 31 March 2016 | 454 | 17,692 | 19 | 9,330 | (1,317) | 26,178 |
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, which comprise standards and interpretations issued by either the International Accounting Standards Board or the IFRS Interpretations Committee or their predecessors as adopted by the European Union ('IFRS'), and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The consolidated financial information presented within these financial statements has been prepared on a going concern basis under the historical cost convention (except for the measurement of financial assets at fair value through profit and loss and financial assets available-for-sale which are held at their fair value).
The preparation of financial statements in conformity with IFRS requires the directors of the Company to make judgements and assumptions (see note 1d) that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial information and the reported income and expense during the reporting periods. Although these judgements and assumptions are based on the directors' best knowledge of the amount, events or actions, actual results may differ from these estimates. The accounting policies set out below have been used to prepare the financial information. All accounting policies have been consistently applied.
The financial information has been prepared based on the IFRS standards effective as at 31 March 2017.
The Group did not implement the requirements of any Standards or Interpretations which were in issue and which were not required to be implemented at the year end date.
The International Accounting Standards Board and IFRS Interpretations Committee have issued a number of new accounting standards, amendments to existing standards and interpretations. The following new standards are applicable to these financial statements, but do not have a significant impact. The Group plans to apply these standards in the reporting period in which they become effective.
| Amendments to IAS 1 Presentation of | These amendments clarify guidance in IAS 1 on materiality and aggregation, the presentation of |
|---|---|
| Financial Statements: Disclosure Initiative | subtotals, the structure of financial statements and the disclosure of accounting policies. |
| (effective date 1 January 2016) | |
| Amendments to IAS 16 Property, Plant and Equipment | The amendment clarifies when a method of depreciation or amortisation based on revenue |
| and IAS 38 Intangible Assets: Clarification of | may be appropriate. |
| Acceptable Methods of Depreciation and Amortisation | |
| (effective date 1 January 2016) | |
| Annual improvements 2012 – 2014 cycle | This annual improvements cycle makes five minor amendments to existing standards. |
| (effective date 1 January 2016) | |
The following standards and interpretations relevant to the Group that were not yet endorsed by the EU:
| Effective for periods beginning on or after | |
|---|---|
| IFRS 9 Financial Instruments | 1 January 2018 |
| IFRS 15 Revenue from Contracts with Customers | 1 January 2018 |
| IFRS16 Leases | 1 January 2019 |
The Group does not expect these updated standards to have any material effect on the Group when they are adopted, except for IFRS 16.
IFRS 16 'Leases' was issued on 13 January 2016 and replaces IAS 17 'Leases'. IFRS 16 requires that all operating leases in excess of one year, where the Group is the lessee, are included on the Group's balance sheet. The Group will be required to recognise a right-of-use (ROU) asset and a lease liability (representing the obligation to make lease payments). The ROU asset will be amortised on a straight-line basis with the lease liability being amortised using the effective interest method. IFRS 16 contains optional exemptions for both short-term leases (leases of less than 12 months) and for small-value leases. The Standard is effective for annual periods beginning on or after 1 January 2019 and earlier application is permitted subject to EU endorsement and the entity adopting IFRS 15 at the same time. The Group is currently assessing the impact of IFRS 15 and IFRS 16 on its financial statements.
Subsidiaries are all entities over which the Group has control. The Group has control of an entity if, and only if it has all of the following:
– Power over the entity;
The Group considers all relevant facts and circumstances in assessing whether it has power over an entity, including: the purpose and design of an entity, its relevant activities, substantive and protective rights, and voting rights and potential voting rights. There is no fixed minimum percentage at which the Group consolidates, and each exposure is reviewed individually.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
Uniform accounting policies are applied across all Group entities. Inter-company transactions, balances, income and expenses on transactions between Group entities are eliminated on consolidation. Profits and losses resulting from inter-company transactions that are recognised in assets are also eliminated on consolidation.
The Group provides additional disclosure in the form of an adjusted profit/ loss note (note 7, page 74) in order to provide shareholders with a clearer indication of the profitability of the Group. The adjusted profit or loss is the total of Group profit or loss excluding the following items:
Non-cash items which include depreciation, intangible asset amortisation and IFRS2 related expenses; and
Non-recurring items which include cost reduction expenses, professional services (restructuring, acquisition related and other), integration costs, share incentivisation expenses and severance compensation.
The Group presents a reconciliation to the Profit for the year per the statutory financial information.
The preparation of the financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. Estimates and judgements used in preparing the financial statements are periodically evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable. The resulting accounting estimates may not equal the related actual results. The estimates and assumptions that have a significant effect on the carrying amounts of assets and liabilities are set out as follows:
Details of the valuation policy for financial assets can be found in note 1i) below.
Valuation and impairment of other assets
Details of the valuation policy for other assets can be found in notes 1e) and 1h) below.
Judgement is required in determining the total provision for income taxes. There are transactions and calculations for which the ultimate tax determination may be uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
Acquisition of the the European income business of Argonaut Capital Partners LLP (the 'acquisition'). (see note 13)
Determining whether a transaction is an acquisition of a business or a separately identifiable asset is a matter of significant judgement. It involves determining whether a particular set of assets and activities are capable of being conducted and managed as a business by a market participant. Directors have considered all relevant aspects of the acquisition in conjunction with the guidance under the relevant accounting standards and concluded that the Argonaut acquisition was not an acquisition of a business because the assets purchased by the Group were not capable of being managed as a business in their own capacity. As such assets acquired have been recognised as intangible assets.
Details of accounting policies relating to employee share options can be found on note 1p) below.
Property, plant and equipment are stated at historic purchase cost less accumulated depreciation. The cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use.
Leasehold improvements are included at cost and are depreciated on a straight line basis over the lower of the estimated useful life and the remaining lease term.
Office equipment is depreciated on a straight line basis over the estimated useful life of the asset, which is between three and ten years.
Computer equipment is depreciated on a straight line basis over the estimated useful life of the asset which is three years.
At each reporting date management reviews the assets' residual values and useful lives, and will make adjustments if required.
Trade and other receivables include prepayments as well as amounts the Group is due to receive from third parties in the normal course of business. These include fees as well as settlement accounts for transactions undertaken. These receivables are normally settled by receipt of cash. Trade and other receivables are initially recognised at fair value and then at amortised cost after deducting provisions for bad and doubtful debts. Prepayments arise where the Group pays cash in advance for services. As the service is provided, the prepayment is reduced and the operating expenses are recognised in the Consolidated Statement of Comprehensive Income.
Trade and other payables (excluding deferred income) represent amounts the Group is due to pay to third parties in the normal course of business. These include expense accruals as well as settlement accounts (amounts due to be paid for transactions undertaken). Trade payables are costs that have been billed, accruals represent costs, including remuneration, that are not yet billed or due for payment. They are initially recognised at fair value and subsequently held at amortised cost.
The costs of acquiring intangible assets such as fund management contracts are capitalised where it is probable that future economic benefits that are attributable to the assets will flow to the Group and the cost of the assets can be measured reliably. The assets are held at cost less accumulated amortisation.
The fund management contracts are recorded initially at fair value and recorded in the consolidated financial statements as an intangible asset, they are then amortised over their useful lives on a straight-line basis over 5 years. The assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its recoverable amount.
The Group classifies its financial assets in the following categories: at fair value through profit or loss, available-for-sale and loans and receivables.
Financial assets are classified as available-for-sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. After initial recognition, investments which are classified as available-for-sale are measured at fair value. Gains or losses, together with transaction costs, on availablefor-sale investments are recognised as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in 'other comprehensive income' is included within 'Realised gain/(loss) on sale of financial assets' in the Consolidated Statement of Comprehensive Income. Assets categorised as available-for-sale are reviewed at the end of each reporting period for impairment.
Financial assets are classified as held at fair value through profit or loss if their carrying amounts will be recovered through continuing use. These financial assets consist of units held in the Group's collective investment schemes as part of a 'manager's box (as detailed below) and assets held by the EBT in resepect of the Liontrust DBVAP.
The Group holds the following assets at fair value through profit or loss:
For the UK Authorised unit trusts, the units held in the 'manager's box' are to ease the calculation of daily creations and cancellations of units. These box positions are not held to create speculative proprietary positions but are managed in accordance with specified criteria and authorisation limits. The units in the 'manager's box' are accounted for on a trade date basis. These units are valued on a bid price basis.
Units in Liontrust UK Authorised unit trusts and shares in the sub funds of the Liontrust Global Funds Plc are held by the Liontrust EBT in respect of The DVBAP, the units and shares are accounted for on a trade date basis. The units are valued on a bid price basis.
The Group holds the following assets as available-for-sale:
The Group's assets held as available-for-sale represent shares in the sub-funds of Liontrust Global Funds Plc as detailed in note 16 and are valued on a bid price basis.
Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets. The Group's loans and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet.
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired.
Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Under IFRS cash and cash equivalents are included in the consolidated cash flow statement.
Own shares held by the Liontrust Asset Management Employee Trust and The Liontrust Members Reward Partnership LP are valued at cost and are shown as a deduction from the Group's shareholders' equity. No gains or losses are recognised in the Consolidated Statement of Comprehensive Income.
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over the period of the lease.
Income and expenses are accounted for on an accruals basis when they become receivable or payable. The Group's primary source of revenue is fee income from investment management activities. These fees are generally based on an agreed percentage of the valuation of the assets under management ('AuM') and are recognised as the service is provided and it is probable that the fee will be received. Operating expenses represent the Group's administrative expenses and are recognised as the services are provided.
Front end fees received and commissions paid on the sales of units in unitised funds are amortised over the estimated life of the unit.
Performance fees are recognised in the period in which they become due and collectable. Any portion of performance fees that are not due and collectable, and whose future entitlement is not certain, is not recognised but noted as a contingent asset.
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for, if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
The Group operates defined contribution schemes for its employees. The assets are invested with insurance companies and are held separately from the Group. The costs of the pension scheme are recognised in the Consolidated Statement of Comprehensive Income in the period in which they are incurred. The Group has no further payment obligations once the contributions have been paid.
The Group operates a number of equity-settled, share-based compensation plans, under which the entity receives services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense (and credited to equity reserves) over the vesting period. The total amount to be expensed is determined at the date of grant by reference to the fair value of the options granted. A number of models have been used to calculate the fair value as follows:
A binomial model is used with the following assumptions having been made
The fair value for each options is spread over the vesting period which is three years with an exercise price of 110.50 pence;
The expected life of options issued under LOP is 6.5 years.
The expected volatility has been calculated using historical daily data over a term commensurate with the expected life of the option and is 39.9% The risk-free interest rate has been based on the implied yield of zero-coupon government bonds (UK strips) with a remaining term equal to the expected term and is 3.37%. No expected dividends have been factored into the model.
– Liontrust Members Incentive Plan ('LMIP') with performance conditions
A Monte Carlo simulation model is used with the following assumptions having been made:
The fair value for each Incentive Capital Interest ('ICI') is spread over the vesting period which is 3 years with an exercise price of nil;
The expected life of ICIs issued under this LMIP scheme is 10 years
The expected volatility has been calculated for each plan using historical daily data over a term commensurate with the expected life of the ICIs and ranges from 28% to 40%
The risk-free interest rate for each plan has been based on the implied yield of zero-coupon government bonds (UK strips) with a remaining term equal to the expected term and ranges from 0.28% to 1.95%. No expected dividends have been factored into the model.
The fair value is spread over the vesting period which is 5 years with an exercise price of nil;
The options are expected to be exercised at the point they become exercisable
The risk-free interest rate has been based on the implied yield of zero-coupon government bonds (UK strips) with a remaining term equal to the expected term. No expected dividends have been factored into the model.
A Monte Carlo simulation model is used to value the award with the following assumptions having been made:
The fair value is spread over the vesting period which is 5 years with an exercise price of nil;
The awards are expected to be exercised at the point they become exercisable
The risk-free interest rate has been based on the implied yield of zero-coupon government bonds (UK strips) with a remaining term equal to the expected term. No expected dividends have been factored into the model.
Dividend distributions to the shareholders of the Company are recognised as a liability in the period during which they are declared. In the case of final dividends they are recognised as a liability in the period that they are declared and approved by shareholders.
Under IAS 19, all accumulating employee compensated absences that are unused at the balance sheet date are recognised as a liability. The Group's entitlement period runs for the financial year and any employees with unused holiday allowance at the period end have no contractual entitlement to this.
Items in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (The 'functional currency'). The consolidated financial statements are presented in Sterling ('£') which is the Company's functional and presentation currency.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Consolidated Statement of Comprehensive Income.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.
The Group's activities expose it to a variety of financial risks: market risk (including price risk, cash flow interest rate risk and foreign exchange risk), credit risk, liquidity risk and capital risk. The Group's overall risk management programme understands the unpredictable nature of financial markets and seeks to minimise any potential adverse effects on the Group's financial performance. The Group uses a number of analytical tools to measure the state of the business. The financial review on pages 14 to 17 of the Strategic Report identifies some of these measures.
The Group is exposed to equity securities price risk because of investments held by the Group and classified on the consolidated balance sheet as current financial assets (either held at fair value through profit or loss or held as available-for-sale).
The Group holds the following types of investment as assets held at fair value through profit or loss or assets held as available-for-sale (see note 16):
Investments held by the EBT
For UK Authorised unit trusts, the units held in the 'manager's box' are to ease the calculation of daily creations and cancellations of units. These box positions are not held to create speculative proprietary positions but are managed in accordance with specified criteria and authorisation limits. The manager's box for each fund is reviewed daily. If there is a negative box position then units are created to bring the box level positive. Three control levels of the manager's box exist for each fund and each level is required to be signed off by progressively more senior staff. There are clearly defined maximum limits, over which manager's box levels cannot exceed.
The units in the 'manager's box' are accounted for on a trade date basis. These units are valued on a bid price basis and held at fair value through profit and loss.
For UK Authorised unit trusts, the units held in the EBT are selected as part of the DBVAP to align the interests of the Directors with the wider business. The units are accounted for on a trade date basis and valued on a bid price basis and held at fair value through profit and loss.
The operational investment in the sub-funds of Liontrust Global Funds Plc, (an Ireland domiciled open ended investment company) have been undertaken as an investment to aid incorporation and will be redeemed when the sub funds grow in size. The Group has a regular review process for the investments which identifies specific criteria to ensure that investments are within agreed limits.
For the shares in the sub-funds of Liontrust Global Funds Plc held in the EBT are selected as part of the DBVAP to align the interests of the Directors with the wider business. The shares are accounted for on a trade date basis and held at fair value through profit and loss.
Management consider, based on historic information, that a sensitivity rate of 10% is appropriate. Based on the holdings in the Liontrust Global Funds at the balance sheet date a price movement of 10% would result in a movement in the value of the investment of £45,000 (2016: £13,000). Based on the holdings in the Liontrust Authorised Unit Trusts at the balance sheet date a price movement of 10% would result in a movement in the value of the investment of £95,000 (2016: £1,000).
The Group monitors its investments with respect to its regulatory capital requirements and reviews its investments' values with respect to overall Group capital on a monthly basis.
Interest rate risk is the risk that the Group will sustain losses from the fair value or future cash flows of adverse movements in interest bearing assets and liabilities and so reduce profitability.
The Group holds cash on deposit in GBP. The interest on these balances is based on floating rates. The Group monitors its exposure to interest rate movements and may decide to adjust the balance between deposits on fixed or floating interest rates, or adjust the level of deposits. Management consider that given current interest rate levels a sensitivity rate of 1% is appropriate for GBP cash. Following a review of sensitivity based on average cash holdings during the year a 1% increase or decrease in the interest rate will cause a £195,000 increase or a decrease to nil in interest receivable (2016: £175,000 increase or decrease to nil).
Foreign exchange risk is the risk that the Group will sustain losses through adverse movements in currency exchange rates. The Group's policy is to hold the minimum currency exposure required to cover operational needs and, therefore, to convert foreign currency on receipt.
The Group is currently exposed to foreign exchange risk in the following areas: Investments denominated in US Dollars and income receivable in Euro and US Dollars.
In calculating the sensitivity analysis below it has been assumed that expenses/income will remain in line with budget in their relative currencies year on year.
Management consider that a sensitivity rate of 10% is appropriate given the current level of volatility in the world currency markets. In respect of investments denominated in foreign currencies a 10% movement in the UK Sterling vs. the relevant exchange rate would lead to an exchange gain or loss as follows:
Sterling vs. Euros - a movement of 10% would lead to a movement of £5,000 (2016: £nil).
Sterling vs. US Dollar - a movement of 10% would lead to a movement of less than £1,000 (2016: £2,000).
In respect of Income receivable in Euro a 10% movement in the exchange rate would result in a movement of £92,000 (2016: £151,000) in the income statement.
In respect of Income receivable in US Dollar a 10% movement in the exchange rate would result in a movement of £25,000 (2016: less than £1,000) in the income statement.
Credit risk is managed at a Group level. The Group is exposed to credit risk primarily on its trade receivables and from its financing activities, including deposits with banks and financial institutions and other financial instruments.
Fees receivable arise mainly from the Group's investment management business and amounts are monitored regularly. Historically, default levels have been insignificant and the Group's maximum exposure to credit risk is represented by the carrying value of its financial assets.
| Maximum exposure to credit risk | 31-Mar-17 | 31-Mar-16 |
|---|---|---|
| Cash and cash equivalents | 16,956 | 18,967 |
| Trade receivables | 68,066 | 35,413 |
For banks and financial institutions only independently rated parties with a minimum rating of 'A-2' are used and their creditworthiness is regularly monitored by the Portfolio Risk Committee.
For receivables the Group takes into account the credit quality of the client and credit positions are monitored. The Group has three main types of receivables: management and performance fees, settlement due from investors in its funds and from the funds themselves for unit/share liquidations. For management and performance fee receivables, the Group proactively manages the invoicing process to ensure that invoices are sent out on a timely basis and has procedures in place to chase for payment at pre-determined times after the despatch of the invoice to ensure timely settlement. For receivables due from investors, the Group has rigorous procedures to chase investors by phone/letter to ensure that settlement is received on a timely basis. For settlement due from the fund for liquidations, the settlement of these types of receivables are governed by regulation and are monitored on an exception basis. In all cases, detailed escalation procedures are in place to ensure that senior management are aware of any problems at an early stage.
During the year there have been no losses due to non-payment of receivables and the Group does not expect any losses from the credit counterparties as held at the balance sheet date.
Prudent liquidity risk management requires the maintenance of sufficient net cash and marketable securities. The Group monitors rolling forecasts of the Group's liquidity reserves (comprising readily realisable investments and cash and cash equivalents) on the basis of expected cash flows.
The Group has categorised its financial liabilities into maturity Groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table below are the contractual undiscounted cash flows.
| As at 31 March 2017 | Due within 3 months |
Due between 3 months and one year |
Due in over one year |
|---|---|---|---|
| Payables | 63,960 | – | 322 |
| As at 31 March 2016 | Due within 3 months |
Due between 3 months and one year |
Due in over one year |
| Payables | 31,279 | – | – |
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders whilst maintaining an optimal company structure to reduce the cost of capital and meet working capital requirements.
The Group's policy is that it and its subsidiaries should have sufficient capital to meet regulatory requirements, keep an appropriate standing with counterparties and meet working capital requirements at both a Group and subsidiary level. Management reviews the Group's assets on a monthly basis and will ensure that operating capital is maintained at the levels required. Management consider capital to comprise of cash and net assets. As at 31 March 2017 the Group has cash and net assets of £22.1 million (2016: £22.3 million). In order to maintain or adjust the capital structure the Group may adjust the amounts of dividends paid to shareholders, return capital to shareholders, issue new shares, buy back shares or sell financial assets which will increase cash and reduce capital requirements.
Recognised regulatory bodies, such as the FCA in the UK, oversee the activities of a number of the Group's operating subsidiaries and impose minimum capital requirements on the subsidiaries. The Group is regulated by the FCA as a UK consolidation Group. The FCA issued revised rules on Capital Adequacy following the implementation of the Capital Requirements Directive IV which came into force on 1 January 2016. Having reviewed the new rules, Liontrust remains subject to the BIPRU regulations. Further details are available in the Liontrust Pillar III disclosure.
The FCA requires the Group to hold more regulatory capital resources than the total capital resource requirement as defined in the Capital Requirements Directive. The total capital requirement for the Group is the base and variable capital resource requirement (the Pillar 1 requirement) and any additional requirements identified during the Internal Capital Adequacy Assessment Process (the Pillar 2 requirement).
The total capital requirement for the Group is £6.5 million (2016: £3.9 million).
As at 31 March 2017, the Group has regulatory capital resources of £23.0 million (2016: £23.6 million), significantly in excess of the Group's total capital requirement.
During the period the Group and its subsidiary entities complied with all regulatory capital requirements.
The Group operates only in one operating segment – Investment Management.
Management offers different fund products through different distribution channels. All key financial, business and strategic decisions are made centrally by the Board, which determines the key performance indicators of the Group. The Group reviews financial information presented at a Group level. The Board, is therefore, the chief operating decision-maker for the Group. The information used to allocate resources and assess performance is reviewed for the Group as a whole. On this basis, the Group considers itself to be a single-segment investment management business.
| Year ended 31-Mar-17 £'000 |
Year ended 31-Mar-16 £'000 |
|
|---|---|---|
| United Kingdom | 50,349 | 43,426 |
| Europe (ex UK) | 1,029 | 1,325 |
| USA | 23 | 14 |
| Canada | 36 | 20 |
| Australia | 192 | 179 |
| Cayman Islands | 13 | 27 |
| 51,642 | 44,991 |
During the year ended 31 March 2017 the Group had no customer contributing more than 10% of total revenue (2016: one customer).
Revenue from earnings includes:
Investment management, performance and administration fees; the net value of sales and repurchases of units in unit trusts and shares in open-ended investment companies (net of discounts); the net value of liquidations and creations of units in unit trusts and shares in open-ended investment companies; and foreign currency gains and losses.
The cost of sales includes:
Sales commission paid or payable and external investment advisory fees paid or payable.
| Year ended 31-Mar-17 £'000 |
Year ended 31-Mar-16 £'000 |
|
|---|---|---|
| Revenue | ||
| - Revenue | 47,459 | 37,634 |
| - Performance fee revenue | 4,049 | 7,357 |
| Total Revenue | 51,508 | 44,991 |
| Year ended 31-Mar-17 £'000 |
Year ended 31-Mar-16 £'000 |
|
|---|---|---|
| Employee related expenses | ||
| Director and employee costs(1) | 5,721 | 4,459 |
| Pensions | 305 | 217 |
| Share incentivisation expense | 1,487 | 671 |
| DBVAP expense | 188 | – |
| Severance compensation | 53 | 93 |
| 7,754 | 5,440 | |
| Non employee related expenses | ||
| Members drawings charged as an expense | 19,062 | 17,665 |
| Share incentivisation expense members | 1,762 | – |
| Member severance compensation | 165 | – |
| Professional services (restructuring, acquisition related and other)(2) | 1,359 | 1,884 |
| Depreciation and Intangible asset amortisation | 3,118 | 2,571 |
| Other administration expenses | 9,286 | 7,991 |
| 42,506 | 35,551 |
| Year ended 31-Mar-17 £'000 |
Year ended 31-Mar-16 £'000 |
|
|---|---|---|
| Share incentivisation expense | ||
| – Share option expense employees | 972 | 423 |
| – Share option expense members | 1,762 | – |
| – Share option NIC expense | 134 | 42 |
| – Share incentive plan expense | 163 | 100 |
| – Share option related expenses | 218 | 106 |
| 3,249 | 671 |
(1) Full details of the Directors emoluments can be found in the Directors Remuneration Report on page 47
(2) Includes legal costs relating to claim by former member (see note 24).
The average number of members and employees of the Group (as calculated on a weighted average basis over the year), excluding Non-executive Directors, was 78 (2015: 72). All employees are involved in the investment management business of the Group. The costs incurred in respect of the Directors, members and employees was:
| Member and employee expenses | ||||||
|---|---|---|---|---|---|---|
| Year ended 31-Mar-17 | ||||||
| Members | ||||||
| Average number of members and employees during the year |
Wages and salaries £'000 |
Social security costs £'000 |
Total employee expense £'000 |
Members drawings charged as an expense £'000 |
||
| General management | 3 | 396 | 78 | 474 | 1,878 | |
| Fund management | 22 | 961 | 118 | 1,079 | 13,546 | |
| Finance, Operations and IT | 24 | 1,509 | 167 | 1,676 | 965 | |
| Risk management and Compliance | 4 | 132 | 15 | 147 | 765 | |
| Sales and Marketing | 25 | 1,893 | 227 | 2,120 | 1,908 | |
| Non-executive directors | 4 | 201 | 24 | 225 | – | |
| 82 | 5,092 | 629 | 5,721 | 19,062 |
| Member and employee expenses | |||||||
|---|---|---|---|---|---|---|---|
| Year ended 31-Mar-16 | |||||||
| Employees | Members | ||||||
| Members drawings |
|||||||
| Average number of employees during the year |
Wages and salaries £'000 |
Social security costs £'000 |
Total employee expense £'000 |
charged as an expense £'000 |
|||
| General management | 4 | 516 | 57 | 573 | 1,160 | ||
| Fund management | 23 | 777 | 36 | 813 | 12,312 | ||
| Finance, Operations and IT | 21 | 965 | 162 | 1,127 | 1,800 | ||
| Risk management and Compliance | 4 | 124 | 14 | 138 | 636 | ||
| Sales and Marketing | 24 | 1,487 | 163 | 1,650 | 1,757 | ||
| Non-executive directors | 3 | 142 | 16 | 158 | – | ||
| 79 | 4,011 | 448 | 4,459 | 17,665 |
| Year ended 31-Mar-17 £'000 |
Year ended 31-Mar-16 £'000 |
|
|---|---|---|
| The following items have been included in arriving at operating profit: | ||
| Foreign exchange gains | 13 | 21 |
| Depreciation | 125 | 123 |
| Amortisation of initial commission asset | 25 | 61 |
| Amortisation of intangible asset | 2,993 | 2,448 |
| Operating lease costs | 654 | 428 |
| Costs relating to Directors, members and employees (Note 5) | 26,816 | 23,105 |
| Auditors remuneration: | ||
| Fees payable to the Company's auditors and its associates for the audit of the parent | ||
| Company and consolidated financial statements | 65 | 51 |
| Fees payable to the Company's auditors and its associates for other services: | ||
| - The audit of the Company's subsidiaries pursuant to legislation | 80 | 60 |
| - Audit related assurance services to the Company's subsidiaries | 120 | 30 |
| - Taxation services | 39 | 45 |
| - Other services | 30 | 149 |
Adjusted profit (as explained in note 1(c)) reconciled in the table below:
| Year ended 31-Mar-17 £'000 |
Year ended 31-Mar-16 £'000 |
|
|---|---|---|
| Profit for the year | 6,828 | 7,310 |
| Taxation | 2,275 | 2,094 |
| Profit before tax | 9,103 | 9,404 |
| Share incentivisation expense | 3,249 | 671 |
| DBVAP expense | 188 | – |
| Severance compensation | 218 | 93 |
| Professional services(1) | 1,359 | 1,884 |
| Depreciation and Intangible asset amortisation | 3,118 | 2,571 |
| Adjustments | 8,132 | 5,219 |
| Adjusted profit before tax | 17,235 | 14,623 |
| Interest receivable | (11) | (16) |
| Adjusted operating profit | 17,224 | 14,607 |
(1) Includes legal costs relating to claim by former member (see note 24) and costs relating to the replacement of the front office systems.
Adjusted earnings per share is reconciled in the tables below:
| Year ended 31-Mar-17 |
Year ended 31-Mar-16 |
|
|---|---|---|
| Basic earnings per share | 15.15 | 16.48 |
| Adjustments: | ||
| Taxation | 5.05 | 4.72 |
| Share incentivisation expense | 7.21 | 1.51 |
| DBVAP expense | 0.42 | – |
| Severance compensation | 0.48 | 0.21 |
| Professional services(1) | 3.02 | 4.25 |
| Depreciation and Intangible asset amortisation | 6.92 | 5.80 |
| Adjustments: | 23.10 | 16.49 |
| Taxation at 20% | (7.65) | (6.59) |
| Adjusted basic earnings per share (pre tax) | 30.60 | 26.38 |
| Peformance fees(2)(3) | 2.41 | 4.31 |
| Adjusted basic earnings per share (excluding performance fees) | 28.19 | 22.07 |
| Year ended 31-Mar-17 |
Year ended 31-Mar-16 |
|
|---|---|---|
| Diluted earnings per share | 14.75 | 16.06 |
| Adjustments: | ||
| Taxation | 4.92 | 4.60 |
| Share incentivisation expense | 7.02 | 1.47 |
| DBVAP expense | 0.41 | – |
| Severance compensation | 0.47 | 0.20 |
| Professional services(1) | 2.94 | 4.14 |
| Depreciation and Intangible asset amortisation | 6.74 | 5.65 |
| Adjustments: | 22.48 | 16.07 |
| Taxation at 20% | (7.45) | (6.43) |
| Adjusted diluted earnings per share (pre tax) | 29.79 | 25.70 |
| Peformance fees(2)(3) | 2.34 | 4.20 |
| Adjusted diluted earnings per share (excluding performance fees) | 27.45 | 21.50 |
(1) Includes legal costs relating to claim by former member (see note 24) and costs relating to the replacement of the front office systems.
(2) Assumes a taxation rate of 20% (2016: 20%)
(3) Performance fee revenues contribution calculated in line with operating margin of 33% (2016: 33%)
Disclosures relating to the Group's financial instruments risk management policies are detailed in note 2. Cash earns interest at floating or fixed rates based on daily bank deposit rates. The weighted average effective interest rate on cash is 0.1% (2016: 0.1%).
| Year ended 31-Mar-17 £'000 |
Year ended 31-Mar-16 £'000 |
|
|---|---|---|
| Ordinary Shares | ||
| First interim at 9 pence per share (2016: 6 pence) | 4,092 | 2,609 |
| Second interim at 4 pence per share (2016: 3 pence) | 1,803 | 1,351 |
| Total | 5,895 | 3,960 |
In addition, the Directors are proposing an interim dividend in respect of the financial year ending 31 March 2017 of 11p per share which will absorb an estimated £5.4m of shareholders' funds. It will be paid on 19 July 2017 to shareholders who are on the register of members at 23 June 2017.
| Year ended 31-Mar-17 |
Year ended 31-Mar-16 |
||
|---|---|---|---|
| £'000 | £'000 | ||
| (a) | Analysis of charge in year | ||
| Current tax: | |||
| UK corporation tax at 20% (2016: 20%)* | 2,040 | 2,102 | |
| Adjustment in respect of prior periods | 147 | (44) | |
| Total current tax | 2,187 | 2,058 | |
| Deferred tax: | |||
| Deferred tax originated from timing differences | 36 | 36 | |
| Deferred tax charged in respect of future rate change to 19% | 52 | – | |
| Total charge in year | 2,275 | 2,094 | |
| (b) | Factors affecting current tax | ||
| Profit on ordinary activities before tax | 9,103 | 9,404 | |
| Profit on ordinary activities at UK corporation tax rate of 20% (2016: 20%) | 1,821 | 1,881 | |
| Effects of: | |||
| Expenses not deductible for tax purposes | 199 | 63 | |
| Effect of reinstatement of loans to the EBT | – | 131 | |
| Depreciation in excess of capital allowances | 3 | 3 | |
| Adjustment to deferred tax in respect of tax rate change | 52 | – | |
| Net Members drawings not taxable | 59 | 60 | |
| Tax relief on exercise of unapproved options | (42) | – | |
| Deferred tax originated from timing differences | 36 | – | |
| Adjustment in respect of prior periods | 147 | (44) | |
| Total taxation | 2,275 | 2,094 |
* The terms of the 2014 Finance Act that will reduce the standard rate of corporation tax to 19% with effect from 1 April 2017.
| Deferred tax assets | 2017 £'000 |
2016 £'000 |
|---|---|---|
| Balance as at 1 April Deferred tax reversed on timing differences |
1,052 (36) |
1,088 (36) |
| Movement in deferred tax on change in tax rate to 19% (2016: 20%) | (52) | – |
| Balance as at 31 March | 964 | 1,052 |
Deferred tax relating to losses which are expected to be credited to taxation payable on future profits £964,000 (2016: £1,052,000).
The standard rate of corporation tax in the UK will change from 20% to 19% with effect from April 2017. Deferred tax has been recognised at 19% to reflect this reduction.
The calculation of basic earnings per share is based on profit after taxation for the year and the weighted average number of Ordinary Shares in issue for each year. The weighted average number of Ordinary Shares was 45,059,188 for the year (2016:44,346,674). Shares held by the Liontrust Asset Management Employee Trust are not eligible for dividends and are treated as cancelled for the purposes of calculating earnings per share.
Diluted earnings per share are calculated on the same bases as set out above, after adjusting the weighted average number of Ordinary Shares for the effect of options to subscribe for new Ordinary Shares or Ordinary Shares held in the Liontrust Asset Management Employee Trust that were in existence during the year ended 31 March 2017. The adjusted weighted average number of Ordinary Shares so calculated for the year was 46,285,217 (2016: 45,518,720). This is reconciled to the actual weighted number of Ordinary Shares as follows:
| As at 31-Mar-17 number |
As at 31-Mar-16 number |
|
|---|---|---|
| Weighted average number of Ordinary Shares Weighted average number of dilutive Ordinary shares under option: |
45,059,188 | 44,346,674 |
| – to the Liontrust Long Term Incentive Plan | 789,963 | – |
| – to the Liontrust Option Plan | 30,949 | 37,062 |
| – to the DBVAP | 395,144 | 324,602 |
| – to the LMIP | 9,973 | 810,382 |
| Adjusted weighted average number of Ordinary Shares | 46,285,217 | 45,518,720 |
Details of the options outstanding at 31 March 2017 to Directors are set out in the Directors' Remuneration Report on page 52.
| Year to 31 March 2017 | Remaining | |
|---|---|---|
| Carrying value | amortisation | |
| Description | £'000 | period |
| Less than | ||
| Investment management contracts acquired from Walker Crips | 102 | 1 year |
| Investment management contracts acquired from Argonaut* | 3,538 | 4 Years |
| Investment management contracts £'000 |
||
| Cost | ||
| At 1 April 2016 | 14,406 | |
| Additions | 4,083 | |
| At 31 March 2017 | 18,489 | |
| Accumulated amortisation and impairment | ||
| At 1 April 2016 | 11,856 | |
| Amortisation charge for the year | 2,993 | |
| At 31 March 2017 | 14,849 | |
| Net Book Value | ||
| At 31 March 2017 At 31 March 2016 |
3,640 2,550 |
|
| Year to 31 March 2016 | Investment management contracts £'000 |
|
| Cost | ||
| At 1 April 2015 | 14,406 | |
| Additions | – | |
| At 31 March 2016 | 14,406 | |
| Accumulated amortisation and impairment | ||
| At 1 April 2015 | 9,408 | |
| Amortisation charge for the year | 2,448 | |
| At 31 March 2016 | 11,856 | |
| Net Book Value | ||
| At 31 March 2016 | 2,550 | |
| At 31 March 2015 | 4,998 |
* As noted in the 2016 Annual report we agreed to acquire the European income business of Argonaut Capital Partners LLP (the 'acquisition'). The acquisition completed in July 2016.
| Year to 31 March 2017 | Leasehold Improvements £'000 |
Office Equipment £'000 |
Computer Equipment £'000 |
Total £'000 |
|---|---|---|---|---|
| Cost | ||||
| At 1 April 2016 | 313 | 324 | 336 | 973 |
| Additions | – | 18 | 55 | 73 |
| At 31 March 2017 | 313 | 342 | 391 | 1,046 |
| Accumulated depreciation | ||||
| At 1 April 2016 | 207 | 243 | 276 | 726 |
| Charge for the year | 56 | 28 | 41 | 125 |
| At 31 March 2017 | 263 | 271 | 317 | 851 |
| Net Book Value | ||||
| At 31 March 2017 | 50 | 71 | 74 | 195 |
| At 31 March 2016 | 106 | 81 | 60 | 247 |
| Year to 31 March 2016 | Leasehold Improvements £'000 |
Office Equipment £'000 |
Computer Equipment £'000 |
Total £'000 |
| Cost | ||||
| At 1 April 2015 | 309 | 261 | 310 | 880 |
| Additions | 4 | 63 | 26 | 93 |
| At 31 March 2016 | 313 | 324 | 336 | 973 |
| Accumulated depreciation | ||||
| At 1 April 2015 | 151 | 222 | 230 | 603 |
| Charge for the year | 56 | 21 | 46 | 123 |
| At 31 March 2016 | 207 | 243 | 276 | 726 |
| Net Book Value | ||||
| At 31 March 2016 | 106 | 81 | 60 | 247 |
| At 31 March 2015 | 158 | 39 | 80 | 277 |
Depreciation has been included in the Consolidated Statement of Comprehensive Income within administration expenses.
| As at 31-Mar-17 £'000 |
As at 31-Mar-16 £'000 |
|
|---|---|---|
| Trade receivables | ||
| – Fees receivable | 11,695 | 10,788 |
| – Unit trust sales and cancellations | 53,990 | 22,715 |
| Prepayments and accrued income | 2,380 | 1,909 |
| Initial commission asset | 1 | 1 |
| 68,066 | 35,413 |
All financial assets listed above are non-interest bearing. The carrying amount of these non-interest bearing trade and other receivables approximates their fair value.
Trade receivables that are less than 3 months past due are not considered impaired. As at 31 March 2017, trade receivables of £nil (2016: £nil) were past due but not impaired.
The Group holds financial assets that have been categorised within one of three levels using a fair value hierarchy that reflects the significance of the inputs into measuring the fair value. These levels are based on the degree to which the fair value is observable and are defined as follows:
– Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets and liabilities;
– Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);
– Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data.
As at the balance sheet date all financial assets are categorised as Level 1.
Assets held at fair value through profit and loss:
The Group's assets held at fair value through profit and loss represent shares in the Liontrust GF Global Strategic Equity Fund, and units in the Liontrust Global Income Fund, the Liontrust Macro Equity Income Fund, the Liontrust UK Growth Fund and the Liontrust Asia Income Fund. Any Foreign currency assets are translated at rates of exchange ruling at the balance sheet date and any exchange rate differences arising are shown in note 6.
Assets held as available-for-sale:
The Group's assets held as available-for-sale represent shares in the Liontrust GF Water & Agriculture Fund, the GF Global Strategic Equity Fund, the GF European Smaller Companies Fund, the GF European Strategic Equity Fund, The GF Asia Income Fund, the GF Macro Equity Income Fund and the GF UK Growth Fund (all sub-funds of Liontrust Global Funds Plc) and are valued at bid price); and units in the Liontrust Global Income Fund, The Liontrust Macro Equity Income Fund, The Liontrust Asia Income Fund and the Liontrust UK Growth Fund. The gain on the fair value adjustments during the year net of tax was £nil (2016:£nil). Foreign currency assets are translated at rates of exchange ruling at the balance sheet date and any exchange rate differences arising are included in other comprehensive income.
| As at 31-Mar-17 | As at 31-Mar-16 | |||||
|---|---|---|---|---|---|---|
| Assets held at fair value through profit and loss £'000 |
Assets held as available for-sale £'000 |
Total £'000 |
Assets held at fair value through profit and loss £'000 |
Assets held as available for-sale £'000 |
Total £'000 |
|
| Financial assets in Level 1 | ||||||
| UK Authorised unit trusts | 953 | – | 953 | 8 | – | 8 |
| Ireland Open Ended Investment company | 173 | 278 | 451 | – | 131 | 131 |
| 1,126 | 278 | 1,404 | 8 | 131 | 139 | |
| Total Financial Assets | 1,126 | 278 | 1,404 | 8 | 131 | 139 |
| As at 31-Mar-17 £'000 |
As at 31-Mar-16 £'000 |
|
|---|---|---|
| Current Liabilities | ||
| Trade payables – unit trust repurchases and creations | 53,094 | 22,182 |
| Other payables including taxation and social security | 139 | 120 |
| Deferred income and other payables | 10,727 | 8,977 |
| 63,960 | 31,279 | |
| As at 31-Mar-17 £'000 |
As at 31-Mar-16 £'000 |
|
| Non current Liabilities | ||
| DBVAP liability | 322 | – |
| 322 | – |
All financial liabilities listed above are non-interest bearing. The carrying amount of these non-interest bearing trade and other payables approximates their fair value.
| 2017 Shares |
2017 £'000 |
2016 Shares |
2016 £'000 |
|
|---|---|---|---|---|
| Authorised ordinary shares of 1 pence | ||||
| As at 1 April | 60,000,000 | 600 | 60,000,000 | 600 |
| As at 31 March | 60,000,000 | 600 | 60,000,000 | 600 |
| Allotted, called up and fully paid ordinary shares of 1 pence | ||||
| As at 1 April | 45,471,555 | 454 | 45,471,555 | 454 |
| Issued during the year | – | – | – | – |
| As at 31 March | 45,471,555 | 454 | 45,471,555 | 454 |
During the last 5 years, the Group has engaged in corporate acquisitions with shares being issued at a premium in consideration for some of these the acquisitions. As a result of this, the share premium reserve grew to £17,692,000 at 31 March 2016.
By undertaking the Capital Reduction, it allows the future profits of the Company earned after the date on which the Capital Reduction took effect to then be available for the Directors of the Company to use for the purposes of paying dividends and/or buying back Ordinary Shares (should circumstances in the future make it desirable to do so).
The capital reorganisation was completed on 18 March 2017 and £17,692,000 was transferred from the Share Premium reserve to the Profit and Loss reserve.
The Companies Act 2006 requires disclosure of certain information about the Group's related undertakings which is set out in this note. Related undertakings comprise subsidiaries, joint ventures, associates and other significant holdings. Significant holdings are where the Group either has a shareholding greater than or equal to 20% of the nominal value of any share class, or a book value greater than 20% of the Group's assets.
a) The direct related undertakings of the Company as at 31 March 2017 are listed below
| Name of undertaking country of incorporation |
% held | |
|---|---|---|
| Liontrust Investment Funds Limited(1) | UK | 100 |
| Liontrust Investment Services Limted(1) | UK | 100 |
| Liontrust Investment Solutions Limited(1) | UK | 100 |
| Liontrust GF UK Growth Fund C1(2) | Ireland | 29 |
| Liontrust GF UK Growth Fund C3(2) | Ireland | 2 |
| Liontrust GF Asia Income Fund B4(2) | Ireland | 100 |
| Liontrust GF European Strategic Equity Fund CF(2) | Ireland | 100 |
| Liontrust GF Global Water & Agriculture Fund CF(2) | Ireland | 100 |
| Liontrust GF European Smaller Companies A5(2) | Ireland | 100 |
| Liontrust GF European Smaller Companies X(2) | Ireland | less than 1% |
| Liontrust GF European Smaller Companies CF(2) | Ireland | 100 |
| Liontrust GF Macro equity Income C5(2) | Ireland | less than 1% |
b) The indirect related undertakings of the Company as at 31 March 2017 are listed below
| Name of undertaking | country of incorporation | % held |
|---|---|---|
| Liontrust Fund Partners LLP(1) | UK | 100 |
| Liontrust Investment Partners LLP(1) | UK | 100 |
| Liontrust Members Reward Partnership LP(3) | Jersey | 100 |
(1) Registered Office: 2 Savoy Court, London, WC2r 0EZ
(2) Registered Office: Georges Court, 54-62 Townsend Street, Dublin
(3) Registered Office: 44 Esplanade, St Helier, Jersey, JE4 9EG
Approval was given at a General Meeting in February 2016 for the grant of options under the Liontrust Long Tern Incentive Plan (the "LTIP"). The Board adopted the Liontrust Option Plan (the "LOP") in December 2009 and the Deferred Bonus and Variable Allocation Plan ("DBVAP") in June 2013. The options granted under the DBVAP and LOP, including to the Executive Directors (in the case of DBVAP), were as follows:
| Issue Date | 1 April 2016 | Options Granted |
Options Exercised |
Lapsed | 31 March 2017 | Exercise price |
Scheme |
|---|---|---|---|---|---|---|---|
| 10 February 2010 | 56,786 | – | (56,786) | – | – | 110.5 pence | LOP |
| 21 June 2013 | 13,623 | – | (13,623) | – | – | Nil | DBVAP |
| 19 June 2014 | 21,988 | – | – | – | 21,988 | Nil | DBVAP |
| 18 June 2015 | 367,259 | – | – | – | 367,259 | Nil | DBVAP |
| 20 June 2016 | – | 573,984 | – | – | 573,984 | Nil | LTIP |
| 5 September 2016 | – | 599,766 | – | – | 599,766 | Nil | LTIP |
* Options that are exercisable as at 31 March 2017
| Issue Date | 1 April 2015 | Options Granted |
Options Exercised |
Lapsed | 31 March 2016 | Exercise price |
Scheme |
|---|---|---|---|---|---|---|---|
| 10 February 2010 | 69,455 | – | (12,669) | – | 56,786* | 110.5 pence | LOP |
| 21 June 2013 | 13,623 | – | – | – | 13,623 | Nil | DBVAP |
| 19 June 2014 | 21,988 | – | – | – | 21,988 | Nil | DBVAP |
| 18 June 2015 | – | 367,259 | – | – | 367,259 | Nil | DBVAP |
13,623 DBVAP options were exercised in July 2016. 56,786 LOP options were exercised in January 2017.
Under the Liontrust Members Incentive Plan ("LMIP") certain individual members have been allocated Incentive Capital Interests, which entitle such individual member to a fixed amount. The entitlement which the holder of an Incentive Capital Interest would have is calculated on the basis of the application of a percentage to the "Maximum Incentive Capital Interest" ("MICI") attributable to that Incentive Capital Interest. The MICI is a variable amount in Pounds Sterling equal to the number of Ordinary shares set out in his side letter multiplied by the price of Ordinary shares from time to time (by reference to a 30 day market average price). The MICI allocated, in terms of number of Ordinary shares, to individual members were as follows:
| Issue Date | 1 April 2016 | Granted | Exercised | Lapsed | 31 March 2017 | Exercise price |
Scheme |
|---|---|---|---|---|---|---|---|
| 8 July 2013 | 35,000 | – | (35,000) | – | – | Nil | LMIS |
| Issue Date | 1 April 2015 | Granted | Exercised | Lapsed | 31 March 2016 | Exercise price |
Scheme |
| 28 March 2012 | 75,000 | – | (75,000) | – | – | Nil | LMIS |
| 28 September 2012 | 1,565,000 | – | (1,565,000) | – | – | Nil | LMIS |
| 8 July 2013 | 35,000 | – | – | – | 35,000 | Nil | LMIS |
Under the Liontrust Members Reward Plan ('LMRP') certain individual members have been allocated profits with which they have made a capital contribution to the Liontrust LLP Members Reward Limited Partnership ('LLMRLP') , which entitle such individual member to a future amount dependant on performance conditions being met. The entitlement which the member of LLMRLP would have is calculated on the basis of the application of a percentage to the initial Capital contribuiton. The amounts allocated, in terms of number of Ordinary shares, to individual members were as follows:
| Issue Date | 1 April 2016 | Granted | Exercised | Lapsed | 31 March 2017 | Exercise price |
Scheme |
|---|---|---|---|---|---|---|---|
| 6 September 2016 | 493,447 | – | – | – | 493,447 | Nil | LMRP |
Details of the share options can be found in the Directors' Remuneration report on pages 51 and 52.
DBVAP, and LOP operate in conjunction with the Liontrust Asset Management Employee Trust on the basis that at 100% of the options for DBVAP and LOP will be satisfied by market purchased shares. This is to ensure that dilution of shareholders' interest is limited. At 31 March 2017 the weighted average remaining life of the options was 2.0 years (2016: 2.4 years).
At 31 March 2017, the Liontrust Asset Management Employee Trust owned 359,796 shares (2016: 430,205) at a cost of £1,119,191 (2016: £1,316,247). Dividends on these shares have been waived and they are treated as cancelled for the purposes of calculating the earnings per share of the Group. As at 31 March 2017 the market value of the shares was £1,403,000 (2016: £1,094,000).
The Group and Company are committed to making the total of future minimum lease payments for office properties under non-cancellable operating leases in each of the following periods:
| Year ended 31-Mar-17 £'000 |
Year ended 31-Mar-16 £'000 |
|
|---|---|---|
| Amounts due | ||
| Within one year | 667 | 428 |
| Between one year and five years | 2,409 | 285 |
| Later than five years | – | – |
| 3,076 | 713 |
There are no special terms for renewal or purchase options for the Group's leasehold property, nor are there any restrictions on dividends, additional debt or further leasing imposed from the leasing arrangements.
During the year the Group received fees from unit trusts under management of £36,079,000 (2016: £32,283,000). Transactions with these unit trusts comprised creations of £935,850,000 (2016: £481,491,000) and liquidations of £575,684,000 (2016: £256,153,000). As at 31 March 2017 the Group owed the unit trusts £16,301,000 (2016: £22,181,000) in respect of unit trust creations and was owed £29,082,000 (2016: £25,415,000) in respect of unit trust cancellations and fees. Directors can invest in unit trusts and offshore funds managed by the Group on commercial terms that are no more favourable than those available to staff in general.
During the year the Group received fees from offshore funds under management of £1,375,000 (2016: £797,000). Transactions with these funds comprised purchases of £251,000 (2016: £98,000) and sales of £151,000 (2016: £191,000). As at 31 March 2017 the Group was owed £332,000 (2016: £85,000) in respect of offshore fund fees.
During the year members received loans totalling £Nil (2016: £Nil) from Liontrust Fund Partners LLP and Liontrust Investment Partners LLP (the 'LLPs'), these loans were provided in connection with the relevant members' duties as a member of the relevant LLP. As at 31 March 2017 members owed the LLP's £489,000 (2016: £706,000).
Compensation to key management personnel (executive directors) and Non-executive Directors is disclosed in the Directors' Remuneration Report on page 47
The Group can earn performance fees on some of the segregated and fund accounts that it manages. In some cases a proportion of the fee earned is deferred until the next performance fee is payable or offset against future underperformance on that account. As there is no certainty that such deferred fees will be collectable in future years, the Group's accounting policy is to include performance fees in income only when they become due and collectable and therefore the element (if any) deferred beyond 31 March 2017 has not been recognised in the results for the year.
In the normal course of business a contingent liability has arisen in relation to a claim made by a former member against Liontrust Asset Management Plc, Liontrust Investment Partners LLP ("LIP"), Liontrust Investment Services Limited and the individual members of LIP. As the timing and amount of any potential liability is unknown and cannot be reliably estimated at this stage they are not disclosed.
On 1 April 2017, the Company acquired all of the ordinary shares in Alliance Trust Investments Limited (subsequently renamed Liontrust Investments Limited) for £29.14 million, satisfied partly in cash and partly by means of an issue of the Company's ordinary share capital.
The equity instruments issued on completion date comprise of 4.06 million of the Company's ordinary shares and the fair value is £15.84 million.
Additionally, the group has agreed to pay the seller additional consideration which will be satisfied by the allotment and issue of 1.02m of the Company's ordinary shares valued at the date of exchange of the shares. The fair value of the deferred consideration is £3.96 million at the acquisition date.
The net assets acquired on 1 April 2017 is £9.34m.
The difference between the consideration and net assets acquired is due to intangibles and/or goodwill but at the date of issue of these financial statements, the valuation of these is not complete. An updated disclosure, including the valuation of the balances, will be included in the Half- Yearly Report.
Other than the acquisition as detailed in note 25 there were no post balance sheet events.
for the year ended 31 March 2017
| Year ended |
Year ended |
|
|---|---|---|
| Note | 31-Mar-17 £'000 |
31-Mar-16 £'000 |
| Revenue | 2,775 | 2,631 |
| Dividends received from subsidiary companies | 9,000 | 6,051 |
| Gross profit | 11,775 | 8,682 |
| Realised gain/(loss) on sale of financial assets | 6 | (1) |
| Reinstatement of loan | – | 651 |
| Administration expenses 30 |
(6,920) | (5,703) |
| Operating profit 31 |
4,861 | 3,629 |
| Interest receivable 32 |
1 | 1 |
| Profit before tax | 4,862 | 3,630 |
| Taxation 33 |
(88) | (36) |
| Profit for the year | 4,774 | 3,594 |
| Other comprehensive income | – | – |
| Total comprehensive income | 4,774 | 3,594 |
The notes on pages 89 to 96 form an integral part of these Company financial statements.
as at 31 March 2016
| Note | 31-Mar-17 £'000 |
31-Mar-16 £'000 |
|
|---|---|---|---|
| Assets | |||
| Non current assets | |||
| Property, plant and equipment | 35 | 195 | 247 |
| Intangible assets | 36 | 102 | 2,550 |
| Investment in subsidiary undertakings | 37 | 15,071 | 15,071 |
| Deferred tax assets | 34 | 964 | 1,052 |
| Loan to Employee Benefit Trust | 29 | 1,971 | 1,094 |
| Total non current assets | 18,303 | 20,014 | |
| Current assets | |||
| Trade and other receivables | 38 | 10,262 | 7,611 |
| Financial assets | 39 | 278 | 131 |
| Cash and cash equivalents | 1,340 | 1,726 | |
| Total current assets | 11,880 | 9,468 | |
| Liabilities | |||
| Non current liabilities | |||
| DBVAP liability | (322) | – | |
| Total current assets | (322) | – | |
| Current liabilities | |||
| Trade and other payables | 40 | (1,857) | (1,196) |
| Total current liabilities | (1,857) | (1,196) | |
| Net current assets | 10,023 | 8,272 | |
| Net assets | 28,004 | 28,286 | |
| Shareholders' equity | |||
| Ordinary shares | 41 | 454 | 454 |
| Share premium | – | 17,692 | |
| Capital redemption reserve | 19 | 19 | |
| Retained earnings | 27,531 | 10,121 | |
| Total equity | 28,004 | 28,286 |
The notes on pages 89 to 96 form an integral part of these Company financial statements.
The financial statements on pages 85 to 96 were approved and authorised for issue by the Board of Directors on 14 June 2017 and signed on its behalf by V.K. Abrol, Chief Operating Officer and Chief Financial Officer.
for the year ended 31 March 2017
| Year ended |
Year ended |
|
|---|---|---|
| 31-Mar-17 | 31-Mar-16 | |
| £'000 | £'000 | |
| Cash flows from operating activities | ||
| Cash inflow from operations | 1,177 | 600 |
| Cash outflow from operations | (3,526) | (2,425) |
| Net cash used in operations | (2,349) | (1,825) |
| Interest received | 1 | 1 |
| Net cash used in operating activities | (2,348) | (1,824) |
| Cash flows from investing activities | ||
| Purchase of property and equipment | (73) | (93) |
| Investment in subsidiary | – | 10 |
| Loan to the EBT | (940) | (1,135) |
| Purchase of seeding investments | (251) | (98) |
| Sale of seeding investments | 121 | 191 |
| Net cash used in investing activities | (1,143) | (1,125) |
| Cash flows from financing activities | ||
| Dividends received | 9,000 | 6,051 |
| Dividends paid to shareholders | (5,895) | (3,960) |
| Net cash used in financing activities | 3,105 | 2,091 |
| Net increase/(decrease) in cash and cash equivalents | (386) | (858) |
| Effect of exchange rate changes | – | |
| Opening cash and cash equivalents* | 1,726 | 2,584 |
| Closing cash and cash equivalents | 1,340 | 1,726 |
* Cash and cash equivalents consists only of cash balances.
The notes on pages 89 to 96 form an integral part of these Company financial statements.
for the year ended 31 March 2017
| Note | Ordinary shares £'000 |
Share premium £'000 |
Capital redemption £'000 |
Retained earnings £'000 |
Total Equity £'000 |
|
|---|---|---|---|---|---|---|
| Balance at 1 April 2016 brought forward | 454 | 17,692 | 19 | 10,121 | 28,286 | |
| Profit for the year | – | – | – | 4,774 | 4,774 | |
| Amounts recycled through the Statement of Comprehensive Income | – | – | – | – | – | |
| Total comprehensive income for the year | – | – | – | 4,774 | 4,774 | |
| Dividends paid | – | – | – | (5,895) | (5,895) | |
| Capital reduction | 19 | – | (17,692) | – | 17,692 | – |
| EBT option settlement | – | – | – | (133) | (133) | |
| Equity share options issued | – | – | – | 972 | 972 | |
| Balance at 31 March 2017 | 454 | – | 19 | 27,531 | 28,004 |
for the year ended 31 March 2016
| Ordinary shares £'000 |
Share premium £'000 |
Capital redemption £'000 |
Retained earnings £'000 |
Total Equity £'000 |
|
|---|---|---|---|---|---|
| Balance at 1 April 2015 brought forward | 454 | 17,692 | 19 | 10,183 | 28,348 |
| Profit for the year | – | – | – | 3,594 | 3,594 |
| Total comprehensive income for the year | – | – | – | 3,594 | 3,594 |
| Dividends paid | – | – | – | (3,960) | (3,960) |
| Equity share options issued | – | – | – | 304 | 304 |
| Balance at 31 March 2016 | 454 | 17,692 | 19 | 10,121 | 28,286 |
The notes on pages 89 to 96 form an integral part of these Company financial statements.
The separate financial statements of the Company have been prepared in accordance with International Financial Reporting Standards, which comprise standards and interpretations issued by either the International Accounting Standards Board or the IFRS Interpretations Committee or their predecessors as adopted by the European Union ('IFRS'), and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial information has been prepared based on the IFRS standards effective as at 31 March 2017.
The financial statements have been prepared on the going concern basis under the historical cost convention. The principle accounting policies are the same as those set out in note 1.
Investment in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
Notes 27 to 44 reflect the information for the Company.
The Company's activities expose it to a variety of financial risks: market risk (including price risk, cash flow interest rate risk and foreign exchange risk), credit risk, capital risk and liquidity risk. The Company is covered by the Group's overall risk management programme. The risk management policies are the same as those set out in note 2 and elsewhere in the report and financial statements.
The specific risks affecting the Company are as follows:
The investments in the sub-funds of Liontrust Global Funds PLC are valued on a daily basis at bid price. The investments are held as available-for-sale financial assets and are held at fair value and any permanent impairment in the value of the shares held would be taken to revenue.
Management consider, based on historic information, that a sensitivity rate of 10% is appropriate. Based on the holdings in the Liontrust Global Funds at the balance sheet date a price movement of 10% would result in a movement in the value of the investment of £140,000 (2016: £13,000).
The Company holds cash on deposit. The interest on these balances is based on floating rates and fixed rates. The Company monitors its exposure to interest rate movements and may decide to adjust the balance between deposits on fixed or floating interest rates, or adjust the level of deposits. Following a review of sensitivity based on average cash holdings during the year a 1% increase or decrease in the interest rate will cause a £6,000 increase or decrease in interest receivable (2016: £5,000).
In addition to the risks covered by the Group risk management polices. The Company is subject to some specific risks relating to its interaction with other Group companies. The company reviews its balances due to and from other Group companies on a regular basis.
Prudent liquidity risk management required the maintenance of sufficient cash and marketable securities. The Company monitors rolling forecasts of the it's liquidity reserves (comprising readily realisable investments and cash and cash equivalents) on the basis of expected cash flow.
The Company has analysed its financial liabilities into maturity Groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table below are the contractual undiscounted cash flows.
| As at 31 March 2017 | within 3 months | Between 3 months | Over one year |
|---|---|---|---|
| Payables | 1,857 | – | – |
| As at 31 March 2017 | within 3 months | Between 3 months | Over one year |
| Payables | 1,196 | – | – |
The company is the sponsor of Liontrust Asset Management Employee Trust (the 'Trust'). An annual impairment review was carried out under the appropriate accounting standards and the value of the loan to the EBT was calculated at £1,971,000 (2016: £1,094,000). The current value of the shares in the trust are disclosed in Note 20.
| Year ended 31-Mar-17 £'000 |
Year ended 31-Mar-16 £'000 |
|
|---|---|---|
| Employee costs | ||
| - Director, member and employee costs | 753 | 1,488 |
| - Pension costs | 27 | 10 |
| - Share incentivisation expense | 1,461 | 552 |
| - DBVAP expense | 188 | – |
| - Severance compensation | 53 | 64 |
| 2,482 | 2,114 | |
| Non employee costs | ||
| Other administration expenses | 4,438 | 3,589 |
| 6,920 | 5,703 | |
| Year ended 31-Mar-17 £'000 |
Year ended 31-Mar-16 £'000 |
|
| Share incentivisation expense |
The average number of members and employees engaged in business for the Company excluding non-executive directors, was 6 (2016: 6). All members and employees are involved in the investment management business of the Group. The costs incurred in respect of the directors, members and employees was:
| Year ended 31-Mar-17 | ||||||
|---|---|---|---|---|---|---|
| Average number of members and employees during the year |
Wages and salaries £'000 |
Social security costs £'000 |
Total £'000 |
|||
| General management | 3 | 285 | 44 | 329 | ||
| Finance, Operations and IT | 3 | 125 | 19 | 144 | ||
| Non-executive directors | 3 | 242 | 38 | 280 | ||
| 9 | 652 | 101 | 753 |
| Year ended 31-Mar-16 | ||||||
|---|---|---|---|---|---|---|
| Average number of members and employees during the year |
Wages and salaries £'000 |
Social security costs £'000 |
Total £'000 |
|||
| General management | 3 | 1,024 | 114 | 1,138 | ||
| Finance, Operations and IT | 3 | 133 | 15 | 148 | ||
| Non-executive directors | 3 | 182 | 20 | 202 | ||
| 9 | 1,339 | 149 | 1,488 |
| Year ended 31-Mar-17 £'000 |
Year ended 31-Mar-16 £'000 |
|
|---|---|---|
| The following items have been included in arriving at operating profit: Foreign exchange gains Depreciation Amortisation of intangible asset Staff costs (note 30) Services provided by the Company's auditors: |
3 125 2,448 2,482 |
3 123 2,448 2,114 |
| Fees payable to the company's auditors for the audit of the company's annual financial statements | 51 | 51 |
Fees paid to PricewaterhouseCoopers LLP for non-audit services to the Company are not disclosed in the financial statements because the Group's consolidated financial statements are required to disclose such fees on a consolidated basis.
The Company follows the same risk management policies as detailed for the Group in note 2. Cash earns interest at floating or fixed rates based on daily bank deposit rates. The weighted average effective interest rate on cash is 0.0% (2016: 0.0%).
| Year ended 31-Mar-17 |
Year ended 31-Mar-16 |
|
|---|---|---|
| £'000 | £'000 | |
| (a) Analysis of charge in year | ||
| Current tax: | ||
| UK corporation tax at 20% (2016: 20%)* | – | – |
| Adjustments in respect of prior year | – | – |
| – | – | |
| Total current tax (note (b)) | – | – |
| Deferred tax | ||
| Deferred tax originated from timing differences | 36 | 36 |
| Deferred tax charged in respect of future rate change to 19% | 52 | |
| Total charge in period | 88 | 36 |
| (b) Factors affecting current tax | ||
| Profit on ordinary activities before tax | 4,862 | 3,630 |
| Profit on ordinary activities at UK corporation tax rate of 20% (2016: 20%) | 972 | 726 |
| Effects of: | ||
| Group dividends not deductible for tax purposes | (1,800) | (1,210) |
| Expenses not deductible for tax purposes | 198 | 64 |
| Depreciation in excess of capital allowances | 3 | 3 |
| Adjustment in respect of deferred tax recoverability rate to 20% Tax relief on exercise of unapproved options |
– (41) |
– – |
| Taxation relief given to other Group companies | 668 | 453 |
| Deferred tax originated on timing differences | 36 | – |
| Adjustment to deferred tax in respect of tax rate change | 52 | – |
| Total Taxation | 88 | 36 |
* The standard rate of corporation tax in the UK changed from 21% to 20% with effect from 1 April 2015. Accordingly, the Group's profits for this finanical year are taxed at an effective rate of 20%. The terms of the 2014 Finance Act will reduce the standard rate of corporation tax to 19% with effect from 1 April 2017.
| Deferred tax assets | 31-Mar-17 £'000 |
31-Mar-16 £'000 |
|---|---|---|
| Balance as at 1 April Deferred tax reversed on timing differences |
1,052 (36) |
1,088 (36) |
| Movement in deferred tax on change in tax rate to 19% (2016: 20%) | (52) | – |
| Balance as at 31 March | 964 | 1,052 |
Deferred tax relating to losses which are expected to be credited to taxation payable on future profits £964,000 (2016: £1,052,000).
The standard rate of corporation tax in the UK changed from 20% to 19% with effect from 1 April 2017. Accordingly, the Group's profits for this financial year are taxed at an effective rate of 20%. Deferred tax has been recognised at 19% to reflect this reduction.
| Year to 31 March 2017 | Leasehold Improvements £'000 |
Office Equipment £'000 |
Computer Equipment £'000 |
Total £'000 |
|---|---|---|---|---|
| Cost | ||||
| At 1 April 2016 | 313 | 324 | 336 | 973 |
| Additions | – | 18 | 55 | 73 |
| At 31 March 2017 | 313 | 342 | 391 | 1,046 |
| Accumulated depreciation | ||||
| At 1 April 2016 | 207 | 243 | 276 | 726 |
| Charge for the year | 56 | 28 | 41 | 125 |
| At 31 March 2017 | 263 | 271 | 317 | 851 |
| Net Book Value | ||||
| At 31 March 2017 | 50 | 71 | 74 | 195 |
| At 31 March 2016 | 106 | 81 | 60 | 247 |
| Year to 31 March 2016 | Leasehold Improvements £'000 |
Office Equipment £'000 |
Computer Equipment £'000 |
Total £'000 |
| Cost | ||||
| At 1 April 2015 | 309 | 261 | 310 | 880 |
| Additions | 4 | 63 | 26 | 93 |
| At 1 April 2016 | 313 | 324 | 336 | 973 |
| Accumulated depreciation | ||||
| At 1 April 2015 | 151 | 222 | 230 | 603 |
| Charge for the year | 56 | 21 | 46 | 123 |
| At 1 April 2016 | 207 | 243 | 276 | 726 |
| Net Book Value | ||||
| At 31 March 2016 | 106 | 81 | 60 | 247 |
| At 31 March 2015 | 158 | 39 | 80 | 277 |
Depreciation has been included in the Statement of Comprehensive Income within administration expenses.
The Company holds the following intangible asset
| Description | Carrying value £'000 | Remaining amortisation period |
|---|---|---|
| Investment management contracts acquired from Walker Crips | 102 | 1 Year |
| Investment management contracts £'000 |
||
| Cost | ||
| At 1 April 2016 | 12,240 | |
| At 31 March 2017 | 12,240 | |
| Accumulated amortisation and impairment | ||
| At 1 April 2016 | 9,690 | |
| Amortisation charge for the year | 2,448 | |
| At 31 March 2017 | 12,138 | |
| Net Book Value | ||
| At 31 March 2017 | 102 | |
| At 31 March 2016 | 2,550 | |
| Investment management contracts |
||
| Year to 31 March 2016 | £'000 | |
| Cost | ||
| At 1 April 2015 | 12,240 | |
| At 31 March 2016 | 12,240 | |
| Accumulated amortisation and impairment | ||
| At 1 April 2015 | 7,242 | |
| Amortisation charge for the year | 2,448 | |
| At 31 March 2016 | 9,690 | |
| Net Book Value | ||
| At 31 March 2016 | 2,550 | |
| At 31 March 2015 | 4,998 |
Amortisation has been recorded within administration expenses.
The Company's investment in subsidiary undertakings represents 100% interests (unless otherwise stated) in the ordinary shares, capital, voting rights and redeemable preference shares (unless stated otherwise) of Liontrust Investment Funds Limited and Liontrust Investment Services Limited, both registered in England whose principal activity is as operating companies for the Group's investment management LLP's; Liontrust Investment Solutions Limited, whose principal activity is investment management. All subsidiary undertakings have the same accounting date as the parent company. Full details of the Company's subsidiary undertakings can be found on page 25.
| 2017 £'000 |
2016 £'000 |
|
|---|---|---|
| Balance at 1 April | 15,071 | 10,261 |
| Additions during the year | – | 4,810 |
| Balance at 31 March | 15,071 | 15,071 |
| 31-Mar-17 £'000 |
31-Mar-16 £'000 |
|
|---|---|---|
| Receivables due from subsidiary undertakings | 10,028 | 7,369 |
| Prepayments and accrued income | 234 | 242 |
| 10,262 | 7,611 |
All financial assets listed above are non-interest bearing. The carrying amount of these non-interest bearing trade and other receivables approximates their fair value.
Assets held as available-for-sale:
The Company's financial assets held as available-for-sale represent shares in the sub funds of the Liontrust Global Fund PLC and units in Liontrust UK authorised Unit Trusts and are valued at bid price. The assets are all categorized as Level 1 in line with the categorization detailed in note 16.
| 31-Mar-17 | 31-Mar-16 | |||||
|---|---|---|---|---|---|---|
| Financial assets | Assets held at fair value through profit and loss £'000 |
Assets held as available for-sale £'000 |
Total £'000 |
Assets held at fair value through profit and loss £'000 |
Assets held as available for-sale £'000 |
Total £'000 |
| UK Authorised unit trusts | – | – | – | |||
| Ireland Open Ended Investment Company | – – |
278 278 |
278 278 |
– – |
131 131 |
131 131 |
| Current payables | 2017 £'000 |
2016 £'000 |
|---|---|---|
| Other payables including taxation and social security | 136 | 158 |
| Payables due to subsidiary undertakings | – | 142 |
| Other payables | 1,721 | 896 |
| 1,857 | 1,196 |
| Non current payables | 2017 £'000 |
2016 £'000 |
|---|---|---|
| DBVAP liability | 322 | – |
| 322 | – |
All financial liabilities listed above are non-interest bearing. The carrying amount of these non-interest bearing trade and other payables approximates their fair value.
| 2017 Shares |
2017 £'000 |
2016 Shares |
2016 £'000 |
|
|---|---|---|---|---|
| Authorised shares of 1 pence | ||||
| As at 1 April | 60,000,000 | 600 | 60,000,000 | 600 |
| As at 31 March | 60,000,000 | 600 | 60,000,000 | 600 |
| Allotted, called up and fully paid shares of 1 pence | ||||
| As at 1 April | 45,471,555 | 454 | 45,741,555 | 454 |
| Issued during the year | – | – | – | – |
| As at 31 March | 45,471,555 | 454 | 45,741,555 | 454 |
The Company is committed to making the total of future minimum lease payments on office properties under non-cancellable operating leases in each of the following periods:
| Year ended 31-Mar-17 £'000 |
Year ended 31-Mar-16 £'000 |
|
|---|---|---|
| Amounts due | ||
| within one year | 586 | 428 |
| Between one year and five years | 2,308 | 285 |
| Later than five years | – | – |
| 2,894 | 713 |
There are no special terms for renewal or purchase options for the Group's leasehold property, nor are there any restrictions on dividends, additional debt or further leasing imposed from the leasing arrangements.
As at 31 March 2017 the Company owed the following intercompany balances to: Liontrust Fund Partners LLP - £nil (2016: £142,000), this amount arose from Group operations.
As at 31 March 2017 the Company was owed the following intercompany balances by:
Liontrust Fund Partners LLP - £3,170,000 (2016: £nil); and Liontrust Investment Partners LLP - £697,000 (2016: £1,612,000); and Liontrust Investment Funds Limited - £2,107,000 (2016: £1,763,000); and Liontrust Investment Solutions Limited - £68,000 (2016: £56,000); and Liontrust Investment Services Limited - £3,986,000 (2016: £3,938,000); these amounts arose from Group operations.
The Liontrust Asset Management Employee Trust - £1,971,000 (2016: £1,094,000).
Compensation to key management personnel (executive Directors) and Non-executive Directors is disclosed in the Directors Remuneration Report on page 47.
The acquisition of Alliance Trust Investments Limited was completed on 1 April 2017 as detailed in Note 25.
In our opinion, Liontrust Asset Management PLC's Group financial statements and Company financial statements (the 'financial statements'):
The financial statements, included within the Annual Report and Financial Statements (the 'Annual Report'), comprise:
Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are crossreferenced from the financial statements and are identified as audited.
The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by the European Union, and applicable law.
Liontrust Asset Management PLC ('Liontrust')is a FTSE Small Cap listed fund manager that was launched in 1995 and listed in 1999. Liontrust has a large presence in the UK covering both retail and institutional clients. Liontrust offers a range of products such as Unit Trusts, Offshore funds, Segregated Mandates and Discretionary Portfolio Management Services.
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) ('ISAs (UK and Ireland)').
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as 'areas of focus' in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified by our audit.
Area of focus How our audit addressed the area of focus
Refer to note 4. Revenue and note 1. Principal accounting policies.
Revenue is the most significant account balance in the Consolidated Statement of Comprehensive Income.
In 2017, management fees net of rebates and expense caps made up the majority of revenue. The recognition of management fees is dependent on the terms of the underlying investment management contracts ('IMCs') between the Group and its clients and/or the funds it manages. It is calculated as a percentage of Assets Under Management ('AUM') and the percentage applied varies across different funds and products. The risk relates to incorrect calculation or risk of recording fees in the incorrect period. Rebates are calculated as a percentage of the value of the unit holdings of an individual account and the percentage applied is based on underlying rebate agreements. Expense caps are expenses reimbursed to the funds in line with the IMCs'.
Box profits vary from day to day and result from the daily creations and cancellations of fund units. The risk relates to incorrect calculation given the complexity with significant number of transactions each day and increases the risk of error.
Performance fees are standard industry practice but are often one-off or infrequent. Performance fees are largely driven by the outperformance of one individual segregated mandate and one Offshore fund this year. Similar to management fees, performance fees are set by the IMCs.
For all the revenue streams we understood and evaluated the design and implementation of key controls, including relevant Information Technology systems and controls, in place. This included both in-house and outsourced activities at the administrators, State Street and Northern Trust, and the transfer agent, International Financial Data Services, ('IFDS'), ('outsourced providers').
To obtain audit evidence over the key controls at Liontrust and at the outsourced providers supporting the calculation and recognition of revenue, we:
We found that the key controls on which we sought to place reliance for the purposes of our audit were designed, implemented and operating effectively.
We also obtained substantive audit evidence as set out below:
For management fees from Units Trusts and Offshore funds, we recalculated management fees based on AUM data obtained from outsourced providers and management fee rates from IMCs and reconciled these back to accounting records. For other management fees we re-performed a sample of management fee calculations using independently confirmed AUM and fee rates obtained from the IMCs as inputs or tied back independently obtained fee calculations to accounting records. We also tested management fees to ensure that fees were accrued in the correct period. In respect of Unit Trusts and Offshore funds, to test for completeness we checked that management fees were recognised for all active funds. For segregated funds, on a sample basis, we compared the management fees for current year funds to previous years to assess completeness.
In respect of rebates, we re-performed the calculations based on information provided by IFDS and reconciled the amounts back to accounting records. For a sample of rebates, we agreed rates to rebate agreements signed by the clients.
In respect of expense caps, for a sample, we tied back the amounts booked in the Group records to payments made or accrual calculations received from the outsourced service provider.
Area of focus How our audit addressed the area of focus
We reconciled the box profits revenue recognised in the accounting records to supporting values obtained independently from IFDS. Using daily box units from IFDS and independent prices we used data auditing techniques to perform a re-calculation of box profits for all funds and compared to the accounting records. Further, for a sample of days, we independently confirmed the day end net settlement on account of liquidations and creations with the Trustee of the funds, State Street. Also for a sample of discount transactions, we re-performed the computation to assess accuracy and reasonableness of the discount recorded. To test for completeness we checked that box profits were recognised for all Unit Trusts.
For a sample of performance fees, we assessed whether the fee had crystallised and therefore had been recognised in the appropriate period. For the same sample, we re-calculated this fee to check that it had been calculated in accordance with the IMCs. To test for completeness we assessed whether a sample of fund and segregated mandates were eligible for a performance fee and compared to the accruals to accounting records.
Based on work performed for revenue, we identified no material misstatements which required reporting to those charged with governance.
Refer to the Remuneration report, note 21. Own shares and note 1. Principal accounting policies.
Due to the complex and judgemental nature of share schemes and incentive plans, there is an increased risk of error.
The likelihood of an error occurring is driven by a number of factors such as the complexity of the schemes, the required record keeping and manual calculations.
We understood and evaluated the design and operating effectiveness of the control environment in place over the share based payment expense and performed the following to address the risks identified for each type of share based payment transaction:
Based on work performed for share schemes and incentive plans, we identified no material misstatements which required reporting to those charged with governance.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in which the Group operates.
The Group is structured along a single business line being investment management. The Group financial statements are a consolidation of the Company and five subsidiary entities all of which are based in the United Kingdom.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed over the Company and each of the subsidiaries by us, as the Group engagement team, and also as auditors for each of the subsidiaries to be able to conclude whether sufficient appropriate audit evidence as a basis for our opinion on the Group financial statements as a whole had been obtained.
We therefore performed full scope audits on the complete financial information of Liontrust Investment Partners LLP and Liontrust Fund Partners LLP because they are financially significant components, together representing more than 95% of Group profit before tax. We performed a full scope audit of Liontrust Investment Solutions Limited, Liontrust Investment Funds Limited and Liontrust Investment Services Limited as a number of balances, including cash and cash equivalents and revenue, are material to the Group financial statements.
This, together with additional procedures performed at the Group level, gave us the evidence we needed for our opinion on the Group financial statements as a whole.
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
| Overall group materiality | £455,000 (2016: £423,000). |
|---|---|
| How we determined it | 5% of profit before tax. |
| Rationale for benchmark applied | Consistent with previous years, we have applied this benchmark because it is a benchmark against which the |
| Group's performance is commonly measured and a recognised statutory measure. |
We agreed with the Audit and Risk Committee that we would report to them misstatements identified during our audit above £22,000 (2016: £21,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Under the Listing Rules we are required to review the directors' statement, set out on page 28, in relation to going concern. We have nothing to report having performed our review.
Under ISAs (UK and Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to the directors' statement about whether they considered it appropriate to adopt the going concern basis in preparing the financial statements. We have nothing material to add or to draw attention to.
As noted in the directors' statement, the directors have concluded that it is appropriate to adopt the going concern basis in preparing the financial statements. The going concern basis presumes that the Group and Company have adequate resources to remain in operation, and that the directors intend them to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the directors' use of the going concern basis is appropriate. However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group's and Company's ability to continue as a going concern.
Consistency of other information and compliance with applicable requirements
In our opinion, based on the work undertaken in the course of the audit:
In addition, in light of the knowledge and understanding of the Group, the Company and their environment obtained in the course of the audit, we are required to report if we have identified any material misstatements in the Strategic Report and the Directors' Report. We have nothing to report in this respect.
| Under ISAs (UK & Ireland) we are required to report to you if, in our opinion: | |
|---|---|
| Information in the Annual Report is: • Materially inconsistent with the information in the audited financial statements; or • apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group and Company acquired in the course of performing our audit; or • Otherwise misleading. |
We have no exceptions to report. |
| The statement given by the directors on page 28, in accordance with provision C.1.1 of the UK Corporate Governance Code (the 'Code'), that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the Group's and Company's position and performance, business model and strategy is materially inconsistent with our knowledge of the Group and Company acquired in the course of performing our audit. |
We have no exceptions to report. |
| The section of the Annual Report on page 35, as required by provision C.3.8 of the Code, describing the work of the Audit and Risk Committee does not appropriately address matters communicated by us to the Audit and Risk Committee. |
We have no exceptions to report. |
| Under ISAs (UK and Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to: | ||
|---|---|---|
| The directors' confirmation on page 18 of the Annual Report, in accordance with provision C.2.1 of the Code, that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. |
We have nothing material to add or to draw attention to. |
|
| The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated. |
We have nothing material to add or to draw attention to. |
|
| The directors' explanation on page 17 of the Annual Report, in accordance with provision C.2.2 of the Code, as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. |
We have nothing material to add or to draw attention to. |
|
Under the Listing Rules we are required to review the directors' statement that they have carried out a robust assessment of the principal risks facing the Group and the directors' statement in relation to the longer-term viability of the Group. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the directors' process supporting their statements; checking that the statements are in alignment with the relevant provisions of the Code; and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit. We have nothing to report having performed our review.
Adequacy of accounting records and information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion:
We have no exceptions to report arising from this responsibility.
In our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors' remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.
Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to ten further provisions of the Code. We have nothing to report having performed our review.
As explained more fully in the Statement of Directors' Responsibilities set out on page 28, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
We primarily focus our work in these areas by assessing the directors' judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. With respect to the Strategic Report and Directors' Report, we consider whether those reports include the disclosures required by applicable legal requirements.
for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 14 June 2017
2 Savoy Court, London WC2R 0EZ Registered in England with Company Number 02954692
Tower Bridge House 280 Bishopsgate St Katharine's Way London EC2m 4RB London E1W 1DD
PricewaterhouseCoopers LLP The London Stock Exchange Building Chartered Accountants and Statutory Auditors 10 Paternoster Square 7 More London, Riverside London EC4M 7LT London, SE1 2RT
London EC4A ILT
The Company's shares are quoted on the London Stock Exchange and the price appears daily in The Financial Times, (listed under 'General Financial').
Liontrust UK Growth Fund Liontrust Global Income Fund Liontrust UK Smaller Companies Fund Liontrust UK Micro Cap Fund Liontrust Special Situations Fund Liontrust FTSE 100 Tracker Fund Liontrust European Growth Fund Liontrust European Income Fund Liontrust European Enhanced Fund Liontrust Asia Income Fund Liontrust Macro Equity Income Fund Liontrust Macro UK Growth Fund
Liontrust Global Funds PLC, comprising six sub funds: Liontrust GF European Strategic Equity Liontrust GF European Small Cap Fund Liontrust GF Macro Equity Income Fund Liontrust GF Special Situations Fund Liontrust GF UK Growth Fund Liontrust GF Asia Income Fund
Mark Jackson Royal Bank of Scotland Plc
Independent Auditors Numis Securities Limited
Macquarie Capital (Europe) Ltd Legal Advisers Ropemaker Place Macfarlanes LLP 28 Ropemaker Street 20 Cursitor Street Londo EC2Y 9HD
Year End 31 March Half Year End 30 September Results announced: Full year: June, half year: November Interim report available: December Annual Report available: June Annual General Meeting: September
LIONTRUST ASSET MANAGEMENT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2017 103
The prices of Liontrust's range of authorised unit trusts are listed on our website www.liontrust.co.uk.
For further information on the Company's range of funds and services please contact our Broker Services Department at: Liontrust Fund Partners LLP
2 Savoy Court London WC2R 0EZ
Telephone: 020 7412 1700 Facsimile: 020 7412 1779 e-mail: [email protected] or visit: www.liontrust.co.uk
| Liontrust Investment Funds Limited | |
|---|---|
| V.K. Abrol | J.S. Ions |
| Liontrust Fund Partners LLP | |
| A list of members is open for inspection at 2 Savoy Court, London WC2R 0EZ | |
| Liontrust Investment Services Limited | |
| V.K. Abrol | J.S. Ions |
| Liontrust Investment Partners LLP | |
| A list of members is open for inspection at 2 Savoy Court, London WC2R 0EZ | |
| Liontrust Investment Solutions Limited | |
| V.K. Abrol | J.S. Ions |
| Liontrust Investments Limited | |
| E.J.F Catton | M.F. Kearney |
| Investment companies – board members: | |
| Liontrust Global Funds Plc | |
| E.J.F. Catton | S. O'Sullivan |
| D.J. Hammond |
2 Savoy Court, London WC2R 0EZ Telephone: +44 (0)20 7412 1700 Fax: +44 (0)20 7412 1779 Email: [email protected] Web: www.liontrust.co.uk
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.