River and Mercantile is planning a major cost-cutting drive to address its anaemic profit margins after bringing its distribution capability back up to scratch.
Over the six months to 31 December 2020 the London-listed fund group invested heavily in its distribution firepower particularly for its wholesale business where chief executive James Barham (pictured) said it has “under-performed in recent years”.
In July River and Mercantile installed Merian Global Investors’ Simon Smith as the head of its UK wholesale team and poached two more of Smith’s colleagues.
See also: River and Mercantile nabs third distribution hire from Merian
Following its substantial investment Barham said the group was now “redoubling our focus on improving profitability” and bringing profit margins back to “historic levels”.
Cost cutting initiatives to be revealed soon
Adjusted underlying pre-tax margins over the latest interim period were 18%, down from 21% the year before. Its profit margins have been on a downward slide in recent years falling from 27% over the same period in 2017 to 24% in 2018.
Underlying profit before tax plunged 15% in the last six months of 2020 from £7.3m to £6.2m.
Revenues of £34.2m were also 3% lower than the £35.2m brought in over the comparable period in 2019, despite assets under management increasing 3.4% to £45.7bn.
Barham said the group is currently developing a series of cost cutting exercises that will be revealed in due course and is looking to “re-engineer” its operational infrastructure to slice operating costs “materially”.
“Getting this right is key to delivering on our potential to improve the group’s financial performance while providing us with the capacity to scale up our activities,” he said.
Sluggish net inflows expected to pick up
River and Mercantile took in just £0.1bn of net inflows in the six months to 31 December 2020 but this was boosted by £1.4bn from investment performance. Around 93% of its investment strategies by AUM beat their respective benchmarks over the period.
Although net client inflows were “modest” Barham said the group was anticipating stronger AUM growth in the second half of the year and was currently negotiating agreements on a number of large accounts.
Additionally he expects interest to be generated from the slew of new products River and Mercantile has launched in recent months.
In September it launched a European equity strategy for Schroders hire James Sym, which Barham said was already performing well, and it is also developing and marketing a Global Responsible Equity Strategy.
Earlier this year River and Mercantile unveiled a brand-new infrastructure business helmed by former Aviva Investors infrastructure equity boss Ian Berry. The team, which includes several former Aviva infrastructure managers, plans to launch its first fund this year.
See also: River and Mercantile raids Aviva Investors for debut infrastructure fund
