TIDMPOLR
RNS Number : 4341U
Polar Capital Holdings PLC
25 November 2019
Polar Capital Holdings plc ("Polar Capital" or "the Group")
Unaudited interim results for six months ended 30 September
2019
Summary of Results
Financial
-- Assets under Management ("AuM") at 30 September 2019 were
GBP14.3bn (31 March 2019: GBP13.8bn) - net fund outflows of
GBP0.4bn offset by market uplift and fund performance of
GBP0.9bn
-- Core operating profit , excluding performance fees, GBP21.3m (30 September 2018: GBP21.7m)
-- Operating profit before share-based payments on preference
shares GBP25.4m (30 September 2018: GBP27.7m)
-- Pre-tax profit GBP24.9m (30 September 2018: GBP27.3m)
-- Basic earnings per share 21.6p (30 September 2018: 24.3p) and
adjusted diluted earnings per share 19.8p (30 September 2018:
21.9p)
-- Interim dividend per ordinary share of 8.0p (January 2019:
8.0p) declared to be paid in January 2020
-- Shareholders' funds GBP103.6m (30 September 2018: GBP83.9m)
including cash and investments of GBP108.7m (30 September 2018:
GBP105.3m)
The non-GAAP measures shown here are described on the Alternate
Performance Measures (APMs) page.
Current Trading
-- AuM at 31 October 2019 were GBP14.0bn
-- Net performance fee profit marked to market at 31 October
2019 was GBP3.8m, which included net crystallised performance fees
of GBP3.3m (30 September 2019: GBP4.2m; GBP3.3m respectively).
Gavin Rochussen, Chief Executive Officer, commented:
"The past six months have been challenging. Active equity
strategies have seen continued outflows, and equity funds as a
whole have experienced record outflows into bonds, but these have
been dwarfed by buy-backs and M&A which have supported public
markets. Positioning and sentiment surveys remain cautious, with
reported cash positions at high levels and equities
underweight.
"Despite overall net outflows over the past six months, we have
had net inflows into most of our funds.
"With our diverse and differentiated range of sector and
regional long-only and alternative strategies with an entrenched
performance led culture, we believe that we are well placed to
continue delivering above average returns for our clients and, as a
consequence, compelling returns for our shareholders over the long
term."
For further information please contact:
Polar Capital +44 (0)20 7227 2700
Gavin Rochussen (CEO)
John Mansell (Executive Director)
Samir Ayub (Finance Director)
Numis - Nomad and Joint Broker +44 (0)20 7523 8000
Charles Farquhar
Stephen Westgate
Kevin Cruickshank (QE)
Peel Hunt - Joint Broker +44 (0) 20 7418 8893
Guy Wiehahn
Camarco +44 (0)20 3757 4984
Ed Gascoigne-Pees
Monique Perks
Assets Under Management (AuM)
AuM split by Type
30 September 31 March 2019
2019
------------- --------------- ------------ ----------------
GBPbn % GBPbn %
------------- -------- ----- ------------ --------- -----
Long only 12.8 90% Long only 12.5 91%
Alternative 1.5 10% Alternative 1.3 9%
------------- -------- ----- ------------ --------- -----
Total AuM 14.3 Total AuM 13.8
------------- -------- ----- ------------ --------- -----
AuM split by Strategy
(in chronological order)
30 September 31 March 2019
2019
--------------------- --------------- -------------------- ----------------
GBPbn % GBPbn %
--------------------- -------- ----- -------------------- --------- -----
Technology 4.9 34% Technology 4.5 33%
Japan 0.3 2% Japan 0.7 5%
European Long/Short 0.2 1% European Long/Short 0.2 1%
Healthcare 1.9 13% Healthcare 2.2 16%
Insurance 1.6 11% Insurance 1.2 9%
Financials 0.6 4% Financials 0.6 4%
Emerging Markets Emerging Markets
Income 0.1 1% Income 0.1 1%
Convertibles 0.8 6% Convertibles 0.6 4%
North America 2.2 16% North America 2.1 15%
UK Absolute Equity 0.5 4% UK Absolute 0.5 4%
European Income 0.2 1% European Income 0.2 1%
UK Value 1.0 7% UK Value 0.9 7%
Emerging Market * - Emerging Market * -
Stars Stars
--------------------- -------- ----- -------------------- --------- -----
Total AuM 14.3 Total AuM 13.8
--------------------- -------- ----- -------------------- --------- -----
* AuM at 30 September 2019 of GBP42m (31 March 2019: GBP36m)
Chief Executive's Statement
Markets
The six-month period to end September 2019 was characterised by
modest rises in most major equity markets and sectors, with returns
to sterling-based investors further enhanced by the weakness of the
pound against the US dollar, Yen and Euro. The US equity market
rose by more than Europe, the UK and Japan. The technology sector
continued to lead, which goes some way to explaining superior US
market returns, with the energy sector and healthcare weaker over
the period. Healthcare suffered due to concerns that Democrat
Presidential candidates in the US may change drug pricing and
procurement policies. For much of 2019, persistently low inflation
expectations, a declining growth outlook, and investor caution have
led to lower long-term bond yields; the US 2-10 year yield curve
briefly inverted in late August. This backdrop has been much more
favourable for growth and quality styles in equities than for
value.
Style rotation in markets changed dramatically in early
September. A degree of optimism about the state of US-China trade
negotiations, and signs that fiscal policy changes may be
implemented in order to stimulate economic growth, resulted in a
sharp pick-up in bond yields, inflation expectations and in the
performance of value versus growth. The scale and speed of change
in style preference illustrates that investor positioning had
become extreme. It remains to be seen whether this is the beginning
of a more fundamental change; bond yields are still well below the
levels of early 2019 and the yield curve is flat.
Fund Performance
As at 30 September 2019, 68% of Polar's UCITS fund AuM is ranked
in the top quartile versus peers over three years, 75% is ranked
top quartile over five years and 90% is ranked top quartile since
inception. The rapid and severe change in style rotation in markets
during September, favouring value at the expense of growth and
quality, had a significant short-term impact on fund performance
versus benchmark right at the end of the reporting period. Polar
strategies which had been performing well, and which have growth
characteristics, such as Technology, Healthcare and UK Absolute,
suffered a performance reversal in the month of September which
negatively affected their peer rankings such that only 20% of our
total UCITS fund AuM was ranked in the top quartile over one year
to the end of September. This is materially less than is the case
over longer time periods. All three strategies lag their
performance benchmarks year-to-date but have outperformed over
three years and longer.
More recently launched investment strategies with significant
remaining capacity in funds such as Emerging Market Stars, Asian
Stars and Automation & Artificial Intelligence, and more
established strategies such as Global Insurance, performed well
versus benchmark over the six-month period. Emerging Market Stars,
Asian Stars and Global Insurance were ahead of benchmark by close
to 500 basis points and both Emerging Market Stars and Global
Insurance are ranked in the top decile versus peers over six months
and are ranked within the top quartile over one year.
With the exception of the UK Absolute Equity Fund, all the
alternative strategies achieved positive absolute performance in
the calendar year to 30 September 2019. European Forager (USD Share
Class) was up 5.77%, Global Convertible Bond Fund (GBP Share Class)
returned 8.16%, the Convertibles' Global Absolute Return Fund
launched in January this year returned 1.65% and the China Mercury
Fund returned 6.01% in the calendar year to 30 September. The UK
Absolute Equity Fund (GBP Share Class) to the end of September was
marginally down by 58bps having suffered a decline in September as
a consequence of the rapid change in style rotation in markets,
from growth to value, in September referred to earlier.
Each investment team at Polar is autonomous and there is no
'house view'. Diversity of approach across Polar means that
strategies will typically perform well at different times. Our
investment oversight team monitors the characteristics of each
investment strategy to ensure that style and factor sensitivities
are intentional and appropriately scaled, and to help fund
management teams play to their strengths over the investment
cycle.
AuM and Fund Flows
In the six months to 30 September 2019, AuM increased by GBP467m
from GBP13.8bn to GBP14.3bn. The increase in AuM resulted from
GBP915m in market movement, currency and performance offset by net
outflows of GBP448m. There were net inflows of GBP112m into the
alternative funds and GBP560m of net outflows from the long-only
strategies.
The largest contributor to net outflows in the six months was
the Japan Fund where, following a sustained period of
underperformance, it was decided that the team be re-aligned to
focus on the Japan Value Fund where, over three years it has been
within the top decile against the UCITS Lipper peer group and
within the top quartile against the UCITS Lipper peer group over
one year, five years and since inception in October 2012. The Japan
Fund has now been merged with the Japan Value Fund which received
subscriptions of GBP256m as a consequence of the fund merger.
In the six months to September 2019, two long-standing clients
redeemed in excess of GBP500m from two of our highly rated funds,
the Global Technology Fund and the Healthcare Opportunities Fund to
take profits and reduce risk in their underlying client portfolios.
This has provided the Technology and Healthcare strategies with
additional capacity where the demand for the funds is robust.
Despite overall net outflows over the past six months, we have
had net inflows into most of our funds.
Results
Average AuM over the six months to 30 September 2019 increased
by 5% from GBP13.4bn (the average AuM for the six months to 30
September 2018) to GBP14.1bn.
Most of this increase was driven by sterling weakness which,
given the Group's revenue hedging strategy, saw net management fee
revenues increase by 3% from GBP57.3m in the comparable prior half
year period to GBP59.1m.
Core operating costs increased by GBP2.4m and performance fee
interests declined by a similar amount to leave total operating
costs unchanged when compared to the prior half year period. Core
operating costs have increased mainly as a result of the investment
in future growth, highlighted in the 2019 Annual Report, around the
full cost of the GEM Stars team that arrived part way through last
year, additional fund oversight and US and Nordic distribution
capabilities as well as an increase in variable core manager
distribution costs due to deferrals from prior periods impacting
the current interim period.
As a consequence, core operating profit (excluding performance
fees and other income) decreased 2% to GBP21.3m compared to
GBP21.7m in the prior half year period. Net profit before tax and
share-based payments on preference shares decreased by 8% due to
increased operating costs and a reduction in crystallised net
performance fee down from GBP5.5m to GBP3.3m.
Six months Six months
to to
30 September 30 September
2019 2018
--------------- ---------------
Average AuM GBP14.1bn GBP13.4bn
Core operating profit GBP21.3m GBP21.7m
Performance fee profit 1 GBP3.3m GBP5.5m
Other income GBP0.8m GBP0.5m
--------------- ---------------
Profit before share-based payments on
preference GBP25.4m GBP27.7m
shares and tax
Share-based payments on preference shares GBP(0.5)m GBP(0.4)m
--------------- ---------------
Profit before tax GBP24.9m GBP27.3m
--------------- ---------------
Adjusted diluted EPS (non-GAAP measure) 19.8p 21.9p
--------------- ---------------
1. Gross performance fee receipt of GBP6.6m net of fund manager interests of GBP3.3m
Profit during the six months was augmented by the decision of
the North America Fund managers to partially crystallise their
preference shares which involves the foregoing of profit share in
return for receiving Polar Capital Holdings plc equity. The
crystallisation, while triggered and announced to the market in
late November, took effect from 1 April 2019 and accordingly the
managers' profit share cost has been reduced over this six-month
reporting period. The initial crystallisation value is to be
satisfied by the issue of up to 1,442,064 shares in three tranches
which can be adjusted downward if profitability of the North
American Fund declines. Based on the results for the financial year
ended 31 March 2019, the impact of the crystallisation would have
been an earnings enhancement of around 1p per share .
Adjusted diluted earnings per share decreased by 10% to 19.8p
reflecting the reduction in core operating profit and net
performance fees.
The Board has declared an interim dividend of 8.0p to be paid in
January 2020 (January 2019: 8.0p).
Presented for illustrative purposes based on the year end
results for 31 March 2019 and assuming the partial crystallisation
occurred as at 31 March 2019.
Current trading
Short term performance and net fund outflows have continued to
be challenging. Accordingly, net performance fee profit
uncrystallised and marked-to-market at 31 October was GBP3.8m which
had reduced from GBP4.2m at 30 September. The net performance fees
earned and crystallised in the year to 31 March 2019 were
GBP24m.
October and November have seen a moderate rise in markets as a
consequence of further monetary easing by the Federal Reserve and
monetary stimulus by the ECB. This has had the impact of lifting
markets but has not, as yet, increased the appetite for active
equities. Across the UK and Europe, our core markets, retail active
equity fund sales have been negative every month since October
2018.
Outlook
The past six months have been challenging. Close to home, the
ongoing uncertainty surrounding the UK's relationship with Europe
has led to a very polarised equity market. Accompanied by the
weakness of sterling, economic uncertainty has resulted in marked
performance divergence between the international food, drinks and
pharmaceutical companies on the one hand, and more domestically
focussed and economy sensitive manufacturing and construction
companies on the other. This picture has started to change as hopes
of a Brexit solution have risen; we are beginning to see signs of
bargain hunters emerge in the UK.
Further afield, policy makers are working hard to support
economic growth, but the outcome of trade talks and the
implications of the US Presidential election are significant
unknowns. While early September was a reminder of how quickly
investor preference can change, particularly when positioning is
extreme, we still do not believe that conditions are in place for a
sustained swing towards value stocks; that would require
considerably improved economic growth expectations, rising bond
yields and a steepening yield curve.
Active equity strategies have seen continued outflows, and
equity funds as a whole have experienced record outflows into
bonds, but these have been dwarfed by buy-backs and M&A which
have supported public markets. Positioning and sentiment surveys
remain cautious, with reported cash positions at high levels and
equities underweight.
With our diverse and differentiated range of sector and regional
long-only and alternative strategies with an entrenched performance
led culture, we believe that we are well placed to continue
delivering above average returns for our clients and, as a
consequence, compelling returns for our shareholders over the long
term.
Gavin Rochussen
Chief Executive 22 November 2019
Alternate Performance Measures (APMs)
The Group uses the Non-GAAP APMs listed below to provide
supplemental financial information that helps explain its results
for the current accounting period.
Core operating profit
Definition: Profit before performance fee profits, other income
and tax.
Reconciliation: Chief Executive's statement.
Reason for use: To present users of the financial statements
with a clear view of what the Group considers to be the results of
its underlying operations before items which may either be
non-recurring or non-cash in nature and taxation.
Performance fee profit
Definition: Gross performance fee income less performance fee
interests due to staff.
Reconciliation: Chief Executive's statement.
Reason for use: To present users of the accounts with a clear
view of the net amount of performance fees earned by the Group
after accounting for staff remuneration that is directly
attributable to performance fee revenues generated.
Profit before share-based payments on preference shares
Definition: Profit before tax but excluding cost of share-based
payments on preference shares.
Reconciliation: Chief Executive's statement and Note 5.
Reason for use: The Group believes that as preference share
awards have been designed to be earnings enhancing to shareholders
adjusting for this non-cash item provides a better understanding of
the financial performance of the Group.
Adjusted and adjusted diluted earnings per share
Definition: Profit after tax but (a) excluding cost of
share-based payments on preference shares and (b) allowing for the
net cost of deferred staff remuneration, divided by the weighted
average number of ordinary shares.
Reconciliation: Note 6.
Reason for use: To present users of the accounts with a clear
view of what the Group considers to be the distributions from its
underlying operations. The Group believes that (a) as the
preference share awards have been designed to be earnings enhancing
to shareholders adjusting for this non-cash item provides a better
understanding of the financial performance of the Group and (b)
comparing staff remuneration and profits generated in the same time
period (rather than deferring remuneration over a longer vesting
period) allows users of the accounts to again a better
understanding of the Group's results and their comparability period
on period.
Interim Consolidated Statement of Profit or Loss
For the six months to 30 September 2019
(Unaudited) (Unaudited)
Six months Six months
to 30 September to 30 September
2019 2018
GBP'000 GBP'000
-------------------------------------- ---------------- ----------------
Revenue 71,322 74,519
Other income 768 453
-------------------------------------- ---------------- ----------------
Gross income 72,090 74,972
Commissions and fees payable (5,548) (6,043)
-------------------------------------- ---------------- ----------------
Net income 66,542 68,929
Operating costs (41,593) (41,606)
Profit for the period before tax 24,949 27,323
Taxation (5,017) (5,330)
-------------------------------------- ---------------- ----------------
Profit for the period attributable to
ordinary shareholders 19,932 21,993
-------------------------------------- ---------------- ----------------
Earnings per share
Basic 21.6p 24.3p
Diluted 20.0p 22.1p
Adjusted basic (Non-GAAP measure) 21.4p 24.1p
Adjusted diluted (Non-GAAP measure) 19.8p 21.9p
-------------------------------------- ---------------- ----------------
Interim Consolidated Statement of Other Comprehensive Income
For the six months to 30 September 2019
(Unaudited) (Unaudited)
Six months Six months
to 30 September to 30 September
2019 2018
GBP'000 GBP'000
--------------------------------------------------- ---------------- ----------------
Profit for the period attributable to ordinary
shareholders 19,932 21,993
Other comprehensive income - items that
will be reclassified to income statement
in subsequent periods:
Net movement on the fair valuation of cash
flow hedges (583) (2,028)
Deferred tax effect 99 385
--------------------------------------------------- ---------------- ----------------
(484) (1,643)
Exchange differences on translation of
foreign operations 680 245
--------------------------------------------------- ---------------- ----------------
Other comprehensive income for the period 196 (1,398)
--------------------------------------------------- ---------------- ----------------
Total comprehensive income for the period,
net of tax, attributable to ordinary shareholders 20,128 20,595
--------------------------------------------------- ---------------- ----------------
All of the items in the above statements are derived from
continuing operations.
Interim Consolidated Balance Sheet
As at 30 September 2019
(Audited)
(Unaudited) 31 March
30 September
2019 2019
GBP'000 GBP'000
----------------------------------------- ------------- ---------
Non-current assets
Property and equipment 6,918 1,723
Deferred tax assets 4,038 4,075
----------------------------------------- ------------- ---------
10,956 5,798
----------------------------------------- ------------- ---------
Current assets
Investment securities 11,687 9,902
Assets at fair value through profit or
loss 36,430 25,223
Trade and other receivables 16,012 15,246
Current tax asset 310 -
Cash and cash equivalents 71,566 111,734
136,005 162,105
----------------------------------------- ------------- ---------
Total assets 146,961 167,903
----------------------------------------- ------------- ---------
Non-current liabilities
Provisions and other liabilities 5,951 1,858
Deferred tax liabilities 279 30
----------------------------------------- ------------- ---------
6,230 1,888
----------------------------------------- ------------- ---------
Current liabilities
Liabilities at fair value through profit
or loss 2,272 1,679
Trade and other payables 33,865 46,647
Other financial liabilities 992 1,668
Current tax liabilities - 6,340
----------------------------------------- ------------- ---------
37,129 56,334
----------------------------------------- ------------- ---------
Total liabilities 43,359 58,222
----------------------------------------- ------------- ---------
Net assets 103,602 109,681
----------------------------------------- ------------- ---------
Capital and reserves
Issued share capital 2,411 2,365
Share premium 19,059 19,059
Investment in own shares (22,910) (17,930)
Capital and other reserves 9,561 9,067
Retained earnings 95,481 97,120
--------------------------------------------------- -------- --------
Total equity attributable to ordinary shareholders 103,602 109,681
--------------------------------------------------- -------- --------
Interim Consolidated Statement of Changes in Equity
For the six months to 30 September 2019
Issued Investment
share Share in own Capital Other Retained Total
capital premium shares reserves reserves earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ --------- -------- ---------- --------- --------- --------- --------
As at 1 April 2019
(audited) 2,365 19,059 (17,930) 695 8,372 97,120 109,681
Effect of adoption
of IFRS 16 - - - - - (318) (318)
------------------------ --------- -------- ---------- --------- --------- --------- --------
As at 1 April 2019
(adjusted) 2,365 19,059 (17,930) 695 8,372 96,802 109,363
Profit for the period - - - - - 19,932 19,932
Other comprehensive
income - - - - 196 - 196
------------------------ --------- -------- ---------- --------- --------- --------- --------
Total comprehensive
income - - - - 196 19,932 20,128
Dividends paid to
shareholders - - - - - (23,249) (23,249)
Issue of shares 46 - - - - (46) -
Own shares acquired - - (7,133) - - - (7,133)
Release of own shares - - 2,153 - - (1,087) 1,066
Share-based payment - - - - - 3,129 3,129
Current tax in respect
of employee share
options - - - - 629 - 629
Deferred tax in respect
of employee share
options - - - - (331) - (331)
------------------------ --------- -------- ---------- --------- --------- --------- --------
As at 30 September
2019 (unaudited) 2,411 19,059 (22,910) 695 8,866 95,481 103,602
------------------------ --------- -------- ---------- --------- --------- --------- --------
As at 1 April 2018
(audited) 2,335 18,872 (9,221) 695 10,746 64,241 87,668
Profit for the period - - - - - 21,993 21,993
Other comprehensive
income - - - - (1,398) - (1,398)
------------------------ ----- ------ -------- --- ------- -------- --------
Total comprehensive
income - - - - (1,398) 21,993 20,595
Dividends paid to
shareholders - - - - - (19,980) (19,980)
Dividends paid to
third-party interests - - - - - (30) (30)
Issue of shares 6 30 - - - (6) 30
Own shares acquired - - (8,717) - - - (8,717)
Release of own shares - - 1,029 - - (1,029) -
Share-based payment - - - - - 2,767 2,767
Current tax in respect
of employee share
options - - - - 237 - 237
Deferred tax in respect
of employee share
options - - - - 1,280 - 1,280
------------------------ ----- ------ -------- --- ------- -------- --------
As at 30 September
2018 (unaudited) 2,341 18,902 (16,909) 695 10,865 67,956 83,850
------------------------ ----- ------ -------- --- ------- -------- --------
Interim Consolidated Cash Flow Statement
For the six months to 30 September 2019
(Unaudited) (Unaudited)
Six months Six months
to 30 September to 30 September
2019 2018
GBP'000 GBP'000
--------------------------------------------- ---------------- ----------------
Operating activities
Cash generated from operations 13,741 25,391
Tax paid (10,825) (2,238)
--------------------------------------------- ---------------- ----------------
Net cash flow from operating activities 2,916 23,153
--------------------------------------------- ---------------- ----------------
Investing activities
Interest received and similar income 139 51
Investment income 139 348
Sale of investment securities 2,998 3,704
Purchase of investment securities (4,809) (19,114)
Sale of assets at fair value through profit
or loss - 1,833
Purchase of assets at fair value through
profit or loss (10,978) (8,801)
Purchase of property and equipment (71) (75)
Net cash outflow from investing activities (12,582) (22,054)
--------------------------------------------- ---------------- ----------------
Financing activities
Dividends paid to shareholders (23,249) (19,980)
Dividends paid to third-party interests - (30)
Issue of ordinary shares - 34
Purchase of own shares (7,133) (8,717)
Payment of lease liabilities (893) -
Third-party subscriptions into consolidated
funds 479 614
Third-party redemptions from consolidated
funds (15) (419)
Net cash outflow from financing activities (30,811) (28,498)
--------------------------------------------- ---------------- ----------------
Net decrease in cash and cash equivalents (40,477) (27,399)
Cash and cash equivalents at start of period 111,734 87,950
Effect of exchange rate changes on cash
and cash equivalents 309 3
--------------------------------------------- ---------------- ----------------
Cash and cash equivalents at end of period 71,566 60,554
--------------------------------------------- ---------------- ----------------
Notes to the Unaudited Interim Consolidated Financial
Statements
For the six months to 30 September 2019
1. General Information, Basis of Preparation and Accounting Policies
Polar Capital Holdings plc ("the Company") is a public limited
Company registered in England and Wales.
The unaudited interim condensed consolidated financial
statements to 30 September 2019 have been prepared in accordance
with IAS 34: Interim Financial Reporting.
The unaudited interim condensed consolidated financial
statements do not include all the information and disclosures
required in annual financial statements and should be read in
conjunction with the Group's annual financial statements as at 31
March 2019, which have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union and the Companies Act 2006 applicable to
companies reporting under IFRS.
The accounting policies adopted in the preparation of the
unaudited interim condensed consolidated financial statements are
consistent with those used in the preparation of the Group's annual
financial statements for the year ended 31 March 2019 except for
the adoption of new standards effective as of 1 January 2019.
New standards adopted by the Group
IFRS 16 replaces IAS 17 Leases and provides a single on-balance
sheet lease accounting model, requiring lessees to recognise assets
and liabilities for all leases unless exemptions are availed for
lease terms of 12 months or less, or where the underlying asset is
of low value.
The adoption of IFRS 16 has meant that the rental agreement for
the Group's main office premises, which under IAS 17 was classified
as an operating lease with rental payments charged to the
Consolidated Statement of Profit or Loss on a straight line basis,
has been remeasured under the new single lease accounting
model.
IFRS 16 was adopted by the Group on 1 April 2019 using the
modified retrospective approach permitted by the standard. The
lease liability has been measured on initial application as the
present value of the remaining lease payments. A corresponding
Right-of-Use (ROU) asset has been recognised as if IFRS 16 had
always been applied. Both the lease liability and ROU asset have
been discounted using an incremental borrowing rate as at 1 April
2019 of 2.25%.
The effect of adoption of IFRS 16 is as follows:
Impact on the Consolidated Balance Sheet (increase/(decrease))
as at 1 April 2019:
Assets GBP'000
--------
Property and equipment - ROU asset 5,801
Deferred tax 65
--------
Total non-current assets 5,866
--------
Liabilities GBP'000
Lease liabilities * 7,067
Other provisions (883)
--------
Total liabilities 6,184
--------
* This represents the operating lease commitments of GBP7.6m
disclosed in note 4.11 of the 2019 Annual Report discounted using
an incremental borrowing rate as at 1 April 2019 of 2.25%. Of the
total lease liability recognised on 1 April 2019 of GBP7.1m,
GBP5.9m was a non-current lease liability and GBP1.2m was a current
lease liability.
Equity GBP'000
--------
Retained earnings (318)
--------
Impact on the Consolidated Statement of Profit and Loss
(increase/(decrease)) for the six months ended 30 September
2019:
Operating costs GBP'000
--------
Depreciation 504
Rent expense (569)
Interest on lease liability 78
--------
Total operating costs 13
--------
There is no material impact on other comprehensive income and
the basic and diluted EPS.
In applying the modified retrospective approach to IFRS 16 the
Group has used the following practical expedients allowed by the
standard:
-- applied the new rules to leases previously identified in
accordance with IAS 17 Leases and IFRIC 4 Determining whether an
arrangement contains a lease;
-- applied the recognition exemption for leases where the lease
term ends within 12 months of 1 April 2019 and for leases of low
value;
-- excluded initial direct costs from the measurement of the ROU asset at 1 April 2019;
-- the use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
Set out below are the new Group accounting policies upon
adoption of IFRS 16:
Right-of-Use assets
The Group recognises ROU assets at the commencement date of the
lease (i.e. the date the underlying asset is available for use).
ROU assets are measured at cost, less any accumulated depreciation
and impairment losses, and adjusted for any remeasurement of lease
liabilities. The cost of ROU assets includes the initial amount of
lease liabilities recognised, initial direct costs incurred, and
lease payments made at or before the commencement date less any
lease incentives received. Unless the Group is reasonably certain
to obtain ownership of the leased asset at the end of the lease
term, the recognised ROU assets are depreciated on a straight-line
basis over the shorter of its estimated useful life and the lease
term. ROU assets are subject to impairment.
Lease liabilities
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments (including in substance fixed payments) less any lease
incentives receivable, variable lease payments that depend on an
index or a rate, payments of penalties for terminating a lease and
amounts expected to be paid under residual value guarantees.
In calculating the present value of lease payments, the Group
uses the incremental borrowing rate at the lease commencement date
if the interest rate implicit in the lease is not readily
determinable.
Short-term and low value leases
Lease payments on short-term leases (where the lease term is 12
months or less) and leases of low value assets are recognised as an
expense on a straight-line basis over the lease term.
Group information
The Group is required to consolidate seed capital investments
where it is deemed to control them. There has been no change to the
consolidation of the Group since 31 March 2019.
Going concern
The Group has a robust financial resources position, access to
cashflow from ongoing investment management contracts and the
Directors believe that the Group is well placed to manage its
business risks. The Directors also have a reasonable expectation
that the Group has adequate resources to continue operating for a
period of at least 12 months from the balance sheet date.
Therefore, the Directors continue to adopt the going concern basis
of accounting in preparing the interim unaudited financial
statements.
2. Revenue
(Unaudited) (Unaudited)
Six months Six months
to 30 September to 30 September
2019 2018
GBP'000 GBP'000
---------------------------------------- ---------------- ----------------
Investment management and research fees 65,840 62,989
Investment advisory fees - 58
Investment performance fee 6,644 11,207
(Loss)/ gain on hedging (1,162) 265
---------------------------------------- ---------------- ----------------
71,322 74,519
---------------------------------------- ---------------- ----------------
3. Operating costs
a) Operating costs include the following items:
(Unaudited) (Unaudited)
Six months Six months
to 30 September to 30 September
2019 2018
GBP'000 GBP'000
---------------------------- ---------------- ----------------
Staff costs 32,010 32,019
Depreciation 678 175
Short term lease payments 76 -
Interest on lease liability 78 -
---------------------------- ---------------- ----------------
b) Auditors' remuneration:
Audit of Group financial statements 26 26
Other fees
- local statutory audits of subsidiaries 20 20
- non-audit services 25 36
- tax advisory services 1 1
72 83
----------------------------------------------
4. Dividends
(Unaudited) (Unaudited)
Six months Six months
to 30 September to 30 September
2019 2018
GBP'000 GBP'000
-------------- ---------------- ----------------
Dividend paid 23,249 19,980
-------------- ---------------- ----------------
On 26 July 2019 the Group paid a second interim dividend for
2019 of 25p (2018: 22p) per ordinary share.
5. Share-based Payments
A summary of the charge to the consolidated statement of profit
or loss for each share-based payment arrangement is as follows:
(Unaudited) (Unaudited)
Six months Six months
to 30 September to 30 September
2019 2018
GBP'000 GBP'000
----------------------------- ---------------- ----------------
Preference shares 545 393
LTIP and initial share award 1,253 1,502
Equity incentive plan 438 300
Deferred remuneration plan 893 572
----------------------------- ---------------- ----------------
3,129 2,767
----------------------------- ---------------- ----------------
Certain employees of the Group and partners of Polar Capital LLP
hold Manager Preference Shares or Manager Team Member Preference
Shares (together 'Preference Shares') in Polar Capital Partners
Limited, a group company.
The preference shares are designed to incentivise and retain the
Group's fund management teams. These shares provide each manager
with an economic interest in the funds that they run and ultimately
enable the manager, at their option and at a future date, to
convert their interest in the revenues generated from their funds
to a value that may (at the discretion of the parent undertaking,
Polar Capital Holdings plc) be satisfied by the issue of ordinary
shares in Polar Capital Holdings plc. Such conversion takes place
according to a pre-defined conversion formula intended to be
earnings enhancing for the Group and that considers the relative
contribution of the manager to the Group as a whole. The equity is
awarded in return for the forfeiture of a manager's current core
economic interest and is issued over three years from the date of
conversion.
In November 2019 one investment team with the right to do so,
the North America team, called for a partial conversion. This has
been accounted for as an adjusting event at 30 September 2019. At
30 September 2019 a further three sets of preference shares (2018:
two sets) have the right to call for conversion.
The following table illustrates the number of, and movements in,
the estimated number of ordinary shares to be issued.
Estimated number of ordinary shares to be issued on conversion
of preference shares:
(Unaudited) (Unaudited)
Six months Six months
to 30 September to 30 September
2019 2018
Number of Number of
shares shares
--------------------------- ---------------- ----------------
At 1 April 6,628,293 8,427,313
Conversion/crystallisation (1,442,064) (4,060,074)
Movement during the period (51,192) 518,699
At 30 September 5,135,037 4,885,938
--------------------------- ---------------- ----------------
Number of ordinary shares to be issued against converted
preference shares:
(Unaudited) (Unaudited)
Six months Six months
to 30 September to 30 September
2019 2018
Number of Number of
shares shares
---------------------------- ---------------- ----------------
Outstanding at 1 April 3,654,068 -
Conversion/crystallisation 1,442,064 4,060,074
Issued during the period (1,218,022) -
Outstanding at 30 September 3,878,110 4,060,074
---------------------------- ---------------- ----------------
The initial conversion calculation is made in relation to the
crystallisation period ended 31 March 2019 and results in an
initial crystallisation value equivalent to the issue of up to
1,442,064 new ordinary shares. This calculation is repeated at each
of the first, second and third anniversaries of the crystallisation
event date, 31 March 2019, based on the profits of the business
unit in the 12 months ended on the respective anniversary. If the
result of the re-calculation provides for a smaller share
consideration, then the shares issued to the owners of the
preference shares are adjusted accordingly. The effect of such a
re-calculation is to cap the shares issued on conversion to
1,442,064 and allow the Group to adjust the remaining number of
unissued shares downwards in case of a deterioration in performance
of the relevant investment team post the partial crystallisation
event date of 31 March 2019.
6. Earnings Per Share
A reconciliation of the figures used in calculating the basic,
diluted and adjusted earnings per share (EPS) figures is as
follows:
(Unaudited) (Unaudited)
Six months Six months
to 30 September to 30 September
2019 2018
GBP'000 GBP'000
Earnings
Profit after tax for purpose of basic
and diluted EPS 19,932 21,993
Adjustments (post tax):
Add back cost of share-based payments
on preference shares 545 393
Less net amount of deferred staff remuneration (748) (582)
----------------------------------------------- ---------------- ----------------
Profit after tax for purpose of adjusted
basic and adjusted diluted EPS 19,729 21,804
----------------------------------------------- ---------------- ----------------
(Unaudited) (Unaudited)
Six months Six months
to 30 September to 30 September
2019 2018
Number of Number of
shares shares
--------------------------------------------- ---------------- ----------------
Weighted average number of shares
Weighted average number of ordinary shares,
excluding own shares, for purposes of
basic and adjusted basic EPS 92,261,884 90,373,161
Effect of dilutive potential shares -
share options 3,744,900 5,121,776
Effect of preference shares crystallised
but not yet issued 3,878,110 4,060,074
Weighted average number of ordinary shares,
for purpose of diluted and adjusted diluted
EPS 99,884,894 99,555,011
--------------------------------------------- ---------------- ----------------
(Unaudited) (Unaudited)
Six months Six months
to 30 September to 30 September
2019 2018
Pence Pence
------------------- ---------------- -----------------
Earnings per share
Basic 21.6 24.3
Diluted 20.0 22.1
Adjusted basic 21.4 24.1
Adjusted diluted 19.8 21.9
------------------- ---------------- -----------------
7. Financial Instruments
The fair value of financial instruments that are traded in
active markets at each reporting date is determined by reference to
quoted market prices or dealer price quotation (bid price for long
positions and ask price for short positions), without any deduction
for transaction costs. For financial instruments not traded in an
active market, such as forward exchange contracts, the fair value
is determined using appropriate valuation techniques that take into
account the terms and conditions and use observable market data,
such as spot and forward rates, as inputs.
The Group uses the following hierarchy for determining and
disclosing the fair value of financial instruments by valuation
technique:
Level 1: quoted (unadjusted) prices in active markets for
identical assets or liabilities.
Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly.
Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data.
(Unaudited) 30 September 2019
------------------------------------------
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- --------- ---------
Financial assets
Investment securities 11,687 - - 11,687
Assets at FVTPL 36,430 - - 36,430
48,117 - - 48,117
--------- --------- --------- ---------
Financial Liabilities
Liabilities at
FVTPL 2,272 - - 2,272
Other financial
liabilities - 992 - 992
------ ---- ------
2,272 992 - 3,264
------ ---- ------
(Audited) 31 March 2019
------------------------------------------
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- --------- ---------
Financial assets
Investment securities 9,902 - - 9,902
Assets at FVTPL 25,223 - - 25,223
35,125 - - 35,125
--------- --------- --------- ---------
Financial Liabilities
Liabilities at
FVTPL 1,679 - - 1,679
Other financial
liabilities 506 1,162 - 1,668
--------- --------- --------- ---------
2,185 1,162 - 3,347
--------- --------- --------- ---------
During the period there were no transfers between levels in fair
value measurements.
8. Notes to the Cash Flow Statement
(Unaudited) (Unaudited)
Six months Six months
to 30 September to 30 September
2019 2018
GBP'000 GBP'000
------------------------------------------------ ---------------- -----------------
Cash flows from operating activities
Profit on ordinary activities before tax 24,949 27,323
Adjustments for:
Interest receivable and similar income (139) (51)
Investment income (132) (355)
Depreciation of non-current property and
equipment 678 175
Decrease in fair value of investment securities 108 391
Increase in fair value of assets at fair
value through profit or loss (1,007) (1,509)
(Decrease)/ increase in other financial
liabilities (1,326) 605
Increase in receivables (766) (4,020)
Decrease in trade and other payables (13,984) (340)
Decrease in provisions - (74)
Share-based payments 3,129 2,767
Increase in liabilities at fair value through
profit or loss 1,219 463
Other non-cash items 1,012 16
------------------------------------------------ ---------------- -----------------
Cash generated from operations 13,741 25,391
------------------------------------------------ ---------------- -----------------
Reconciliation of profit before tax to cash generated from
operations
9. Related Party Transactions
Transactions between the Company and its subsidiaries, which are
related parties of the Company, have been eliminated on
consolidation.
10. The Publication of Non-Statutory Accounts
The financial information contained in this unaudited interim
report for the period to 30 September 2019 does not constitute
statutory accounts as defined in s434 of the Companies Act 2006.
The financial information for the six months ended 30 September
2019 and 2018 has not been audited. The information for the year
ended 31 March 2019 has been extracted from the latest published
audited accounts, which have been filed with the Registrar of
Companies. The audited accounts filed with the Registrar of
Companies contain a report of the independent auditor dated 21 June
2019. The report of the independent auditor on those financial
statements contained no qualification or statement under s498 of
the Companies Act 2006.
Directors
T H Bartlam Non-executive Chairman
G M Rochussen Chief Executive Officer
J B Mansell Executive Director
B J D Ashford-Russell Non-executive Director
J M B Cayzer-Colvin Non-executive Director
A J Coates Non-executive Director, Chair of Audit and Risk Committee
Q R S Price Non-executive Director
(Resigned 11 November 2019)
W E Robbins Non-executive Director, Chair of Remuneration Committee
Company No.
4235369
Registered Office
16 Palace Street
London, SW1E 5JD
Tel: 020 7227 2700
Company Secretary
Neil Taylor
Dividend
A first interim dividend of 8.0p per share has been declared for
the year to 31 March 2020. This will be paid on 10 January 2020 to
shareholders on the register as at 20 December 2019. The shares
will trade ex-dividend from 19 December 2019.
Remuneration Code
Disclosure of the group's Remuneration Code will be made
alongside its Pillar 3 disclosure which is available on the
Company's website.
Half Year Report
Copies of this announcement and of the Half Year report will be
available from the Secretary at the Registered Office, 16 Palace
Street, London SW1E 5JD and from the Company's website at
www.polarcapital.co.uk
Neither the contents of the Company's website nor the contents
of any website accessible from the hyperlinks on the Company's
website (or any other website) is incorporated into or forms part
of this announcement.
ENDS
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR LLFIDLVLFFIA
(END) Dow Jones Newswires
November 25, 2019 02:00 ET (07:00 GMT)
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