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RNS
Polar Capital Holdings PLC  -  POLR   

Unaudited Interim Results

Released 07:00 26-Nov-2018

RNS Number : 4083I
Polar Capital Holdings PLC
26 November 2018
 

 

 

Polar Capital Holdings plc ("Polar Capital" or "the Group")

Unaudited interim results for six months ended 30 September 2018

 

Summary of Results

 

Financial

·     Assets under Management ("AUM") at 30 September 2018 were £14.7bn (31 March 2018: £12.0bn) - net fund inflows of £0.9bn together with market uplift and fund performance of £1.8bn

·     Core operating profit†, excluding performance fees, £21.7m (30 September 2017: £12.0m)

·     Operating profit before share-based payments on preference shares† £27.7m (30 September 2017: £14.4m)

·     Pre-tax profit £27.3m (30 September 2017: £11.8m)

·     Basic earnings per share 24.3p (30 September 2017: 10.2p) and adjusted diluted earnings per share† 21.9p (30 September 2017: 11.8p)

·     Interim dividend per ordinary share of 8.0p (January 2018: 6.0p) declared to be paid in January 2019

·     Shareholders' funds £83.9m (30 September 2017: £68.8m) including cash and investments of £105.3m (30 September 2017: £75.7m)

†     The non-GAAP measures shown here are described on the Alternate Performance Measures (APMs) page.

 

Corporate

·     During the current interim period we have launched and seeded our Emerging Market Stars, China Stars and China Mercury funds.

 

Current Trading

·    AUM at 31 October 2018 were £13.6bn

·    Net performance fee profit marked to market at 31 October was £23.3m, which included net crystallised performance fees of £5.5m (30 September: £32.5m; £5.5m respectively).

 

Gavin Rochussen, Chief Executive Officer, commented:

"While we have had a highly satisfactory first six months, there is no doubt that we will encounter more volatile markets and a reduction in risk appetite by investors as developed markets begin to reduce accommodative monetary policy in the case of Europe and Japan and as the US continues to normalise interest rates with monetary tightening.

 

Our active, bottom-up, fundamental fund strategies have exposure to all global markets and are positioned to take advantage of valuation anomalies that arise in good quality, publicly-traded companies."

 

 

 

Polar Capital                                                                           +44 (0)20 7227 2700

Gavin Rochussen (CEO)

John Mansell (COO) 

 

 

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 2018

 

 

 

31 March 2018

 

£bn

%

 

 

£bn

%

Long only

13.2

90%

 

Long only

10.8

90%

Alternative

1.5

10%

 

Alternative

1.2

10%

Total AUM

14.7

 

 

Total AUM

12.0

 

 

 

 

 

AUM split by Strategy

(in chronological order)

 

 

30 September 2018

 

 

 

31 March 2018

 

£bn

%

 

 

£bn

%

Technology

4.4

29%

 

Technology

3.3

27%

Japan

1.0

7%

 

Japan

1.1

9%

European Long/Short

0.2

2%

 

European Long/Short

0.2

2%

Healthcare

2.2

15%

 

Healthcare

1.6

13%

Insurance

1.3

9%

 

Insurance

1.1

9%

Financials

0.7

5%

 

Financials

0.7

6%

Emerging Markets Income

0.1

1%

 

Emerging Markets Income

0.2

2%

Convertibles

0.6

4%

 

Convertibles

0.4

3%

North America

2.5

17%

 

North America

2.0

17%

UK Absolute Equity

0.7

5%

 

UK Absolute

0.5

4%

European Income

0.2

1%

 

European Income

0.2

2%

UK Value

0.8

5%

 

UK Value

0.7

6%

Emerging Market Stars

*

-

 

Emerging Market Stars

-

-

Total AUM

14.7

 

 

Total AUM

12.0

 

 

* AUM at 30 September 2018 comprised seed capital of £19m

 

 

 

Chief Executive's Statement

 

Markets

The period was characterised by a further rise in the US and Japanese equity markets, while the UK, Europe and emerging markets continued to fall. The US has led the way all year; economic growth has been strong, unemployment has fallen, and tax cuts have contributed to vibrant corporate earnings increases. At the same time, reported inflation, and inflation expectations derived from the difference between inflation-linked and conventional bonds, have been well behaved. The best performing global sectors in the six months to the end of September were healthcare (12.9% in local currency), energy (11.2%) and technology (9.7%). The oil price moved higher due to looming sanctions on Iranian oil exports, and supply control from Russia and Saudi Arabia. The weakest sectors were real estate (-1.8%) and financials (-4.9%) with the flattening US yield curve proving to be a headwind for banks in particular.

 

The US Federal Reserve raised interest rates again at the end of September and signalled that the era of accommodative monetary policy is over. This led to a significant change in the behaviour of financial markets in the days following the end of the reporting period. Long-term government bond yields have risen to their highest level since 2011 and equity markets have fallen sharply, with this year's leaders suffering most. It remains to be seen whether this is a short-term correction or the start of a tougher phase for financial assets.

 

Fund Performance

At 30 September 2018, 62% of Polar's UCITS fund AUM is ranked in the top quartile versus peers over 12 months, 68% is top quartile over three years and 89% is ranked top quartile over five years. Low interest rates have driven outperformance of growth and quality styles versus value. This has been a contributory factor in the outperformance of Polar Capital's technology and healthcare strategies versus their benchmarks. Conversely, value styles, both within sectors and across the market, continued to suffer in the period, extending the underperformance of value versus growth that has been a feature of much of the past 10 years, and contributing to the underperformance against benchmark of Polar Capital's Japan and UK Value strategies.

 

Net performance fees, marked to market and after the deduction of fund manager participation, at 30 September amounted to £32.5m of which £5.5m has crystallised and been received. It should be noted that the balance of performance fees crystallises on 31 December 2018 and performance fees, by their very nature, can be volatile. The Group only recognises performance fees once they have crystallised in the underlying funds. Net performance fees crystallised and earned in the financial year to 31 March 2018 amounted to £15.3m.

 

AUM and Fund Flows

In the six months to 30 September 2018, AUM increased by £2.7bn from £12bn to £14.7bn. Net inflows amounted to £932m with a further £1.8bn of the increase in AUM coming from market movement and fund performance. Net inflows of £193m and £739m were received by the Polar Capital alternative funds and long-only funds respectively.

 

Net inflows were broadly dispersed across our fund range. The technology team benefitted from net inflows of £402m which included £27m into the Automation & Artificial Intelligence Fund that was launched in October 2017. The North American funds had net inflows of £218m, the UK Value Opportunities Fund - £125m, the Biotechnology Fund - £91m, the Global Convertible Bond Fund - £93m, the Global Insurance Fund - £86m, the UK Absolute Equity Fund - £55m and the European Forager Fund - £41m.

 

The Japan fund strategies continued to face performance headwinds and suffered net outflows of £144m with the Emerging Markets Income Fund, despite improved performance, experiencing £25m net outflows. The financials team's Income Opportunities and Financial Opportunities Funds recorded net outflows of £43m.

 

In line with Polar Capital's philosophy of managing fund capacity to enhance and protect fund performance, the UK Absolute Return Fund was soft closed during the period and the Healthcare Opportunities Fund remained closed to new investors.

 

New fund Launches

Following the arrival of the five-strong emerging markets team earlier this year, three emerging market funds have been launched - Emerging Market Stars Fund, China Stars Fund (both UCITS) and China Mercury Fund, an absolute return fund in our Cayman structure. Despite challenging and volatile markets for investors in emerging market equities, the team maintained their process and style that enabled top quartile performance over the previous six years and have been able to attract early subscriptions. It is our intention, in the new year, to launch a fourth fund for the team, the UCITS Asia ex -Japan Stars Fund. Once the track record for the team at Polar Capital is firmly established, we intend to introduce the Emerging Market Stars strategy to the US market via separate account mandates and a US-domiciled fund vehicle.

 

Results

Core profit (excluding performance fees and other income) increased by 81% from £12m in the comparable prior year period to £21.7m. This is as a result of higher average assets under management, a steady revenue margin and costs, that are in the main variable, increasing at a reduced rate of 30% (2018: £41.6m; 2017: £32.0m) compared to the increase in revenues of 68% (2018: £74.5m; 2017: £44.4m). Average assets under management increased from £10bn for the comparable prior period to £13.4bn, an increase of 34%. Net profit before tax and share-based payments on preference shares increased by 92% due to increased core profit and the crystallisation of a performance fee in April from the Polar Capital Technology Trust of £5.5m net of fund manager participation.

 

 

 

Six months to

30 September 2018

 

Six months to

30 September 2017

Core operating profit

£21.7m

£12.0m

Performance fee profit 1

£5.5m

-

Other income

£0.5m

£2.4m

Profit before share-based payments on preference

shares and tax

 

£27.7m

 

£14.4m

Share-based payments on preference shares

£(0.4)m

£(2.6)m

Profit before tax

£27.3m

£11.8m

Adjusted diluted EPS (non-GAAP measure)

21.9p

11.8p

1. Gross performance fee receipt of £11.2m net of fund manager interests of £5.7m

 

 

Profit during the six months was also augmented by the decision of the Healthcare Fund managers to 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 early October, took effect from 1 April 2018 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 4,060,074 shares in three tranches which can be adjusted downward if profitability of the Healthcare Opportunities Fund and Polar Capital Global Healthcare Trust decline. Based on the results for the financial year ended 31 March 2018, the impact of the crystallisation would have been an earnings enhancement of around 3p per share†.

 

Adjusted diluted earnings per share increased by 86% to 21.9p.

 

The Board has declared an interim dividend of 8.0p to be paid in January 2019 (January 2018: 6.0p), calculated according to the standard metric of 50% of the first half's core earnings.

 

Presented for illustrative purposes based on the year end results for 31 March 2018 and assuming the full crystallisation occurred as at 31 March 2018.

 

Brexit

The Group is the manager of only three UK-resident products, all of which are closed-end investment trusts that are not marketed into continental Europe. These investment trusts make up £2.5bn in AUM which is 17% of the total Group AUM and this part of the business will be unaffected post March 2019. However, the Group is also the appointed manager of an Irish UCITS fund range that is distributed throughout Europe including the UK. As a consequence of uncertainty over the arrangements that will apply from March 2019, the Group has opened an AMF-regulated subsidiary in France through which all European activities, including European distribution, will be conducted.

 

Current trading

October and November witnessed increasingly volatile markets as concerns arose on US corporate earnings growth and continued US monetary tightening. European markets were led lower by Brexit uncertainty, Italian monetary policy and slowing growth. In the current quarter, investors have reduced risk and there has been the largest equity sell-off in six years led by technology stocks in particular. The market sell-off has had the effect of reducing the AuM of Polar Capital from £14.7bn at 30 September to £13.6bn on 31 October. The average AuM during the six months to 30 September were £13.4bn.

 

While our funds have generally continued to perform well in a more volatile market, some of the outperformance reported to the end of September was given back in October. The net performance fee profit marked to market of £32.5m as at 30 September had reduced to £23.3m as at 31 October.

 

Outlook

While we have had a highly satisfactory first six months, there is no doubt that we will encounter more volatile markets and a reduction in risk appetite by investors as developed markets begin to reduce accommodative monetary policy in the case of Europe and Japan and as the US continues to normalise interest rates with monetary tightening. There are currently large valuation dispersions between regions with the UK and Europe impacted by Brexit, Italy's increasingly strained relationship with Brussels and changes in the German political landscape. Meanwhile the emerging markets, as a consequence of a strengthening US dollar, fears of escalating trade wars and concerns over slowing consumption in China, have experienced a significant market sell-off. While the US equity markets have performed well, driven in large part by deregulation and monetary policy, at some point there is likely to be a rebalancing of valuations across key geographic regions.

The headwinds faced by active fund managers have been evident for some time. Competition from passive strategies and continued fee pressure means we must remain focused on true active fund management producing value for money outcomes for clients by beating benchmark and peer group performance.

 

Our active, bottom-up, fundamental fund strategies have exposure to all global markets and are positioned to take advantage of valuation anomalies that arise in good quality, publicly-traded companies.

 

Gavin Rochussen

Chief Executive                                                                                                25 November 2018

 

 

Alternate Performance Measures (APMs)

 

The Group uses the following Non-GAAP APMs:

 

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 accounts 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 fee earned by the Group after accounting for staff remuneration payable 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 2018

 

 

(Unaudited)

Six months to 30 September 2018

£'000

(Unaudited)

Six months to 30 September 2017

£'000

Revenue

74,519

44,439

Other income

453

2,402

Gross income

74,972

46,841

Commissions and fees payable

(6,043)

(3,086)

Net income

68,929

43,755

Operating costs

(41,606)

(32,001)

Profit for the period before tax

27,323

11,754

Taxation

(5,330)

(2,607)

Profit for the period attributable to ordinary shareholders

21,993

9,147

Earnings per share

Basic

24.3p

10.2p

Diluted

22.1p

9.6p

Adjusted basic (Non-GAAP measure)

24.1p

12.5p

Adjusted diluted (Non-GAAP measure)

21.9p

11.8p

 

 

 

Interim Consolidated Statement of Other Comprehensive Income

For the six months to 30 September 2018

 

 

(Unaudited)

Six months to 30 September 2018

£'000

(Unaudited)

Six months to 30 September 2017

£'000

Profit for the period attributable to ordinary shareholders

21,993

9,147

Other comprehensive income - items that may be reclassified to income statement in subsequent periods:

 

 

Net movement on the fair valuation of cash flow hedges

(2,028)

1,694

Deferred tax effect

385

(322)

 

(1,643)

1,372

Exchange differences on translation of foreign operations

245

(67)

Other comprehensive income for the period

(1,398)

1,305

Total comprehensive income for the period, net of tax, attributable to ordinary shareholders

20,595

10,452

 

All of the items in the above statements are derived from continuing operations.

 

 

Interim Consolidated Balance Sheet

As at 30 September 2018

 

(Unaudited)

30 September 2018

£'000

(Audited)

31 March

2018

£'000

Non-current assets

 

 

Property and equipment

1,871

1,971

Deferred tax assets

5,552

3,808

Total non-current assets

7,423

5,779

Current assets

 

 

Investment securities

24,773

9,750

Assets at fair value through profit or loss

20,004

11,679

Trade and other receivables

16,943

12,923

Other financial assets

-

833

Cash and cash equivalents

60,554

87,950

Total current assets

122,274

123,135

Total assets

129,697

128,914

Non-current liabilities

 

 

Provisions and other liabilities

1,951

2,026

Deferred tax liabilities

1,102

1,216

Total non-current liabilities

3,053

3,242

Current liabilities

 

 

Liabilities at fair value through profit or loss

2,139

1,790

Trade and other payables

33,916

34,256

Other financial liabilities

1,726

-

Current tax liabilities

5,013

1,958

Total current liabilities

42,794

38,004

Total liabilities

45,847

41,246

Net assets

83,850

87,668

Capital and reserves

 

 

Issued share capital

2,341

2,335

Share premium

18,902

18,872

Investment in own shares

(16,909)

(9,221)

Capital and other reserves

11,560

11,441

Retained earnings

67,956

64,241

Total equity - attributable to ordinary shareholders

83,850

87,668

 

 

 

Interim Consolidated Statement of Changes in Equity

For the six months to 30 September 2018

 

 

Issued

share capital £'000

Share premium £'000

Investment

in own shares

£'000

Capital reserves £'000

Other reserves £'000

Retained earnings £'000

Total equity £'000

 

 

 

 

 

 

 

 

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 against options

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

 

As at 1 April 2017 (audited)

2,286

18,631

(3,747)

695

7,145

45,730

70,740

Profit for the period

-

-

-

-

-

9,147

9,147

Other comprehensive income

-

-

-

-

1,305

-

1,305

Total comprehensive income

-

-

-

-

1,305

9,147

10,452

Dividends paid to shareholders

-

-

-

-

-

(17,469)

(17,469)

Dividends paid to third-party interests

-

-

-

-

-

(25)

(25)

Issue of shares against options

11

45

-

-

-

(10)

46

Release of own shares

-

-

215

-

-

(215)

-

Share-based payment

-

-

-

-

-

3,962

3,962

Current tax in respect of employee share options

-

-

-

-

306

-

306

Deferred tax in respect of employee share options

-

-

-

-

799

-

799

As at 30 September 2017 (unaudited)

2,297

18,676

(3,532)

695

9,555

41,120

68,811

 

 

 

Interim Consolidated Cash Flow Statement

For the six months to 30 September 2018

 

(Unaudited)

Six months to 30 September

2018

£'000

 (Unaudited)

Six months to 30 September

2017

£'000

Operating activities

 

 

Cash generated from operations

25,391

9,397

Tax paid

(2,238)

(1,851)

Net cash flow from operating activities

23,153

7,546

Investing activities

 

 

Interest received and similar income

51

34

Investment income

348

-

Sale of investment securities

3,704

1,417

Purchase of investment securities

(19,114)

(2,089)

Sale of assets at fair value through profit or loss

1,833

2,781

Purchase of assets at fair value through profit or loss

(8,801)

(1,104)

Purchase of property and equipment

(75)

(44)

Net cash flow (used in)/ from investing activities

(22,054)

995

Financing activities

 

 

Dividends paid to shareholders

(19,980)

(17,469)

Dividends paid to third-party interests

(30)

(25)

Issue of ordinary shares

34

45

Purchase of own shares

(8,717)

-

Third-party subscriptions into consolidated funds

614

308

Third-party redemptions from consolidated funds

(419)

(25)

Net cash outflow from financing activities

(28,498)

(17,166)

Net decrease in cash and cash equivalents

(27,399)

(8,625)

Cash and cash equivalents at start of period

87,950

58,539

Effect of exchange rate changes on cash and cash equivalents

3

(27)

Cash and cash equivalents at end of period

60,554

49,887

 

 

Notes to the Unaudited Interim Consolidated Financial Statements

For the six months to 30 September 2018

 

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 2018 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 2018, 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 2018 except for the adoption of new standards effective as of 1 January 2018.

New standards adopted by the Group

IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers were adopted by the Group on 1 April 2018. Neither standard has had a material impact on the Group's financial statements.

Group information

The Group is required to consolidate seed capital investments where it is deemed to control them. Since 31 March 2018, the following additional funds have been consolidated by the Group as they were judged to be subsidiaries at 30 September 2018:

 

 

Country of incorporation

Registered office

Principal activities

Percentage of ordinary shares held

Polar Capital Emerging Market Stars Fund

Ireland

4 Georges Court, 54-62 Townsend Street, Dublin

UCITS sub-fund

99%

Polar Capital China Stars Fund

Ireland

4 Georges Court, 54-62 Townsend Street, Dublin

UCITS sub-fund

100%

Polar Capital China Mercury Fund

Cayman Islands

PO Box 309

Ugland House

Grand Cayman

Alternative Fund

87%

 

 

 

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)

Six months to 30 September 2018

£'000

 (Unaudited)

Six months to 30 September 2017

£'000

Investment management and research fees

62,989

45,003

Investment advisory fees

58

61

Investment performance fee

11,207

-

Gain/(loss) on hedging

265

(625)

 

74,519

44,439

 

3.    Operating costs

a) Operating costs include the following significant items:

 

(Unaudited)

Six months to 30 September 2018

£'000

(Unaudited)

Six months to 30 September 2017

£'000

Staff costs

32,019

24,592

Depreciation

175

254

Operating lease rentals - land & buildings

660

646

For the comparative period ended 30 September 2017 share-based payments have been reclassified from a separate line on the face of the Consolidated Statement of Profit or Loss to Operating Costs.

 

 

b) Auditors' remuneration:

Audit of Group financial statements

26

26

Other fees

 

 

- local statutory audits of subsidiaries

20

20

- non-audit services

36

36

- tax advisory services

1

10

 

83

92

 

4.    Dividends

 

(Unaudited)

Six months to 30 September 2018

£'000

(Unaudited)

Six months to 30 September 2017

£'000

Dividend paid

19,980

17,469

On 27 July 2018 the Group paid a second interim dividend for 2018 of 22p (2017: 19.5p) per ordinary share.

5.    Share-based Payments

A summary of the charge to the income statement for each share-based payment arrangement is as follows:

 

(Unaudited)

Six months to 30 September 2018

£'000

(Unaudited)

Six months to 30 September 2017

£'000

Preference shares

393

2,630

LTIP and initial share award

1,502

980

Equity incentive plan

300

352

Deferred remuneration plan

572

-

 

2,767

3,962

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 October 2018 one investment team with the right to do so, the Healthcare team, has called for a conversion. This has been accounted for as an adjusting event at 30 September 2018. At 30 September 2018 a further two sets of preference shares (2017: three 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)

Six months to 30 September 2018

Number of shares

(Unaudited)

Six months to 30 September 2017

Number of shares

At 1 April

8,427,313

7,046,768

Conversion/crystallisation

(4,060,074)

-

Movement during the period

518,699

1,461,109

At 30 September

4,885,938

8,507,877

 

Number of ordinary shares to be issued against converted preference shares:

 

(Unaudited)

Six months to 30 September 2018

Number of shares

(Unaudited)

Six months to 30 September 2017

Number of shares

Outstanding at 1 April

-

-

Conversion/crystallisation

4,060,074

-

Issued during the period

-

-

Outstanding at 30 September 1

4,060,074

-

1. Of the 4,060,074 total shares outstanding at 30 September 2018, 406,006 shares were issued on 11 October 2018

The initial conversion calculation is made in relation to the crystallisation period ended 31 March 2018 and results in an initial crystallisation value equivalent to the issue of up to 4,060,074 new ordinary shares. This calculation is repeated at each of the first, second and third anniversaries of the crystallisation event date, 31 March 2018, 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 4,060,074 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 crystallisation event date of 31 March 2018.

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)

Six months to 30 September 2018

£'000

 (Unaudited)

Six months to 30 September 2017

£'000

Earnings

 

 

Profit after tax for purpose of basic and diluted EPS

21,993

9,147

Adjustments (post tax):

 

 

Add back cost of share-based payments on preference shares

393

2,630

Less net amount of deferred staff remuneration

(582)

(598)

Profit after tax for purpose of adjusted basic and adjusted diluted EPS

21,804

11,179

 

 

(Unaudited)

Six months to 30 September 2018

Number of shares

(Unaudited)

Six months to 30 September 2017

Number of shares

Weighted average number of shares

 

 

Weighted average number of ordinary shares, excluding own shares, for purposes of basic and adjusted basic EPS

90,373,161

89,747,434

Effect of dilutive potential shares - share options

5,121,776

5,139,759

Effect of preference shares crystallised but not yet issued

4,060,074

-

Weighted average number of ordinary shares, for purpose of diluted and adjusted diluted EPS

99,555,011

94,887,193

 

 

 

(Unaudited)

Six months to 30 September 2018

Pence

 

(Unaudited)

Six months to 30 September 2017

Pence

Earnings per share

 

 

Basic

24.3

10.2

Diluted

22.1

9.6

Adjusted basic

24.1

12.5

Adjusted diluted

21.9

11.8

 

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.

 

30 September 2018

 

Level 1

£'000

Level 2

£'000

Level 3

£'000

Total

£'000

Financial assets

 

 

 

 

Investment securities

24,773

-

-

24,773

Assets at FVTPL

20,004

-

-

20,004

Other financial assets

-

-

-

-

 

44,777

-

-

44,777

 

 

 

Financial Liabilities

 

 

 

 

Liabilities at FVTPL

2,139

-

-

2,139

Other financial liabilities

495

1,231

-

1,726

 

2,634

1,231

-

3,865

 

 

31 March 2018

 

Level 1

£'000

Level 2

£'000

Level 3

£'000

Total

£'000

Financial assets

 

 

 

 

Investment securities

9,750

-

-

9,750

Assets at FVTPL

11,679

-

-

11,679

Other financial assets

57

776

-

833

 

21,486

776

-

22,262

Financial Liabilities

 

 

 

 

Liabilities at FVTPL

1,790

-

-

1,790

Other financial liabilities

-

-

-

-

 

1,790

-

-

1,790

During the period there were no transfers between levels in fair value measurements.

 

 

8.    Notes to the Cash Flow Statement

Reconciliation of profit before tax to cash generated from operations

 

(Unaudited)

Six months to 30 September 2018

£'000

 

(Unaudited)

Six months to 30 September 2017

£'000

Cash flows from operating activities

 

 

Profit on ordinary activities before tax

27,323

11,754

Adjustments for:

 

 

Interest receivable and similar income

(51)

(34)

Investment income

(355)

-

Depreciation of non-current property and equipment

175

254

Decrease/ (increase) in fair value of investment securities

391

(550)

Increase in fair value of assets at fair value through profit or loss

(1,509)

(2,279)

Increase in other financial liabilities

605

43

Increase in receivables

(4,020)

(810)

Decrease in trade and other payables

(340)

(2,932)

Decrease in provisions

(74)

(78)

Share-based payments

2,767

3,962

Increase in liabilities at fair value through profit or loss

463

67

Other non-cash items

16

-

Cash generated from operations

25,391

9,397

 

9.    Related Party Transactions

Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not included in this note.

B J D Ashford-Russell is a member of Polar Capital LLP and a director of the Polar Capital Technology Trust plc (the Trust). Polar Capital LLP is the appointed investment manager of the Trust. The total fees received by the Group as investment manager of the Trust were £7,450,500 (September 2017: £5,990,800). The amounts receivable at period end in this respect were £2,660,700 (March 2018: £2,385,349).

 

 

 

10.  The Publication of Non-Statutory Accounts

The financial information contained in this unaudited half year report does not constitute statutory accounts as defined in s434 of the Companies Act 2006. The financial information for the six months ended 30 September 2018 and 2017 has not been audited. The information for the year ended 31 March 2018 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 22 June 2018. 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                         Chief Operating Officer, Finance Director

H G C Aldous                      Non-executive Director

  (Retired 25 July 2018)

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 Committee from 25 July 2018

  (Appointed 25 July 2018)

Q R S Price                          Non-executive Director

  (Appointed 25 July 2018)

W E Robbins                      Non-executive Director, Chair of Remuneration Committee from 22 November 2018

M W Thomas                     Non-executive Director

  (Retired 22 November 2018)

T J Woolley                        Non-executive Director

  (Retired 25 July 2018)

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 2019. This will be paid on 11 January 2019 to shareholders on the register on 21 December 2018. The shares will trade ex-dividend from 20 December 2018.

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


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