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Polar Capital Holdings PLC   -  POLR   

Unaudited interim results

Released 07:00 25-Nov-2019

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 £14.3bn (31 March 2019: £13.8bn) - net fund outflows of £0.4bn offset by market uplift and fund performance of £0.9bn

·     Core operating profit†, excluding performance fees, £21.3m (30 September 2018: £21.7m)

·     Operating profit before share-based payments on preference shares† £25.4m (30 September 2018: £27.7m)

·     Pre-tax profit £24.9m (30 September 2018: £27.3m)

·     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 £103.6m (30 September 2018: £83.9m) including cash and investments of £108.7m (30 September 2018: £105.3m)

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

 

Current Trading

·    AuM at 31 October 2019 were £14.0bn

·    Net performance fee profit marked to market at 31 October 2019 was £3.8m, which included net crystallised performance fees of £3.3m (30 September 2019: £4.2m; £3.3m 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 2019

 

 

 

31 March 2019

 

£bn

%

 

 

£bn

%

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 2019

 

 

 

31 March 2019

 

£bn

%

 

 

£bn

%

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 Income

0.1

1%

 

Emerging Markets 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 Stars

*

-

 

Emerging Market Stars

*

-

Total AuM

14.3

 

 

Total AuM

13.8

 

 

* AuM at 30 September 2019 of £42m (31 March 2019: £36m)

 

 

 

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 £467m from £13.8bn to £14.3bn. The increase in AuM resulted from £915m in market movement, currency and performance offset by net outflows of £448m. There were net inflows of £112m into the alternative funds and £560m 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 £256m as a consequence of the fund merger.

 

In the six months to September 2019, two long-standing clients redeemed in excess of £500m 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 £13.4bn (the average AuM for the six months to 30 September 2018) to £14.1bn.

 

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 £57.3m in the comparable prior half year period to £59.1m.

 

Core operating costs increased by £2.4m 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 £21.3m compared to £21.7m 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 £5.5m to £3.3m.

 

 

 

 

 

Six months to

30 September 2019

 

Six months to

30 September 2018

Average AuM

£14.1bn

£13.4bn

Core operating profit

£21.3m

£21.7m

Performance fee profit 1

£3.3m

£5.5m

Other income

£0.8m

£0.5m

Profit before share-based payments on preference

shares and tax

 

£25.4m

 

£27.7m

Share-based payments on preference shares

£(0.5)m

£(0.4)m

Profit before tax

£24.9m

£27.3m

Adjusted diluted EPS (non-GAAP measure)

19.8p

21.9p

1.     Gross performance fee receipt of £6.6m net of fund manager interests of £3.3m

 

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 £3.8m which had reduced from £4.2m at 30 September. The net performance fees earned and crystallised in the year to 31 March 2019 were £24m.

 

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)

Six months to 30 September 2019

£'000

(Unaudited)

Six months to 30 September 2018

£'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)

Six months to 30 September 2019

£'000

(Unaudited)

Six months to 30 September 2018

£'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

 

(Unaudited)

30 September 2019

£'000

(Audited)

31 March

2019

£'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

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 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)

Six months to 30 September

2019

£'000

(Unaudited)

Six months to 30 September

2018

£'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

£'000

 

 

Property and equipment - ROU asset

5,801

Deferred tax

65

Total non-current assets

5,866

 

 

 

 

Liabilities

£'000

Lease liabilities *

7,067

Other provisions

(883)

Total liabilities

6,184

* This represents the operating lease commitments of £7.6m 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 £7.1m, £5.9m was a non-current lease liability and £1.2m was a current lease liability.

 

Equity

£'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

£'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)

Six months to 30 September 2019

£'000

(Unaudited)

Six months to 30 September 2018

£'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)

Six months to 30 September 2019

£'000

(Unaudited)

Six months to 30 September 2018

£'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)

Six months to 30 September 2019

£'000

(Unaudited)

Six months to 30 September 2018

£'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)

Six months to 30 September 2019

£'000

(Unaudited)

Six months to 30 September 2018

£'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)

Six months to 30 September 2019

Number of shares

(Unaudited)

Six months to 30 September 2018

Number of 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)

Six months to 30 September 2019

Number of shares

(Unaudited)

Six months to 30 September 2018

Number of 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)

Six months to 30 September 2019

£'000

(Unaudited)

Six months to 30 September 2018

£'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)

Six months to 30 September 2019

Number of shares

(Unaudited)

Six months to 30 September 2018

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

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)

Six months to 30 September 2019

Pence

 

(Unaudited)

Six months to 30 September 2018

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

£'000

Level 2

£'000

Level 3

£'000

Total

£'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

£'000

Level 2

£'000

Level 3

£'000

Total

£'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)

Six months to 30 September 2019

£'000

 

(Unaudited)

Six months to 30 September 2018

£'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


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Unaudited interim results - RNS