REG - Polar Capital Hldgs - Group Audited Results for year ended 31 March 2023
26/06/2023 07:00
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RNS Number : 8159D Polar Capital Holdings PLC 26 June 2023
POLAR CAPITAL HOLDINGS plc
Group Audited Results for the year ended 31 March 2023
"During a difficult period for markets, Polar Capital has demonstrated
resilience and improving investment performance. The Group's strong balance
sheet and significant capacity in fund strategies that are currently
benefitting from net inflows, positions Polar Capital well for the future."
Gavin Rochussen, CEO
Highlights
• Assets under Management (AuM) at 31 March 2023 down 13% to
£19.2bn (2022: £22.1bn)
• Average AuM for the year down 14% to £19.6bn (2022: £22.8bn)
• Core operating profit(†) down 31% to £47.9m (2022: £69.4m)
• Profit before tax down 27% to £45.2m (2022: £62.1m)
• Basic earnings per share of 36.8p (2022: 50.8p) and adjusted
diluted total earnings per share(†) down 21% to 44.3p (2022: 56.0p)
• Second interim dividend of 32.0p per share (2022: 32.0p) bringing
the total dividend for the year to 46.0p per share (2022: 46.0p). The dividend
payment date is 28 July 2023, with an ex-dividend date of 6 July 2023 and a
record date of 7 July 2023.
Polar Capital continues to deliver as a client focused organisation as shown
by the results of the annual Broadridge Fund Brand 50 Survey, against much
larger peers, where in the UK we were ranked: 7(th) highest brand, 1(st) for
Thematic Equity, 2(nd) for Client Oriented thinking and 3(rd) in Sales and
Account Management.
† The non-GAAP alternative performance measures shown here are described and
reconciled to IFRS measures in the Alternative Performance Measures (APM)
section.
Gavin Rochussen, Chief Executive Officer, commented:
"Investment performance, including that of our world class Technology
strategy, has improved over the year notwithstanding the headwind for growth
stocks."
"As at 31 March 2023, 79% of our UCITS funds' AuM were in the top two
quartiles against the Lipper peer group over one year, 65% in the top two
quartiles over three years with 87% and 93% in the top two quartiles over five
years and since inception respectively."
"It is notable that no less than 88% of our UCITS AuM is in the first quartile
against the Lipper peer group since inception."
"The decline in assets under management and net outflows in the 2023 financial
year is considered modest relative to industry wide outflows."
"On the positive side, the Emerging Market Stars suite of funds had net
inflows in the year of £236m and Sustainable Thematic Equities strategy had
inflows of £103m."
"There is in excess of £23bn of capacity in fund strategies that are
currently benefitting from net inflows".
"Total dividend per share for the year has been maintained at 46.0p."
"Strategic progress has continued under the 'growth with diversification'
mantra with much progress diversifying our distribution footprint into new
regions. The Nordic region has become a significant market where our funds
find favour and we have opened an office in Singapore to service a growing
Asian client base."
"We have continued to develop our US footprint with experienced business
development capability covering the major regions within the US. This has
resulted in promising net inflows into the US 40 Act Fund and increased
interest in our Emerging Markets Stars fund strategies."
"The Group's strong balance sheet and range of differentiated fund strategies
positions us well for the future, supported by our performance led approach
and our strong culture."
For further information please contact:
Polar Capital +44 (0)20 7227 2700
Gavin Rochussen (Chief Executive Officer)
Samir Ayub (Finance Director)
Numis Securities Limited - Nomad and Joint Broker +44 (0)20 7260 1000
Giles Rolls
Charles Farquhar
Stephen Westgate
Peel Hunt LLP- Joint Broker +44 (0)20 3597 8680
Andrew Buchanan
Camarco +44 (0)20 3757 4995
Ed Gascoigne-Pees
Jennifer Renwick
Phoebe Pugh
Assets under Management (AuM)
AuM split by type
31 March 2023 31 March 2022
£bn % £bn %
Open ended funds 14.3 75% Open ended funds 16.6 75%
Investment Trusts 3.9 20% Investment Trusts 4.4 20%
Segregated mandates 1.0 5% Segregated mandates 1.1 5%
Total 19.2 Total 22.1
AuM split by strategy
Ordered according to launch date
31 March 2023 31 March 2022
£bn % £bn %
Technology 7.2 38% Technology 9.2 42%
European Long/Short 0.1 0.5% European Long/Short 0.1 0.3%
Healthcare 3.8 20% Healthcare 3.7 17%
Global Insurance 2.1 11% Global Insurance 1.9 9%
Financials 0.5 2% Financials 0.6 3%
Convertibles 0.7 4% Convertibles 0.8 4%
North America 0.6 3% North America 0.8 4%
Japan Value 0.2 1% Japan Value 0.2 0.5%
European Income 0.2 1% European Income 0.1 0.3%
UK Value 1.2 6% UK Value 1.6 7%
Emerging Markets and Asia 1.3 7% Emerging Markets and Asia 1.1 5%
Phaeacian* - - Phaeacian* 0.5 2%
European Opportunities 1.0 5% European Opportunities 1.2 5%
European Absolute Return** 0.1 0.5% European Absolute Return 0.1 0.3%
Melchior Global Equity** - - Melchior Global Equity 0.1 0.3%
Sustainable Thematic Equities 0.2 1% Sustainable Thematic Equities 0.1 0.3%
Total assets 19.2 100% Total assets 22.1 100%
* The Phaeacian Accent International Value Fund and the Phaeacian Global Value
Fund were closed down in May 2022.
** The Melchior European Absolute Return Fund and the Melchior Global Equity
Fund were closed down in May 2023 and December 2022 respectively.
Chair's Statement
Introduction
The year since my last report has, once again, proved to be eventful and, in
its own way, quite extraordinary. It is clear that calendar year 2022 has been
a very difficult year for the global economy as world stock markets struggled
to deal with the fallout from higher interest rates and rising inflation; as
well as the reality of Russia's invasion of the Ukraine. Gavin Rochussen
covers this impact for investors in his CEO report.
Last year, we also sadly lost the UK's longest serving monarch with the death
of Her Late Majesty, Queen Elizabeth II, just a few months after celebrating
her Diamond Jubilee. She was one of the most experienced and respected global
leaders, and will be missed by many.
In the UK, investor confidence in the operation of government and the
direction of policy was badly damaged in the turmoil following the resignation
of not one but two Prime Ministers. The fallout from this was seen very
clearly as UK interest rates climbed steeply. Sterling fell and gilt yields
increased, pushing up government borrowing costs and affecting everything from
pension funds to mortgages, as well as the continuing increased pressure on
high street inflation.
Despite this challenging background, it is encouraging to be able to report on
improved investment performance over the year against the Lipper peer group,
positive investor interest, and indeed new investment, across a number of our
strategies; rewarding our fund managers for remaining true to their processes
and continuing to focus on producing good risk adjusted returns.
Looking ahead, we are clear on our strategy. We have the support of a strong
balance sheet, and we have the benefit of a talented executive team working
with some of the best investment management people. We know there will always
be new challenges, as well as new opportunities, for the business. One topical
example is the emergence of Artificial Intelligence and what this might mean
for economies and industry, including the investing industry. And, of course,
we are mindful of the elections in the US and UK in 2024.
Whilst we cannot be certain as to how the future will play out, we are used to
navigating our way through uncertain times and I and the Board are confident
that the outlook for the business remains positive.
Results
Despite a more stable period for investors at the start of calendar year 2023,
the weakness of markets overall in 2022 together with the loss of AUM
following the previously announced closure of the Phaeacian mutual funds, led
to funds under management at the year end, 31 March 2023, of £19.2bn, 13%
lower when compared to £22.1bn a year earlier.
The corresponding reduction in revenues led to an overall fall in core
operating profits† from £69.4m in 2022 to £47.9m in 2023, 31% lower over
the year, compared to a 35% increase in the prior year. The resulting profit
before tax for the year amounted to £45.2m (2022: £62.1m).
Dividend
The effect of the lower profit figure for the year leads directly to a lower
earnings result, and hence diluted EPS of 36.1p (2022:48.7p) and adjusted
diluted total EPS† of 44.3p (2022: 56.0p). Nevertheless, given the strength
of our balance sheet and our confidence in the long term outlook of the
Company, the Board recommend maintaining a second interim dividend per share
of 32.0p (2022: 32.0p) to be paid in July 2023. This, together with the first
interim dividend per share of 14.0p paid in January 2023, means that the total
dividend per share for the year is maintained at 46.0p (2022: 46.0p).
Board
As announced last year, two of the Company's founders retired from the Board
as part of the succession plans for the Company as it transitions to a 'post
founder' leadership team. Hence, it was with mixed emotions that we said
goodbye to John Mansell and Jamie Cayzer-Colvin. They have been dedicated
servants of the Company.
The Board meet regularly with Gavin Rochussen and his executive team and all
the Directors have opportunities to provide feedback, on the workings of the
Board, the operation and leadership of the Company and fulfilment of their own
role, formally during the year. The Directors confirmed they are comfortable
with the way in which their responsibilities are discharged, the operation of
the Company, and with the relationship between the Board and the executive
team of the Company.
Now that we have completed the first full year of operating with the current
Board membership, it is intended to initiate an external review of Board
effectiveness to be carried out by an independent third party over the coming
year.
Strategy
I am pleased to be able to report the continuing progress made in the year in
pursuit of our strategy. We have seen improvements in investment performance
and a pickup in net inflows into some of the more recently launched mandates
following the broadening of our distribution footprint, and as investor
interest increases in our wider investment offering. It was also encouraging
to see the slowing of outflows from some of the more established strategies,
reflecting improving investor sentiment in the second half of the year.
Culture
I am particularly proud of the culture at Polar Capital. Time and again during
the year we saw this ably demonstrated as the team dealt with the inevitable
challenges faced by the business, without compromising the collaborative,
inclusive and supportive values that underpin what it means to work at Polar
Capital. Nowhere was this better illustrated than through the mentoring
support provided to students at Westminster City School, a local academy, by
our staff volunteers. This, together with the broader support offered by Polar
Capital to the students of Westminster City School is a demonstration of the
Polar Capital culture 'in action'.
It is no surprise then that it is our staff who are at the heart of our
business and it is very encouraging to be able to report that over 91% of them
in our most recent survey replied that they would recommend Polar Capital as a
great place to work. We remain convinced that the alignment of interests
between fund managers delivering long term superior returns, supported by
excellent staff providing great client service, is the best way to deliver a
superior investment experience to our investors.
Notice of Annual General Meeting
We are planning to hold the Company's forthcoming Annual General Meeting
('AGM') as a physical meeting at 2.00pm on Thursday 28 September 2023 at the
Company's registered office.
Shareholders are encouraged to submit any questions to our company secretary
before the meeting (by using Investorrelations@polarcapital.co.uk, and using
the subject title 'PCH AGM') who will arrange for a response to be provided to
the questions. There will not be a presentation at the meeting, but a video of
the CEO and Finance Director presenting the results will be available on the
Company's website ahead of the meeting. The notice of meeting is also
available on the Company's website and will be sent, along with the Annual
Report, to shareholders in due course.
Thank you
I want to thank Gavin Rochussen and his executive team, our fund managers, and
our staff, for their efforts in another very challenging year for the
industry. Everyone at Polar Capital has stepped up and performed exceptionally
well. On behalf of the Board and myself, thank you.
David Lamb
Chair
23 June 2023
† The non-GAAP alternative performance measures mentioned here are described
and reconciled in the APM section.
Chief Executive's Report
Major events such as wars and pandemics have historically marked inflexion
points in secular economic cycles. The post-World War II era was marked by
strong and sustained period of economic growth and prosperity, while the 1970s
and 1980s were characterised by rising inflation and economic stagnation. The
period from the early 1990s to mid-2000s was marked by the proliferation of
new technologies, while the years following the Global Financial Crisis saw a
prolonged period of economic contraction and slow recovery, followed by a
decade of falling interest rates and monetary easing that fuelled asset values
as risk premia fell. It seems that Covid-19 and the Ukraine war are likely to
mark the latest inflexion point for markets.
Covid-19 and the sudden stalling of all global economies brought massive
monetary stimulus which ultimately fuelled inflation rising to a 40-year high
with soaring energy costs caused by a dislocation of energy supply due to
geopolitical factors in central Europe.
As a result, the financial year to 31 March 2023 was characterised by an
unprecedented combination of events comprising; the continuing war in Ukraine,
accompanied by the surge in energy costs and inflation across a broad front of
goods and services, together with unprecedented monetary tightening as
Governments around the world sought to rein in the excess monetary support
provided during Covid-19.
In the US, the Federal Reserve embarked on the steepest tightening cycle in 40
years as rates were raised by 450bps. In Europe, the European Central Bank
raised rates by 250bps despite the likelihood of recession ending a decade
long experiment with negative interest rates. Unsurprisingly, markets weakened
over the period with the MSCI All-Country World Index down by 20%, the worst
annual return since 2008. Breaking a six-year run of outperformance, US
equities underperformed the global equity index by 330bps, the worst relative
year since 2005. The year was also the worst year for combined total returns
for equities and bonds since 1982, and was the worst year since 2000 for
growth stocks, with the Morningstar Growth index underperforming the
Morningstar Value index by 36%.
Technology stocks suffered in 2022 contending with the post Covid-19 unwind
with technology growth stocks suffering the most. The technology sector had
outperformed in each of the eight prior years taking the technology sector's
share of global market capitalisation from 20% to a peak of 38%. But the
sector declined by 32% in 2022 compared to the overall market decline of 17%.
Similarly, the Dow Jones Industrial Average outperformed the NASDAQ Composite
by more than 24%, the greatest divergence in these benchmarks since 2000.
More encouragingly, we saw a positive start to 2023 for equities, as
inflationary pressure seemed to be abating, energy prices declining following
a less harsh winter in Europe and peak interest rates now look to be within
sight. But the likelihood of lower rates was not enough to prevent the
collapse of Silicon Valley Bank in the US and the forced takeover of Credit
Suisse by UBS to avert a systemic banking crisis.
It was against this market backdrop and, particularly given Polar Capital's
large exposure to the technology and related sectors, that assets under
management declined over the financial year by 13% from £22.1bn to £19.2bn,
although the rate of net outflows has been declining and in April 2023, we
registered net inflows.
Investment performance has improved over the year notwithstanding the headwind
for growth stocks.
As at 31 March 2023, 79% of our UCITS funds' AuM were in the top two quartiles
against the Lipper peer group over one year, 65% in the top two quartiles over
three years with 87% and 93% in the top two quartiles over five years and
since inception respectively.
It is notable that no less than 88% of our UCITS AuM is in the first quartile
against the Lipper peer group since inception.
Of our 22 funds listed within the Dublin UCITS umbrella 73% were in the top
two quartiles over one year, and 85%, 80% and 96% in the top two quartiles
over three years, five years and since inception respectively.
The decline in assets under management and net outflows in the 2023 financial
year is considered modest relative to industry wide outflows and the decline
in the valuations of technology and related sector stocks that suffered a
material de-rating in the period. Net redemptions amounted to £1.5bn, fund
closures were £0.5bn and market decline and performance accounted for £0.9bn
of the net £2.9bn of reduction in AuM over the period. As a result, total AuM
across the Group declined by 13% from £22.1bn to £19.2bn, while the decline
in AuM in our three investment trusts and segregated mandates declined 11% and
9% respectively. It is notable that in the last quarter of the financial year,
AuM increased by £749m representing a 4% increase in the quarter.
While total net outflows from the Technology strategy were £1.2bn, the net
outflows in the last quarter were £237m. This net flow profile should be
considered in the context of net outflows of £1.3bn from the technology funds
in the 2022 financial year and net inflows of £1.8bn in the 2021 financial
year, the year that benefited from the so called Covid-19 winners.
The Healthcare team manage seven different strategies within the healthcare
sector and total net flows were neutral, with Polar Capital Biotechnology Fund
and Polar Capital Blue Chip Fund receiving £223m of subscriptions while the
other funds had net redemptions of roughly the same quantum. Polar Capital UK
Value Opportunities Fund and Melchior European Opportunities Fund suffered net
outflows in line with industry wide experience of £265m and £172m
respectively. As sentiment for UK companies has improved, we have begun to
experience net inflows into the Polar Capital UK Value Opportunities Fund.
On the positive side, the Emerging Market Stars suite of funds had net inflows
in the year of £236m and Sustainable Thematic Equities strategy had inflows
of £103m. Notably, as performance has improved and as sentiment for European
companies has become less bearish, Polar Capital European Income ex-UK Fund
has had net inflows with net inflow momentum building towards the end of the
financial year.
Financial performance for the year was more challenging following the decline
in revenue resulting from lower average AuM given redemptions and market
values declining. Average AuM declined by 14% resulting in a fall in net
management fees of 17% and a 31% decline in core operating profit†. While
performance fee profit† was lower than the prior year, share based payments
and exceptional items were lower in 2023 compared to the prior year. As a
result, profit before tax and basic EPS decreased by 27% and 28% respectively.
Adjusted diluted total EPS† declined by 21% from 56.0p to 44.3p. Total
dividend per share for the year has been maintained at 46.0p (2022: 46.0p).
The regulatory environment has continued to evolve for the financial services
sector and for the Group. Polar Capital continues to navigate a highly
regulated environment ranging from routine regulatory inspections to reporting
from existing and new regulators as the Group expanded its regulatory
activities subject to the Swiss Financial Market Supervisory Authority with
the establishment of a Swiss subsidiary.
The FCA's new Consumer Duty has increased the expectations on UK authorised
financial services firms requiring 'a firm must act to deliver good outcomes
for the retail consumers of its products.' For new and existing products or
services that are open to sale or renewal, the Duty will come into force on 31
July 2023. For closed products or services, the Duty will apply from 31 July
2024.
Strategic progress has continued under the 'growth with diversification'
mantra with much progress diversifying our distribution footprint into new
regions. The Nordic region has become a significant market where our funds
find favour. We have also opened an office in Singapore to service a growing
Asian client base.
Notwithstanding the closure of the Phaeacian strategy, we have continued to
develop our US footprint with experienced business development capability
covering the major regions within the US. This has resulted in promising net
inflows into the US 40 Act Fund and increased interest in our Emerging Markets
Stars fund strategies.
Sustainability is fundamental to our business, and we are committed to
integrating sustainable practices across the Company. This includes the way we
treat our employees, how we interact with society and our community, our
impact on the environment, and our duty as responsible stewards of our
clients' capital.
This is demonstrated by the internal work of the staff Diversity &
Inclusion Committee on topics such as Mental Health, participation in industry
initiatives such as the staff Diversity Project and Investment 20/20, and our
ongoing partnership and bursary programme with a local academy to our London
offices.
We remain focused on developing our climate change strategy, which includes
implementing the recommendations of the Taskforce on Climate-related Financial
Disclosures (TCFD) across our business strategy, governance structure and risk
management process. In addition, we are considering what a net zero transition
strategy means to our business, and we have recently joined the Institutional
Investors Group on Climate Change (IIGCC) to help develop our investment
climate strategy.
The outlook is positive with global inflation abating and the peak interest
rate cycle within medium term sight. The Group has 13 specialist sector,
thematic and regionally focused teams with compelling long term track records
in actively managed strategies. We believe that the Group's strong balance
sheet and range of differentiated fund strategies positions us well for the
future, supported by our performance led approach and our strong culture.
Gavin Rochussen
Chief Executive Officer
23 June 2023
† The non-GAAP alternative performance measures mentioned here are described
and reconciled in the APM section.
Business Review
Assets under Management and Fund Flows
Following a record year for the funds industry in calendar year 2021, 2022
proved exceptionally challenging, with growing uncertainty and rising market
volatility driving net outflows in both Europe and the US.
The positive correlation between equities and bonds meant there were few, if
any, places to hide and the impact on investors led to all asset classes
registering outflows.
Polar Capital was not immune from the headwinds; however, we held up
relatively well given the backdrop and bear markets impacting our larger
strategies. While we experienced selling pressure across many of our growth
centric strategies, including Technology outflows (£1.2bn) and from areas
that were out of favour with investors, such as UK and European equities, we
saw interest and net new inflows into Polar Capital Biotechnology Fund
(£154m), Polar Capital Healthcare Blue Chip Fund (£69m) and Polar Capital
Global Absolute Return Fund (£26m) including Emerging Market Stars (£230m)
and Sustainable Thematic Equities (£103m) strategies.
Despite the headwinds, our emergent US business made meaningful progress over
the year, including £115m of net inflows for our US Emerging Markets Stars
strategy, which represented over half of the total raised for the strategy
globally.
Overall, we saw total net outflows for the year of £1.5bn. Encouragingly, we
saw a marked improvement in the second half of the year, as outflows slowed.
We experienced positive net inflows in April 2023.
Over the period, AuM declined by 13%, to end the year at £19.2bn (2022:
£22.1bn), while the decline in AuM in our three investment trusts and
segregated mandates declined by 11% and 9% respectively. Average AuM was
£19.6bn, a decrease of 14% (2022: £22.8bn). It is notable that in the last
quarter of the financial year, AuM increased by £749m representing a 4%
increase in the quarter.
Communicating with our clients
With uncertainty prevailing and markets likely to remain volatile for the
foreseeable future, our distribution team is focused on the elements we can
control. As ever, we aim to provide our clients with exceptional service and
support, including the provision of timely and accurate investment insights,
both in-person and digitally. We believe that face-to-face engagement remains
a key element of that provision and is particularly effective in defending and
maintaining existing assets, and also in identifying new business
opportunities.
We continue to invest in our digital marketing capabilities, aiming to further
enhance and expand the way in which we engage and communicate with our
clients. Our goal is to configure and optimise our client services and
marketing so that it is increasingly tailored to specific client segments and
geographies. As an example, in Q4 2022 we launched our new institutional
website (www.polarcapitalstrategies.com) in both the UK and the US, providing
a tailored platform for institutional investors to access information on our
strategies and capabilities.
Client communication and engagement is fast becoming a point of
differentiation and a way for smaller asset management firms to compete with
larger groups beyond simply price and investment performance. It was pleasing
to see that Polar Capital scored well in the annual Broadridge Fund Brand 50
survey of investment professionals. Within the UK, we were the 7th highest
ranked brand, up from 8th the prior year, the smallest group in the top ten
based on AuM and in the company of many much larger peers. Our approach has
always been to deliver a specialist investment offering with a premium service
to our clients and therefore, it was also pleasing to see Polar Capital retain
its number one ranking for Thematic Equity in the UK and scoring 2nd for
client-oriented thinking.
Growth with diversification
Our distribution strategy remains growth with diversification, by product,
client segment and geography.
By successfully combining our sales and digital marketing capabilities we can
extend the reach of our distribution to accelerate growth. We have established
distribution platforms and deep client relationships in the UK, continental
Europe and the Nordic region.
We continue to extend our reach in the US and south-east Asia. We recently
established a distribution office in Singapore to support our clients in the
region and drive business development in Japan and Australia.
Our approach to global expansion remains both targeted and measured.
Outlook
While the outlook for the year ahead remains uncertain and fund sales
difficult to predict, our forecast for the year ahead favours the positive.
Industry fund flows may remain under pressure, at least in the near-term,
however, we believe we are well positioned to grow by taking market share.
Fund performance and oversight
One of the most interesting aspects of the last 12-18 months has been the
change in macroeconomic and style influences across equity markets. During
this period, there has been a significant pick-up in the performance of value
styles versus growth, and episodes where the outperformance of large companies
versus small has been particularly marked. The rapid and sizeable moves in
interest rates during calendar year 2022 played a role in style preference,
while investor caution goes some way to explaining the strong performance of
large capitalisation companies.
Polar Capital's strategies are reasonably evenly distributed in terms of
directional sensitivity (i.e. whether they outperform on up days or down days
in the market), and there is also representation in both value and growth
styles, although a greater percentage of AuM is in growth styles. Many Polar
Capital strategies generate outperformance on days when smaller companies
outperform larger ones.
This is expected, given the bottom-up research orientation of Polar Capital's
investment teams, and the likelihood therefore of finding the most attractive
opportunities in the less well researched areas of the market. It is also in
part a response to passive competition; clients want us to do something other
than own the largest names in the investment universe.
Nevertheless, this has been a headwind for the performance for Polar Capital's
Technology and North America strategies in the past year, due to the extended
period of outperformance of the world's largest companies. Further, in down
markets, investors often retreat to the perceived safety and resilience of
larger companies.
Polar Capital Global Technology Fund lagged its benchmark by 450bps in the 12
months to end of March 2023, and Polar Capital North America Fund
underperformed by 120bps. The MST European Opportunities strategy also
suffered from the dominance of larger names and oil companies in Europe,
underperforming by 830 bps in the year, despite resilient operating
performance from many of the companies in which it invests.
Polar Capital's European ex-UK Income and Japan Value strategies benefited
from the change in market leadership towards value styles, and reaped the
rewards of patience. Polar Capital European ex-UK Income Fund outperformed by
610 bps in the year, and Polar Capital Japan Value Fund by 1100bps; both have
seen a significant improvement in 3 year performance as a result.
Polar Capital's Global Insurance Fund, which invests principally in non-life
insurance businesses, outperformed by over 500bps in the year to March 2023.
Increasing short term interest rates give insurance companies the opportunity
to reinvest their 'float' at higher yields, while insurance premia in many
parts of property and casualty insurance continue to firm.
Polar Capital's Healthcare team also delivered index-beating returns in the
year, with Polar Capital Healthcare Opportunities Fund outperforming by
280bps, Polar Capital Biotechnology Fund by 200bps and Polar Capital
Healthcare Discovery Fund (small and mid-cap) by 400bps. In the first quarter
of 2022, investors sought safety in the shares of large, well-known
pharmaceutical companies, but their smaller, typically higher growth peers
recovered strongly later in the year, which benefited Polar Capital Healthcare
Opportunities Fund.
Polar Capital's Emerging Market and Asia Stars strategies finished the year
marginally behind benchmark, having gained ground during the second half of
the year to March 2023 as the headwind from higher energy prices abated, and
as the Chinese economy began to re-open. Polar Capital's China strategy
outperformed by 610 bps over the same period. Stock selection was strong
across a number of sectors, particularly industrials.
The UK Value strategy had a difficult year, with the UK market dominated by
the performance of its large oil and mining companies, which Polar Capital's
team does not in the main own, typically finding value further down the market
capitalisation scale. Rock bottom valuations in this part of the market are
beginning to attract investors, and the long term potential is significant.
The Zurich based Sustainable Thematic Equities team which joined Polar Capital
in 2021 and invests in beneficiaries of decarbonisation, electrification,
electric vehicles and autonomous driving performed well, with Polar Capital
Smart Energy Fund and Polar Capital Smart Mobility Fund outperforming their
reference portfolios by 1070bps and 880bps respectively. Demand for energy
management solutions led to power management semiconductor manufacturers
outperforming the broader technology sector.
Polar Capital's closed ended and open ended Financials funds were a little
behind and a little ahead of benchmark respectively. The year ended on a
difficult note due to the underperformance of some of the funds' US bank
holdings. These positions were significantly reduced, which limited the
losses.
Outside long only equities, the Global Convertibles strategy outperformed by
110bps. 2022 was an unusual year, with bond and equity markets falling at the
same time. In this light, the flat return delivered by the Convertibles team's
Global Absolute Return fund was a good outcome for clients. The European
Long/Short strategy delivered a negative return of 5.5% over the year, but has
returned +6.4% annualised over 3 years.
As at 31 March 2023, 79% of our UCITS funds' AuM were in the top two quartiles
against the Lipper peer group over one year, 65% in the top two quartiles over
three years with 87% and 93% in the top two quartiles over five years and
since inception respectively.
Of our 22 funds listed within the Dublin UCITS umbrella 73% were in the top
two quartiles over one year, and 85%, 80% and 96% in the top two quartiles
over three years, five years and since inception respectively.
Financial Review
AuM
Open ended funds
Investment Trusts Segregated mandates
AuM movement in twelve months to 31 March 2023 (£bn) Total
AuM at 1 April 2022 16.6 4.4 1.1 22.1
Net redemptions (1.4) (0.1) - (1.5)
Fund closures (0.4) - (0.1) (0.5)
Market movement and performance (0.5) (0.4) - (0.9)
Total AuM at 31 March 2023 14.3 3.9 1.0 19.2
During the financial year, AuM decreased by net redemptions of £1.5bn,
outflows from fund closures of £0.5bn and a £0.9bn decrease related to
market movement and fund performance.
( )
The mix of AuM between open ended funds, investment trusts and segregated
mandates remained unchanged from the prior year.
Average AuM decreased by 14% from £22.8bn to £19.6bn. This follows a 37%
increase in average AuM over the previous financial year.
Revenue
31 March 2023 31 March 2022
Management fees £'m £'m
Management and research fees 176.2 209.9
Commissions and fees payable (21.4) (22.6)
Net management fees(†) 154.8 187.3
The decrease in the average AuM of 14% translated into the Group's net
management fees(†) decreasing from £187.3m in 2022 to £154.8m this year.
Net management fee yield 31 March 2023 31 March 2022
Average AuM (£bn) 19.6 22.8
Net management fees(†) (£m) 154.8 187.3
Net management fee yield(†) (bps) 79 82
Net management fee yield† over the year measured 79bps (2022: 82bps). The
decrease was slightly more than our stated expectation of an annual decrease
of at least 1-2bps as net outflows from the higher margin Technology and
Healthcare strategies were replaced by early stage net inflows into more
recently launched strategies at lower margins.
31 March 2023 31 March 2022
Performance fees £'m £'m
Performance fees 6.7 14.1
The more muted performance posted by our underlying funds resulted in
performance fees earned for the financial year to 31 March 2023 falling to
£6.7m (2022: £14.1m).
Operating Costs 31 March 2023 31 March 2022
£'m £'m
Salaries, bonuses and other staff costs(1) 36.1 36.7
Core distributions(2)(†) 44.0 54.0
Share-based payments(3) 2.7 5.7
Performance fee interests(†) 5.0 10.0
Total staff compensation 87.8 106.4
Other operating costs 24.7 23.1
Exceptional items 6.2 11.4
Total operating costs 118.7 140.9
1. Including share awards under deferment plan of £0.8m (2022:
£0.9m).
2. Including share awards under deferment plan of £0.9m (2022:
£0.8m).
3. Share-based payments on preference shares of £0.3m (2022:
£1.1m), LTIPs of £1.8m (2022: £3.8m) and equity incentive plan of £0.6m
(2022: £0.7m). Refer to Note 5 below.
† The non-GAAP alternative performance measures mentioned here are described
and reconciled in the APM section.
Total operating costs decreased to £118.7m (2022: £140.9m) due to lower
variable staff compensation costs.
Core distributions, which are variable compensation amounts payable to
investment teams from management fee revenue, decreased as a direct
consequence of the lower average AuM and the resulting lower management fee
revenues and core profits.
Performance fee interests, which are variable compensation amounts payable to
investment teams from performance fee revenue, decreased in line with the
lower amount of such fees generated this year.
Other operating, non-staff compensation related, costs increased marginally to
£24.7m (2022: £23.1m) demonstrating good cost discipline under the
prevailing back drop of significant inflationary pressures.
Exceptional items for both 2023 and 2022 comprised of significant items of
income or expenditure related to acquisitions, or their unwinding, and are
therefore expected to be non-recurring, as well as the amortisation of
acquired intangible assets. The items are presented separately to allow a
supplemental understanding of the Group's results.
In May 2023, the Group's legal action against First Pacific Advisors (FPA),
the vendor of the funds in the Phaeacian transaction, and FPA's counterclaim
was settled out of court. All such associated legal costs are included in
termination and reorganisation costs. A further £0.6m has been recorded at 31
March 2023 for costs related to the closure of the Phaeacian entities, and
£0.3m for the closure of subscale Dalton funds, with these costs being
classified as exceptional items.
A breakdown of exceptional items is as follows:
Exceptional items 31 March 2023 31 March 2022
£'m £'m
Recorded in operating costs
Termination and reorganisation costs(1) 5.0 3.5
Amortisation of intangibles 1.2 1.9
Impairment of intangibles - 6.0
6.2 11.4
Recorded in other income
Additional charge on deferred consideration - 1.0
Derecognition of deferred consideration liability - (4.8)
- (3.8)
Net exceptional items recorded in the consolidated statement of profit or loss
6.2 7.6
1. Charges for the current year includes termination and reorganisation costs
of £4.7m relating to the Phaeacian transaction and £0.3m relating to the
closure of subscale Dalton funds (2022: Termination and reorganisation costs
of £0.4m relating to Phaeacian and £3.1m relating to Dalton acquisition).
Profit before tax 31 March 2023 31 March 2022
£'m £'m
Core operating profit(†) 47.9 69.4
Performance fee profit(†) 1.7 4.1
Other income/ (loss)(^) 2.1 (2.7)
Share-based payments on preference shares (0.3) (1.1)
Exceptional items (6.2) (7.6)
Profit before tax 45.2 62.1
† The non-GAAP alternative performance measures mentioned here are described
and reconciled on the APM page.
^ A reconciliation to reported results is given in the APM section below.
The headline profit before tax for the year has decreased by 27% to £45.2m
(2022: £62.1m).
The analysis of the three key components of profits shows that:
• Core operating profit
Decreased to £47.9m (2022: £69.4m) reflecting mainly the impact of falling
average AuM on net management fees and operating costs.
• Performance fee profit
Performance fee profit decreased because of muted investment performance
during the current year, where high inflation, rising interest rates and
slowing economic growth were only a few of the concerns weighing on market
sentiment.
• Other income
The increase in other income is due to marked to market gains from seed
investments held on the Group's balance sheet as well as interest income from
bank balances.
Earnings per share
Basic EPS decreased to 36.8p during the year (2022: 50.8p) and diluted EPS
decreased to 36.1p (2022: 48.7p). The effect of the adjustments made in
arriving at the adjusted diluted total EPS and adjusted diluted core EPS
figures of the Group is as follows:
(Pence) 31 March 2023 31 March 2022
Diluted earnings per share 36.1 48.7
Impact of share-based payments - preference shares 0.3 1.1
Impact of deferment, where staff compensation costs are deferred into future 1.7 (0.8)
periods
Impact of exceptional items 6.2 7.0
Adjusted diluted total EPS(†) 44.3 56.0
Of which: Performance fee profit and other income 4.6 2.2
Adjusted diluted core EPS(†) 39.7 53.8
Preference shares
A separate class of preference share has historically been issued by Polar
Capital Partners Limited for purchase by each new team of fund managers on
their arrival at the Group.
These shares provide each manager with an economic interest in the funds that
they run and ultimately enable the manager to convert their interest in the
revenues generated from their funds into equity in Polar Capital Holdings plc.
The equity is awarded in return for the forfeiture of their current core
economic interest and vests over three years with the full quantum of the
dilution being reflected in the diluted share count (and so diluted EPS) from
the point of conversion.
The event has been designed to be, at both the actual and the diluted levels,
earnings enhancing to shareholders.
In the year to 31 March 2023 there were no conversions of preference shares
into Polar Capital Holdings plc equity (2022: two conversions).
As at 31 March 2023 five sets of preference shares have the ability to call
for a conversion.
The call must be made on or before 30 November 2023 if any conversion is to
take place with effect from 31 March 2023.
As indicated last year, no further preference shares are expected to be issued
and any new teams arriving are expected to be on a revenue sharing model with
deferment into equity in Polar Capital Holdings plc as the new long-term
incentivisation plan for investment teams. This revised model is not expected
to change core distributions when measured in percentage terms against net
management fee revenue and is expected to be simpler to administer compared to
the preference shares arrangement.
See Note 5 for details.
Balance sheet and cash
At the year end the cash balance of the Group was £107.0m (2022: £121.1m).
In line with the Group treasury policy, cash is held across several UK banking
counterparties on maturity terms ranging from 30 to 90 days. At the balance
sheet date the Group held £44.1m of investments in its own funds (2022:
£48.3m).
Capital management
The Group believes in retaining a strong balance sheet. The capital that is
retained in the business is used to seed new investment products, as a buffer
for times of uncertainty, to pay dividends and fund the EBT to buy Company
shares to reduce the dilutive effects of LTIP and option awards. Depending on
the market outlook, and as the Group grows in size, the allocation of overall
capital amongst these four categories may vary over time.
As at 31 March 2023 £44.1m (2022: £48.3m) of the Group's balance sheet was
invested to seed fledgling funds and during the year the Group advanced loans
to the EBT of £6.0m (2022: £11.8m) to buy shares in the Company.
The Group's dividend policy is to pay an annual dividend within a range of 55%
and 85% of adjusted total earnings, dependent on the scale of performance fees
in the relevant year and the anticipated trading conditions for the following
year. Where appropriate, the Group will consider using its balance sheet
strength to support the dividend.
As at 31 March 2023 the Group had surplus capital of £57.7m (2022: £69.7m)
above its regulatory capital requirement of £26.0m (2022: £26.0m) and July
dividend commitment of £30.9m (2022: £30.9m).
Going concern
The Financial Reporting Council has determined that all companies should carry
out a rigorous assessment of all the factors affecting the business in
deciding to adopt a going concern basis for the preparation of the financial
statements.
The Directors have reviewed and examined the financial and other processes
embedded in the business, in particular the annual budget process and the
financial stress testing inherent in the Internal Capital Adequacy and Risk
Assessment ('ICARA').
Based on this review and the significant liquid assets underpinning the
balance sheet relative to the Group's predictable operating cost profile, the
Directors consider that the adoption of a going concern basis, covering a
period of at least 12 months from the date of this report, is appropriate.
Samir Ayub
Finance Director
23 June 2023
Alternative Performance Measures (APMs)
The Group uses the non-GAAP APMs listed below to provide users of the Annual
Report with supplemental financial information that helps explain its results
for the current accounting period.
APM Definition Reconciliation Reason for use
Core operating profit Profit before performance fee profits, other income and tax. APM reconciliation To present a measure of the Group's profitability excluding performance fee
profits and other components which may be volatile, non-recurring or non-cash
in nature.
Performance fee profit Gross performance fee income less performance fee interests due to staff. APM reconciliation To present 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.
Core distributions Variable compensation payable to investment teams from management APM reconciliation To present additional information thereby assisting users of the Annual Report
fee revenue. in understanding key components of variable costs paid out of management fee
revenue.
Performance Variable compensation payable to investment teams from performance fee APM reconciliation To present additional information thereby assisting users of the Annual Report
revenue. in understanding key components of variable costs paid out of performance fee
fee interests revenue.
Adjusted diluted total EPS Profit after tax but excluding (a) cost of share-based payments on preference Finance review The Group believes that (a) as the preference share awards have been designed
shares, (b) the net cost of deferred staff remuneration and (c) exceptional to be earnings enhancing to shareholders adjusting for this non-cash item
items which may either be non-recurring or non-cash in nature, and in the case provides a useful supplemental understanding of the financial performance of
of adjusted diluted earnings per share, divided by the weighted average number the Group, (b) comparing staff remuneration and profits generated in the same
of ordinary shares. time period (rather than deferring remuneration over a longer vesting period)
allows users of the Annual Report to gain a useful supplemental understanding
of the Group's results and their comparability period on period and (c)
removing acquisition related transition and termination costs as well as the
non-cash amortisation, and any impairment, of intangible assets and goodwill
provides a useful supplemental understanding of the Group's results.
Adjusted diluted core EPS Core operating profit after tax excluding the net cost of deferred core Finance review To present additional information that allows users of the Annual Report to
distributions divided by the weighted average number of ordinary shares. measure the Group's earnings excluding those from performance fees and other
components which may be volatile, non-recurring or non-cash in nature.
Core operating profit margin Core operating profit divided by Finance review To present additional information that allows users of the Annual Report to
net management fees revenue. measure the core profitability of the Group before performance fee profits,
and other components, which can be volatile and non-recurring.
Net management fee Gross management fees less commissions and fees payable. Finance review To present a clear view of the net amount of management fees earned by the
Group after accounting for commissions and fees payable.
Net management fee yield Net management fees divided by average AuM. Finance review To present additional information that allows users of the Annual Report to
measure the fee margin for the Group in relation to its assets under
management.
Summary of non-GAAP financial performance and reconciliation of APMs to
reported results
The summary below reconciles key APMs the Group measures to its reported
results for the current year and also reclassifies the line-by-line impact on
consolidation of seed investments to provide a clearer understanding of the
Group's core business operation of fund management.
Any seed investments in newly launched or nascent funds, where the Group is
determined to have control, are consolidated. As a consequence, the statement
of profit or loss of the fund is consolidated into that of the Group on a
line-by-line basis. Any seed investments that are not consolidated are fair
valued through a single line item (other income) on the Group consolidated
statement of profit or loss.
Reclassification 2023 2022
2023 on consolidation Non-GAAP Non-GAAP
Reported of seed Reclassification results results
Results investments of costs £'m £'m
£'m £'m £'m APMs
Investment management and research fees 176.2 - - 176.2 209.9
Commissions and fees payable (21.4) - - (21.4) (22.6)
154.8 - - 154.8 187.3 Net management fees
Operating costs (118.7) 0.4 55.6 (62.7) (63.9)
Finance costs (0.2) - - (0.2) -
- - (44.0) (44.0) (54.0) Core distributions
35.9 0.4 11.6 47.9 69.4 Core operating profit
Performance fees 6.7 - - 6.7 14.1
- - (5.0) (5.0) (10.0) Performance fee interests
6.7 - (5.0) 1.7 4.1 Performance fee profit
Other income/ (loss) 2.6 (0.4) (0.1) 2.1 (2.7)
Exceptional items - - (6.2) (6.2) (7.6)
Share-based payments - - (0.3) (0.3) (1.1)
on preference shares
Profit for the year before tax
45.2 - - 45.2 62.1
Consolidated Statement of Profit or Loss
For the year ended 31 March 2023
31 March 2023 31 March 2022
£'000 £'000
Revenue 182,877 224,107
Other income 2,579 1,561
Gross income 185,456 225,668
Commissions and fees payable (21,383) (22,642)
Net income 164,073 203,026
Operating costs (118,694) (140,936)
Finance costs (175) -
Profit before tax 45,204 62,090
Taxation (9,592) (13,166)
Profit for the year attributable to ordinary shareholders 35,612 48,924
Earnings per share
Basic 36.8p 50.8p
Diluted 36.1p 48.7p
Adjusted basic (Non-GAAP measure) 45.2p 58.4p
Adjusted diluted (Non-GAAP measure) 44.3p 56.0p
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2023
31 March 2023 31 March 2022
£'000 £'000
Profit for the year attributable to ordinary shareholders 35,612 48,924
Other comprehensive income - items that will be reclassified to profit or loss
statement in subsequent periods
Exchange differences on translation of foreign operations 430 1,140
Other comprehensive income for the year 430 1,140
Total comprehensive income for the year, net of tax, attributable to ordinary 36,042 50,064
shareholders
All of the items in the above statements are derived from continuing
operations.
Consolidated Balance Sheet
As at 31 March 2023
31 March 2023 Restated(1)
£'000 31 March 2022
£'000
Non-current assets
Goodwill and intangible assets 15,937 17,100
Property and equipment 10,534 4,113
Deferred tax assets 106 40
26,577 21,253
Current assets
Assets at fair value through profit or loss 83,048 77,783
Trade and other receivables 19,523 25,430
Other financial assets 5,237 2,695
Cash and cash equivalents 106,976 121,128
Current tax assets 319 1,563
215,103 228,599
Total assets 241,680 249,852
Non-current liabilities
Provisions and other liabilities 8,900 2,871
Liabilities at fair value through profit or loss 462 637
Deferred tax liabilities 518 -
9,880 3,508
Current liabilities
Liabilities at fair value through profit or loss 16,369 10,023
Trade and other payables 68,651 80,054
Provisions 3,203 -
Other financial liabilities 10 20
Current tax liabilities 712 -
88,945 90,097
Total liabilities 98,825 93,605
Net assets 142,855 156,247
Capital and reserves
Issued share capital 2,520 2,506
Share premium 19,364 19,364
Investment in own shares (31,623) (24,915)
Capital and other reserves 12,299 12,417
Retained earnings 140,295 146,875
Total equity - attributable to ordinary shareholders 142,855 156,247
(1) Comparative deferred tax balances have been reclassified to show a net
position by tax jurisdiction. See note 1 below for further information.
Consolidated Statement of Changes in Equity
For the year ended 31 March 2023
Issued share capital £'000 Investment in own shares
Share premium £'000 Capital reserves Other reserves Retained earnings =
£'000 £'000 £'000 £'000 Total equity
£'000
As at 1 April 2021 2,468 19,364 (26,579) 695 10,335 145,157 151,440
Profit for the year - - - - - 48,924 48,924
Other comprehensive income - - - - 1,140 - 1,140
Total comprehensive income - - - - 1,140 48,924 50,064
Dividends paid to shareholders - - - - - (43,400) (43,400)
Dividends paid to third-party - - - - - (3) (3)
interests
Issue of shares 38 - - - - 143 181
Own shares acquired - - (12,773) - - - (12,773)
Release of own shares - - 14,437 - - (11,297) 3,140
Share-based payment - - - - - 7,351 7,351
Current tax in respect of employee share options - - - - 2,682 - 2,682
Deferred tax in respect of employee share options - - - - (2,435) - (2,435)
As at 1 April 2022 2,506 19,364 (24,915) 695 11,722 146,875 156,247
Profit for the year - - - - - 35,612 35,612
Other comprehensive income - - - - 430 - 430
Total comprehensive income - - - - 430 35,612 36,042
Dividends paid to shareholders - - - - - (44,481) (44,481)
Issue of shares 14 - - - - (14) -
Own shares acquired - - (10,922) - - - (10,922)
Release of own shares - - 4,214 - - (2,083) 2,131
Share-based payment - - - - - 4,386 4,386
Current tax in respect of employee share options - - - - 31 - 31
Deferred tax in respect of employee share options - - - - (579) - (579)
As at 31 March 2023 2,520 19,364 (31,623) 695 11,604 140,295 142,855
Consolidated Cash Flow Statement
For the year ended 31 March 2023
31 March 2023 31 March 2022
£'000 £'000
Cash flows generated from operating activities
Cash generated from operations 51,975 85,323
Tax paid (7,738) (10,861)
Interest received 888 307
Interest on lease - (95)
Net cash inflow generated from operating activities 45,125 74,674
Cash flows generated from investing activities
Investment income 421 227
Sale of assets/liabilities at fair value through profit or loss 55,277 41,240
Purchase of assets at fair value through profit or loss (62,765) (70,335)
Purchase of property and equipment (486) (552)
Payments in respect of business combination - (8,120)
Payments in respect of asset acquisition (226) (1,257)
Net cashflow from deconsolidation of seed investment (11,710) -
Net cash outflow from investing activities (19,489) (38,797)
Cash flows generated from financing activities
Dividends paid to shareholders (44,481) (43,400)
Lease payments (1,425) (1,306)
Interest on lease (175) -
Issue of shares - 1
Purchase of own shares (10,660) (12,383)
Third-party subscriptions into consolidated funds 20,673 9,857
Third-party redemptions from consolidated funds (3,869) (4,552)
Net cash outflow from financing activities (39,937) (51,783)
Net decrease in cash and cash equivalents (14,301) (15,906)
Cash and cash equivalents at start of the year 121,128 136,718
Effect of exchange rate changes on cash and cash equivalents 149 316
Cash and cash equivalents at end of the year 106,976 121,128
Selected notes to the Consolidated Financial Statements for the year ended 31
March 2023
1. General information, Basis of Preparation and Accounting policies
Corporate information
Polar Capital Holdings plc (the 'Company') is a public limited company
incorporated and domiciled in England and Wales whose shares are traded on the
Alternative Investment Market ('AIM') of the London Stock Exchange.
Group information
Details of operating subsidiaries, seed capital investments and indirectly
held entities consolidated into the Group are disclosed in Note 8 below.
Basis of preparation
The consolidated Group financial statements have been prepared on a going
concern basis in accordance with UK-adopted international accounting standards
and in conformity with the requirements of the Companies Act 2006. The
accounting policies used in the preparation of these financial statements have
been consistently applied, except when otherwise stated.
The consolidated financial statements have been prepared under the historical
cost convention, modified by the measurement at fair value of certain
financial assets and liabilities and derivative financial instruments. The
consolidated financial statements are presented in Sterling and all values are
rounded to the nearest thousand (£'000), except when otherwise stated.
Restatement of prior period information
The Group has amended the presentation of deferred tax on the consolidated
balance sheet to offset deferred tax assets and liabilities and present these
on a net basis for each separate tax jurisdiction. As a result, the 2022
comparative amounts have also been reclassified.
The reclassification impact of the change in presentation is that for the year
ended 31 March 2022, a net deferred tax asset position of £40,000 is
presented (previously: deferred tax asset of £3,475,000 and deferred tax
liability of £3,435,000). There was no impact on the profit for the year
ended 31 March 2022 or total equity attributable to ordinary shareholders at
31 March 2022. The reclassification impact on the opening balance at 1 April
2021 was a net deferred tax asset position of £1,667,000 (previously:
deferred tax asset of £5,783,000 and deferred tax liability of £4,116,000)
with no impact on total equity attributable to ordinary shareholders.
Going concern
The Directors have made an assessment of going concern taking into account
both the Group's results as well as the impact on the Group's outlook. As part
of this assessment the Directors have used a range of information available to
the date of issue of these financial statements and considered the Group
budget, longer term financial projections, cash flow forecasts and an analysis
of the Group's liquid assets and its regulatory capital position and
forecasts. The stress testing scenarios applied as part of the Group's ICARA
have also been revisited to ensure they remain appropriate.
The Group continues to maintain 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 and the Company
have adequate resources to continue operating for a period of at least 12
months from the date of signing the financial statements. Therefore, the
Directors continue to adopt the going concern basis of accounting in preparing
the consolidated financial statements.
Basis of consolidation
The consolidated financial statements of the Group comprise the financial
statements of the Company and its subsidiaries as at 31 March 2023.
Subsidiaries are those entities over which the Group has control. The Group
controls an investee if, and only if, the Group has:
• Power over the investee;
• Exposure, or rights, to variable returns from its involvement with
the investee; and
• The ability to use its power over the investee to affect returns.
The Group considers all relevant facts and circumstances in assessing whether
it has power over an investee, including the purpose and design of an
investee, relevant activities, substantive and protective rights, voting
rights and potential voting rights.
The financial statements of subsidiaries are either prepared for the same
reporting period as the parent company or where necessary, adjustments are
made to the financial statements of subsidiaries to bring their reporting
period and results in line with those of the Group. All intra-group
transactions, balances, income and expenses are eliminated on consolidation.
When the Group loses control over a subsidiary, it derecognises the related
assets, liabilities, third-party interest and other components of equity,
while any resultant gain or loss is recognised in profit or loss. Any
investment retained is recognised at fair value.
Seed capital investments in funds that the Group manages are accounted for as
subsidiaries, associates or financial assets at fair value through profit or
loss (FVTPL) depending on the holdings of the Group, on the level of influence
and control that the Group is judged to have and whether the Group assesses it
is acting as an agent or principal for its holdings in the seed capital
investments. There is no fixed minimum percentage at which the Group
consolidates, and each exposure is reviewed individually.
Where the Group concludes it is acting as a principal the entity is
consolidated. This assessment is based on the Group's total exposure. This
incorporates direct holdings, income earned from management and performance
fees and the assessed strength of third-party kick-out rights. The funds
consolidated at 31 March 2023 are disclosed in Note 8.
The Group concludes that it acts as an agent when the power it has over an
entity is deemed to be exercised for the benefit of third-party investors.
The Group re-assesses whether or not it controls an investee if facts and
circumstances indicate that there are changes to one or more of the three
elements of control. Subsidiaries are fully consolidated from the date on
which the Group obtains control and continue to be consolidated until the date
when such control ceases.
Where external investors hold redeemable shares in funds controlled by the
Group, the portion of profit or loss and net assets held by these third-party
interests is included within other income in the consolidated statement of
profit or loss and as financial liabilities at FVTPL in the consolidated
balance sheet respectively.
Net cashflows on initial consolidation or deconsolidation are presented as
investing activities within the consolidated cashflow statement. Cashflows
from third-party interests into consolidated funds are presented as financing
activities.
Investment in associates
An associate is an entity over which the Group has significant influence.
Significant influence is the power to participate in the financial and
operating policy decisions of the investee but is not control or joint control
over those policies. Generally, it is presumed that the Group has significant
influence where it has voting rights of 20% or more, but not control of an
investee.
Seed capital investments over which the Group has significant influence, but
not control, are carried on the balance sheet as assets at FVTPL as permitted
by IAS 28: Investment in Associates, with changes in fair value recognised in
the consolidated statement of profit or loss. The fair value of investments in
associates is determined by reference to the quoted price at the close of
business on the balance sheet date. The Group has no other investments in
associates and, therefore, no associates are currently accounted for using the
equity method.
Goodwill and intangible assets
Goodwill arising on the acquisition of a business is the excess of the
consideration paid over the net identifiable assets acquired and liabilities
assumed. Goodwill is measured at cost less any accumulated impairment losses.
Impairment testing is based on the expected future benefits of the relevant
cash-generating unit (CGU) as a whole.
Intangible assets such as investment management contracts acquired separately
are measured on initial recognition at cost which is their fair value as at
acquisition date. Following initial recognition, intangible assets are carried
at cost less any accumulated amortisation and accumulated impairment losses,
with the related expenditure or charge recognised in the consolidated
statement of profit or loss. Intangible assets are amortised on a
straight-line basis over their useful economic lives. Intangible assets are
derecognised upon disposal or when no future economic benefits are expected
from their use or disposal. Any gain or loss on derecognition is included in
the consolidated statement of profit or loss.
Property and equipment
Property and equipment is made up of leasehold improvements, computer
equipment and office furniture and right-of-use lease assets.
Property and equipment (excluding right-of-use lease assets) are stated at
cost, including directly attributable acquisition costs, less depreciation and
accumulated impairment provisions. Depreciation is provided at rates
calculated to write off the cost of each asset over its expected useful
economic life.
Depreciation is charged from the date that the asset is brought into use on a
straight-line basis as follows:
· Leasehold improvements 10%
· Computer equipment 33%
· Office furniture 33%
· Right-of-use assets Shorter of the lease
term and the estimated useful life of the asset
·
Property and equipment is derecognised upon disposal or when no future
economic benefit is expected from its use.
Any gain or loss arising on the disposal is included in the consolidated
statement of profit or loss.
The residual values, useful lives and methods of depreciation of property and
equipment are reviewed regularly and
adjusted prospectively, if appropriate.
Leases
The Group applies a single recognition and measurement approach for all
leases, except for short-term leases and leases of low-value assets. The Group
recognises lease liabilities to make lease payments and right-of-use assets
representing the right to use the underlying assets.
Right-of-Use (ROU) 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 and presented with property and
equipment. 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 an incremental
borrowing rate at the lease commencement date if the interest rate implicit in
the lease is not readily determinable.
After the commencement date, the amount of lease liabilities is increased to
reflect the accretion of interest and reduced for the lease payments made. The
Group's lease liabilities are included in trade and other payables and
non-current provisions and other liabilities.
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.
Financial assets
The Group's financial assets include seed capital investments, investment
securities, trade and other receivables, cash and cash equivalents and
derivative financial instruments. The classification adopted by the Group
depends on the purpose for which the financial assets were acquired and is
determined at initial recognition.
Financial assets are initially recognised at fair value, being the
consideration given, plus, any directly attributable transaction costs, except
in the case of financial assets recorded at fair value through profit or loss
where transaction costs are immediately recognised in the consolidated
statement of profit or loss.
Purchases and sales of financial assets are recognised at trade date, being
the date when the Group commits to purchase or sell the asset.
Financial assets at fair value through profit or loss (FVTPL)
Financial assets at FVTPL include the Group's investments in the funds that it
manages, but does not control, including those which are held by the Group
against bonus awards deferred into fund units. Such assets are subsequently
carried at fair value, with any gains or losses arising from changes in fair
value being recognised in the consolidated statement of profit or loss.
Investment securities
Investment securities represent securities both long and short positions,
other than derivatives, held by consolidated funds. These securities are
classified as FVTPL and are measured at fair value with gains and losses
recognised through the consolidated statement of profit or loss.
Financial liabilities
The Group's financial liabilities include trade and other payables, derivative
financial instruments, deferred consideration payable and third-party
interests in funds that have been consolidated as subsidiaries.
Financial liabilities at fair value through profit or loss
Financial liabilities at FVTPL are carried at fair value, with gains and
losses recognised in the consolidated statement of profit or loss within other
income in the period in which they arise. Financial liabilities at FVTPL
include third-party interests in consolidated funds which are classified as at
FVTPL.
Provisions
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the
obligation. The expense relating to a provision is presented in the statement
of profit and loss net of any reimbursement.
Contingent liabilities
Contingent liabilities are potential obligations that may arise due to
uncertain future events that are not wholly within the control of the Group.
Such liabilities are disclosed when the chance of such events occurring is no
longer remote.
Revenue from contracts with customers
Revenue from contracts with customers represents fees receivable, excluding
value added tax, for discretionary investment management services and research
fees during the year.
Management fees are based on a percentage of assets under management either
per calendar month or quarter as set out in the relevant investment management
agreements (IMA). Management fees relate specifically to the Group's provision
of investment management services for each relevant time period and therefore
such services are satisfied over time because either the customer
simultaneously receives and consumes the benefits provided by the fund manager
as the service is provided or, the fund manager's performance enhances the
assets that the fund controls. Management fees are recognised as the service
is provided and it is probable that the fee will be collected.
Research fee income relates to research provided in respect of funds managed
in accordance with the relevant IMA and is recognised as the service is
provided and it is probable that the fee will be collected.
Performance fees are variable consideration based on a percentage of
investment performance achieved relative to predefined benchmarks as set out
in the relevant IMA. Performance fees by their nature are highly susceptible
to volatility until they are crystallised and are no longer subject to claw
back. This is usually at the end of the performance period of a fund when the
performance fee calculation can be confirmed with certainty. Therefore,
performance fees are recognised at the point when they are crystallised.
Commissions and fees payable
Commissions and fees payable to third parties are in respect of rebates on
investment management fees, distribution and research fees, and are recognised
over the period for which the service is provided.
Standards and amendments not yet effective
There are no new or amended standards and interpretations that are issued, but
not yet effective, up to the date of issuance of the Group's consolidated
financial statements that would be expected to have a material impact on the
Group when they become effective.
Changes in accounting policies and disclosures
No standards or amendments have been issued during the year that have had or
are expected to have an impact on the Group's consolidated financial
statements.
2. Revenue
31 March 2023 31 March 2022
£'000 £'000
Investment management and research fees 176,219 209,988
Investment performance fees 6,658 14,119
182,877 224,107
Geographical analysis of revenue (based on the residency of source) is as
follows:
31 March 2023 31 March 2022
£'000 £'000
United Kingdom 29,293 35,138
Ireland 140,319 166,752
Cayman Islands 1,308 4,232
United States of America 609 5,698
Rest of Europe 10,180 11,675
Rest of the world 1,168 612
182,877 224,107
3. Operating costs
a) Operating costs include the following expenses:
31 March 2023 31 March 2022
£'000 £'000
Staff costs including partnership profit allocations 88,308 107,989
Depreciation 2,166 1,404
Amortisation and impairment of intangible assets 1,163 7,860
Auditors' remuneration 432 383
Included within operating costs is an amount of £5.0m in relation to costs
treated as exceptional items including termination costs of £0.5m.
b) Auditors' remuneration:
31 March 2023 31 March 2022
£'000
£'000
Audit of Group and Company financial statements 106 125
Statutory audits of subsidiaries 199 151
Audit-related assurance services 7 6
Other assurance services - internal controls report 120 101
432 383
4. Dividends paid and proposed
Dividends on ordinary shares declared and paid during the year:
31 March 2023 31 March 2022
£'000 £'000
First interim dividend for 2023: 14.0p per share (2022: 14.0p per share) 13,570 13,564
Second interim dividend for 2022: 32.0p per share (2021: 31.0p per share) 30,911 29,836
Total dividend paid and charged to equity 44,481 43,400
The Board has declared a second interim dividend of 32.0p (2022: 32.0p) to be
paid in July 2023.
Together with the first interim dividend of 14.0p paid in January 2023 the
total dividend for the year amounts to 46.0p (2022: 46.0p).
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:
31 March 2023 31 March 2022
£'000 £'000
Preference shares 316 1,095
LTIP awards 1,737 3,808
Equity incentive plan 603 740
Deferred remuneration plan 1,730 1,708
4,386 7,351
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 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.
The issue of the Preference Shares constitutes a share-based payment under
IFRS 2 and the cost is the estimated fair value, at the date of issue of the
preference shares, of the effective entitlement to the ordinary shares. At
each reporting date the estimated number of ordinary shares to be ultimately
issued upon conversion will vary and the holder, initially, and the Group,
ultimately, determines the start of the three year period ('Crystallisation')
over which the ordinary shares are awarded following conversion. The start of
this period will always be at least three years after the end of the financial
accounting period in which the preference shares are issued.
In the year to 31 March 2023, no conversions of preference shares into Polar
Capital Holdings plc equity were made (2022: two teams called for a
conversion).
At 31 March 2023 five sets of preference shares (2022: five 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 against preference shares
with a right to call for conversion:
31 March 2023 31 March 2022
Number of shares Number of shares
At 1 April 2,740,604 4,426,528
Conversion/crystallisation - (1,350,514)
Movement in the year (372,924) (335,410)
At 31 March 2,367,680 2,740,604
Number of ordinary shares to be issued against converted preference shares:
31 March 2023 31 March 2022
Number of shares Number of shares
Outstanding at 1 April 1,352,128 1,766,541
Conversion/crystallisation - 1,350,514
Adjustment on re-calculation - (295,954)
Issued in the year (541,818) (1,468,973)
Outstanding at 31 March 810,310 1,352,128
6. Earnings per Share
A reconciliation of the figures used in calculating the basic, diluted,
adjusted basic and adjusted diluted total earnings per share (EPS) is as
follows:
31 March 2023 31 March 2022
£'000 £'000
Earnings
Profit after tax for purpose of basic and diluted EPS 35,612 48,924
Adjustments (post tax):
Add exceptional items - acquisition related costs - 2,896
Add exceptional items - amortisation of intangible assets 1,163 1,865
Add exceptional items - impairment of intangible assets - 5,995
Add exceptional items - termination and reorganisation costs 4,959 -
Less exceptional items - net gain on derecognition of deferred consideration - (3,749)
liabilities
Add back cost of share-based payments on preference shares 316 1,095
Add/(less) net amount of deferred staff remuneration 1,663 (793)
Profit after tax for purpose of adjusted basic and adjusted diluted total EPS 43,713 56,233
The adjusted EPS figure includes an adjustment for deferred remuneration
costs. The Group believes that aligning staff remuneration and profits
generated in the same period will allow users of the financial statements to
get a useful supplemental understanding of the Group's results and their
comparability year on year.
Exceptional items were also excluded from the adjusted EPS calculations as
they included costs such as non-recurring termination and reorganisation costs
and the amortisation of acquired intangible assets.
31 March 2023 31 March 2022
Number of shares Number of shares
'000 '000
Weighted average number of shares
Weighted average number of ordinary shares, excluding own shares, for the 96,778 96,300
purpose of basic and adjusted basic EPS
Effect of dilutive potential shares - LTIPs, share options and preference 1,870 4,190
shares crystallised but not yet issued
Weighted average number of ordinary shares, for purpose of diluted and 98,648 100,490
adjusted diluted total EPS
31 March 2023 31 March 2022
Pence Pence
Earnings per share
Basic 36.8 50.8
Diluted 36.1 48.7
Adjusted basic 45.2 58.4
Adjusted diluted 44.3 56.0
7. Goodwill and intangible assets
Investment management
contracts
Goodwill £'000 Total
£'000 £'000
Cost
As at 1 April 2022 6,732 18,647 25,379
As at 31 March 2023 6,732 18,647 25,379
Accumulated amortisation and impairment
As at 1 April 2022 - 8,279 8,279
Amortisation for the year - 1,163 1,163
As at 31 March 2023 - 9,442 9,442
Net book value as at 31 March 2023 6,732 9,205 15,937
Cost
As at 1 April 2021 6,770 18,647 25,417
Acquisition during the year (38) - (38)
As at 31 March 2022 6,732 18,647 25,379
Accumulated amortisation and impairment
As at 1 April 2021 - 419 419
Amortisation for the year - 1,865 1,865
Impairment for the year - 5,995 5,995
As at 31 March 2022 - 8,279 8,279
Net book value as at 31 March 2022 6,732 10,368 17,100
1. The re-measurement of goodwill relates to the purchase price adjustment
recognised in the year ended 31 March 2022.
Amortisation and impairment of intangible assets are treated as exceptional
items.
(a) Goodwill
Goodwill relates to the acquisition of Dalton Capital (Holdings) Limited, the
parent company of Dalton Strategic Partnership LLP, a UK based boutique asset
manager acquired on 26 February 2021. The goodwill is attributable to a single
CGU.
(b) Intangible assets
The table below shows the carrying amount assigned to each component of the
intangible asset and the remaining amortisation period.
31 March 2023 31 March 2022
Remaining amortisation Remaining
Carrying value period Carrying value amortisation
£'000 £'000 period
Investment management contracts acquired from Dalton Capital (Holdings) 9,205 7.9 years 10,368 8.9 years
Limited
9,205 10,368
8. Property and equipment
Right-of-use assets Leasehold Improvements £'000 Computer Equipment £'000 Office Furniture £'000
£'000 Total
£'000
2023
Cost
As at 1 April 2022 10,749 2,086 969 497 14,301
Additions 4,126 370 108 8 4,612
Modification 3,975 - - - 3,975
As at 31 March 2023 18,850 2,456 1,077 505 22,888
Accumulated Depreciation
As at 1 April 2022 7,763 1,256 743 426 10,188
Charge for the year 1,768 220 134 44 2,166
As at 31 March 2023 9,531 1,476 877 470 12,354
Net book value as at 31 March 2023 9,319 980 200 35 10,534
Additions to right-of-use assets include £2.5m in respect of a new lease for
additional premises at 16 Palace Street, £1.1m and £0.5m for leased premises
for the Zurich and Connecticut offices respectively. The weighted average
lessee's incremental borrowing rate applied was 2.54%.
Effective 1 February 2023, the Group has extended its existing lease at 16
Palace Street for an additional tenure of 4 years and has treated this
transaction as a modification of the existing lease under the accounting
standards.
Right-of-use assets Leasehold Improvements £'000 Computer Equipment £'000 Office Furniture £'000
£'000 Total
£'000
2022
Cost
As at 1 April 2021 10,749 1,756 957 426 13,888
Additions - 330 151 71 552
Disposal - - (139) - (139)
As at 31 March 2022 10,749 2,086 969 497 14,301
Accumulated Depreciation
As at 1 April 2021 6,654 1,066 649 415 8,784
Charge for the year 1,109 190 94 11 1,404
As at 31 March 2022 7,763 1,256 743 426 10,188
Net book value as at 31 March 2022 2,986 830 226 71 4,113
9. Leases
A maturity analysis of the Group's lease liabilities is as follows:
Lease liabilities 31 March 2023 31 March 2022
£'000 £'000
Current 1,729 1,246
Non-current 7,526 1,896
9,255 3,142
The lease liabilities relate to the two leases in respect of the Group's
premises at 16 Palace Street in London, both expiring in January 2028, and the
Group's premises in Zurich, expiring in November 2026. The movement in lease
balances during the year was £6.1m, of which £1.6m were lease payments,
£0.2m was the interest expense, £3.5m related to initial recognition of new
leases and £4.0m related to lease modification of the existing lease (2022:
The movement in lease balances was £1.2m, of which £1.3m were lease
payments, £0.1m was the interest expense).
The consolidated statement of profit or loss includes the following amounts
relating to leases recorded within operating costs:
31 March 2023 31 March 2022
£'000 £'000
Interest expense on lease liabilities 175 95
Depreciation on ROU assets 1,768 1,109
1,943 1,204
There are no lease expenses incurred in relation to low-value assets or
short-term leases.
10. Subsidiary undertakings
The consolidated financial statements of the Group include the operating
subsidiaries listed below. At 31 March 2023 and 2022 all operating
subsidiaries, other than Polar Capital Partners Limited and Polar Capital US
Holdings Limited, were indirectly held. All operating subsidiaries are wholly
owned, except for: Polar Capital LLP in which Polar Capital Partners Limited
has contributed 54% (2022: 23%) of the capital. The Company is deemed to be
the controlling party of Polar Capital LLP.
Name Country of incorporation Registered Principal
office activities
Polar Capital Partners Limited UK 16 Palace Street, London, UK Services company
Polar Capital US Holdings Limited UK 16 Palace Street, London, UK Investment holding company
Polar Capital LLP UK 16 Palace Street, London, UK Investment management
Polar Capital Secretarial Services Limited UK 16 Palace Street, London, UK Corporate secretary
Polar Capital Partners (Jersey) Limited Jersey 12 Castle Street, St Helier, Jersey Dormant
Polar Capital (America) Corporation USA 2711 Centreville Road, Wilmington, Delaware, USA Investment advisory
Polar Capital (Europe) SAS France 18 Rue de Londres, Paris, France Investment management
Polar Capital (Shanghai) Consulting Co Limited China Bund Finance Centre S2, No.600 Zhongshan East 2 Road, Shanghai Services company
Polar Capital Holdings LLC USA 1209 Orange Street, Wilmington, Delaware, USA Investment holding company
Dalton Capital (Holdings) Limited UK 16 Palace Street, London, UK Investment holding company
Dalton Strategic Partnership LLP UK 16 Palace Street, London, UK Dormant
Polar Capital (Switzerland) AG Switzerland Klausstrasse 4, Zurich, Switzerland Investment management
Polar Capital (Singapore) Private Limited Singapore 77 Robinson Road, #13-00, Robinson 77, Singapore (068896) Services company
The consolidated financial statements of the Group also include the following
seed capital investments and indirectly held entities which were judged to
require consolidation into the Group as at 31 March 2023:
Name Country of Registered office Principal activities Percentage
incorporation of ordinary
shares held
Polar Capital China Stars Fund Ireland 4 Georges Court, UCITS sub-fund 47%
54-62 Townsend Street, Dublin, Ireland
Polar Capital Smart Mobility Fund Ireland 4 Georges Court, UCITS sub-fund 35%
54-62 Townsend Street, Dublin, Ireland
Phaeacian Partners Holdings LP USA 1209 Orange Street, Wilmington, Delaware, USA Investment management 55%
Phaeacian Partners LLC USA 1209 Orange Street, Wilmington, Delaware, USA Investment management 55%
The Group was deemed to have lost control over two of its seed capital
investments during the current financial year. The Group has therefore
deconsolidated Polar Capital Emerging Market Stars Fund, the US 40-Act mutual
fund, and Polar Capital China Mercury Fund effective 31 July 2022 and 30
December 2022 respectively.
11. 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 of the contracts and utilise
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.
At the end of both the current year as well as the comparative period, all
financial instruments at fair value through profit or loss held by the Group
were Level 1 except for:
• forward foreign exchange contracts classified as Level 2. These
were fair valued using valuation techniques that incorporate foreign exchange
spot and forward rates.
• other financial liability classified as Level 3. These were fair
valued using a discounted cash flow models that incorporate unobservable
inputs.
The fair value hierarchy of financial assets and liabilities which are carried
at fair value at the year-end is as follows:
31 March 2023 31 March 2022
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Financial assets
Assets at FVTPL 83,048 - - 83,048 77,783 - - 77,783
Other financial assets 5,237 - - 5,237 2,695 - - 2,695
88,285 - - 88,285 80,478 - - 80,478
Financial liabilities
Liabilities at FVTPL 16,285 - 546 16,831 9,805 - 855 10,660
Other financial liabilities - 10 - 10 - 20 - 20
16,285 10 546 16,841 9,805 20 855 10,680
Movement in liabilities at FVTPL categorised as Level 3 during the year were:
31 March 2023 31 March 2022
£'000 £'000
At 1 April 855 14,054
Repayment (226) (9,416)
Net gain recognised in the statement of profit or loss (83) (3,783)
At 31 March 546 855
The fair value of financial instruments not held at fair value approximates to
their carrying value as at reporting date. During the reporting year there
were no transfers between levels in fair value measurements.
12. Cash flows generated from operations
A reconciliation of profit before tax to cash generated from operations is as
follows:
31 March 2023 31 March 2022
£'000 £'000
Profit before tax 45,204 62,090
Interest receivable and similar income (745) (60)
Investment income (564) (247)
Interest on lease 175 95
Depreciation of non-current property and equipment 2,166 1,404
Amortisation and impairment of intangible assets 1,163 7,860
(Increase)/ decrease in assets at FVTPL (4,152) 7,710
Decrease in other financial liabilities (504) (10,402)
Decrease/(increase) in receivables 5,906 (1,506)
(Decrease)/increase in trade and other payables including other provisions (8,678) 8,421
Share-based payment 4,386 7,351
Increase/(decrease) in liabilities at FVTPL(1) 262 (3,931)
Release of fund units held against deferred remuneration 7,356 6,538
Cash flows generated from operations 51,975 85,323
1. The movement includes those arising from acquiring and/or losing control of
consolidated seed funds.
13. Contingent liabilities
There are no contingent liabilities to disclose at 31 March 2023 (2022: nil).
14. 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.
15. Status of results announcement
The Board of Directors approved this results announcement on 23 June 2023.
Whilst the financial information included in this announcement has been
prepared in accordance with UK-adopted international accounting standards,
this announcement does not itself contain sufficient information to comply
with all the disclosure requirements of UK-adopted international accounting
standards and does not constitute statutory accounts of the Group for the
years ended 31 March 2023 or 31 March 2022.
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.
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