REG - Polar Capital Hldgs - Unaudited interim results
21/11/2022 07:00
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RNS Number : 9869G Polar Capital Holdings PLC 21 November 2022
Polar Capital Holdings plc ("Polar Capital" or “the Group”)
Unaudited interim results for six months ended 30 September 2022
"Strong pipeline of interest in diversified strategies, improving fund
performance and balance sheet strength support a maintained first interim
dividend" Gavin Rochussen, CEO
Highlights
· Assets under Management ("AuM") at 30 September 2022 £18.8bn (31
March 2022: £22.1bn) and at 11 November 2022 £19.2bn
· Core operating profit(†) £25.8m (30 September 2021: £36.3m)
· Pre-tax profit £23.0m (30 September 2021: £31.7m)
· Basic earnings per share 17.7p (30 September 2021: 26.5p) and
adjusted diluted total earnings per share(†) 19.0p (30 September 2021:
28.1p)
· Interim dividend per ordinary share of 14.0p (January 2022: 14.0p)
declared to be paid in January 2023(*)
· Shareholders' funds £141.3m (31 March 2022: £156.2m) including cash
and investments of £129.2m (31 March 2022: £169.4m)
† The non-GAAP alternative performance measures shown here are described and
reconciled to IFRS measures on the Alternative Performance Measures (APM) page
* Further details on the timetable for the interim dividend are described on
the shareholder information page
Gavin Rochussen, Chief Executive Officer, commented:
"The last six months have been challenging for all asset management firms,
whatever their size or business model."
"At some point, as inflation stabilises and interest rates peak, investors
will require increased market exposure and we are well placed to benefit from
this demand."
"Against this background, we are pleased to report that there is a strong
pipeline of interest in many of Polar Capital's strategies and the short list
of new potential investment teams is larger than for many years."
"In the six months to 30 September 2022, AuM declined by £3.3bn from £22.1bn
to £18.8bn, a decrease of 15% over the period which comprised of net
redemptions of £0.8bn, outflows from previously reported fund closures of
£0.5bn and £2.0bn decrease relating to market movement and fund
performance."
"Despite the reduction in adjusted diluted core EPS, the first interim
dividend has been maintained at 14p, reflecting our confidence in the business
and the strength of our balance sheet."
"The Group launched two new Article 9 strategies one year ago, Smart Energy
and Smart Mobility, investing in decarbonisation, electrification and
sustainable transport themes. Our sustainable thematic equity team, led by
Thiemo Lang, has been successful in raising assets and both funds have
delivered returns ahead of the MSCI All Countries World Index in the first
half of our financial year."
"With the attainment of a highly credible four-year track record since joining
Polar Capital, the AuM in the sustainable Emerging Market Stars suite of fund
strategies now exceeds £1.1bn and has been instrumental in establishing a
meaningful and valued client base in the Nordic region and building our
presence in the US."
"Our diverse and differentiated range of sector, thematic and regional fund
strategies where 73%, 87%, 86% and 93% of our AuM is in the top two quartiles
against peers over one year, three years, five years and since inception, our
improved distribution capability and significant remaining capacity gives us
confidence that we will perform for our clients and shareholders over the long
term."
For further information please contact:
Polar Capital
+44 (0)20 7227 2700
Gavin Rochussen (Chief Executive)
Samir Ayub (Finance Director)
Numis Securities- Nomad and Joint Broker
+44 (0)20 7260 1000
Giles Rolls
Charles Farquhar
Stephen Westgate
Peel Hunt - 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 split by type
30 September 2022 31 March 2022
£bn % £bn %
Open-ended funds 14.1 75% Open-ended funds 16.6 75%
Investment trusts 3.7 20% Investment trusts 4.4 20%
Segregated mandates 1.0 5% Segregated mandates 1.1 5%
Total 18.8 Total 22.1
AuM split by strategy
(Ordered according to launch date)
30 September 2022 31 March 2022
£bn % £bn %
Technology 7.0 37% 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 2.2 12% Global Insurance 1.9 9%
Financials 0.6 3% Financials 0.6 3%
Convertibles 0.7 4% Convertibles 0.8 4%
North America 0.7 4% North America 0.8 4%
Japan Value 0.2 1% Japan Value 0.2 0.5%
European Income 0.1 0.5% European Income 0.1 0.3%
UK Value 1.0 5% UK Value 1.6 7%
Emerging Markets and Asia 1.1 6% Emerging Markets and Asia 1.1 5%
Phaeacian* - - Phaeacian* 0.5 2%
European Opportunities 0.9 5% European Opportunities 1.2 5%
European Absolute Return 0.1 0.5% European Absolute Return 0.1 0.3%
Melchior Global Equity 0.1 0.5% Melchior Global Equity 0.1 0.3%
Sustainable Thematic Equities 0.2 1% Sustainable Thematic Equities 0.1 0.3%
Total 18.8 Total 22.1
* The Phaeacian Accent International Value Fund and the Phaeacian Global Value
Fund were closed down in May 2022.
Chief Executive's Report
Market Overview
The first half of Polar Capital's financial year ended on a weak note in
global bond and equity markets. September 2022 was particularly brutal, with
most regional equity indices falling by between 9% and 12% in US dollar terms,
concluding a six-month period in which many equity markets entered bear
territory.
With reported inflation rising and central banks starting to wind down asset
purchase programmes, there was downward pressure on bond prices too, with
conventional and inflation linked bond indices often declining by as much as
equity indices. This was particularly marked in the UK, in part due to the
unfunded tax cuts announced in the late September 2022 mini budget. The
unusual circumstances which have resulted in bond and equity markets falling
at the same time have been painful for many investors, with data suggesting
that a 'balanced' portfolio of bonds and equities is experiencing its worst
year for at least a century, and that a GDP weighted world government bond
index is on track for its worst annualised return since 1920.
Corporate earnings revisions have been declining across all regions as tougher
business conditions lead to more cautious forecasts, although sales estimates
by contrast are still reasonably strong, boosted by inflation.
Investors often observe that there is aways a bull market in something. So far
in 2022, energy companies' share prices have risen sharply, in contrast to all
other equity market sectors. The other big winner has been the US dollar,
which as usual has been a beneficiary of investor caution.
The outperformance of energy and resource companies versus broader equity
market indices has contributed to a marked change in equity market leadership,
with 'value' as a style performing much better in 2022 than 'growth' and
'quality'. With interest rates rising, growth stock valuations have proven
vulnerable, and many have fallen sharply.
Fund Performance
Equity markets have in the main fallen this year. Investors have been in a
risk averse mood as economic and geopolitical uncertainty remains high.
Measures of investor sentiment and positioning are now very cautious if survey
data is accurate. This can be a contrarian indicator, although in the current
climate it is difficult to see investors becoming more constructive while the
US Federal Reserve is so firmly in inflation-fighting, policy-tightening
territory.
This backdrop has led to falling asset values across the majority of Polar
Capital's portfolios in the six months to 30 September 2022, other than for
sterling-denominated share classes of funds which invest significantly in
dollar denominated assets, where dollar strength has been a tailwind.
With rising interest rates leading to outperformance of value styles versus
growth this year, other than during a brief mid-summer phase when investors
embraced the Fed 'pivot', the outperformers in Polar Capital's fund range have
been those funds with a value tilt.
Our value style funds, many with smaller AuM than the growth style funds, have
outperformed benchmark over three and five years.
Polar Capital Global Convertible Fund, European ex-UK Income Fund, Income
Opportunities Fund, Biotechnology Fund, Healthcare Discovery Fund, Global
Insurance Fund and Japan Value Fund have all outperformed their respective
benchmarks in the calendar year-to date.
Polar Capital Global Insurance Fund, which has no exposure to life insurance
companies, has had a strong year and has returned 12% YTD, outperforming its
benchmark by 7%.
Polar Capital UK Value Opportunities Fund has materially underperformed its
benchmark as it has high exposure to small and mid-cap domestic companies
which have been de-rated due to the weakening UK economy. The performance of
the benchmark (FTSE All Share) has been driven by oil and resources.
Polar Capital Global Technology Fund's performance has improved but remains
well off its high-water mark due to a challenging 2021.
The Group launched two new Article 9 strategies one year ago, Smart Energy and
Smart Mobility, investing in decarbonisation, electrification and sustainable
transport themes. Our sustainable thematic equity team, led by Thiemo Lang,
has been successful in raising assets and both funds have delivered returns
ahead of the MSCI All Countries World Index in the first half of our financial
year.
AuM and Fund Flows
In the six months to 30 September 2022, AuM declined by £3.3bn from £22.1bn
to £18.8bn, a decrease of 15% over the period. The £3.3bn decrease in AuM
comprised net redemptions of £0.8bn, outflows from previously reported fund
closures of £0.5bn and £2.0bn decrease relating to market movement and fund
performance. Excluding outflows from fund closures, there were net outflows of
£30m from segregated mandates, net share buy-backs of £62m by the investment
trusts and net outflows of £753m from the open-ended funds.
In the six months, the largest beneficiary of net inflows was the Global
Insurance Fund which had £258m of net inflows. Against a tough back drop and
muted investor demand for emerging markets equities, our sustainability
oriented Emerging Market Stars fund range had £101m of net inflows, gaining
market share as the asset class was in outflow over the period. Within the
healthcare suite of funds, the Biotechnology Fund and Healthcare Blue Chip
Fund benefited from combined net inflows of £66m. The Polar Capital Smart
Energy and Smart Mobility Funds had combined net inflows of £44m, an
impressive outcome given the funds were launched in the fourth quarter of
2021.
On the back of outstanding fund performance, the European ex UK Income Fund
had net inflows as did the Global Convertible Bond Absolute Return Fund.
The Technology Fund, continued to suffer redemptions as clients reduced their
allocations to the technology sector. Net outflows from the Technology Fund
were £569m in the period and share buy backs by the Technology Investment
Trust amounted to £59m. The period under review also witnessed significantly
reduced client demand for UK and European equity exposure with investors
cutting exposure to these two regions significantly. The UK Value
Opportunities Funds had net outflows of £260m and the Melchior European
Opportunities Fund had redemptions of £99m.
As previously reported, the closure and termination of the Phaeacian Partners
venture resulted in outflows due to fund closures of £459m in the period.
The Polar Capital North American Fund continued to experience net outflows as
clients reduced US equity exposure - net outflows in the period were £68m.
The Healthcare Opportunities Fund, with small and mid-cap healthcare exposure
suffered net outflows of £71m during the period.
Other funds experiencing outflows in the period were the Global Convertible
Bond Fund, Automation and Artificial Intelligence Fund, and to a lesser extent
Japan Value, Income Opportunities and Financial Opportunities Funds.
Financial Results
Average AuM over the six months to 30 September 2022 decreased by 14% from
£23.2bn to £20bn. The decrease in average AuM resulted in net management
fees(†), after commission and rebates payable, decreasing by 14% to £80m
from £92.9m in the comparable six-month period. Management fee yield
margin(†) declined, as anticipated, by 3bp to 80bp over the period compared
to the comparable prior six-month period.
Core operating profit(†) (excluding performance fees, other income, and
exceptional items) was down 29% to £25.8m compared to the comparable prior
half year period and down 22% from £33.1m in the immediately preceding
six-month period to 31 March 2022.
Profit before tax decreased by 27% to £23.0m compared to the comparable prior
half year period. Basic EPS decreased by 33% compared to the half year period
to 30 September 2021. Adjusted diluted core EPS(†) of 20.1p is a 21%
decrease on the immediately preceding six months to 31 March 2022 and a 29%
decrease over the comparable half year period to 30 September 2021.
Six months to Six months to Six months to
30 September 2022 31 March 30 September 2021
£'m 2022 £'m
£'m
Average AuM (£'bn) 20.0 23.2 22.5
Net management fees(†) 80.0 94.4 92.9
Core operating profit(†) 25.8 33.1 36.3
Performance fee profit(†) - 4.1 -
Other income* (1.5) (2.4) (0.3)
Share-based payments on preference shares (0.1) (0.7) (0.4)
Exceptional items (1.2) (3.7) (3.9)
Profit before tax 23.0 30.4 31.7
Basic EPS 17.7p 24.3p 26.5p
Adjusted diluted total earnings per share(†) 19.0p 27.9p 28.1p
Adjusted diluted core EPS(†) 20.1p 25.6p 28.2p
† The non-GAAP alternative
performance measures shown here are described on the APM page.
* A reconciliation to reported results
is given on the APM page.
The Board has declared an interim dividend of 14p to be paid in January 2023
(January 2022: 14p). Maintaining the first interim dividend despite a
reduction in adjusted diluted core EPS reflects our confidence in the business
and the strength of our balance sheet. Historically, the first interim
dividend has been set at half of first half core EPS. Maintaining last year's
first interim dividend of 14p represents a covered dividend that is 69% of
first half adjusted diluted core EPS.
Strategic progress and thanks
The sustainable thematic team that joined Polar Capital in September 2021 and
the launch of the Polar Capital Smart Energy and Smart Mobility Funds have
attracted encouraging inflows in the six months with AuM at 30 September 2022
exceeding £150m. This provides confidence that material capacity in these
sustainable thematic fund strategies will be utilised in the coming years
providing increased diversification of our fund strategies across teams.
Further progress has been made in developing distribution channels in Asia
with the imminent opening of an office in Singapore. The Nordic region has
continued to grow through additional flows into the sustainable Emerging
Market Stars funds and there is promising interest in the Smart Energy and
Smart Mobility funds.
With the attainment of a highly credible four-year track record since joining
Polar Capital, the AuM in the sustainable Emerging Market Stars suite of fund
strategies now exceeds £1.1bn and has been instrumental in establishing a
meaningful and valued client base in the Nordic region and building our
presence in the US.
Our fund range continues to be nominated for a number of awards this year
which is testament to the quality of our fund range. A particular highlight,
having launched four years ago, our Emerging Market Stars team were
shortlisted for six awards - including best Sustainable Emerging Markets Fund
- and won two awards - including Emerging Markets Manager of the Year - with a
further yet to be announced. Separately, having invested significantly in our
Marketing capability over the past three years, it was pleasing that we were
shortlisted in five categories at the Investment Week Marketing and Innovation
Awards, with our website being highly commended.
The last six months have been challenging as the rate of inflation has surged
resulting in interest rate hikes. While this macro backdrop has given rise to
volatile and unpredictable markets, the proven investment processes of our
experienced managers have held up well. While clients have reduced equity
weightings resulting in redemptions, we have not had investors withdrawing
completely from our funds. At some point, as inflation stabilises and interest
rates peak, investors will require increased market exposure and we are well
placed to benefit from this demand.
We are grateful for the support of our clients and the support and commitment
from our partners and staff during this volatile and challenging period.
Outlook
Our diverse and differentiated range of sector, thematic and regional fund
strategies where 73%, 87%, 86% and 93% of our AuM is in the top two quartiles
against peers over one year, three years, five years and since inception, our
improved distribution capability and significant remaining capacity gives us
confidence that we will perform for our clients and shareholders over the long
term.
Gavin Rochussen
Chief Executive
18 November 2022
Alternate Performance Measures (APMs)
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 revenue 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 accounts in
fee revenue. 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 accounts in
revenue. 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 APM reconciliation 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 better understanding of the financial performance of the Group, (b)
of adjusted diluted earnings per share, divided by the weighted average number comparing staff remuneration and profits generated in the same time period
of ordinary shares. (rather than deferring remuneration over a longer vesting period) allows users
of the accounts 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 APM reconciliation To present additional information that allows users of the accounts to measure
distributions divided by the weighted average number of ordinary shares. 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 margin Core operating profit divided by Chief Executive's report To present additional information that allows users of the accounts to measure
net management fees. 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. Chief Executive's report 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. Chief Executive's report To present additional information that allows users of the accounts 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
interim reported results
The summary below reconciles key APMs the Group measures to its interim
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.
2021
2022 Interim reported Reclassification 2022 Interim Non-GAAP results
Results on consolidation Interim £'m
£'m of seed Reclassification Non-GAAP
investments of costs results
£'m £'m £'m APMs
Investment management and research fees 90.9 - - 90.9 103.6
Commissions and fees payable (10.9) - - (10.9) (10.7)
80.0 - - 80.0 92.9 Net management fees
Operating costs (55.8) 0.3 24.2 (31.3) (31.2)
- - (22.9) (22.9) (25.4) Core distributions
24.2 0.3 1.3 25.8 36.3 Core operating profits
Investment performance fees - - - - -
- - - - - Performance fee interests
- - - - - Performance fee profits
Other income (1.2) (0.3) - (1.5) (0.3)
Share-based payments on preference shares - - (0.1) (0.1) (0.4)
Exceptional items - - (1.2) (1.2) (3.9)
Profit before tax for the period 23.0 - - 23.0 31.7
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:
Earnings per share Unaudited Unaudited
30 September 2022 30 September 2021
Pence Pence
Diluted earnings per share 17.4 25.3
Impact of share-based payments - preference shares only 0.1 0.4
Impact of exceptional items 1.2 3.9
Impact of deferment, where IFRS defers cost into future periods 0.3 (1.5)
Adjusted diluted total EPS 19.0 28.1
Add back other income (post-tax) 1.1 0.1
Adjusted diluted core EPS 20.1 28.2
Exceptional items
Exceptional items for the period to 30 September 2022 include non-recurring
termination and reorganisation costs related to the closure of Phaeacian
mutual funds which were closed down in May 2022 (2021: Exceptional items
include non-recurring termination and reorganisation costs related to the
Dalton acquisition) and amortisation of the acquired intangible asset as part
of Dalton acquisition.
A breakdown of exceptional items is as follows:
Exceptional items Unaudited Unaudited Audited
30 September 2022 30 September 2021 31 March 2022
£'m £'m £'m
Recorded in operating costs
Termination and reorganisation costs 0.6 3.0 3.5
Amortisation of intangible asset 0.6 0.9 1.9
Impairment of intangible asset - - 6.0
1.2 3.9 11.4
Recorded in other income
Additional charge on deferred consideration - Dalton - - 1.0
Derecognition of deferred consideration liability - Phaeacian - - (4.8)
- - (3.8)
Net exceptional items recorded in the consolidated statement of profit or loss 1.2 3.9 7.6
Interim Consolidated Statement of Profit or Loss
For the six months to 30 September 2022
(Unaudited) (Unaudited)
Six months to 30 September 2022 Six months to 30 September 2021
£'000 £'000
Revenue 90,936 103,647
Other income (1,221) (722)
Gross income 89,715 102,925
Commissions and fees payable (10,955) (10,735)
Net income 78,760 92,190
Operating costs (55,758) (60,468)
Profit for the period before tax 23,002 31,722
Taxation (5,914) (6,366)
Profit for the period attributable to ordinary shareholders 17,088 25,356
Earnings per share 17.7p 26.5p
Basic
Diluted 17.4p 25.3p
Adjusted basic (Non-GAAP measure) 19.3p 29.4p
Adjusted diluted (Non-GAAP measure) 19.0p 28.1p
Interim Consolidated Statement of Other Comprehensive Income
For the six months to 30 September 2022
(Unaudited) (Unaudited)
Six months to 30 September 2022 Six months to 30 September 2021
£'000 £'000
Profit for the period attributable to ordinary shareholders 17,088 25,356
Other comprehensive income - items that will be reclassified to profit or loss
in subsequent periods:
Exchange differences on translation of foreign operations 2,267 327
Other comprehensive income for the period 2,267 327
Total comprehensive income for the period, net of tax, attributable to 19,355 25,683
ordinary shareholders
All of the items in the above statements are derived from continuing
operations.
Interim Consolidated Balance Sheet
As at 30 September 2022
(Unaudited) (Audited)
30 September 2022 31 March
£'000 2022
£'000
Non-current assets
Goodwill and intangible 16,519 17,100
assets
Property and equipment 3,504 4,113
Deferred tax assets 4,220 3,475
24,243 24,688
Current assets
Assets at fair value through profit or loss 88,903 77,783
Trade and other receivables 20,876 25,430
Other financial assets 11,309 2,695
Current tax assets - 1,563
Cash and cash equivalents 82,464 121,128
203,552 228,599
Total assets 227,795 253,287
Non-current liabilities
Provisions and other liabilities 2,259 2,871
Liabilities at fair value through profit or loss 512 637
Deferred tax liabilities 5,376 3,435
8,147 6,943
Current liabilities
Liabilities at fair value through profit or loss 14,479 10,023
Trade and other payables 61,181 80,054
Other financial liabilities - 20
Current tax liabilities 2,668 -
78,328 90,097
Total liabilities 86,475 97,040
Net assets 141,320 156,247
Capital and reserves
Issued share capital 2,520 2,506
Share premium 19,364 19,364
Investment in own shares (28,658) (24,915)
Capital and other reserves 14,075 12,417
Retained earnings 134,019 146,875
Total equity attributable to ordinary shareholders 141,320 156,247
Interim Consolidated Statement of Changes in Equity
For the six months to 30 September 2022
Share premium £'000 Investment Capital reserves £'000 Other reserves £'000 Retained earnings £'000 Total equity £'000
Issued in own shares
share capital £'000 £'000
As at 1 April 2022 (audited) 2,506 19,364 (24,915) 695 11,722 146,875 156,247
Profit for the period - - - - - 17,088 17,088
Other comprehensive income - - - - 2,267 - 2,267
Total comprehensive income - - - - 2,267 17,088 19,355
Dividends paid to shareholders - - - - - (30,911) (30,911)
Issue of shares 14 - - - - (14) -
Own shares acquired - - (6,734) - - - (6,734)
Release of own shares - - 2,991 - - (1,736) 1,255
Share-based payment - - - - - 2,717 2,717
Current tax in respect of employee share options (3) (3)
- - - - -
Deferred tax in respect of employee share options (606) (606)
- - - - -
As at 30 September 2022 (unaudited) 2,520 19,364 (28,658) 695 13,380 134,019 141,320
As at 1 April 2021 (audited) 2,468 19,364 (26,579) 695 10,335 145,157 151,440
Profit for the period - - - - - 25,356 25,356
Other comprehensive income - - - - 327 - 327
Total comprehensive income - - - - 327 25,356 25,683
Dividends paid to shareholders - - - - - (29,836) (29,836)
Issue of shares 34 - - - - (34) -
Own shares acquired - - (7,629) - - - (7,629)
Release of own shares - - 12,525 - - (10,489) 2,036
Share-based payment - - - - - 4,047 4,047
Current tax in respect of employee share options 2,477 2,477
- - - - -
Deferred tax in respect of employee share options (1,383) (1,383)
- - - - -
As at 30 September 2021 (unaudited) 2,502 19,364 (21,683) 695 11,756 134,201 146,835
Interim Consolidated Cash Flow Statement
For the six months to 30 September 2022
(Unaudited) (Unaudited)
Six months to 30 September Six months to 30 September
2022 2021
£'000 £'000
Operating activities
Cash generated from operations 10,405 27,015
Tax paid (1,081) (5,404)
Interest received 214 13
Interest on lease (37) (51)
Net cash flow from operating activities 9,501 21,573
Investing activities
Investment income 502 176
Sale of assets at fair value through profit or loss 17,850 14,698
Purchase of assets at fair value through profit or loss (33,733) (30,666)
Re-measurement of purchase consideration in respect of business acquisition 38
-
Net cashflow from deconsolidation of seed investment (6,080) -
Payments in respect of asset acquisition - (363)
Purchase of property and equipment (143) (30)
Net cash outflow from investing activities (21,604) (16,147)
Financing activities
Dividends paid to shareholders (30,911) (29,836)
Issue of shares - -
Purchase of own shares (6,734) (7,585)
Lease payments (653) (653)
Third-party subscriptions into consolidated funds 12,055 3,194
Third-party redemptions from consolidated funds (1,223) (3,811)
Net cash outflow from financing activities (27,466) (38,691)
Net decrease in cash and cash equivalents (39,569) (33,265)
Cash and cash equivalents at start of period 121,128 136,718
Effect of exchange rate changes on cash and cash equivalents 905 (71)
Cash and cash equivalents at end of period 82,464 103,382
Notes to the Unaudited Interim Consolidated Financial Statements
For the six months to 30 September 2022
1. General Information, Basis of Preparation and Accounting Policies
1.1 General information
Polar Capital Holdings plc ("the Company") is a public limited Company
registered in England and Wales.
1.2 Basis of Preparation
The unaudited interim condensed consolidated financial statements to 30
September 2022 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 2022, which have been prepared in accordance with
UK-adopted international accounting standards and in conformity with the
requirements of the Companies Act 2006.
The accounting policies adopted and the estimates and judgements used in the
preparation of the unaudited interim condensed consolidated financial
statements are consistent with the Group's annual financial statements for the
year ended 31 March 2022.
1.3 Group information
The Group is required to consolidate seed capital investments where it is
deemed to control them. The operating subsidiaries and seed capital
investments consolidated at 30 September 2022 are consistent with the annual
report at 31 March 2022 except for Polar Capital Emerging Market Stars Fund,
the US 40-Act mutual fund, which has been deconsolidated effective 31 July
2022.
1.4 Going concern
The Directors have made an assessment of going concern taking into account
both the Group's current results as well as the Group's outlook. As part of
this assessment the Directors have used information available to the date of
issue of these interim financial statements and considered the following key
areas:
· Analysis of the Group's budget for the year ending March 2023,
longer-term financial projections 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.
· Cash flow forecasts and an analysis of the Group's liquid assets,
which include cash and cash equivalents and seed investments.
· The operational resilience of the Group and its ability to meet
client servicing demands across all areas of the Group's business, including
outsourced functions, whilst ensuring the wellbeing and health of its staff.
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 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 consolidated financial
statements.
2. Revenue
(Unaudited) (Unaudited)
Six months to 30 September 2022 Six months to 30 September 2021
£'000 £'000
Investment management and research fees 90,936 103,647
3. Components of other income and other comprehensive income
(a) Components of other income
(Unaudited) (Unaudited)
Six months to 30 September 2022 Six months to 30 September 2021
£'000 £'000
Interest income on cash and cash equivalents 214 13
Net gain on other financial assets/ liabilities - short positions 7,640 1,704
Net loss on other financial assets/ liabilities - forward currency contracts (5,607) (440)
Net loss on financial assets and liabilities at FVTPL (6,460) (2,688)
Investment income 502 190
Other gains - attributed to third party holdings 2,490 499
(1,221) (722)
(b) Components of other comprehensive income
(Unaudited) (Unaudited)
Six months to 30 September 2022 Six months to 30 September 2021
£'000 £'000
Exchange differences on translation of foreign operations:
Gains arising during the period 2,391 327
Reclassification adjustments for losses included in the consolidated statement (124)
of profit or loss
-
2,267 327
4. Operating costs
a) Operating costs include the following items:
(Unaudited) (Unaudited)
Six months to 30 September 2022 Six months to 30 September 2021
£'000 £'000
Staff costs including partnership profit allocations 42,544 46,576
Depreciation 751 678
Amortisation of intangible assets 581 932
Auditors' remuneration 193 175
b) Auditors' remuneration:
Audit of Group financial statements 63 68
Local statutory audits of subsidiaries 76 63
Audit-related assurance services 3 5
Other assurance services - internal controls review 51 39
193 175
5. Dividends
(Unaudited) (Unaudited)
Six months to 30 September 2022 Six months to 30 September 2021
£'000 £'000
Dividend paid 30,911 29,836
On 29 July 2022, the Group paid a second interim dividend for 2022 of 32p
(2021: 31p) per ordinary share.
6. Share-based Payments
A summary of the charge to the consolidated statement of profit or loss for
each share-based payment arrangement is as follows:
(Unaudited) (Unaudited)
Six months to 30 September 2022 Six months to 30 September 2021
£'000 £'000
Preference shares 138 444
LTIP share awards 1,514 2,303
Equity incentive shares 315 739
Deferred remuneration plan shares 750 561
2,717 4,047
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.
No conversion of preference shares have taken place during the period to 30
September 2022 (2021: The Biotechnology team called for a full conversion and
the Convertible team called for a partial conversion of preference shares into
Polar Capital Holdings equity).
At 30 September 2022, five sets of preference shares (2021: three sets) have
the right to call for conversion.
The following table illustrates the number of, and movements in, the estimated
number of ordinary shares to be issued.
Estimated number of ordinary shares to be issued against preference shares
with a right to call for conversion:
(Unaudited) (Unaudited)
30 September 2022 30 September 2021
Number of shares Number of shares
At 1 April 2,740,604 4,426,528
Conversion/crystallisation - (1,350,514)
Movement during the period (404,308) (718,593)
At 30 September 2,336,296 2,357,421
Number of ordinary shares to be issued against converted preference shares:
(Unaudited) (Unaudited)
30 September 2022 30 September 2021
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 - -
Issued during the period (541,818) (1,333,921)
Outstanding at 30 September 810,310 1,783,134
7. Earnings Per Share
A reconciliation of the figures used in calculating the basic, diluted and
adjusted earnings per share (EPS) figures is as follows:
(Unaudited) (Unaudited)
Six months to Six months to
30 September 2022 30 September 2021
£'000 £'000
Earnings
Profit after tax for purpose of basic and diluted EPS 17,088 25,356
Adjustments (post tax):
Add back cost of share-based payments on preference shares 138 444
Add back exceptional items - termination/ acquisition related costs 615
2,262
Add back exceptional items - amortisation of intangible assets 581 932
Add back exceptional items - fair value charge on deferred consideration - 686
relating to business acquisition
Add/(less) net amount of deferred staff remuneration 250 (1,500)
Profit after tax for purpose of adjusted basic and adjusted diluted EPS 18,672 28,180
(Unaudited) (Unaudited)
Six months to Six months to
30 September 2022 30 September 2021
Number of shares Number of shares
Weighted average number of shares
Weighted average number of ordinary shares, excluding own shares for purposes 96,661,663
of basic and adjusted basic EPS
95,743,599
Effect of dilutive potential shares - LTIPs, share options and preference 1,372,703
shares crystallised but not yet issued
4,494,374
Weighted average number of ordinary shares, for purpose of diluted and 98,034,366
adjusted diluted EPS
100,237,973
(Unaudited)
Six months to (Unaudited)
30 September 2022 Six months to
Pence 30 September 2021
Pence
Earnings per share
Basic 17.7 26.5
Diluted 17.4 25.3
Adjusted basic 19.3 29.4
Adjusted diluted 19.0 28.1
8. Goodwill and intangible assets
Goodwill relates to the acquisition of Dalton Capital (Holdings) Limited, the
parent company of Dalton Strategic Partnership LLP (Dalton), a UK based
boutique asset manager, which completed on 28 February 2021.
Intangible assets at 30 September 2022 relate to investment management
contracts acquired as part of the business combination with Dalton.
Investment management
contracts
(Unaudited) Goodwill £'000 Total
£'000 £'000
Cost
As at 1 April 2022 6,732 18,647 25,379
Revaluation/ Additions - - -
As at 30 September 2022 6,732 18,647 25,379
Accumulated amortisation and impairment
As at 1 April 2022 - 8,279 8,279
Amortisation for the period - 581 581
Impairment for the period - - -
As at 30 September 2022 - 8,860 8,860
Net book value as at 30 September 2022 6,732 9,787 16,519
Investment management
contracts
Goodwill £'000 Total
(Audited) £'000 £'000
Cost
As at 1 April 2021 6,770 18,647 25,417
Re-measurement of goodwill(1) (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 current period.
Goodwill is tested for impairment at least on an annual basis or more
frequently when there are indications that goodwill may be impaired.
The Group has reviewed the investment management contracts related intangible
assets as at 30 September 2022 and has concluded that there are no indicators
of impairment.
9. Issued Share Capital
Allotted, called up and fully paid: (Unaudited) (Audited)
30 September 2022 31 March
£'000 2022
£'000
100,790,725 ordinary shares of 2.5p each 2,520 2,506
(31 March 2022: 100,248,907 ordinary shares of 2.5p each)
During the period, Polar Capital Holdings plc has issued 541,818 shares in
connection with the crystallisation of manager preference shares.
10. 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 2022
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Financial assets
Assets at FVTPL 88,903 - - 88,903
Other financial assets 10,352 957 - 11,309
99,255 957 - 100,212
Financial Liabilities
Liabilities at FVTPL 14,396 - 595 14,991
Other financial liabilities - - - -
14,396 - 595 14,991
(Audited)
31 March 2022
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Financial assets
Assets at FVTPL 77,783 - - 77,783
Other financial assets 2,695 - - 2,695
80,478 - - 80,478
Financial Liabilities
Liabilities at FVTPL 9,805 - 855 10,660
Other financial liabilities - 20 - 20
9,805 20 855 10,680
During the period there were no transfers between levels in fair value
measurements.
Movement in liabilities at FVTPL categorised as Level 3 during the year were:
(Unaudited) (Audited)
30 September 31 March
2022 2022
£'000 £'000
At 1 April 855 14,054
Repayment (168) (9,416)
Net gains recognised in the statement of profit or loss (92) (3,783)
At 30 September 595 855
11. Contingent liability
In the normal course of the Group's business, it may be subject to legal and
regulatory proceedings arising out of current and past operations, which in
some cases may result in contingent liabilities.
As previously disclosed, the Phaeacian Accent International Value and
Phaeacian Global Value funds (the 'funds') were closed by the Board of the
funds in May 2022. In May 2022, the Group initiated legal action against
counterparties involved in the Phaeacian transaction. This action remains at
an early stage and while it is not possible to predict the outcome, the Group
believes that it has a valid basis, and it intends to pursue such action
robustly.
In July 2022, First Pacific Advisors ('FPA'), the vendor of the funds in the
Phaeacian transaction, issued a counterclaim against the Group asserting that
they believe the Group owes it further revenue share payments of US$6.1m under
the purchase agreement, despite the closure of the funds and the lack of
further revenues being generated. The counterclaim remains at an early stage
and while it is not possible to predict the outcome, the Group believes that
it has a valid defence and that it is not probable that the claim will be
upheld; therefore, no provision for any liability has been recognised at this
stage.
12. Notes to the Cash Flow Statement
Reconciliation of profit before taxation to cash generated from operations
(Unaudited) (Unaudited)
Six months to 30 September 2022 Six months to
£'000 30 September 2021
£'000
Cash flows from operating activities
Profit on ordinary activities before tax 23,002 31,722
Adjustments for:
Interest receivable and similar income (214) (13)
Investment income (502) (190)
Interest on lease 37 51
Amortisation of intangible assets 581 932
Depreciation of non-current property and equipment 751 678
Decrease in fair value of assets at fair value through profit or loss 6,552 2,001
Decrease in other financial liabilities (8,667) (3,050)
Decrease/(increase) in receivables 4,554 (3,697)
Decrease in trade and other payables (18,861) (7,433)
Share-based payments 2,717 4,047
Decrease in liabilities at fair value through profit or loss (3,009) (1,004)
Release of fund units held against deferred remuneration 3,464 2,971
Cash generated from operations 10,405 27,015
13. 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. All related party transactions during the period are
consistent with those disclosed in the Group's annual financial statements for
the year ended 31 March 2022 and have taken place on an arm's length basis.
14. The Publication of Non-Statutory Accounts
The financial information contained in this unaudited interim report for the
period to 30 September 2022 does not constitute statutory accounts as defined
in s434 of the Companies Act 2006. The financial information for the six
months ended 30 September 2022 and 2021 has not been audited. The information
for the year ended 31 March 2022 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 24 June 2022. The report of the independent auditor
on those financial statements contained no qualification or statement under
s498 of the Companies Act 2006.
Shareholder Information
Directors
David
Lamb
Non-executive Chairman
Gavin Rochussen Chief
Executive Officer
Samir
Ayub
Executive Director
John Mansell
Executive Director (retired on 7 September
2022)
Jamie Cayzer-Colvin Non-executive
Director
Alexa Coates
Non-executive Director, Chair of Audit and Risk
Committee
Win Robbins
Non-executive Director, Chair of Remuneration
Committee
Andrew
Ross
Non-executive Director
Laura
Ahto
Non-executive Director
Anand
Aithal
Non-executive Director
Company No.
Registered in England and Wales
4235369
Registered Office
16 Palace Street
London, SW1E 5JD
Tel: 020 7227 2700
Group Company Secretary
Neil Taylor
Dividend
A first interim dividend of 14.0p per share has been declared for the year to
31 March 2023. This will be paid on 13 January 2023 to shareholders on the
register on 23 December 2022. The shares will trade ex-dividend from 22
December 2022.
Remuneration Code
Disclosure of the Group's Remuneration Code will be made alongside its
MIFIDPRU public disclosure document which will be 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
(http://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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